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Controlling as a Management FunctionControllingA process of monitoring performance and taking action to ensure desired results.

It sees to it that the right things happen, in the right ways, and at the right time.

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Controlling as a Management FunctionControlling

Done well, it ensures that the overall directions of individuals and groups are consistent with short and long range plans.

It helps ensure that objectives and accomplishments are consistent with one another throughout an organization.

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Controlling as a Management FunctionControllingIt helps maintain compliance with essential organizational rules and policies.

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The Control ProcessEstablish objectives and standards.

Measure actual performance.

Compare results with objectives and standards.

Take necessary action.

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Establish Objectives and Standards

The control process begins with planning and the establishment of performance objectives.

Performance objectives are defined and the standards for measuring them are set.

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Establish Objectives and Standards

There are two types of standards: Output Standards - measures

performance results in terms of quantity, quality, cost, or time.

Input Standards - measures work efforts that go into a performance task.

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Measuring Actual PerformanceMeasurements must be accurate enough to spot deviations or variances between what really occurs and what is most desired.

Without measurement, effective control is not possible.

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Comparing Results with Objectives and StandardsThe comparison of actual performance with desired performance establishes the need for action.

Ways of making such comparisons include: Historical / Relative / Engineering Benchmarking

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Taking Corrective ActionTaking any action necessary to correct or improve things.

Management-by-Exception focuses managerial attention on substantial differences between actual and desired performance.

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Taking Corrective Action Management-by Exception can save

the managers time, energy, and other resources, and concentrates efforts on areas showing the greatest need.

There are two types of exceptions:Problems - below standardOpportunities - above standard

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Effective Controls

The Best Controls in Organizations are

Strategic and results orientedUnderstandableEncourage self-control

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Effective ControlsThe Best Controls in

Organizations areTimely and exception orientedPositive in natureFair and objectiveFlexible

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Types of ControlPreliminary Sometimes called the feedforward controls, they are accomplished before a work activity begins.

They make sure that proper directions are set and that the right resources are available to accomplish them.

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Types of ControlConcurrent Focus on what happens during the work process. Sometimes called steering controls, they monitor ongoing operations and activities to make sure that things are being done correctly.

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Types of ControlPostaction Sometimes called feedback controls, they take place after an action is completed. They focus on end results, as opposed to inputs and activities.

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Types of ControlsManagers have two broad options with respect to control.

They can rely on people to exercise self-control (internal) over their own behavior.

Alternatively, managers can take direct action (external) to control the behavior of others.

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Types of ControlInternal Controls

Allows motivated individuals to exercise self-control in fulfilling job expectations.The potential for self-control is enhanced when capable people have clear performance objectives and proper resource support.

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Types of ControlExternal ControlsIt occurs through personal supervision and the use of formal administrative systems. Performance appraisal systems,

compensation and benefit systems, employee discipline systems, and management-by-objectives.

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Organizational Control SystemsManagement Processes Strategy and objectivesPolicies and proceduresSelection and trainingPerformance appraisal Job design and work structuresPerformance modeling, norms, and organization culture

What Is Control?Controlling– The process of monitoring activities to

ensure that they are being accomplished as planned and of correcting any significant deviations.

The Purpose of Control– To ensure that activities are completed

in ways that lead to accomplishment of organizational goals.

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.

The Planning–Controlling Link

The Control Process1. Describe the three steps in the control process.

2. Explain why what is measured is more critical than how it’s measured.

3. Explain the three courses of action managers can take in controlling.

The Control ProcessThe Process of Control

1. Measuring actual performance

2. Comparing actual performance against a

standard3. Taking action to

correct deviations or inadequate standards

The Control Process

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What is the control process?Controlling

The process of measuring performance and taking action to ensure desired results.

Has a positive and necessary role in the management process.

Ensures that the right things happen, in the right way, at the right time.

Organizational learning and after-action review.

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Study Question 4: What is the control process?Steps in the control process: Step 1 — establish objectives and

standards. Step 2 — measure actual performance. Step 3 — compare results with objectives

and standards. Step 4 — take corrective action as needed.

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Four steps in the control process.

