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Chapter 11
Chapter 11 Selections
| Question | Answer |
|---|---|
| Evaluation and Control Process | determine what to measure, establish standards, measure performance, does performance match standards? no = take corrective action |
| Performance | end result of activity |
| steering controls | measure variables that influence future profitability. |
| output controls | 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. |
| behavior controls | specify how something is to be done through policies, rules, standard operating procedures, and orders from a superior. |
| input controls | emphasize resources, such as knowledge, skills, abilities, values, and motives of employees. |
| ISO 9000 Standards Series | (composed of five sections from 9000 to 9004) is a way of objectively documenting a company’s high level of quality operations. |
| ISO 14000 Standards Series | a way to document the company’s impact on the environment. |
| Activity Based Costing | recently developed accounting method for allocating indirect and fixed costs to individual products or product lines based on the value-added activities going into that product. |
| Return on Investment | result of dividing net income before taxes by the total amount invested in the company (typically measured by total assets). |
| Return on Equity | dividing net income by total equity, also has limitations because it is also derived from accounting-based data. |
| Economic Value Added | measure corporate and divisional performance and may replace ROI as the standard performance measure. difference between the prestrategy and post-strategy values. Simply put, EVA is after-tax operating income minus the total annual cost of capital |
| Balanced Scorecard Approach | combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes, and the corporation’s innovation and improvement activities—the drivers of future financial performance |
| Balanced Scorecard Approach 4 Areas | 1. Financial: How do we appear to shareholders? 2. Customer: How do customers view us? 3. Internal business perspective: What must we excel at? 4. Innovation and learning: Can we continue to improve and create value? |
| Responsibility areas | used to isolate a unit so that it can be evaluated separately from the rest of the corporation. Each responsibility center, therefore, has its own budget and is evaluated on its use of budgeted resources. |
| Standard cost centers | used in manufact facilities. costs computed for each operation on basis of historic data. In evaluating the center’s performance, its total standard costs are multiplied by the units produced. The result is the expected cost compared to the actual cost |
| revenue centers | production, usually in terms of unit or dollar sales, is measured without consideration of resource costs |
| expense centers | Resources are measured in dollars, without consideration for service or product costs. Thus budgets will have been prepared for engineered expenses (costs that can be calculated) and for discretionary expenses |
| profit centers | Performance is measured in terms of the difference between revenues (which measure production) and expenditures (which measure resources). |
| investment centers | performance is measured in terms of the difference between its resources and its services or products. |
| benchmarking | the continual process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders. |
| international transfer pricing | A study of 79 MNCs revealed that international transfer pricing from one country unit to another is primarily used not to evaluate performance but to minimize taxes. |
| enterprise resource planning | unites all of a company’s major business activities, from order processing to production, within a single family of software modules. |
| problems in measuring performance | The lack of quantifiable objectives or performance standards and the inability of the information system to provide timely and valid information are two obvious control problems. |
| long-run orientation | Long-run eval may not be conducted because executives (1) don’t realize the importance, (2) believe short-run considerations more important than long-run, (3) aren’t personally evaluated on long-term basis, (4) don’t have the time for long-run analysis |
| goal displacement | confusion of means with ends and 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. |
| behavior substitution | phenomenon 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 |
| suboptimization | phenomenon of a unit optimizing its goal accomplishment to the detriment of the organization as a whole |
| short-term orientation | managers consider only current tactical or operational issues and ignore long-term strategic ones. |
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