Chapter 16 Flashcards
4 Steps of Typical Control System (Cycle)
1: Set performance standards.
2: Measure Performance
3: Compare performance with standards.
4: Reward successes, correct problems.
Standard
expected performance for a given goal: a target that establishes a desired performance level, motivates performance, and serves as a benchmark against which actual performance is assessed
Performance standards can be set with respect to:
1: Quantity
2: Quality
3: Time Used
4: Cost
Principle of Exception
a managerial principle stating that control is enhanced by concentrating on the exceptions to or significant deviations from the expected result or standard
After-action review
a frank and open-minded discussion of four basic questions aimed at continuous improvement
4 Basic question for AAR
1: What were our intended results?
2: What were our actual results?
3: What caused our results?
4: What will we sustain? Improve?
Feedforward Control
the control process used before operations begin, including policies, procedures, and rules designed to ensure that planned activities are carried out properly
(“preliminary control”)
Concurrent Control
the control process used while plans are being carried out, including directing, monitoring, and fine-tuning activities as they are performed
Feedback Control
control that focuses on the use of information about previous results to correct deviations from the acceptable standard
DPMO
defects per million opportunities
Six Sigma
aims for defect free performance (DPMO is 3.4)
Management Audit
an evaluation of the effectiveness and efficiency of various systems within an organization
External Audit
an evaluation conducted by one organization, such as a CPA firm, on another
Internal Audit
a periodic assessment of a company’s own planning, organizing, leading, and controlling processes
Sustainability Audits
an evaluation of how effectively they are serving all stakeholders and protecting the environment
Triple Bottom Line
profit, planet, people (for Sustainability)
Budgeting
the process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences; also called budgetary controlling
Sales Budget
usually data for the sales budget include forecasts of sales by month, sales area, and product
Production Budget
commonly expressed in physical units; requires types and capacities of machines, economic quantities to produce, and availability of materials
Cost Budget
used for areas of the organization that incur expenses but no revenue (HR for ex)
Cash Budget
shows anticipated receipts and expenditures, the amount of working capital available, the extent to which outside financing may be required, and the periods and amounts of cash available
Capital Budget
used for the cost of fixed assets such as plants and equipment; not expenses but investments
Master Budget
includes all the major activities of the business; brings together and coordinates all the activities of the other budgets and can be though of as a budget of budgets
Accounting Audits
procedures used to verify accounting reports and statements
Activity-Based Costing (ABC)
a method of cost accounting designed to identify streams of activity and then to allocate costs across particular business processes according to the amount of time employees devote to particular activities
Balance Sheet
a report that shows the financial picture of a company at a given time and itemizes assets, liabilities, and stockholders’ equity
Assets
the values of the various items the corporation owns
Liabilities
the amounts a corporation owes to carious creditors
Stockholders’ Equity
the amount accruing to the corporation’s owners
Profit and Loss Statement
an itemized financial statement of the income and expenses of a company’s operations
Current Ratio
a liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities
Debt-Equity Ratio
a leverage ratio that indicates the company’s ability to meet its long-term financial obligations
Return on Investment (ROI)
a ratio of profit to capital used, or a rate of return from capital
Management Myopia
focusing on short-term earnings and profits at the expense of longer-term strategic obligations
5 Steps to Designing Effective Control Systems
1: Establish valid performance standards
2: Provide adequate information to employees
3: Ensure acceptability to employees
4: Maintain open communication
5: Use multiple approaches
7 Deadly Sins of Performance Measurement
Vanity, Provincialism, Narcissism, Laziness, Pettiness, Inanity, Frivolity
Progressive Discipline
clear standards are established but failure to meet them is dealt with in a progressive or step-by-step process
Balanced Scorecard
combination of four sets of performance measures: financial, customer satisfaction, business processes (quality and efficiency), and learning and growth
Transfer Price
price charged by one unit for a good or service provided to another unit within the organization
Empowerment
creating a strong culture of high standards and integrity so that employees will exercise effective control on their own
