Question

What types of quality measures might be used by a company to evaluate the overall effectiveness of systems and practices?

What types of analysis can managers perform to help them diagnose a company's financial condition?

How do benchmarking and certification help companies establish their overall effectiveness?

In the end analysis, what elements of budgeting and quality analysis might you recommend for a small, sole proprietorship versus a large, publicly coordinated corporation? Why?

Answer 1

What types of quality measures might be used by a company to evaluate the overall effectiveness of systems and practices?

Quality is an important parameter for businesses to make their products/ services more acceptable to the market, optimise costs and bring overall efficiency to the processes. Quality is subjective but it needs to be quantified and measured which becomes one of the most critical measure of performance of a business or a company. There are various ways to measure quality and these measures are dependent on the type of industry where the company exist, type of company. It is important to note that since quality measure tends to diagnose the working of a company and ultimately indicate the performance of a company, these can be measures of the raw material, finished products, production processes, service levels, etc.

For evaluating effectiveness of systems and practices, following quality measures can be applied

1. Measuring total time taken by the process and comparing the same with other similar process within the organisation as well as comparing the same with competitors/ industry average.
2. Measure costs incurred while performing the process and identify areas of optimising the costs. This analysis might help in improving overall service delivery.
3. Identify if the process has any complex parts which might render it useless to be used by new workers/ employees.
4. Measure resource consumption by each process and compare the same with the output of the process. This will also provide information about efficiency of the process.

What types of analysis can managers perform to help them diagnose a company's financial condition?   

A business is a going concern and its main objective is to remain profitable in long term (we are not discussing philanthropic or humanitarian works performed by business entities). A company’s present and more importantly future depends on how efficiently the decision makers utilise the monetary resources available to them. Even investors looking to invest their hard-earned money, first look at how stable and financial strong the target company is.

There are many ways to Measure Company’s financial performance. Few of them are listed below

1. Ratio Analysis – Under ratio analysis, various parameters from company’s financial statements are evaluated against each other so as to provide information about financial soundness of the company. Some of the important ratios used by the financial analysts in determining financial health of the company are
   1. Debt-equity ratio- every company must leverage its own funds (shareholders equity) by raising funds from debt market so as to grow big. This ratio measures how much money the company has borrowed as compared to its own shareholders equity.        
   2. Acid test ratio- it is the ratio of all the current assets over current liabilities. It measure ability of the company to service its liabilities in near future (Short term)
2. Horizontal Analysis- Most of the companies compare financial information over various time periods so as to understand changes in the performance and to understand if the financial health of the company is improving or declining. This comparison of financial statements over periods of times is called horizontal analysis
3. Vertical Analysis- In vertical analysis, each item of financial statement of a company (e.g. income statement) is presented as portion of one key parameter (e.g. expenses presented as percentage of sales). This can be done over a single period or vertical analysis can help in comparing percentage over multiple periods thereby providing information about financial health.

How do benchmarking and certification help companies establish their overall effectiveness?

Benchmarking is simple terms means comparing with the best. While benchmarking, a company compares its processes or procedures with the best in its own industry.

A business process or system can be standardised by critically evaluating it at its every step, performing iterations to improve it and then documenting the most optimum process. These processes can be certified by an external agency so as to assure concerned parties that the output could be trusted. Certification adds reliability to the process. Each certified process can be unique to each company however, the certification ensure that the certified process won’t be deviated.

Benchmarking ensures that company strives to improve its overall performance by trying to compare its processes and practices with the best in the industry. For example, an online retailer trying to imitate the delivery processes of Amazon so as to woo more customers. Furthermore, benchmarking ensure the process under consideration is evaluated thoroughly, and thus while doing so the managers might find many areas that can be worked upon to improve overall performance of the company.

Similarly Certification provides a credible and valid proof to the company to tell its customers that the processes followed are standardised and thus can meet required quality criteria. Many of the times, certifications are essential for large business customers/ government agencies when they purchase capital goods or services. Certification also provides a well-documented step by step guide to the line managers.