1. Evaluation and Control
Chapter 10
Evaluation and Control

2. Evaluation and Control
Evaluation & Control:
Process that ensures that the company is achieving what it set out to accomplish. Compares performance with desired results.

3. Evaluation and Control

4. Evaluation and Control
Evaluation & Control Information:
Performance data and activity reports

5. Evaluation and Control
Types of Control:
Output Controls (feedback)
Objectives, targets, milestones
Behavior Controls (concurrent)
Policies, rules, SOP’s, directives
Input Controls (feedforward)
Resources, knowledge, skills, values

6. Evaluation and Control
Activity-Based Costing:
ABC
Allocating indirect and fixed costs to individual product lines based on the value-added activities going into that product

7. Evaluation and Control
Return on
Investment
(ROI)
Traditional
Financial
Measures
Earnings per
Share
(EPS)
Return on
Equity
(ROE)

8. Evaluation and Control
Shareholder Value
Present value of the anticipated future stream of cash flows plus the value of the company if liquidated.

9. Evaluation and Control
Economic Value Added (EVA)
EVA = After tax operating income – (investment in assets x weighted average cost of capital)

10. Evaluation and Control
Market Value Added (MVA)
Difference between the market value of a corporation and capital contributed by shareholders and lenders.

11. Evaluation and Control
Balanced Scorecard:
Financial (How do we appear to shareholders?)
Customer (How do customers view us?)
Internal Business Perspective (What must we excel at?)
Innovation and Learning (Can we continue to improve and create value?)

12. Evaluation and Control
Evaluating Top Management
Board of Directors
Strategy Committee
Audit Committee
Compensation Committee

13. Evaluation and Control
Responsibility Centers:
Standard cost centers
Revenue centers
Expense centers
Profit centers
Investment centers

14. Evaluation and Control
Benchmarking:
Identify the area or process to be examined
Find output measures and obtain measurements
Select best-in-class to benchmark against
Calculate differences and determine reasons
Develop tactical programs for closing gaps
Implement programs and compare

15. Evaluation and Control
Problems in Measuring Performance:
Short-term orientation
Goal displacement
Behavior substitution
Suboptimization

16. Evaluation and Control
Guidelines for Proper Control:
Minimum amount of information
Monitor meaningful activities
Timely
Long-term and short-term
Pinpointing exceptions
Reward meeting or exceeding standards