Chapter 11: Evaluation and Control

Question 1

A rule of thumb stating that one should monitor those 20% of the factors that determine 80% of the results.

Answer 1

80/20 rule

Question 2

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.

Answer 2

Behavior substitution

Question 3

A control that specifies how something is to be done through policies, rules, standard operating procedures, and orders from a superior.

Answer 3

Behavior control

Question 3

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.

Answer 3

Activity-based costing (ABC)

Question 3

Combines financial measures with operational measures on customer satisfaction, internal processes, and the corporation’s innovation and improvement activities.

Answer 3

Balanced scorecard

Question 4

The process of measuring products, services, and practices against those of competitors or companies recognized as industry leaders.

Answer 4

Benchmarking

Question 5

A calculation that is determined by dividing net earnings by the number of shares of common stock issued.

Answer 5

Earnings per share (EPS)

Question 6

A shareholder value method of measuring corporate and divisional performance and may be on its way to replacing ROI as the standard performance measure.

Answer 6

Economic value added (EVA)

Question 7

Software that unites all of a company’s major business activities, from order processing to production, within a single family of software modules.

Answer 7

Enterprise resource planning (ERP) software

Question 8

A corporatewide, integrated process to manage the uncertainties that could negatively or positively influence the achievement of the corporation’s objectives.

Answer 8

Enterprise risk management (ERM)

Question 9

A process in which corporate activities and performance results are monitored so that actual performance can be compared with desired performance.

Answer 9

Evaluation and control process

Question 10

A business unit that uses money but contributes to revenues only indirectly.

Answer 10

Expense center

Question 11

The amount of money a new owner can take out of a firm without harming the business.

Answer 11

Free cash flow

Question 12

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.

Answer 12

Goal displacement

Question 13

A control that specifies resources, such as knowledge, skills, abilities, values, and motives of employees.

Answer 13

Input control

Question 14

A unit in which performance is measured in terms of the difference between the unit’s resources and its services or products.

Answer 14

Investment center

Question 15

An internationally accepted way of objectively documenting a company’s high level of quality operations.

Answer 15

ISO 9000 Standards Series

Question 16

An internationally accepted way to document a company’s impact on the environment.

Answer 16

ISO 14000 Standards Series

Question 17

Essential measures for achieving a desired strategic option—used in the balanced scorecard.

Answer 17

Key performance measures

Question 18

A method in which managers are compensated for achieving objectives set over a multiyear period.

Answer 18

Long-term evaluation method

Question 19

A technique used to evaluate corporate activities.

Answer 19

Management audit

Question 20

The difference between the market value of a corporation and the capital contributed by shareholders and lenders.

Answer 20

Market value added (MVA)

Question 21

The amount of money generated by a company before the cost of
financing and taxes, is a broad measure of a company’s funds.

Answer 21

Operating cash flow

Question 21

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.

Answer 21

Output controls

Question 22

A unit’s performance, measured in terms of the difference between revenues and expenditures.

Answer 22

Profit center

Question 23

A unit that is isolated so that it can be evaluated separately from the rest of the corporation.

Answer 23

Responsibility center

Question 24

A measure of performance that is calculated by dividing net income by total equity.

Answer 24

Return on equity (ROE)

Question 25

A measure of performance that is calculated by dividing net income before taxes by total assets.

Answer 25

Return on investment (ROI)

Question 26

A responsibility center in which production, usually in terms of unit or dollar sales, is measured without consideration of resource costs.

Answer 26

Revenue center

Question 27

The present value of the anticipated future stream of cash flows from a business plus the value of the company if it were liquidated.

Answer 27

Shareholder value

Question 28

A responsibility center that is primarily used to evaluate the performance of manufacturing facilities.

Answer 28

Standard cost center

Question 29

The tendency of managers to consider only current tactical or operational issues and ignore strategic ones.

Answer 29

Short-term orientation

Question 30

Measures of variables that influence future profitability.

Answer 30

Steering control

Question 31

An evaluation method that encourages executives to look at development expenses as being different from expenses required for current operations.

Answer 31

Strategic-funds method

Question 32

A phenomenon in which a unit optimizes its goal accomplishment to the detriment of the organization as a whole.

Answer 32

Suboptimization

Question 32

A practice in which one unit can charge a transfer price for each product it sells to a different unit within a company.

Answer 32

Transfer price

Question 33

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.

Answer 33

Weighted-factor method