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A discussion on the process of managerial control.
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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookCopyright © 2005 Prentice Hall, Inc.Copyright © 2005 Prentice Hall, Inc.
All rights reserved. All rights reserved.
8th edition8th edition
Steven P. RobbinsMary Coulter
Steven P. RobbinsMary Coulter
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–2
What Is Control?
• ControlThe process of monitoring activities to ensure that
they are being accomplished as planned and of correcting any significant deviations.
• The Purpose of ControlTo ensure that activities are completed in ways that
lead to accomplishment of organizational goals. Provides organizations with indications of how well they
are performing in relation to their goals. Provides a mechanism for adjusting performance to
keep organizations moving in the right direction.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–3
• The Purpose of Control Control is one of the four basic management functions. The
control function, in turn, has four basic purposes.
Adapt to environmental change Limit the accumulation of error
Control helps the organization
Cope with organizational complexity Minimize costs
Figure 14.1
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–4
• Steps in the Control Process
Establishstandards
Measureperformance
Compareperformanceagainst standards
Maintain thestatus quo
Correct thedeviation
Changestandards
Determine needfor correctiveaction
21 43
Figure 14.3
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–5
The Nature of Control (cont’d)
Establish Standards Control standard—a target against which subsequent
performance will be compared.– Control standards should be expressed in measurable
terms.– Control standards should be consistent with organizational
goals.– Control standards should be identifiable indicators of
performance.
Measure Performance Performance measurement is an ongoing process. Performance measures must be valid indicators (e.g.,
sales, costs, units produced) of performance.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–6
The Nature of Control (cont’d)
• Steps in the Control Process (cont’d)Compare Performance Against Standards
Define what is a permissible deviation from the performance standard.
Utilize the appropriate timetable for measurement.Determine the Need for Corrective Action
Maintain the status quo (do nothing). Correct the deviation to bring operations into
compliance with the standard. Change the standard if it was set too high or too low.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–7
Comparing
• Determining the degree of variation between actual performance and the standard.
Significance of variation is determined by:
The acceptable range of variation from the standard (forecast or budget).
The size (large or small) and direction (over or under) of the variation from the standard (forecast or budget).
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–8
Exhibit 18.6Exhibit 18.6
Sales Performance Figures for July, Eastern States Distributors
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Exhibit 18.5Exhibit 18.5
Defining the Acceptable Range of Variation
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–10
Controlling for Organizational Performance
• What Is Performance?The end result of an activity
• What Is Organizational Performance?The accumulated end results of all of the
organization’s work processes and activities Designing strategies, work processes, and work
activities.
Coordinating the work of employees
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–11
Organizational Performance Measures
• Organizational ProductivityProductivity: the overall output of goods and/or
services divided by the inputs needed to generate that output. Output: sales revenues
Inputs: costs of resources (materials, labor expense, and facilities)
Ultimately, a measure of how efficiently employees do their work.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–12
Measuring: How and What We Measure
• Sources of Information
Personal observation
Statistical reports
Oral reports
Written reports
• Control Criteria
Employees
Satisfaction
Turnover
Absenteeism
Budgets
Costs
Output
Sales
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–13
Exhibit 18.4Exhibit 18.4
Common Sources of Information for Measuring Performance
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–14
Exhibit 18.9Exhibit 18.9
Types of Control
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–15
• Types of Control
Preliminary control
Focuses on inputs
to the organizational
system
Inputs Transformation Outputs
Screening control
Focuses on how
inputs are being
transformed into
outputs
Postaction control
Focuses on outputs
from the organiza-
tional system
Feedback
Figure 14.4
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–16
Tools for Controlling Organizational Performance
• Feedforward ControlA control that prevents anticipated problems before
actual occurrences of the problem. Building in quality through design. Requiring suppliers conform to ISO 9002.
• Concurrent ControlA control that takes place while the monitored activity
is in progress. Direct supervision: management by walking around.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–17
Tools for Controlling Organizational Performance (cont’d)
• Feedback ControlA control that takes place after an activity is done.
