UNIT IV

Evaluation and Control

By Dr. Smita Singh
Institute of Management Sciences,
University of Lucknow
Evaluation and
Control
Process

The text of the entire presentation and the diagram are based on matter drawn from “Thomas, Wheelen. L., Hunger David
J." Concepts in Strategic Management and Business Policy, 13TH edition, Pearson Prentice Hall (2012).
Measuring Performance
 Performance is the end result of activity. Select
measures to assess performance based on the
organizational unit to be appraised and the objectives to
be achieved. Based on what is to be evaluated, the
performance measure changes. Hence, we shall look at
Measuring  Appropriate Measures
Performance  Types of Controls
 Activity-Based Costing
 Enterprise Risk Management
 Primary Measures of Corporate Performance
 Primary Measures of Divisional and Functional Performance
Appropriate Appropriate Measures
Measures  A firm needs to develop measures that predict likely profitability.
These are referred to as steering controls because they measure
variables that influence future profitability. Every industry has its
own set of key metrics which tend to predict profits.

Types of Controls
Types of  Output controls e.g. sales quotas, specific cost-reduction or profit
objectives, and surveys of customer satisfaction
Controls
 Behavior controls e.g. following company procedures, making
sales calls to potential customers, and getting to work on time
 Input controls e.g. number of years of education and experience
  Activity-based costing (ABC) allocates indirect and fixed costs to
individual products based on the value-added activities going into
Activity Based that product.
 Under ABC a product carries only those costs for the overhead it
Costing actually consumes.

 Enterprise Risk Management (ERM) is a corporatewide, integrated

process for managing the uncertainties that could negatively or
positively influence the achievement of the corporation’s
objectives.
Enterprise Risk  The process of rating risks involves three steps:
Management  1. Identify the risks using scenario analysis or brainstorming or by
performing risk self assessments.
 2. Rank the risks, using some scale of impact and likelihood.
 3. Measure the risks, using some agreed-upon standard.
  Corporate Performance in the current scenario is measured using a host
Primary Measures of Traditional Financial Measures as well as newer Non-Financial
Measures.
of Corporate  Traditional Financial Measures e.g. ROI, EPS, ROE, etc.
Performance  Non-Financial Measures e.g. MUUs, stickiness, eyeballs, mindshare, etc.
 Other Measures e.g. EVA, Balanced Score Card

 Companies use a variety of techniques to evaluate and control

performance in divisions, strategic business units (SBUs), and functional
Primary Measures areas.
of Divisional and  Responsibility Centers

Functional 
Standard Cost Centers
Revenue Centers
Performance  Expense Centers
 Profit Centers
 Investment Centers
 Benchmarking
Strategic Information
Systems
 Performance measures must first be
communicated to the people responsible for
formulating and implementing strategic plans.
Strategic Strategic information systems can perform this
function.
Information
Systems  Enterprise Resource Planning

 Radio Frequency Identification

 Divisional and Functional Information System

Support
Problems in Measuring
Performance
  The measurement of performance is a crucial
part of evaluation and control. However, lack of
quantifiable objectives and/or performance
yardsticks make monitoring and measurement
Problems in very difficult.
Measuring
Performance  Short-term Orientation

 Goal Displacement
 Behaviour Substitution
 Sub-optimisation
Guidelines for Proper
Control
 Unless controls ensure the use of the proper strategy to
achieve objectives, there is a strong likelihood that
dysfunctional side effects will completely undermine the
implementation of the objectives.
The following guidelines are recommended:
Guidelines for  Focus on the strategic factors by following the 80/20 rule.
Proper Control  Monitor only meaningful activities and results
 Controls should be timely so that corrective action can be
taken before it is too late
 Long-term and short-term controls should be used.
 Controls should aim at pinpointing exceptions.
 Emphasize the reward of meeting or exceeding
standards rather than punishment for failing to meet
standards