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Lect 11: Controlling Performance (Financial Control (feedback control)…
Lect 11: Controlling Performance
Budgetary Control
(concurrent control)
(b) Budgetary Approach
Bottom-up budgeting:
employee empowerment, participation and learning, more money channeled to those factors (Used by operating managers who have specialised knowledge on environment and market place to achieve goal)
Top down Budgeting:
managers set departmental budget targets (Used during economic crisis)
(a) Types of Budgets
Capital Budget:
lists planned investments in major asset
Cash Budget:
estimates receipts and expenditures, ensure sufficient cash to meet its obligations
Revenue Budget:
forecast and actual revenue, see whether can improve revenue
Expense Budget:
anticipated and actual expenses for each level of management and organiation
setting targets for expenditures, monitoring results, comparing them to the budget and making changes as needed
(c) Advantage
facilitate co-ordination
resource requirements from each unit into a financial blueprint
translate strategic plans into departmental actions
record organisational activities
improve communication
improve resource allocations
(d) Disadvantage
used mechanisally
on a paper exercise work
de-motivate due to lack of participation
cause perception of unfairness
create competition for resources and politics
limit opportunities for innovation and adaptation
Financial Control
(feedback control)
whether the organisation is on sound financial footing
indicators for performance problems
Top Management
defines a financial forecast, analyse selected ratios to business performance, evaluate internal opertations
(a) Financial Statements
Balance Sheet:
financial position with respect to assets and liabilities at a specific point in time
Income Statement
: summaries the firm's financial performance for a given time interal
(b) Financial Analysis
financial ration - comparison of 2 financial numbers
Liquidity Ratio
: indicates ability to meet its current debt obligations
Activity Ratio:
measures internal performance with respect to key activities defined by management
Profitability Ratio:
describes the firm's profits relative to a source of profits
(c) Financial Audits
Internal Audit:
handled by experts within the organisation
External Audit:
conducted by experts from outside
Quality Control
(concurrent control/ feedback control)
products and services has the planned quality
product quality is compared against standards set
action is taken to correct defects
(a) 8 Dimensions of Quality
Performance:
involves product's primary operating characteristics
Feature:
supplements to basic function characteristics
Reliability:
Probability of product not working properly or breaking down within a specific period
Conformance:
the degree to which product's design or operating characteristics conform to pre-established standardds
Durability:
measure of how much use a person gets from a product before it breaks down to a point that it must be replaced
Serviceability:
promptness, courtesy, proficiency, and ease of repair
Aesthetics:
refers to the product's appearance, sense (five senses)
Perceived Quality:
refers to individuals' subjective assessments of product or service quality
(b) Total Quality Management:
organisation-wide effort to infuse quality into every activity through continuous improvement
emphasises organisation-wide commitment
devoted to prevention on quality measurement
rewards quality
quality training at all levels
stresses problem identification and solution
promotes innovation and continuous improvement
promotes total participation
stresses high performance standards with zero defects
(c) TQM Technique
6 to 12 employees - regularly meetings to discuss and solve problems
Inventory Control
(feedforward control)
(a) Types of Inventory
Raw materials
Work-in-process
Finished Goods
Importance:
deals with uncertainties in supply and demand, better customer service, more economic purchases of raw materials
(c) Cost of inventory:
ordering cost, carrying cost, stock-out cost
(e) Inventory Control Methods
Economic Order Quantity:
balancing ordering cost and carrying costs
Just-in-time Inventory Control:
having materials arrived just in time when they are needed fpr production