Foundations of Control

©Prentice Hall, 2001 Chapter 13 1

Foundations Foundations of Controlof Control

©Prentice Hall, 2001 Chapter 13 2

Learning OutcomesLearning Outcomes

• Define control

• Describe three approaches to control

• Explain why control is important

• Define the control process

• Analyze the three types of control

©Prentice Hall, 2001 Chapter 13 3

Learning OutcomesLearning Outcomes

• Describe an effective control system

• Identify contingency factors in the control

process

• Learn the dysfunctional side of controls

• Describe how national differences affect the

control process

• Study ethical issues in employee monitoring

©Prentice Hall, 2001 Chapter 13 4

Three ApproachesThree Approachesto Control Systemsto Control Systems

MarketMarketControlControlMarketMarketControlControl

ClanClanControlControl

ClanClanControlControl

BureaucraticBureaucraticControlControl

BureaucraticBureaucraticControlControl

©Prentice Hall, 2001 Chapter 13 5

Managerial Decisions in the Control ProcessManagerial Decisions in the Control Process

IdentifyCauses IdentifyCauses

CorrectPerformance

CorrectPerformance

VarianceAcceptable?

VarianceAcceptable?

ReviseStandardRevise

Standard

StandardAttained?StandardAttained?

StandardAcceptable?

StandardAcceptable?

YesYes

YesYes

YesYes

NoNo

NoNo

NoNo

ComparePerformanceto Standard

ComparePerformanceto Standard

MeasurePerformance

MeasurePerformance

ObjectivesObjectives

StandardStandard

Do NothingDo Nothing

Do NothingDo Nothing

©Prentice Hall, 2001 Chapter 13 6

InformationInformation

PeoplePeopleFinancesFinances

OperationsOperations

What ManagersWhat ManagersMeasureMeasure

©Prentice Hall, 2001 Chapter 13 7

Defining an Acceptable Range of Defining an Acceptable Range of VariationVariation

AcceptableAcceptableUpper LimitUpper Limit

StandardStandard

AcceptableAcceptableLower LimitLower Limit

AcceptableAcceptableRange ofRange ofVariationVariation

t t+1 t+2 t+3 t+4 t+5t t+1 t+2 t+3 t+4 t+5

©Prentice Hall, 2001 Chapter 13 8

Mid-Western Distributors’ Sales for JulyMid-Western Distributors’ Sales for July(in hundreds of cases)(in hundreds of cases)

Heineken

Molson

Beck’s

Moosehead

Labatt’s

Corona

Amstel Light

Dos Equis

Tecate

Total Cases

1,075

630

800

620

540

160

225

80

170

4,300

913

634

912

622

672

140

220

65

286

4,464

(162)

4

112

2

132

(20)

(5)

(15)

116

164

Brand Standard Actual Over (Under)

©Prentice Hall, 2001 Chapter 13 9

Do NothingDo NothingDo NothingDo Nothing

TakingTakingManagerialManagerial

ActionAction

TakingTakingManagerialManagerial

ActionAction

CorrectCorrectPerformancePerformance

CorrectCorrectPerformancePerformance

ReviseRevisethe Standardthe Standard

ReviseRevisethe Standardthe Standard

©Prentice Hall, 2001 Chapter 13 10

InputInputInputInput ProcessesProcessesProcessesProcesses OutputOutputOutputOutput

FeedforwardFeedforwardControlControl

AnticipatesAnticipatesProblemsProblems

FeedforwardFeedforwardControlControl

AnticipatesAnticipatesProblemsProblems

ConcurrentConcurrentControlControl

Corrects ProblemsCorrects Problemsas They Happenas They Happen

ConcurrentConcurrentControlControl

Corrects ProblemsCorrects Problemsas They Happenas They Happen

FeedbackFeedbackControlControl

Corrects ProblemsCorrects Problemsafter They Occurafter They Occur

FeedbackFeedbackControlControl

Corrects ProblemsCorrects Problemsafter They Occurafter They Occur

Three Types of ControlThree Types of ControlThree Types of ControlThree Types of Control

©Prentice Hall, 2001 Chapter 13 11

Qualities of an Effective Qualities of an Effective Control SystemControl System

• Accuracy

• Timeliness

• Economy

• Flexibility

• Understandability

©Prentice Hall, 2001 Chapter 13 12

Qualities of an Effective Qualities of an Effective Control SystemControl System

• Reasonable criteria

• Emphasis on exceptions

• Strategic placement

• Multiple criteria

• Corrective action

©Prentice Hall, 2001 Chapter 13 13

Contingency Factors in Control SystemsContingency Factors in Control Systems

Organization Size

Position and Level

Degree of Decentralization

Organizational Culture

Importance of an Activity

Small

Large

Informal, personal management

Formal, personal management

High

Low

High

Low

Open

Closed

High

Low

Contingency Variable Control Recommendations

Many complex criteria

Few, easy-to-measure criteria

Increased number of controls

Reduced number of controls

Informal, self-control

Formal, external controls

Elaborate, comprehensive controls

Loose, informal controls

©Prentice Hall, 2001 Chapter 13 14

Adjusting ControlsAdjusting Controlsfor National for National DifferencesDifferences

TechnologyTechnologyand theand the

ComparabilityComparabilityof Dataof Data

DistanceDistanceand theand the

Formality Formality of Controlsof Controls

©Prentice Hall, 2001 Chapter 13 15

Dysfunctional Dysfunctional ControlsControls

InflexibleControls

InflexibleControls

Unreasonable

Standards

Unreasonable

Standards

©Prentice Hall, 2001 Chapter 13 16

InformInformEmployeesEmployees

Have aHave aWritten PolicyWritten Policy

Monitor forMonitor forBusiness ReasonsBusiness Reasons

Ethical IssuesEthical Issuesand Controland Control

Questions of PrivacyQuestions of Privacy