Management Test #2Chapter 19Organizational control: the systematic process used to regulate organizational activities tobe consistent with the expectations and plans- Plans and expectations are expressed as standards (usually numerical)Balanced scorecard: a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors- Financial performance: do activities contribute to improving performance- Customer service: retention and satisfaction- Business process: production and operating statistics- Potential for learning and growth: managing resources and human capitalSteps of Feedback Control1. Establish standards of performance a. Standards should focus on:i. Inputs (feedforward controls): anticipate problemsii. Ongoing activities (concurrent): solve problems as they occuriii. Outputs (feedback): solve problems after they occur2. Measure actual performance a. Timelyb. Distortion occurs when people measure themselves3. Compare performance to standards a. Generate feedback: info comparing the actual to the standardb. Evaluate feedback using the “exception principle”: concentrate efforts on substantial deviations from the standard4. Take corrective action if necessary a. Investigate deviations in either direction, outside of the acceptable rangeb. “Substantial” depends on the risk of being out of controlResponsibility center: any organizational department or unit under the supervision of a single person who is responsible for its activity Expense budget: anticipated and actual expenses for each responsibility center and for thetotal organizationRevenue budget: lists forecasted and actual revenues of the organizationCash budget: estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organization has sufficient cash to meet its obligationsCapital budget: lists planned investments in major assets such as buildings, heavy machinery, or complex information technology systems, often involving expenditures over more than a yearTop-down budgeting: the budgeting amounts for the coming year are literally imposed on middle and lower level managersBottom-up budgeting: the lower level managers anticipate their departments’ resource needs and pass them up to top management for approvalBalance sheet: shows the firms financial position with respect to assets and liabilitiesIncome statement: (P&L statement) summarizes the firms financial performance for a given time interval, usually one year- Bottom line indicates net incomeLiquidity ratio: indicates an organizations ability to meet its current debt obligations (current ratio)Activity ratio: measures internal performance with respect to key activities defined by management (inventory turnover, conversion ratio)Profitability ratio: states profits relative to a source of profits, such as sales or assets (profit margin on sales, gross margin, return on total assets)Leverage ratios: refers to funding activities with borrowed money (debt ratio)Hierarchal control: involves monitoring and influencing employee behavior through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanismsDecentralized control: based on values and assumptions opposite of hierarchal control; rules and procedures are used only when necessary and managers instead rely on shared goals and values to control employee behaviorOpen book management: allows an employee to see for themselves the financial conditionof the company (decentralized)- Opacity rating: the extent to which a company is open regarding economic mattersTotal quality management: an organization wide effort to infuse quality into every activityin a company through continuous improvement (decentralized)- Quality circle: a group of 6-12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work- Benchmarking: the continuous process of measuring products, services, and practices against the toughest competitors to identify areas of improvement - Six sigma: a highly ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts; emphasizes a disciplined and relentless pursuit of higher quality and lower costs (DMAIC)- Cycle time: the steps taken to complete a company process- Continuous improvement: the implementation of a large number of small, incremental improvements in all areas of the organization on an ongoing basisISO 900 standards: represent an international consensus of what constitutes effective quality management as outlined by the International Organization for StandardizationNew Financial Control SystemsEconomic value-added (EVA): a new way to gauge financial performance; a company’s net(after tax) operating profit minus the cost of capital invested in the company’s tangible assetsMarket value-added (MVA): measures the stock market’s estimate of the value of a company’s past and projected capital investment projectsActivity based costing (ABC): allocates costs across business processes; attempts to indentify all the various activities needed to provide a product or service and allocate costs accordinglyCorporate governance: refers to the framework of systems, rules, and practices by which an organization ensures accountability, fairness, and transparency in its relationship with all stakeholdersChapter 10Organizing: the deployment of organizational resources to achieve strategic goalsOrganization structure: defined as 1) The set of formal tasks assigned to individuals and departments2) Formal reporting relationships 3) The design of systems to ensure effective coordination of employeesOrganization chart: the visual representation of an organizations structureWork specialization: (division of labor) the degree to which organizational tasks are subdivided into separate jobsChain of command: an unbroken line of authority that links all employees in an organization and shows who reports to whomAuthority: the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes; distinguished by these3 characteristics:- Authority is vested in organizational positions, not people- Authority flows down the vertical hierarchy- Authority is accepted by subordinatesResponsibility: the duty to perform the task or activity as