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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
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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