Corrective action is after-the-fact, when the problem has already occurred.
Advantages of feedback controls Feedback provides managers with information on the
effectiveness of their planning efforts. Feedback enhances employee motivation by providing
them with information on how well they are doing.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–18
Taking Managerial Action
• Courses of Action “Doing nothing”
Only if deviation is judged to be insignificant.
Correcting actual (current) performance Immediate corrective action to correct the problem at
once. Basic corrective action to locate and to correct the
source of the deviation. Corrective Actions
– Change strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–19
Taking Managerial Action (cont’d)
• Courses of Action (cont’d)
Revising the standard
Examining the standard to ascertain whether or not the standard is realistic, fair, and achievable.
– Upholding the validity of the standard.
– Resetting goals that were initially set too low or too high.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–20
Exhibit 18.7Exhibit 18.7
Managerial Decisions in the Control Process
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–21
Financial Control
• Financial ControlControl of financial resources (i.e., revenues,
shareholder investment) as they flow into the organization, are held by the organization (i.e., working capital, retained earnings), and flow out of the organization (i.e., payment of expenses).
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–22
Financial Control (cont’d)
• Financial Control (cont’d)Budgetary Control
Budgets may be established at any organizational level. Budgets are typically for one year or less. Budgets may be expressed in financial
terms, units of output, or other quantifiable factors.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–23
Financial Control (cont’d)
• Financial Control (cont’d)Budgets serve four purposes:
Help managers coordinate resources and projects. Help define the established standards for control. Provide guidelines about the
organization’s resources and expectations.
Enable the organization to evaluate the performance of managers and organizational units.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–24
Financial Control (cont’d)
• Types of Budgets
Type of Budget What Budget Shows
Financial budget Sources and uses of cash
Cash-flow or cash budget All sources of cash income and cash expenditures in monthly, weekly, or daily periods
Capital-expenditures budget Costs of major assets such as a new plant, machinery, or land
Balance-sheet budget Forecast of the organization’s assets and liabilities in the event that all other budgets are met
Table 14.1a
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–25
Financial Control (cont’d)
• Types of Budgets (cont’d)
Type of Budget What Budget Shows
Operating budget Planned operations in financial terms
Sales or revenue budget Income the organization expects to receive from normal operations
Expense budget Anticipated expenses for the organization during the coming time period
Profit budget Anticipated differences between sales or revenues and expenses
Table 14.1b
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–26
Financial Control (cont’d)
• Types of Budgets (cont’d)
Type of Budget What Budget Shows
Nonmonetary budget Planned operations in nonfinancial terms
Labor budget Hours of direct labor available for use
Space budget Square feet or meters of space available for various functions
Production budget Number of units to be produced during the coming time period
Table 14.1c
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–27
Tools for Controlling Organizational Performance: Financial Controls
• Traditional Controls Ratio analysis
Liquidity
Leverage
Activity
Profitability
Budget Analysis
Quantitative standards
Deviations
• Other Measures Economic Value Added
(EVA)
Market Value Added (MVA)
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–28
Exhibit 18.10aExhibit 18.10a
Popular Financial Ratios
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Exhibit 18.10bExhibit 18.10b
Popular Financial Ratios
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–30
Benchmarking of Best Practices
• Benchmarking
The search for the best practices among competitors or noncompetitors that lead to their superior performance.
Benchmark: the standard of excellence against which to measure and compare.
A control tool for identifying and measuring specific performance gaps and areas for improvement.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–31
PERT AND CPM
• PERT (Programmed Evaluation and Review Technique and CPM (Critical Path Method) are important network techniques useful in planning are especially useful for planning.
• 1. The project is divided into a number of clearly identifiable activities which are then arranged in al logical sequence.
• 2. A network diagram is prepared to show the sequence of activities, the starting point and the termination of the project.
• 3. Time estimates are prepared for each activity. PERT requires the preparation of three time estimates optimistic.
