Managerial Control

Chapter Sixteen

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Learning Objectives

LO 1 Explain why companies develop control systems for employees.

LO 2 Summarize how to design a basic bureaucratic control system.

LO 3 Describe the purposes for using budgets as a control device.

LO 4 Define basic types of financial statements and financial ratios used as controls.

LO 5 List procedures for implementing effective control systems.LO 6 Identify ways in which organizations use market control

mechanisms.LO 7 Discuss the use of clan control in an empowered

organization.16-2

Managerial Control

Control Any process that directs the activities of

individuals toward the achievement of organizational goals

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Characteristics of Control

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Table 16.2

The Control Process

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Figure 16.1

After-action review

After-action review A frank and open-minded discussion of four basic

questions aimed at continuous improvement.

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Approaches to Bureaucratic Control

Feedforward control The control process used before operations

begin, including policies, procedures, and rules designed to ensure that planned activities are carried out properly.

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Management Audits

Management audit An evaluation of the

effectiveness and efficiency of various systems within an organization

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Budgetary Controls

Budgeting The process of investigating what is being done

and comparing the results with the corresponding budget data to verify accomplishments or remedy differences

also called budgetary controlling.

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A Sales-Expense Budget

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Table 16.4

Activity-Based Costing

Activity-based costing (ABC) A method of cost accounting designed to identify

streams of activity and then to allocate costs across particular business processes according to the amount of time employees devote to particular activities

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Activity-Based CostingExample: ABC Medical Clinic

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Figure 16.3

The Profit and Loss Statement

Profit and loss statement An itemized financial

statement of the income and expenses of a company’s operations

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Table 16.6

Using Financial Ratios

Management myopia Focusing on short-

term earnings and profits at the expense of longer-term strategic obligations.

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Examples of Market Control

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Figure 16.4