MANAGEMENT
RICHARD L. DAFT
Managing Quality and
Performance
CHAPTER 18
chapter18
Learning Outcomes
• Define organizational control and explain why it is a key management
function.
• Explain the benefits of using the balance scorecard to track performance
and control of the organization.
• Explain the four steps in the control process.
• Discuss the use of financial statements, financial analysis, and
budgeting as management controls.
• Contrast the hierarchical and decentralized methods of control.
• Identify the benefits of open-book management.
• Describe the concept of total quality management and major TQM
techniques, such as quality circles, benchmarking, Six Sigma principles,
reduced cycle time, and continuous improvement.
• Identify current trends in quality and financial control, including ISO
certification, economic value-added and market value-added systems,
activity-based costing, and corporate governance, and discuss their
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impact on organizations.
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chapter18
What Is Your Attitude
Toward Control?
• Managers must balance control with
motivation and creativity
• Managers control:
– Work processes
– Employee behavior
– Financial resources
– Profitability
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chapter18
The Meaning of Control
• The systematic process of regulating
organizational activities to meet
expectations
– Established plans
– Targets
– Standards
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Choosing Standards
and Measures
chapter18
• Common forms of control include financial
performance
– Sales
– Revenue
– Profit
• There is a growing need to measure
intangible aspects of performance
– Customer Service
– Customer Retention
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chapter18
The Balanced Scorecard
• Comprehensive management control
system that balances traditional financial
measures with:
– Customer Service
– Internal Business Processes
– Learning and Growth
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chapter18
Review the Scorecard
8
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chapter18
Steps of
Feedback Control
Establish Standards of Performance
Measure Actual Performance
Compare Performance to Standards
Take Corrective Action
9
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chapter18 Feedback Control Model
10
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chapter18
Controlling and Budgeting
• Budgets are reports that list planned and
actual expenditures
• Budget reports highlight the variance
between budgeted and actual amounts
• Budgets are created for all departments
and divisions in an organization
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chapter18
Types of Budgeting
 Expense Budget
 Revenue Budget
 Cash Budget
 Capital Budget
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chapter18
Financial Control
• Review performance and highlight
potential problems
• Most common financial statements
– Balance Sheet
– Income Statement or Profit & Loss Statement
13
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chapter18
Sample Financial
Statements
Starting point for
financial control
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chapter18
Financial Analysis:
Interpreting the Numbers
• Managers need to be able to evaluate
financial reports
• Comparisons allow managers to see
improvement and focus on competition
• Ratios and statistics highlight relationships
• Ratios are stated fractions or proportions
– Liquidity, activity, profitability and leverage
15
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chapter18 Common Financial Ratios
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chapter18
The Changing
Philosophy of Control
1) Hierarchical versus Decentralized
Approaches
2) Open Book Management
3) Total Quality Management (TQM)
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chapter18
Hierarchical and
Decentralized Methods
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chapter18 Open-Book Management
• Information sharing
• Teamwork
• Encourage active participation
• Commitment to goals
• Open-book management allows employees to
see for themselves—through charts, computer
printouts, meetings, and so forth—the financial
condition of the company
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chapter18
Total Quality Management
• Total Quality Management (TQM) is a
decentralized control philosophy
• Infuse quality into every activity in a company
through continuous improvement
• Toyota is a good example of the results of TQM
• TQM became attractive in the 1980s because of
its success in Japan
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chapter18 International Opacity Index
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chapter18
•
•
•
•
•
TQM Techniques
Quality Circles
Benchmarking
Six Sigma
Reduced Cycle Time
Continuous Improvement
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chapter18
The Importance of Quality
Improvement Programs
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chapter18
Quality Program
Success Factors
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chapter18
Trends in Quality and
Financial Control
 International Quality Standards
 New Financial Control Systems
 Economic Value-Added (EVA)
 Market Value-Added (MVA)
 Activity-Based Costing (ABC)
 Corporate Governance
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