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Flashcards in Performance Measures Deck (48):

What is commonly considered the best method to use to minimize failure costs?

Prevention cost.


Explain the difference between "quality of design" and "conformance quality."

Quality of design is about meeting or exceeding the needs and wants of customers, while quality of conformance is the degree to which a product meets its specifications.


How is quality tied to JIT?

Raw materials must be of consistently high quality. Because, there is little or no excess inventory to fall back on, the entire production process may be delayed if any materials are faulty.


Define "Pull" inventory models

Pull models do not do any work until demanded by customer orders. Thus, customer demand "pulls" material orders, labor, and all other manufacturing activity through the plant.


Define "economic order quantity model."

A push model that specifies the most efficient quantity to order to minimize inventory costs.


Define "backflush costing."

A just in time (JIT) product costing approach in which costing is delayed until goods are completed or, in some cases, until the goods are sold.


List some examples of measures of performance from the customer perspective.

Market share, product returns as a percentage of sales, number of new customers, percentage of repeat customers, sales trends, etc.


List the four evaluation perspectives for a balanced scorecard.

1. Customer;
2. Internal Business Processes;
3. Learning, Innovation, and 4.Growth.


List four features of a good balanced scorecard.

1. Articulates a company's strategy;
2. Assists in communicating the strategy;
3. Limits the number of measures;
4. Highlights suboptimal tradeoffs that managers may make.


List five pitfalls that should be avoided with a balanced scorecard.

Don't assume all linkages to be precise; don't seek improvements across all measures all the time; don't use only objective measures on the scorecard; don't fail to consider both costs and benefits of initiatives such as spending on information technology and research and development; and don't ignore nonfinancial metrics when evaluating managers and employees.


Define "benchmarking."

A process in which organizations compare their own processes and performance with the processes and performances of business leaders within or across competing industries.


List three important points and features of benchmarking.

1. A company can't be the best at everything;
2. Benchmarking should be an ongoing process within the organization;
3. Don't try to focus on improving in every benchmark area all the time.


List the five forces outlined in Michael Porter's framework for industry analysis and business strategy development.

(1) Bargaining power of customers; (2) bargaining power of suppliers; (3) threat of new entrants; (4) threat of substitute products; (5) intensity of competition.


Define "market segmentation".

Customizing the market to meet the demands of a specific customer group; AKA niche marketing or focus strategy.


What does the acronym SWOT stand for?

Strengths, weaknesses, opportunities, and threats.


Define "product differentiation strategy".

Competitive strategy in which the organization strives to produce a product that is perceived to offer unique features or benefits to the customer and which therefore commands a higher price.


Define "cost leadership strategy".

Competitive strategy in which the organization seeks to gain an advantage by selling a high volume of low cost products


What is the key to revenue maximization under constrained resources?

Produce the product that offers the highest contribution margin per unit of the constrained resource (e.g., if production in a bakery is constrained by the amount of oven time available, produce the product that maximizes the contribution margin per hour of oven time).


Define "environmental scanning".

A process in which the organization continuously gathers and evaluates information that could impact its ability to compete using its current organizational strategies.


List the formula for return on investment (ROI).

Net Income / Total Assets.


Describe the DuPont approach to return on investment (ROI).

Separates ROI into two parts for analysis - Profit Margin x Asset Turnover.


List the formula for residual income (RI).

Operating Income - required rate of return (invested capital).


List the formula for economic value added (EVA).

Net Operating Profit After Taxes (NOPAT) - Weighted Average Cost of Capital (WAAC) (Total Assets - Current Liabilities).


Describe the prevalent value-based management (VBM) themes and concepts.

Accrual-based metrics are discredited; Cost of capital is increasingly emphasized; Shareholders and shareholder value as the primary element of interest is common; and relating VBM to strategy and making linkages to drivers of success is important.


Define "price elasticity of demand".

The percentage change in quantity demanded divided by the percentage change in price.


What purpose do market ratios serve?

