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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.
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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The Meaning of Control
• The systematic process of regulating organizational activities to meet expectations– Established plans– Targets– Standards
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Review the Scorecard
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Steps of Feedback Control
Establish Standards of PerformanceMeasure Actual PerformanceCompare Performance to StandardsTake Corrective Action
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Feedback Control Model
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Types of Budgeting
Expense Budget
Revenue Budget
Cash Budget
Capital Budget
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Financial Control
• Review performance and highlight potential problems
• Most common financial statements– Balance Sheet– Income Statement or Profit & Loss Statement
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Sample Financial Statements
Starting point for financial control
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Common Financial Ratios
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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The Changing Philosophy of Control
1) Hierarchical versus Decentralized Approaches
2) Open Book Management
3) Total Quality Management (TQM)
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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Hierarchical and Decentralized Methods
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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International Opacity Index
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TQM Techniques
• Quality Circles
• Benchmarking
• Six Sigma
• Reduced Cycle Time
• Continuous Improvement
Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved.
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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