8e Daft Chapter 19

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Managerial and Quality ControlManagerial and Quality Control

CHAPTER 19CHAPTER 19

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2 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning ObjectivesLearning Objectives

Define organizational control and explain why it

is a key management function.

Describe differences in control focus, including

feedforward, concurrent, and feedback control.

Explain the four steps in the control process.

Discuss the use of financial statements,

financial analysis, and budgeting as

management controls.

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Managerial and Quality ControlManagerial and Quality Control

Control is a critical issue facing every managerin every organization today

Quality control

Office productivity

Basic systems

allocating financial resources,

developing human resources,

analyzing financial performance, and evaluating overall

productivity

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Organizational ControlOrganizational Control

The systematic process throughwhich managers regulateorganizational activities tomake them consistent withexpectations established in

Plans

Targets

Standards of performance

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To effectively control an organization,

managers need to decide

What information is essential

How will they obtain that information

How they can and should respond to it

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7/267 Copyright 2008 by South-Western, a division of Thomson Learning. All rights reserved.


Feed forward Sometimes called preliminary or preventive control Concurrent

Assesses current work activities, relies on performancestandards

Includes rules and regulations for guiding employee tasksand behaviors

Intent to ensure that work activities produce the correctresults

Feedback Focuses on the organizations outputs; also called post-

action or output control

Three types of control

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Organizational Control FocusOrganizational Control Focus

FeedforwardControl AnticipatesProblems

Examples

Pre-employment

drug testing

Inspect raw

materials

Hire only college

graduatesFocu

sis

on

Inputs

Concurrent ControlSolve Problems as

They Happen

Examples

Adaptive culture

Total quality

management

Employee

self-controlFocus

is

on

Ongoing

Processes

Feedback ControlSolves Problems

After They Occur

Examples

Analyze sales per

employee

Final quality

inspection

Survey customersFocusiso

n

Outputs

Exhibit 19.1

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Feedforward ControlFeedforward Control

Focus is on

Human

Material

Financial resources

Attempts to identify and prevent deviations

Sometimes called preliminary or preventivecontrol

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Concurrent ControlConcurrent Control

Monitors ongoing activities to

ensure consistency with

performance standards Assesses

Current work activities

Relies on performance standards

Includes rules and regulations

Includes self-control on behavior personal values & attitudes

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Feedback ControlFeedback Control

Focuses on organizations

outputs

Sometimes called postaction oroutput control

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Feedback Control ModelFeedback Control Model

If

InadequateIf Adequate

Adjust

Standards Adjust Performance

Feedback

Establish

StrategicGoals.

1. Establish

standards ofperformance.

2. Measure

actualperformance.

3. Compare

performanceto standards.

4. Take

correctiveaction.

4. Do nothing

or providereinforcement.

Exhibit 19.2

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Budgetary ControlBudgetary Control

Most commonly used method of

managerial control

Process of setting targets

Used to monitor results and

compare to budget

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Responsibility CenterResponsibility Center

Organizational unit under the

supervision of a single person

who is responsible for itsactivity

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Budgets Managers UseBudgets Managers Use

Expense = anticipated and actual

expenses

Revenue = identifies forecasted and

actual revenues

Cash = estimates and reports cash flows

Capital = plans and reports investments in

major assets to be depreciated

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Traditional Budgeting MethodsTraditional Budgeting Methods

Top-down budgeting

Middle and lower-level managers set departmental

budget targets

Done in accordance with overall company revenuesand expenditures specified by top management

Bottom-up budgeting

Lower-level managers budget their departments

resource needs Pass up to top management for approval

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Financial StatementsFinancial Statements

Provide basic information for financial

control

1. Balance sheet- shows firms financial

position with respect to assets and liabilitiesat a specific point in time

2. Income statement- summarizes the firms

financial performance for a given time

interval (profit-and-loss statement)

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Balance sheet

Assets what company owns fixed &current

Liabilities what company owes current &long-term

Owners equity

Difference between assets and liabilitiesand

Is the companys net worth in stock andretained earnings

For specific point in time

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1. Income statement-

Shows revenues coming into the

organization from all sources Subtracts all expenses, including cost

of goods sold, interest, taxes, and

depreciation

Bottom line indicates the net income(profit or loss)

For given time interval usually one year

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Control PhilosophiesControl Philosophies

Bureaucratic control influencing employeebehavior and assess performance through rules policies

hierarchy of authority reward systems written documentation

Decentralizedcontrol relies on

cultural values traditions shared beliefs trust

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Total Quality Management - TQMTotal Quality Management - TQM

Organizationwide commitment to

infusing quality into every activity

through continuous improvementQuality circlesBenchmarking

Six Sigma

Reduced cycle timeContinuous improvement

Based on decentralized control philosophy

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Trends in Quality and Financial ControlTrends in Quality and Financial Control

International Quality Standards ISO

9000

New Financial Control Systems

Economic value added - EVA

Market value added - MVA

Activity-based costing - ABC

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Control Systems for Turbulent TimesControl Systems for Turbulent Times

Open-Book Management = sharing financial

information and results with all employees in

the organization

Balanced scorecard = comprehensive

management control system that balancestraditional financial measures with measures

of customer service, internal business

processes, and the organizations capacity for

learning and growth

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26 C i ht 2008 b S th W t di i i f Th L i All i ht d

The Balanced ScorecardThe Balanced Scorecard

Financial

Internal Business

processes

Learning and Growth

Customers

How well do we

serve our

customers?

Are we learning,

changing, and

improving?

Do internal activities

and processes add

value for customersand shareholders?

Do actions contribute

to improving financial

performance?

Mission

& Goals

Exhibit 19.10 Adapted

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