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Principles of Management Chapter 19 (Exam 2)

Organization Control
Refers to the systematic process of regulating organizational activities to make them consistent with the expectations established in plans, targets, and standards of performance.
Balanced Scorecard
A comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.
The Four Major Perspectives of a Balanced Scorecard
-Financial Performance
-Customer Service
-Internal Business Processes
-Potential for Learning and Growth
Financial Performance
Perspective reflects a concern that the organization’s activities contribute to improving short- and long-term financial performance. It includes traditional measures such as net income and return on investment.
Customer Performance
Indicates measure information such as how customers view the organization and customer retention and satisfaction. This data may be collected in many forms, including testimonials from customers describing superlative service or from customer surveys that explore important product or service attributes.
Internal Business Processes
Indicators focus on production and operating statistics. For an airline, business process indicators may include on-time arrivals and adherence to safety guidelines.
Potential for Learning and Growth
This component of the balanced scorecard looks at the organizations potential for learning and growth, focusing on how well resources and human capital are being managed for the company’s future. Metrics may include things such as employee retention and the introduction of new products. The components of the scorecard are designed in an integrative manner.
Budgetary Control
One of the most commonly used methods of managerial control, is the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.
Responsibility Center
Any organizational department or unit under the supervision of a single person who is responsible for its activity.
Expense Budget
Includes anticipated and actual expenses for each responsibility center and for the total organization.
Revenue Budget
Lists forecasted and actual revenues of the organization.
Cash Budget
Estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organization has sufficient cash to meet its obligations.
Capital Budget
Lists planned investments in major assets such as buildings, heavy machinery, or complex information technology systems, often involving expenditures over more than a year.
Zero-Based Budgeting
Is an approach to planning and decision making that requires a complete justification for every line item in a budget, instead of carrying forward a prior budget and applying a percentage change.
Top-Down Budgeting
Means that the budgeted amounts for the coming year are literally imposed on middle- and lower-level managers.
Bottom-Up Budgeting
Involves lower-level managers anticipating their department’s budget needs and passing them up to top management for approval.
Balance Sheet
Shows the firm’s financial position with respect to assets and liabilities at a specific point in time. It provides three types of information: assets, liabilities, and owners’ equity.
Assets
What the company owns and they include:
Current Assists: Those that can be converted into cash in a short time period.
Fixed Assists: Such as buildings and equipment that are long term in nature.
Liabilities
Are the firm’s debts, including:
Current Debt: Obligations that will be paid by the company in the near future.
Long-term Debt: Obligations payable over a long period.
Owner’s equity
The difference between assets and liabilities and is the company’s net worth in stock and retained earnings.
Income Statement
Also called a profit-and-loss statement, summarizes the firm’s financial performance for a given time interval, usually one year.
The Bottom Line
Indicates the net income-profit or loss-for the given time period.
Liquidity Ratio
Indicates an organization’s ability to meet its current debt obligations.
Current Ratio
Tells whether the company has sufficient assets to convert into cash to pay off its debts, if needed. Current assets divided by current liabilities.
Quick Ratio
Expressed as cash plus accounts receivable divided by current liabilities.
Activity Ratio
Measures internal performance with respect to key activities defined by management.
Inventory Turnover
Is calculated by dividing total sales by average inventory.
Conversion Ratio
This ratio is an indicator of a company’s effectiveness in converting inquiries into sales. Purchase orders divided by customer inquires.
Profitability Ratios
State profits relative to a source of profits, such as sales or assets.
Profit Margin on Sales
Calculated as net income divided by sales.
Gross Margin
The gross (before-tax) profit decided by total sales.
Return on Assets (ROA)
A percentage representing what a company earned from its assets, computed as net income divided by total assets.
Leverage
Refers to funding activities with borrowed money.
Hierarchical Control
Involves monitoring and influencing employee behavior through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms.
Decentralized Control
Relies on cultural values, traditions, shared beliefs, and trust to foster compliance with organizational goals.
Open-Book Management
Allows employees to see for themselves-through charts, computer printouts, meetings, and so forth-the financial condition of the company. The goal of this management is to get every employee thinking and acting like a business owner.
Total Quality Management (TQM)
An organization wide effort to infuse quality into every activity in a company through continuous improvement.
A Quality Circle
A group of 6 to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work.
Benchmarking
The continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders to identify areas for improvement.
Six Sigma
Is a highly ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts.
DMAIC (Define, Measure, Analyze, Improve, and Control)
Provides a structured way for organizations to approach and solve problems.
Quality Partnering
Involves assigning dedicated personnel within a particular functional area of the business.
Continuous Improvement or Kaizen
The implementation of a large number of small, incremental improvements in all areas of the organization on an ongoing basis.
ISO 9000 Standards
Represent an international consensus of what constitutes effective quality management as outline by the International Organization for Standardization.
Corporate Governance
Refers to the framework of systems, rules, and practices by which an organization ensures accountability, fairness, and transparency in the firm’s relationships with stakeholders.

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