Control Techniques Chapter 19 MANAGEMENT Meeting and Exceeding Customer Expectations EIGHTH EDITION Prepared by Deborah Baker Texas Christian University Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved learning objectives Describe the content of the three primary financial statements and how managers use them Explain ratio analysis and four types of ratios used by managers Describe the five types of financial Chapter 19 responsibility centers and their relationship to budgeting Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved learning objectives (continued) Describe the four approaches to creating budgets Explain the two major types of budgets used in businesses Describe the five major marketing control techniques used in businesses Describe the six major human resource Chapter 19 control techniques used in businesses Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved Subsystems Requiring Controls Marketing Marketing Operations Operations Finance Finance Functional Functional Subsystems Subsystems Chapter 19 Other Other Support Support Activities Activities Human Human Resources Resources Management Management Information Information Systems Systems Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved Chapter 19 Control Techniques Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 11 Financial Statements Balance Sheet Assets = Liabilities + Stockholders’ Equity Income Statement Chapter 19 Income - Expenses = Profit or Loss Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved Balance Sheet 11 Assets Assets Current Current Fixed Fixed Cash, Cash, or or items items easily easily converted converted to to cash cash within within one one year year Not Not intended intended for for sale sale or or conversion conversion to to cash cash Land Land Chapter 19 Buildings Buildings Equipment Equipment Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 11 Balance Sheet Chapter 19 Liabilities Liabilities Current Current Debt Debt Debts Debts due due and and payable payable within within one one year year Long-Term Long-Term Debt Debt Debts Debts due due after after one one year year from from date date of of balance balance sheet sheet Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 11 Balance Sheet Stockholders’ Stockholders’or or Owner’s Owner’s Equity Equity Chapter 19 Difference Difference between between the the value value of of assets assets and and liabilities liabilities Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved Income Statement 11 Seven SevenCategories Categories Chapter 19 Net sales Cost of goods sold Gross profit Operating expenses Net income (or loss) before taxes Taxes Net income Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 10 44 Zero-Based Budgeting  Forces managers to examine operations and explore more efficient ways of operating  Requires preparers to launch each new budget from a clean sheet of “paper”  Requires justification of every dollar requested, based on the coming year’s strategic plans and goals Chapter 19  Requires a listing of goals for the fiscal period, identifying people, and resources needed to achieve the goals, along with costs Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 20 44 Flexible Budgeting  Set levels of expense are correlated with specified output levels  Sets “meet or beat” standards with which expenditures can be compared  Unit expenses within budgeted amounts Chapter 19 are usually permitted Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 21 55 Operating Budgets Operating Operating Budgets Budgets  Financial plans and controls for each financial responsibility center’s revenues, expenses, and profits Chapter 19 Revenue Revenue Budgets Budgets Expense Expense Budgets Budgets Profit Profit Budgets Budgets Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 22 55 Expense Budgets Fixed Fixed costs costs Variable Variable costs costs Chapter 19 Mixed Mixed costs costs Facility-related Facility-related expenses expenses incurred incurred regardless regardless of of the the amount amount of of activity activity Relate Relate directly directly to to operations operations and and vary vary with with revenue revenue and and production production levels levels Contain Contain fixed fixed and and variable variable elements elements Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 23 55 Financial Budgets Chapter 19 Financial Financial Budgets Budgets Cash Cash Budgets Budgets  Details of how a financial responsibility center will manage its cash and capital expenditures Capital Capital Expenditures Expenditures Budgets Budgets Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 24 Chapter 19 55 Financial Budgets Cash Cash budgets budgets Project Project the the amount amount of of cash cash that that will will flow flow into into and and out out of of an an organization organization during during aa fixed fixed period period Capital Capital expenditures expenditures budgets budgets Project Project the the short-and short-and long-term long-term funding funding needed needed to to acquire acquire capital capital goods goods Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 25 66 Marketing Controls Market Market Research Research Marketing Marketing Ratios Ratios Test Test Marketing Marketing Chapter 19 Sales Sales Quotas Quotas Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved Stockage Stockage 26 66 Market Research  Feedforward control technique  Consists of gathering and analyzing data: – geographic – demographic – psychographic  Helps planners decide what customers want Chapter 19 and need so that products and services can be designed to meet those needs Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 27 66 Test Marketing  Introduce a new product to a limited market on a small scale to assess its acceptance  Disadvantage is that it can tip a company’s hand to competitors  Helps determine if the company should proceed with manufacturing, distribution, or modifications  Limits the risks a company faces when Chapter 19 introducing something new Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 28 Marketing Ratios 66 Chapter 19        Ratio of profit to sales Costs of selling to gross profit Sales calls to orders generated Profitability of each order Changes in sales volume to price changes Ratio of bad debts to total credit granted Sales volume to production capacity for the entire organization  Market share  Order turnaround time Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 29 Stockage Chapter 19 66   Level of inventory  Must reduce the number of slow-moving items or eliminate the items altogether  Devote most of the best display areas to items that yield the largest profits  Tracking stockage levels, managers can: Money tied up in inventories is unavailable for other uses – Determine normal usage rates – Maintain minimum levels – Set efficient reorder points Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 30 Cost of Maintaining Inventories 66 Chapter 19 Costs of producing or acquiring inventory items Costs of loss to obsolescence, damage, or theft Freight charges Security costs Storage costs Administrative expenses Costs of computerized inventory control systems Costs of maintenance and operation of storage equipment Costs connected with procurement and inspection of and payment for inventory items Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 31 Chapter 19 77 Human Resource Controls Statistical Statistical Analysis Analysis Human HumanAsset Asset Valuation Valuation Training Trainingand and Development Development Performance Performance Appraisals Appraisals Attitude Attitude Surveys Surveys Management Management Audits Audits Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 32 77 Statistical Analysis Composition Composition of of work work force force Compliance Compliance with with equal equal opportunity opportunity guidelines guidelines Employee Employee turnover turnover and and absenteeism absenteeism Recruiting Recruiting and and compensation compensation effectiveness effectiveness Managerial Managerial and and individual individual effectiveness effectiveness Levels Levels of of job job satisfaction satisfaction and and motivation motivation Chapter 19 Employee Employee safety safety and and health health Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 33 77 Statistical Analysis Turnover Turnover Chapter 19 Absenteeism Absenteeism The number of employees who leave during a specific period of time Often serves as a measure of the internal environment The percentage of an organization’s work force not at work on any given day Copyright ©2005 by South-Western, a division of Thomson Learning All rights reserved 34 ... directly to to operations operations and and vary vary with with revenue revenue and and production production levels levels Contain Contain fixed fixed and and variable variable elements elements... 1 Setting Setting goals goals 2 Planning Planning and and scheduling scheduling to to reach reach goals goals 3 Identifying Identifying and and pricing pricing resources resources Chapter 19... Managers 1 They Theyexpedite expediteallocation allocationand andcoordination coordinationof of resources resourcesfor forprograms programsand andprojects projects 2 They Theyoperate operateas asaapowerful