EXAM 2 VocabChapter 19- Organizational Control : the systematic process of regulating organizational activities to make them consistent with the expectations established in plans, targets, and standards of performance.- Balanced Scorecard : a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors. Contains 4 perspectives to judge on: Customer Service, Financial Performance, Internal Business Process, and Capacity to Learn and Grow- Budgetary control: the most commonly used method of managerial control, it’s the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed- Exception Principle : Managers should concentrate their efforts on substantial deviation from a standard when measuring feedback during comparison of performance to standards. (Set up standards for each location and if they meet standards, do not worry about them. Just deal with substantial deviations.)- Responsibility Center : the fundamental unit of analysis for a budget control system. It is any organizational department or unit under the supervision of a single person who is responsible for its activity- Expense Budget : outlines the anticipated and actual expenses for a responsibility center. It may show all types of expenses or may focus on a particular category such as material or R&D expenses- Revenue Budget : lists forecasts and actual revenues of organization. - Cash Budget : estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organization has sufficient cash to meet its obligations. It shows the level of funds flowing through the org, the nature of the cash disbursements, and if the org needs to invest extra cash or withdraw cash to meet payments.- Capital Budget : lists planned investments in major assets such as buildings, heavy machinery, or complex technology systems, often involving expenditures over more than a year. The expenditures impact cash flow and profitability so controlling capital budget includes monitoring amount of capital expenditures and whether or not ROI assumptions are holding true.- Top-down Budgeting : the budgeted amounts for the coming year are literally imposed on middle- and lower-level managers. Departmental budget targets in accordance with overall company revenue and expenditures specified by top executives.- Bottom-up Budgeting : a process in which lower level managers anticipate their departments’ resource needs and pass them up to top management for approval. The movement toward employee empowerment, participation and learning is making this process more frequently used.- Balance Sheet : shows the firm’s financial position with respect to assets and liabilities at a specificpoint in time. It provides 3 pieces of info: assets (current and fixed), liabilities (current and long-term), and owners’ equity (difference between assets and liabilities; company’s net worth in stock and retained earnings).- Income Statement : summarizes the firm’s financial performance for a given time interval, usually one year. Aka profit-and-loss statement (P&L). Shows firm’s revenue minus it’s expenses and gives net income for specific time.- Liquidity Ratio : indicates an organization’s ability to meet its current debt obligations. Current ratio is current assets divided by current liabilities and it tells whether firm has enough assets to convert into cash to pay off its debts if needed- Activity Ratio : measures internal performance with respect to key activities defined by management. Ex: Inventory Turnover is total sales divided by average inventory and tells how many times inventory is used up to meet the total sales figure. Conversion ratio is purchase orders dividing by customer inquiries and indicates company’s effectiveness in turning inquiries into sales- Profitability Ratio : measures firm’s profits relative to a source of profits such as sales or assets. Ex: profit margin on sales (net income/sales). Ex: Gross margin (before tax profit/total sales) Ex: Return on total assets (percentage representing what a company earned from its assets, net income/total assets and shows company’s ability to generate earnings with other investment opportunities.- Leverage Ratio : refers to funding activities with borrowed money. It can be used to make assets produce more than they could on their own but borrowing too much can put firm at risk of not being able to repay its debt. Ex: Debt Ratio (total debt divided by total assets) makes sure firm doesn’t exceed acceptable debt level-Hierarchical control : involves monitoring and influencing employee behavior through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms. Can improve a company’s bottom line by reducing employee misconduct, such as employee theft.- Decentralized control : organization fosters compliance with organizational goals through the use of organizational culture, group norms, and a focus on goals rather than rules and procedure. Relies on cultural values, traditions, shared beliefs, and trust to foster compliance with organizational goals. Managers operate on the assumption that employees are trustworthy and willing to perform effectively without extensive rules and close supervision. Has extrinsic rewards such as wages, but also has intrinsic benefits such as the opportunity to learn and grow. Technology is used to empower employees, not monitor them. Organizational culture is crucial. - Open-Book Management : allows employees to see for themselves—through charts, computer printouts, meetings, and so forth—the financial condition of the company and encourages them to think and act like business owners. It shows employee how their job fits into big picture and affects the financial future of the firm and ties the employee rewards to the company’s overall success.- Total Quality Management : an organization wide effort to infuse quality into every activity in a company through continuous improvement. It is a based on a decentralized control philosophy and focuses on teamwork, increasing customer satisfaction, and lowering costs. - Quality Circles : TQM technique that consists of a group of 6 to 12 volunteer employees who meet regularly to