Chapter 11: Evaluation and Control Flashcards
A rule of thumb stating that one should monitor those 20% of the factors that determine 80% of the results.
80/20 rule
A phenomenon that occurs when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are being rewarded.
Behavior substitution
A control that specifies how something is to be done through policies, rules, standard operating procedures, and orders from a superior.
Behavior control
An accounting method for allocating indirect and fixed costs to individual products or product lines based on the value-added activities going into that product.
Activity-based costing (ABC)
Combines financial measures with operational measures on customer satisfaction, internal processes, and the corporation’s innovation and improvement activities.
Balanced scorecard
The process of measuring products, services, and practices against those of competitors or companies recognized as industry leaders.
Benchmarking
A calculation that is determined by dividing net earnings by the number of shares of common stock issued.
Earnings per share (EPS)
A shareholder value method of measuring corporate and divisional performance and may be on its way to replacing ROI as the standard performance measure.
Economic value added (EVA)
Software that unites all of a company’s major business activities, from order processing to production, within a single family of software modules.
Enterprise resource planning (ERP) software
A corporatewide, integrated process to manage the uncertainties that could negatively or positively influence the achievement of the corporation’s objectives.
Enterprise risk management (ERM)
A process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.
Evaluation and control process
A business unit that uses money but contributes to revenues only indirectly.
Expense center
The amount of money a new owner can take out of a firm without harming the business.
Free cash flow
Confusion of means with ends, which occurs when activities originally intended to help managers attain corporate objectives become ends in themselves or are adapted to meet ends other than those for which they were intended.
Goal displacement
A control that specifies resources, such as knowledge, skills, abilities, values, and motives of employees.
Input control
A unit in which performance is measured in terms of the difference between the unit’s resources and its services or products.
Investment center
An internationally accepted way of objectively documenting a company’s high level of quality operations.
ISO 9000 Standards Series
An internationally accepted way to document a company’s impact on the environment.
ISO 14000 Standards Series
Essential measures for achieving a desired strategic option—used in the balanced scorecard.
Key performance measures
A method in which managers are compensated for achieving objectives set over a multiyear period.
Long-term evaluation method
A technique used to evaluate corporate activities.
Management audit
The difference between the market value of a corporation and the capital contributed by shareholders and lenders.
Market value added (MVA)
The amount of money generated by a company before the cost of
financing and taxes, is a broad measure of a company’s funds.
Operating cash flow
Specify what is to be accomplished by focusing on the end result of the behaviors through the use of objectives and performance targets or milestones.
Output controls
A unit’s performance, measured in terms of the difference between revenues and expenditures.
Profit center
A unit that is isolated so that it can be evaluated separately from the rest of the corporation.
Responsibility center
A measure of performance that is calculated by dividing net income by total equity.
Return on equity (ROE)
A measure of performance that is calculated by dividing net income before taxes by total assets.
Return on investment (ROI)
A responsibility center in which production, usually in terms of unit or dollar sales, is measured without consideration of resource costs.
Revenue center
The present value of the anticipated future stream of cash flows from a business plus the value of the company if it were liquidated.
Shareholder value
A responsibility center that is primarily used to evaluate the performance of manufacturing facilities.
Standard cost center
The tendency of managers to consider only current tactical or operational issues and ignore strategic ones.
Short-term orientation
Measures of variables that influence future profitability.
Steering control
An evaluation method that encourages executives to look at development expenses as being different from expenses required for current operations.
Strategic-funds method
A phenomenon in which a unit optimizes its goal accomplishment to the detriment of the organization as a whole.
Suboptimization
A practice in which one unit can charge a transfer price for each product it sells to a different unit within a company.
Transfer price
A method that is appropriate for measuring and rewarding the performance of top SBU managers and group-level executives when performance factors and their importance vary from one SBU to another.
Weighted-factor method
