managing quality and performance

Managing Quality and Performance

CHAPTER 13

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Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.

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Learning Outcomes• Define organizational control and explain why it is a key management function.

• Explain the benefits of using the balance scorecard to track performance and control of the organization.

• Explain the four steps in the control process.

• Discuss the use of financial statements, financial analysis, and budgeting as management controls.

• Contrast the hierarchical and decentralized methods of control.

• Identify the benefits of open-book management.

• Describe the concept of total quality management and major TQM techniques, such as quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement.

• Identify current trends in quality and financial control, including ISO certification, economic value-added and market value-added systems, activity-based costing, and corporate governance, and discuss their impact on organizations.

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What Is Your Attitude Toward Control?

• Managers must balance control with motivation and creativity

• Managers control:– Work processes– Employee behavior – Financial resources – Profitability

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The Meaning of Control

• The systematic process of regulating organizational activities to meet expectations– Established plans– Targets– Standards

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Choosing Standards and Measures

• Common forms of control include financial performance– Sales– Revenue– Profit

• There is a growing need to measure intangible aspects of performance– Customer Service– Customer Retention

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The Balanced Scorecard

• Comprehensive management control system that balances traditional financial measures with:– Customer Service– Internal Business Processes– Learning and Growth

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Review the Scorecard

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Steps of Feedback Control

Establish Standards of PerformanceMeasure Actual PerformanceCompare Performance to StandardsTake Corrective Action

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Feedback Control Model

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Controlling and Budgeting

• Budgets are reports that list planned and actual expenditures

• Budget reports highlight the variance between budgeted and actual amounts

• Budgets are created for all departments and divisions in an organization

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Types of Budgeting

Expense Budget

Revenue Budget

Cash Budget

Capital Budget

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Financial Control

• Review performance and highlight potential problems

• Most common financial statements– Balance Sheet– Income Statement or Profit & Loss Statement

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Sample Financial Statements

Starting point for financial control

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Financial Analysis: Interpreting the

Numbers• Managers need to be able to evaluate

financial reports

• Comparisons allow managers to see improvement and focus on competition

• Ratios and statistics highlight relationships

• Ratios are stated fractions or proportions

– Liquidity, activity, profitability and leverage

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Common Financial Ratios

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The Changing Philosophy of Control

1) Hierarchical versus Decentralized Approaches

2) Open Book Management

3) Total Quality Management (TQM)

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Hierarchical and Decentralized Methods

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Open-Book Management

• Information sharing

• Teamwork

• Encourage active participation

• Commitment to goals

• Open-book management allows employees to see for themselves—through charts, computer printouts, meetings, and so forth—the financial condition of the company

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Total Quality Management

• Total Quality Management (TQM) is a decentralized control philosophy

• Infuse quality into every activity in a company through continuous improvement

• Toyota is a good example of the results of TQM

• TQM became attractive in the 1980s because of its success in Japan

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International Opacity Index

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TQM Techniques

• Quality Circles

• Benchmarking

• Six Sigma

• Reduced Cycle Time

• Continuous Improvement

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The Importance of Quality Improvement

Programs

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Quality Program Success Factors

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Trends in Quality and Financial Control

International Quality Standards

New Financial Control Systems

Economic Value-Added (EVA)

Market Value-Added (MVA)

Activity-Based Costing (ABC)

Corporate Governance