Evaluation and Control Chapter 10 Evaluation and Control

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

Evaluation and Control

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

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

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

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

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

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

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

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?)

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

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

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

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

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