Quiz 4 Availability – see calendar Will cover Chapters 13, 14, 15, 16, & 17
Jan 04, 2016
Learning ObjectivesAfter reading this chapter, you should be able to: Describe management control and understand the
importance of control systems.
Identify the four basic management control approaches.
Describe the steps a manager would take to apply a bureaucratic control process.
Identify the major types of bureaucratic control.
Generate the basic framework for a balanced scorecard.
Differentiate between market and financial control.
Distinguish between system and person factors as the focus of control.
The Importance of ControlControl is the process of comparing
performance to standards and taking corrective action.
It ensures that: standards are met errors are limited quality is acceptable products are safe the company is performing at the highest
possible level
Control is closely associated with planning.
Categorization of Control ApproachesControl approaches can be categorized according to two
factors – type and focus:
Type - divided into formal and informal approaches Formal control systems consist of written rules Informal control systems rely on unwritten
expectations
Focus – directed at the outcome or the process Outcome approach focuses on the results of a
business process Process approach focuses on how the work is
performed
Control Approaches Model
Informal Formal
Type
Outcomes
Process
Focus
Subjective Control
Clan Control
Marketing Control
Financial Controls
Operations Management
Bureaucratic Control
Balanced Scorecard
Informal and Outcome-Focused ControlCharacterized by subjective control - an
informal approach based on global assessment of outcomes
Subjective control: does not typically utilize explicit standards does not specify how deviations from an acceptable
level should be handled is common in smaller businesses and service
settings is the “no news is good news” approach
Formal and Process-Focused Control: Bureaucratic Control
Bureaucratic control is a formal control approach that operates in a cycle and is characterized by written guidelines and controls.
Involves: the application of standards to assess
performance the application of corrective actions to
regulate performance and bring it back to the level of the standards.
The Bureaucratic Control Process
1. Establishing Standards
2. Performance Measurement
3. Identifying Gaps
4. Corrective Action
The Bureaucratic Control Process (cont) Establishing Standards
Standards should be participative rather than simply implemented from the top down so that employees understand and are committed to them.
Standards come from: goals statistical analysis benchmarking
Performance Measurement Use of objective data, which is free from error or
bias Use of subjective data, which involves human
judgement
The Bureaucratic Control Process (cont)
Identifying Gaps Compare standards with performance measures Upper and lower control limits establish:
acceptable variations normal variations unacceptable variations
Corrective Action What should management do?
Nothing Take action Change standards
Types of Bureaucratic Control (cont.)
Feedforward controlDesigned to prevent problems before they
occur
Concurrent controlTakes place as the work process is being
carried out
Feedback controlOccurs after a process has been completed
The Balanced ScorecardA balanced scorecard is a technique
designed to control and improve: customer service learning and growth finance internal business processes
Links strategy to actionIs more broad than bureaucratic controlFocus on:
priorities the work process how things are done
Balanced Scorecard FormatObjectives Measures Targets Initiatives
Financial - what we need todo to succeedfinancially
Customer - what we need todo to excel atcustomer service
Internal BusinessProcesses - whatwe need to do to have world class processes
Learning and Growth - how to change and increaseour potential andeffectiveness
Formal and Outcome-Focused ControlThe regulation of performance by applying the standards or guidelines to the outcomes of a process through:
Market control - the use of indicators of market values as standards for regulating performance
Financial controls - the use of various monetary measures to regulate performance
Types of Financial Controls
Budgetary Control Financial Statements
Financial Ratios Activity-BasedCosting
Types of Financial Controls (cont.)
Budgetary control - used to specify amounts to be expended for various activities or eventsCan help managers control and predict
costs
Financial Statements - tools that are used to assess and control the financial health of an organizationBalance sheetsProfit and loss (income) statements
Types of Financial Controls (cont.)
Financial Ratios - provide an overall check of performance Liquidity ratios - an organization’s ability to pay
short-term debt Leverage ratios - the amount of funds available in
an organization from shareholders and creditors Profitability ratios - indicate the amount of financial
return from an investment
Activity-Based Costing - associates costs with tasks calculated for:
receiving and processing sales orders expediting supplies and production distribution resolving errors and problems
Informal and Process-Focused ControlEmphasizes an implicit sense and common understanding of how things should be done
Does not rely on explicit guidelines and standards
Assumes that people have an internal set of standards that will guide how they perform
Clan ControlClan control is a reliance on corporate culture and the norms it develops as an informal means for regulating the work process
Employees control themselves
Clan control works best if:the organization is constantly changingthe organization has a strong culture
Management Control RevisitedShould control be directed at people, systems, or some other aspect of the company?
Emphasis should be on systems and performance rather than people.
Focusing on people can result in resistance and negative reactions