CHAPTER11

EVALUATION
CONTROL

AND

I. EVALUATION AND CONTROL

IN STRATEGIC MANAGEMENT
Evaluation and control process
ensures
that
a
company
achieving what is set out
accomplish.

is
to

5 Steps :

Determine what to measure.

Establish
standards
of
performance.
Measure actual performance.
Compare actual performance with
the standard.
Take corrective action.

II. MEASURING PERFORMANCE

Performance
end result of activity

APPROPRIATE
MEASURES
for
evaluating a corporations or a divisions
ability
to
achieve
a
profitability
objective :
Return on Investment (ROI)
Earnings per Share (EPS)

STEERING CONTROL measures

variables
that
profitability.

influence

future

Inventory Turn-over Ratio Cost of

Goods Sold is divided by the
average value of its inventories.
Customer Satisfaction

TYPES OF CONTROL
Output Controls focus on actual
performance result.
Behavior Controls how something
is to be done through policies,
rules,
standard
operating
procedures,
and
orders
from
superiors.
Input Controls focus on resources
(knowledge, skills, abilities) that
are used in performance.

ACTIVITY-BASED COSTING

accounting method for allocating

indirect and fixed cost to individual
products or product lines based on
the value-added activities going to
that product.

TRADITIONAL
ACCOUNTING

COST

useful when direct labor accounts

for most of total costs and a
company produces just a few
products
requiring
the
same
processes.

ENTERPRISE
MANAGEMENT

RISK

A
corporatewide,
integrated
process
for
managing
the
uncertainties that could negatively
or
positively
influence
the
achievement of the corporations
objective.

TRADITIONAL
MEASURES

FINANCIAL

1. Return on Investment
=Net
Income(before
taxes)
Investment
2. Earnings per Share
= Net Income / Common Stock
3. Return on Equity
= Net Income / Equity
4. Operating Cash Flow

PRIMARY
MEASURES
OF
CORPORATE PERFORMANCE
1. Stakeholder Measure
- deal with the direct and indirect
impacts of corporate activities
on stakeholders interests.
2. Shareholder Value
- the present value of the
anticipated future stream of
cash flows from business plus
the value of the company if
liquidated.
a. Economic Value Added (EVA)
measures the difference
between the pre-strategy and
post strategy values for the
business. Simply put, EVA is
the
after-tax
operating
income minus the total
annual cost of capital.
b. Market Value Added (MVA)
the difference between the
market value of a corporation
and capital contributed by
shareholders and lenders,
3. Balanced Scorecard approach
- combines financial measures
that tell the results of actions
already taken with operational
measures
4 Areas:
Financial
Customer
Internal Business Prospective
Innovation and Learning

EVALUATING TOP MANAGEMENT

AND THE BOARD OF DIRECTORS
CHAIRMAN-CEO
Feedback
Instrument
An evaluation to the CEO using a
17-item questionnaire developed
by Ram Charan, an authority on
corporate governance.
MANAGEMENT AUDIT

Very useful to Boards of Directors

in
evaluating
managements
handling of various corporate
governance.
STRATEGIC AUDIT
Type of Management Audit and is
extremely useful as a diagnostic
tool to pinpoint corporate-wide
problem areas and to highlight
organizational
strengths
and
weaknesses.