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The actions and decisions that managers undertake to ensure that actual results are consistent with desired results.
The value customers place on a good or service as opposed to its cost or price.
Conditions for control derived from objectives.
Derived from data; essentially, data that are organized for a specific purpose.
Effective control requires what three conditions?
- Standards: that reflect the ideal outcomes
- Information and measurement: that indicate deviations between actual and standard results.
- Corrective action: for any deviations between actual and standard results
The actions a manager takes to bring a system back into conformance with performance standards.
Service Level Agreements
SLAs - The fine-grained details about performance expectations and potential remedies if performance falls short of those expectations.
The methods that focus on the acquisition of resources.
Also called "feedforward control"
increases the possibility that future results will compare favorably with planned results.
Three questions concerning implementing control methods
- What are the planned and expected results?
- By what means can the actual results be compared with the planned results?
- What corrective action is appropriate from which authorized person?
The three different types of control methods
- Preliminary Control: acquisition of resources
- Concurrent Control: transformation of resources
- Feedback Control: creation of resources
Commitments of present funds in exchange for potential future funds; controlled through a capital budget.
The payback method calculates the number of years needed for the proposed capital acquisition to repay (payback) its original cost out of future cash earnings.
Rate of Return on investment.
- Called ROI.
- the ratio of the annual returns to the initial cost of the investment.
Discounted Rate of Return
The rate of return that equates future cash proceeds with the initial cost of an investment.
Takes into account the "time value of money"
The standard established by a company for financial performance of an investment or capital expenditure.
The cost of using cash or other resources for a particular purpose to the exclusion of other potential uses (opportunities).
A predetermined amount of resources linked to an activity.
The set of activities, including their costs, that are involved in the conversion of raw materials into finished goods ready for sale.
The techniques and methods that focus on the actual, ongoing activity of the organization.
A method of concurrent control that refers to the manager's act of interpreting orders to a subordinate.
Acts managers take to instruct subordinates in the proper methods and procedures, and to oversee the work of subordinates to ensure it is properly done.
The techniques and methods that analyze historical data to correct future events.
Employs historical outcomes as a basis for correcting future actions.
A statement (also called the profit and loss statement) that tells a manager whether the firm is able to make a profit from operations. This statement is divided into three parts: revenues, cost of goods sold, and expenses.
The balance sheet provides managers with a snapshot of the firm's financial condition at a specific point in time. The firm's assets are matched against its liabilities and owner's equity.
Cash Flow Statement
provides managers with a view of the firm's cash position.
The ratio of a firm's current assets to its liabilities.
A test of liquidity that relates only cash and near-cash items to current liablities
Accounts receivable turnover
The ratio of credit sales to average accounts receivable that indicates how rapidly credit sales are being turned to cash.
A measure of the composition of current assets by comparing cost of goods sold to average inventory
Inventory turnover ratio
A comparison of cost of goods sold to average inventory
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
A firm's ability to meet its long-term (fixed) obligations.
Solvency = EBIT/Interest Expense
Measure of the amount of financing being provided by creditors
Debt to equity ratio
A measure of the amount of assets financed by debt compared to the amount financed by profits retained by the firm and equity investments.
Debt to Asset Ratio
An expression of the relationship of the firm's total debts to its total assets.
Standard cost system
A system that provides information that allows managers to compare actual costs to budgeted or predetermined costs.
Activity-Based Costing (ABC)
a system of cost accounting based on actual processes (activities) rather than labor and materials.
The formal meeting between the manager and the subordinate that occurs once or twice per year.
Dimensions of Quality
- Performance: The product/service's primary operating characteristics
- Features: Secondary, "extra" characteristics
- Reliability: Consistent performance within a specific period.
- Conformance: Degree to which design and characteristics meet specific standards
- Durability: The length of a product/service's useful life
- Serviceability: The speed, courtesy, competence, and ease of repair
- Aesthetics: The looks, taste, feel, sound, smell of a product/service
- Perceived quality: Quality conveyed via marketing, brand name, reputation
Cost of Quality: prevention costs
The costs of preventing product or service defects
Cost of Quality: appraisal costs
All expenses involved in directly evaluating quality
Cost of Quality: failure costs
The costs incurred by a defective product or service
Cost of Quality: hidden costs
Cost of operating that don't appear on a firm's income statement but affect the profitability of the firm
This principle states that the earlier in the production process quality problems are detected the less is their cost to the organization.
Quality Factors for effective management
- Engineering and design
- Field Support
An integrated quality control system must focus on these factors
Considerations of Policy in regards to Quality
- The product or service's market
- Its competition
Competitive Benchmarking - Information gathering for quality
approach to obtaining valuable information about a competitor's quality standards and costs.
Concurrent engineering - to obtain quality
simultaneous design by integrated, multifunctional teams operating in cooperation with both customers and suppliers.
Right the first time approach
Statistical Process Control (SPC)
A control process based on two assumptions: nature is imperfect and variability exists everywhere in systems; uses probability and statistics to understand and control complex systems.
The branch of applied mathematics which describes and analyzes empirical observations for the purpose of predicting certain events as a basis for decision making in the face of uncertainty - according to Gabriel Pall.
Computed measures of some property of a set of data, making possible a statement about its meaning.
Computations done on a set of data, or among several sets of data, designed to facilitate prediction of future events or to guide decisions and actions.
Common cause variation
The random variation in a system that typically can't be completely eliminated.
Special cause variation
A variation due to some external influence on a system.
A system that has eliminated special cause variation and is subject only to the unavoidable (yet reducible) common cause variation.
the extreme upper and lower measures of a variable
Variation in Quality
The control of quality is largely the control of variation.
Normal Curve (bell curve)
A statistical representation that applies to a wide range of phenomena that can be measured on a two-by-two scal. No matter the data being collected, the results tend to align according to the normal curve with most data tending toward the mean or average, and increasingly fewer data tending above and below the mean.
A record of an organization's targeted activity over time, with established upper and lower control limits.
Total Quality Control (TQC)
An approach to quality in organizations that seeks to achieve continual quality improvement in all aspects of the organization and to involve employees substantially in the improvement effort.
Total Quality Management (TQM)
The generic name given to the approach to quality-based management developed by W. Edwards Deming that is heavily oriented toward treating the system as the primary source of error or defects in manufacturing of service work.