Managerial and Quality Control Chapter 19
Jan 13, 2015
Managerial and Quality Control
Cha
pter
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Managerial and Quality Control
Basic mechanisms for controlling organizations
Basic structure & objectives of control process
Controlling financial performance
Changing philosophy of control
Today’s total quality management
Recent trends
Control systems for a turbulent environment
Topics Topics Chapter 19Chapter 19
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Managerial and Quality Control
Control is a critical issue facing every manager in every organization today
Quality control
Office productivity
Basic systems allocating financial resources,
developing human resources,
analyzing financial performance, and evaluating overall productivity
Manager’s Challenge: Gateway
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Organizational Control
The systematic process through which managers regulate organizational activities to make them consistent with expectations established in
● Plans
● Targets
● Standards of performance
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Organizational Control
Effective controlling requires information about
● Performance standards
● Actual performance
● Actions taken to correct any deviations from the standards
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Organizational Control
Feed forward Control Sometimes called preliminary or preventive control Concurrent Control● Assesses current work activities, relies on performance
standards● Includes rules and regulations for guiding employee tasks and
behaviors● Intent to ensure that work activities produce the correct results Feedback Control Focuses on the organization’s outputs; also called post-action
or output control
Three types of control
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Organizational Control FocusFeedforward Control Anticipates Problems
Examples • Pre-employment drug testing
• Inspect raw materials •Hire only college graduates
Fo
cu
s is
on
Inputs
Concurrent Control Solve Problems as They Happen
Examples• Adaptive culture •Total quality management
• Employee self-control
Fo
cu
s is
on
Ongoing Processes
Feedback Control Solves Problems After They Occur
Examples •Analyze sales per employee
• Final quality inspection• Survey customers
Focu
s is on
Outputs
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Feedforward Control
Focus is on– Human– Material– Financial resources
Attempts to identify and prevent deviations
Sometimes called preliminary or preventive control
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Concurrent Control
Monitors ongoing activities to ensure consistency with performance standards
Assesses– Current work activities– Relies on performance standards– Includes rules and regulations
Includes self-control on behavior – personal values & attitudes
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Feedback Control
Focuses on organization’s outputs
Sometimes called postaction or output control
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Feedback Control Model
If
InadequateIf Adequate
Adjust Standards Adjust Performance
Feedback
Establish Strategic Goals
1. Establish standards of performance.
2. Measure actual performance.
3. Compare performance to standards.
4. Take corrective action.
4. Do nothing or provide reinforcement.
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Budgetary Control
Most commonly used method of managerial control
Process of setting targets and used to monitor results and compare to the budget, making changes as needed
Experiential Exercise: Is Your Budget In Control?
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Responsibility Center
Organizational unit under the
supervision of a single person
who is responsible for its activity
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Budgets Managers Use
● Expense budget = anticipated and actual expenses
● Revenue budget = identifies forecasted and actual revenues
● Cash budget = estimates and reports cash flows
● Capital budget = reports investments in major assets to be depreciated
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Traditional Budgeting Methods
Top-down budgeting Middle and lower-level managers set departmental
budget targets Done in accordance with overall company revenues
and expenditures specified by top management
Bottom-up budgeting Lower-level managers budget their departments’
resource needs Pass up to top management for approval
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Financial Statements
Provide basic information for financial control
1. Balance sheet- shows firm’s financial position with respect to assets and liabilities at a specific point in time
2. Income statement- summarizes the firms’ financial performance for a given time interval (profit-and-loss statement)
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Financial Statements
Balance sheet Assets – what company owns – fixed & current Liabilities – what company owes –current & long-
term Owners’ equity
Difference between assets and liabilities and Is the company’s net worth in stock and
retained earnings
For specific point in time
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Financial Statements
1. Income statement- Shows revenues coming into the
organization from all sources
Subtracts all expenses, including cost of goods sold, interest, taxes, and depreciation
Bottom line indicates the net income (profit or loss)
For given time interval – usually one year
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Financial Analysis
Managers need to be able to evaluate financial reports that compare the organization’s performance with earlier data or industry norms Liquidity ratios Activity ratios Profitability ratios Leverage ratios
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Ratios How Determining Tells You
Liquidity Ratios Current ratio
Current assets/Current liabilities
1. Ability to meet its current debt obligations
2. If there are sufficient assets to convert into cash to pay off debts
Activity Ratios Inventory turnover Conversation ratio
Total sales/Average inventory
Purchase orders/Customer inquiries
1. Measures internal performance
2. How many times the inventory is used up to meet the total sales figure
3. Company’s effectiveness in converting inquiries into sales
Profitability Ratios Profit margin on sales Gross margin Return on assets (ROA)
Net income/Sales Gross income/Sales Net income/Total Assets
1. Profits relative to a source, such as sales or assets2. What a company earned from its assets
Leverage Ratios Debt ratio
Total debt/Total assets1. Funding activities with
borrowed money2. A debt ratio above 1.0 to be a
poor credit risk
Common Financial Ratios
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Control Philosophies Bureaucratic control influencing
employee behavior and assess performance through
– rules– policies– hierarchy of authority– reward systems – written documentation
Decentralized control relies on– cultural values– traditions– shared beliefs– trust
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Total Quality Management - TQM
Organizationwide commitment to infusing quality into every activity through continuous improvementTQM TechniquesQuality circlesBenchmarkingSix SigmaReduced cycle timeContinuous improvement
Based on decentralized control philosophy
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Quality Circle - a group of volunteer employees who meet to discuss and solve problems affecting the quality of their work
Team Creates Quality
Circle and Collects
Information
Team Selects
Problems to Be Solved
Team Gathers Data and
Analyzes Problems
Team Recommends
Solutions
Decision by Top ManagementFeedback from Mangers to Quality Circles
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Total Quality Management – TQM
Benchmarking – continuous process of measuring products, services and practices against major competitors or industry leaders
Six Sigma – quality control approach that emphasizes a relentless pursuit of higher quality and lower costs
Cycle Time – steps taken to complete a process Continuous Improvement – implementation of a large
number of small, incremental improvements in all areas of the organization on an ongoing basis
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TQM Success Factors
TQM does not always work Six sigma principles might not be appropriate for
all organizational problems
Many contingencies can influence the success of TQM program
Quality circles = more beneficial when challenging jobs
TQM more successful = enriches jobs + improves motivation
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Trends in Quality and Financial Control
International Quality Standards – ISO 9000– A set of international standards for quality
management, setting uniform guidelines for processes to ensure that products conform to customer requirements
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Trends in Quality and Financial Control
New Financial Control Systems● Economic value added (EVA) – measures
performance in terms of after-tax profits minus the cost of capital investments
● Market value added (MVA) – measures the stock market’s estimate of the value of a company’s past and expected investments
● Activity-based costing (ABC) – identifies the activities needed to provide a product and allocates costs
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Control Systems for Turbulent Times
Open-Book Management = sharing financial information and results with all employees in the organization
Balanced scorecard = comprehensive management control system that balances traditional financial measures with measures of customer service, internal business processes, and the organization’s capacity for learning and growth
Ethical Dilemma: Is Internet Monitoring the Way to Go?
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The Balanced Scorecard
Financial
Internal Business processes
Learning and Growth
CustomersHow well do we
serve our customers?
Are we learning, changing, and
improving?
Do internal activities and processes add value for customers and shareholders?
Do actions contribute to improving financial
performance?
Mission & Goals
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Rules for the Road Ahead
Understand your Needs and Values
Understand your Competencies
Set Career Goals
Maintain Networks
Get a Mentor