Top Banner
PowerPoint Presentation by Charlie PowerPoint Presentation by Charlie Cook Cook Copyright © 2005 Prentice Hall, Inc. Copyright © 2005 Prentice Hall, Inc. All rights reserved. All rights reserved. 8 th edition Steven P. Robbins Mary Coulter
58

Managerial Control

Nov 03, 2014

Download

Education

Manuel Ardales

A discussion on the process of control.
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: Managerial Control

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

Page 2: Managerial Control

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.

Page 3: Managerial Control

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

Page 4: Managerial Control

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

Page 5: Managerial Control

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.

Page 6: Managerial Control

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.

Page 7: Managerial Control

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).

Page 8: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–8

Exhibit 18.6Exhibit 18.6

Sales Performance Figures for July, Eastern States Distributors

Page 9: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–9

Exhibit 18.5Exhibit 18.5

Defining the Acceptable Range of Variation

Page 10: Managerial Control

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

Page 11: Managerial Control

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.

Page 12: Managerial Control

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

Page 13: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–13

Exhibit 18.4Exhibit 18.4

Common Sources of Information for Measuring Performance

Page 14: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–14

Exhibit 18.9Exhibit 18.9

Types of Control

Page 15: Managerial 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

Page 16: Managerial Control

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.

Page 17: Managerial Control

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.

Page 18: Managerial Control

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

Page 19: Managerial Control

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.

Page 20: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–20

Exhibit 18.7Exhibit 18.7

Managerial Decisions in the Control Process

Page 21: Managerial Control

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).

Page 22: Managerial Control

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.

Page 23: Managerial Control

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.

Page 24: Managerial Control

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

Page 25: Managerial Control

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

Page 26: Managerial Control

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

Page 27: Managerial Control

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)

Page 28: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–28

Exhibit 18.10aExhibit 18.10a

Popular Financial Ratios

Page 29: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–29

Exhibit 18.10bExhibit 18.10b

Popular Financial Ratios

Page 30: Managerial Control

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.

Page 31: Managerial Control

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.

Page 32: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–32

Exhibit 18.2Exhibit 18.2

The Planning–Controlling Link

Page 33: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–33

Page 34: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–34

Page 35: Managerial Control

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.

Page 36: Managerial Control

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.

Page 37: Managerial Control

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.

Page 38: Managerial Control

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

Page 39: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–39

Exhibit 18.8Exhibit 18.8

Popular Industry and Company Rankings

Page 40: Managerial Control

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

Page 41: Managerial Control

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.

Page 42: Managerial Control

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.

Page 43: Managerial Control

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.

Page 44: Managerial Control

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.

Page 45: Managerial Control

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

Page 46: Managerial Control

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.

Page 47: Managerial Control

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.

Page 48: Managerial Control

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.

Page 49: Managerial Control

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.

Page 50: Managerial Control

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.

Page 51: Managerial Control

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

Page 52: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–52

Exhibit 18.16Exhibit 18.16

The Service Profit Chain

Page 53: Managerial Control

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.

Page 54: Managerial Control

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.

Page 55: Managerial Control

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.

Page 56: Managerial Control

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–56

Exhibit 18.3Exhibit 18.3

The Control Process

Page 57: Managerial Control

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.

Page 58: Managerial Control

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.