Chapter 2

The Control ProcessPrinciples of Food, Beverage, and Labour Cost Controls,

Canadian Edition

The Control Process

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Learning Objectives

• 2.1 Define control; examples and significance• 2.2 List the four steps in the control• 2.3 Cite eight control techniques• 2.4 Describe the steps and prepare a budget• 2.5 Explain significance of the cost–benefit ratio

in control decisions• 2.6 Identify what to consider when deciding to

make a product in-house or outsource

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Important Control Definitions

• Control: Power over events to achieve or prevent an outcome

• Cost Control: Process to regulate costs and guard against excessive costs

• Standards: Rules or measures established for making comparisons and judgments

• Standard cost: Cost of goods and services identified, approved and accepted by management P

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Important Control Definitions

• Standard procedures: Established as the correct methods, routines and techniques for day-to-day operations

• Budget: Realistic expression of management’s goals and objectives expressed in financial terms

• Control system: Collection of interrelated and interdependent control techniques and procedures P

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Steps in the Control Process

1. Establish standards and standard procedures for operation.

2. Train all individuals to follow established standards and standard procedures.

3. Monitor performance and compare actual performances with established standards.

4. Take appropriate action to correct deviations from standards.

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Control Techniques

1. Establishing standards

2. Establishing procedures

3. Training

4. Setting examples and directing

5. Observing and correcting employee actions

6. Requiring records and reports

7. Disciplining employees

8. Preparing and following budgets Pri

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The Budget

• The operating budget will detail the operational direction and your expected financial results.

• The operating budget may be broken down into shorter periods, to compare to actuals;• Identify concerns• Take remedial action• Consider a flexible budget

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The Budget

• Just as the income statement tells you about your past performance, the budget is developed to help you achieve your future goals.

Budgeted Revenue - Budgeted Expense = Budgeted Profit

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The Budget

• To prepare the budget and stay within it, assures you meet predetermined profit levels.

• The effective foodservice operator builds a flexible budget, monitors it closely, modifies it when necessary, and achieves the desired results.

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Developing the Budget To establish any type of budget, have the following information available:1. Prior period operating results

2. Examine the external environment to assess any conditions that could affect sales volume in future

3. Review any planned changes in the operation that would affect sales volume

4. Determine the nature and extent of changes in cost levels

5. Have the projections for sales, costs and profits approved by management

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Monitoring the Budget• In general, the budget should be monitored in

each of the following three areas:

1. Sales

2. Expense

3. Profit

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Monitoring the Budget• As business conditions change, changes in the

budget are to be expected. This is because budgets are based on a specific set of assumptions, and as these assumptions change, so too does the budget that follows from the assumptions.

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Monitoring the Budget• Budgeted profit must be realized if the operation

is to provide adequate returns for owner and investor.

• The primary goal of management is to generate the profits necessary for the successful continuation of the business. Budgeting for these profits is a fundamental step in the process.

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Cost/Benefit Ratio• The cost/benefit ratio is the relationship

between the costs incurred in instituting and maintaining a control system, and the benefits or savings derived by doing so.

• Benefits must always exceed costs. Before instituting any new procedures for control, management should first determine that the anticipated savings will be greater than the cost of the new procedures. P

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In-House or Outsource• Consider quality standards• Reliability and service of distributor• Compare true cost of house-preparation

• Raw ingredients• Labour• Skilled staff• Utility and energy• Customer satisfaction• Staff morale

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Key Terms• Budget, p. 51• Control, p. 40• Control process, p. 42• Control system, p. 57• Cost control, p. 41• Cost–benefit ratio, p. 60• Flexible budget, p. 57• Make in-house versus outsource

determination, p. 62 • Operating budget, p. 52

• Procedures, p. 47• Quality standards, p. 46• Quantity standards, p. 46• Sales control, p. 43• Standard cost, p. 47• Standard procedures, p. 47• Standards, p. 46• Static budget, p. 53• Training, p. 48

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Chapter Web Links• Food Cost Control: http://foodcostcontrol.blogspot.com/

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Copyright © 2014 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.

Copyright

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