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BEC 45

Performance Measures and Management Techniques

TermDefinition
Balanced scorecard four perspectives of performance measures: 1) financial 2) customer 3) internal business processes 4) learning and growth
Components of the balance scorecard 1) strategic objectives (what) 2) performance measures (how measured?) 3) baseline performance (how measured?) 4) targets (how measured?) 5) strategic initiatives (how)
Value chain the sequence of processes in which usefulness is added: innovation process, operations process, and post- sales process
Value based management (VBM) the use of performance measures in a strategic mgmt. system; financial scorecard
Return on investment return/investment; usually is computed using net income after interest and taxes
DuPont ROI analysis looks at ROI as driven by return on sales (net income/sales) and asset turnover (sales/ total assets); improve profits by: increasing net income per dollar of sales OR using assets to generate more sales
Residual income net income (operating income after taxes) – cost of capital invested
Economic profit accounting profit – cost of capital
Economic value added (EVA) NOPAT – after tax WACC (total assets- total liabilities)
Free cash flow NOPAT + Depreciation and amortization- capital expenditures – the change in working capital requirements
Gross profit net sales- COGS
Gross margin gross profit/ net sales
Operating profit margin net income after interest and taxes/ net sales
Return on assets NI after Interests and taxes/ average total sales
Return on equity NI after interests and taxes/ average common stockholders’ equity
Dividend payout ratio cash dividend per share/ earnings per common share
Receivables turnover net credit sales/ avg AR
Average collection period OR number of days sales in receivables avg AR/ avg sales per day
Inventory turnover COGS/average inventory
Number of days sales in inventory avg inventory/ (COGS/365)
Fixed asset turnover sales/ avg. net fixed assets
Total asset turnover sales/ avg total assets
Current ration current assets/ current liabilities
Quick ( acid test) ration current assets- inventory/ current liabilities
Debt to total assets total liabilities/ total assets
Debt to equity ratio total liabilities/ total equity
Times interest earned EBIT/ interest expense
Price/ earnings ratio ( P/E) stock price per share/ Earnings per share
Market/book ratio book value per share = common stock equity/
Horizontal analysis evaluation of a firm’s ratios and trends over time:
Cross sectional analysis benchmarking the ratios against ratios of similar firms at a point in time
Vertical analysis development of common size financial statements; I/S: all revenues and expenses are presented as a percentage of net sales; B/S all assets, liabilities, and SHE presented as a percentage of total assets
Total Quality Management ( TQM) managing the organization to excel in quality in all dimension s of products and services for customers.
Six- Sigma a statistical measure expressing how close a product comes to its quality goal. One- sigma = 68 percent of the products are acceptable. Six- sigma = 99.999999997 perfect; 3.4 defects per million parts
Quality award programs 1) Malcolm Baldrige National Quality Award 2) Deming Prize,3 ) European Quality Award
TQC Total quality control
Continuous Improvement ( CI)/ Kaizen Kaizen Japanese are of continuous improvement
PDCA ( Plan- Do-Check- Act) aka Deming Wheel
Cause and effect diagrams ( fishbone or Ishikawa) diagrams identifies the causes of a defect; 1) human factors 2) methods and design factors 3) machine related factors 4 ) material and components factors
Pareto chart a bar graph that ranks causes of process variations by the degree of impact on quality; 80 percent of the problem comes from 20 percent of the causes
Poka- yoke making the workplace mistake proof
Cost of quality 1) prevention cost 2) appraisal cost 3) internal failure cost 4) external failure cost
Project management manage resources, time, money, scope
Project management processes 1)initiation 2) planning 3) execution 4) monitoring 5) control 6) closure
Created by: tsp7c