They are used to evaluate the value of the enterprise as based on capital market reflections of stock price as related to earnings and book value.


What purpose do debt-utilization metrics serve?

They provide measures of balance sheet risk (i.e., in terms of financial leverage). An enterprise is considered more leveraged, and thus more risky, if it has a comparatively high amount of debt versus owners' equity.


What purpose do liquidity metrics serve?

They are used to evaluate an enterprise's ability to meet its short-term obligations.


What purpose do asset-utilization metrics serve?

They examine the efficiency with which assets are used to maintain and generate wealth.


List the formula for operating profit margin.

Operating income / Revenue.


Describe the difference between gross margin (GM) and contribution margin (CM).

GM = revenue minus cost of goods sold; CM = revenue minus variable expenses.


How is strategic risk best controlled?

Strategic risk is best controlled by rigorous forecasting and planning, optimizing operating leverage.


How is operational risk best controlled?

Operational risk is best controlled by exceptional execution of the strategic plan. This is often enhanced by attention to customer credit checks, quality, employee training, and management expertise.


How is market risk best controlled?

Market risk can be controlled to some degree by insurance for specific hazard risks, but economic events often cannot be controlled. Thus, companies must assess their exposure to economic downturns and use sensitivity analysis to evaluate their position.


Differentiate between strategic, operational, and market risk.

1. Strategic risk is relatively long-term and can be managed by continually assessing the competitive space in which the organization operates;
2. Operational risk is short-term in nature and involves daily implementation issues;
3. Market risk is associated with large-scale economic events or natural disasters that, to some extent, influence all companies.


Describe the Theory of Constraints (TOC).

TOC identifies strategies to maximize income when the organization is faced with bottleneck operations. A bottleneck operation occurs when the work to be performed exceeds the capacity of the production facilities.


Describe the lean manufacturing process.

Making small batches of a high variety of unique products usually with automated or otherwise sophisticated machinery and highly skilled labor (usually cross-trained).


List the characteristics of lean manufacturing.

Flexible equipment, low setup times, and highly-skilled labor.


Describe demand flow technology (DFT).

Uses mathematical methods to link materials, time, and resources based on continuous flow planning. The objective is to link process flows and manage those flows based on customer demand.


Define "Six Sigma."

Six Sigma is a quality improvement approach that is designed to systematically reduce defects. Six Sigma is also a fact-based method to achieve cost reduction.


Describe the five phases of the Six Sigma DMAIC (Define, Measure, Analyze, Improve and Control) project methodology.

(1) Define customers and their requirements; (2) measure defects and other items related to quality; (3) analyze to determine root cause of failures and the sources of variation; (4) improve through experimentation; and (5) control results using TQM statistical process control tools (e.g., control charts).


Define "project management".

A series of related activities to achieve a defined output in a specified and finite amount of time using a temporary structure.


How does the work breakdown structure assist with project management?

This defines the work to be completed by dividing project components into subcomponents, and successive levels of specificity to define all activities of the project team, the resources involved, and their costs.


How do the Program Evaluation and Review Technique (PERT) and the Critical Path Method (CPM) use relationships to assist with project management?

Each uses a precedence relationship that specifies a sequence for activities in the network.


Define the "critical path".

The critical path is the longest path in the network and indicates that if any activity on the critical path is delayed, then the project will not be accomplished according to the original schedule. The critical path is specified by the sum of the mean completion times of each of the activities on the path.


How is the projected completion time determined using Program Evaluation and Review Technique (PERT)?

Expected time of completion is determined by assigning a weighting of one for each of the optimistic and pessimistic estimates, a weighting of four for the most probable estimate, adding the assigned values together, and then dividing that sum by six.


Define "crashing".

Crashing is the process of adding resources (such as overtime labor or adding additional materials or equipment) to shorten selected activity times on the critical path. Crash time is the shortest possible time to complete an activity after accelerating resources.


Define "project risks".

Project risks are related to adequately defining the project, properly organizing resources, and organizing and committing team members.