• 4. The longest path in the network is identified as the critical path. It represents the sequence of those activates which are important for timely completion of the project and where no delays can be allowed without delaying the entire project.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–32
Exhibit 18.2Exhibit 18.2
The Planning–Controlling Link
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–33
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–34
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–35
L E A R N I N G O U T L I N E
What Is Control and Why Is It Important?• Define control.
• Contrast the three approaches to designing control systems.
• Discuss the reasons why control is important.
• Explain the planning-controlling link.
The Control Process• Describe the three steps in the control process.
• Explain why what is measured is more critical than how it’s measured.
• Explain the three courses of action managers can take in controlling.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–36
Designing Control Systems
• Market ControlEmphasizes the use of external market mechanisms
to establish the standards used in the control system. External measures: price competition and relative
market share
• Bureaucratic ControlEmphasizes organizational authority and relies on
rules, regulations, procedures, and policies.
• Clan ControlRegulates behavior by shared values, norms,
traditions, rituals, and beliefs of the firm’s culture.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–37
Organizational Performance Measures
• Organizational EffectivenessMeasuring how appropriate organizational goals are
and how well the organization is achieving its goals. Systems resource model
– The ability of the organization to exploit its environment in acquiring scarce and valued resources.
The process model– The efficiency of an organization’s transformation process
in converting inputs to outputs.
The multiple constituencies model– The effectiveness of the organization in meeting each
constituencies’ needs.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–38
Organizational Effectiveness Measures
• Industry rankings on: Profits
Return on revenue
Return on shareholders’ equity
Growth in profits
Revenues per employee
Revenues per dollar of assets
Revenues per dollar of equity
• Corporate Culture Audits
• Compensation and benefits surveys
• Customer satisfactionsurveys
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–39
Exhibit 18.8Exhibit 18.8
Popular Industry and Company Rankings
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–40
Controlling Organizational Performance
• Balanced Scorecard
A measurement tool that uses goals set by managers in four areas to measure a company’s performance:
Financial, customer, internal processes, and people/innovation/growth assets
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–41
Tools for Controlling Organizational Performance: Financial Controls (cont’d)
• Other Measures
Economic Value Added (EVA)
How much value is created by what a company does with its assets, less any capital investments in those assets: the rate of return earned over and above the cost of capital.
– The choice is to use less capital or invest in high-return projects.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–42
Tools for Controlling Organizational Performance: Financial Controls (cont’d)
• Other Measures (cont’d)
Market Value Added (MVA)
The value that the stock market places on a firm’s past and expected capital investment projects
If the firm’s market value (its stock and debt) exceeds the value of its invest capital (its equity and retained earnings), then managers have created wealth.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–43
Information Controls
• Management Information Systems (MIS)
A system used to provide management with needed information on a regular basis.
Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names).
Information: data that has been analyzed and organized such that it has value and relevance to managers.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–44
Exhibit 18.11Exhibit 18.11
Steps to Successfully Implement an Internal Benchmarking Best Practices Program
1. Connect best practices to strategies and goals.
2. Identify best practices throughout the organization.
3. Develop best practices reward and recognition systems.
4. Communicate best practices throughout the organization.
5. Create a best practices knowledge-sharing system.
6. Nurture best practices on an ongoing basis.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–45
Contemporary Issues in Control
• Cross-Cultural Issues
The use of technology to increase direct corporate control of local operations
Legal constraints on corrective actions in foreign countries
Difficulty with the comparability of data collected from operations in different countries
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–46
Contemporary Issues in Control (cont’d)
• Workplace ConcernsWorkplace privacy versus workplace monitoring:
E-mail, telephone, computer, and Internet usage Productivity, harassment, security, confidentiality,
intellectual property protection
Employee theft The unauthorized taking of company property by
employees for their personal use.
