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Chapter 10

Evaluation and Control

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Evaluation and Control

Evaluation & Control:–Process that ensures that the

company is achieving what it set out to accomplish. Compares performance with desired results.

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Evaluation and Control

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Evaluation and Control

Evaluation & Control Information:–Performance data and activity reports

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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

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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

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Evaluation and Control

Traditional Financial Measures

Return on Investment

(ROI)

Earnings perShare(EPS)

Return onEquity(ROE)

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Evaluation and Control

Shareholder Value–Present value of the anticipated future

stream of cash flows plus the value of the company if liquidated.

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Evaluation and Control

Economic Value Added (EVA)–EVA = After tax operating income –

(investment in assets x weighted average cost of capital)

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Evaluation and Control

Market Value Added (MVA)–Difference between the market value

of a corporation and capital contributed by shareholders and lenders.

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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?)

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Evaluation and Control

Evaluating Top Management–Board of Directors• Strategy Committee• Audit Committee• Compensation Committee

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Evaluation and Control

Responsibility Centers:–Standard cost centers–Revenue centers

–Expense centers–Profit centers– Investment centers

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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

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Evaluation and Control

Problems in Measuring Performance:–Short-term orientation–Goal displacement–Behavior substitution–Suboptimization

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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