Workplace violence Anger, rage, and violence in the workplace is affecting
employee productivity.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–47
Exhibit 18.12Exhibit 18.12
Types of Workplace Monitoring by Employers
Internet use 54.7%
Telephone use 44.0%
E-mail messages 38.1%
Computer files 30.8%
Job performance using video cameras 14.6%
Phone conversations 11.5%
Voice mail messages 6.8%
Source: Based on S. McElvoy, “E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–48
Exhibit 18.13Exhibit 18.13
Control Measures for Employee Theft or Fraud
Sources: Based on A.H. Bell and D.M. Smith. “Protecting the Company Against Theft and Fraud,” Workforce Online (www.workforce.com) December 3, 2000; J.D. Hansen. “To Catch a Thief,” Journal of Accountancy, March 2000, pp. 43–46; and J. Greenberg, “The Cognitive Geometry of Employee Theft,” in Dysfunctional Behavior in Organizations: Nonviolent and Deviant Behavior, eds. S.B. Bacharach, A. O’Leary-Kelly, J.M. Collins, and R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 147–93.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–49
Exhibit 18.14Exhibit 18.14
Workplace Violence
Witnessed yelling or other verbal abuse 42%
Yelled at co-workers themselves 29%
Cried over work-related issues 23%
Seen someone purposely damage machines or furniture 14%
Seen physical violence in the workplace 10%
Struck a co-worker 2%
Source: Integra Realty Resources, October-November Survey of Adults 18 and Over, in “Desk Rage.” BusinessWeek, November 20, 2000, p. 12.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–50
Exhibit 18.15Exhibit 18.15
Control Measures for Deterring or Reducing
Workplace Violence
Sources: Based on M. Gorkin, “Five Strategies and Structures for Reducing Workplace Violence,” Workforce Online (www.workforce.com). December 3, 2000; “Investigating Workplace Violence: Where Do You Start?” Workforce Online (www.forceforce.com), December 3, 2000; “Ten Tips on Recognizing and Minimizing Violence,” Workforce Online (www.workforce.com), December 3, 2000; and “Points to Cover in a Workplace Violence Policy,” Workforce Online (www.workforce.com), December 3, 2000.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–51
Contemporary Issues in Control (cont’d)
• Customer InteractionsService profit chain
The service sequence from employees to customers to profit: service capability affects service value which impacts on customer satisfaction that, in turn, leads to customer loyalty in the form of repeat business (profit).
• Corporate GovernanceThe system used to govern a corporation so that the
interests of the corporate owners are protected. Changes in the role of boards of directors Increased scrutiny of financial reporting
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–52
Exhibit 18.16Exhibit 18.16
The Service Profit Chain
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–53
L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.
Controlling Organizational Performance
• Define organizational performance.
• Describe the most frequently used measures of organizational performance.
Tools for Organizational Performance
• Contrast feedforward, concurrent, and feedback controls.
• Explain the types of financial and information controls managers can use.
• Describe how balanced scorecards and benchmarking are used in controlling.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–54
L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.
Contemporary Issues in Control
• Describe how managers may have to adjust controls for cross-cultural differences.
• Discuss the types of workplace concerns managers face and how they can address those concerns.
• Explain why control is important to customer interactions.
• Discuss what corporate governance is and how it’s changing.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–55
The Control Process
• The Process of Control1. Measuring actual
performance.
2. Comparing actual performance against a standard.
3. Taking action to correct deviations or inadequate standards.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–56
Exhibit 18.3Exhibit 18.3
The Control Process
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–57
Why Is Control Important?
• As the final link in management functions:Planning
Controls let managers know whether their goals and plans are on target and what future actions to take.
Empowering employees Control systems provide managers with information and
feedback on employee performance.Protecting the workplace
Controls enhance physical security and help minimize workplace disruptions.
Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–58
The Nature of Control
• ControlThe regulation of organizational activities so that
some targeted element of performance remains within acceptable limits. Provides organizations with indications of how well they
are performing in relation to their goals. Provides a mechanism for adjusting performance to
keep organizations moving in the right direction.
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