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Study Question 4: What is the control process?Step 1 — establishing objectives and standards Output standards

Measure performance results in terms of quantity, quality, cost, or time.

Input standards Measure effort in terms of amount of

work expended in task performance.

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Study Question 4: What is the control process?

Step 2 — measuring actual performance Goal is accurate measurement of actual

performance results and/or performance efforts.

Must identify significant differences between actual results and original plan.

Effective control requires measurement.

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Study Question 4: What is the control process?Step 3 — comparing results with objectives and standards Need for action reflects the difference between

desired performance and actual performance Comparison methods: Historical comparison Relative comparison Engineering comparison

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Study Question 4: What is the control process?Step 4 — taking corrective action Taking action when a discrepancy

exists between desired and actual performance.

Management by exception Giving attention to situations showing

the greatest need for action. Types of exceptions

Problem situation Opportunity situation

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Study Question 4: What is the control process?Feedforward controls … Employed before a work activity

begins. Ensures that:

Objectives are clear. Proper directions are established. Right resources are available.

Focuses on quality of resources.

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Study Question 4: What is the control process?Concurrent controls … Focus on what happens during work

process. Monitor ongoing operations to make

sure they are being done according to plan.

Can reduce waste in unacceptable finished products or services.

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Study Question 4: What is the control process?

Feedback controls … Take place after work is completed. Focus on quality of end results. Provide useful information for

improving future operations.

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The role of feedforward, concurrent, and feedback controls in organizations.

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What is the control process?

Internal and external control Internal control

Allows motivated individuals and groups to exercise self-discipline in fulfilling job expectations.

External controlOccurs through personal supervision and

the use of formal administrative systems.

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Study Question 5: What are the common organizational controls?

Management by Objectives (MBO) A structured process of regular

communication. Supervisor/team leader and workers

jointly set performance objectives. Supervisor/team leader and workers

jointly review results.

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Figure 8.6 Management by objectives as an integrated planning and control framework.

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Study Question 5: What are the common organizational controls?MBO involves a formal agreement

specifying … Workers’ performance objectives for a specific

time period. Plans through which performance objectives

will be accomplished. Standards for measuring accomplishment of

performance objectives . Procedures for reviewing performance results.

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Study Question 5: What are the common organizational controls?The MBO process:

Supervisor and workers jointly set objectives, establish standards, and choose actions.

Workers act individually to perform tasks; supervisors act individually to provide necessary support.

Supervisor and workers jointly review results, discuss implications, and renew the MBO cycle.

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Study Question 5: What are the common organizational controls?Types of MBO performance objectives

Improvement Personal development Maintenance

Criteria for effective performance objectives Specific Time defined Challenging Measurable

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Study Question 5: What are the common organizational controls?

Pitfalls to avoid in using MBO Tying MBO to pay. Focusing too much attention on easily

quantifiable objectives. Requiring excessive paperwork. Having managers tell workers their objectives.

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Study Question 5: What are the common organizational controls?Advantages of MBO

Focuses workers on most important tasks and objectives.

Focuses supervisor’s efforts on important areas of support.

Contributes to relationship building. Gives workers a structured opportunity to

participate in decision making.

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Study Question 5: What are the common organizational controls?Employee discipline systems

Discipline is the act of influencing behavior through reprimand.

Discipline that is applied fairly, consistently, and systematically provides useful control.

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Study Question 5: What are the common organizational controls? To be effective, reprimands should …

Be immediate. Be directed toward actions, not personality. Be consistently applied. Be informative. Occur in a supportive setting. Support realistic rules.

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Study Question 5: What are the common organizational controls?Employee discipline systems

Progressive discipline ties reprimands to the severity and frequency of the employee’s infractions.

Progressive discipline seeks to achieve compliance with the least extreme reprimand possible.

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Study Question 5: What are the common organizational controls? Important financial aspects of

organizational performance … Liquidity

The ability to generate cash to pay bills. Leverage

The ability to earn more in returns than the cost of debt. Asset management

The ability to use resources efficiently and operate at minimum cost.

Profitability The ability to earn revenues greater than costs.

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Study Question 5: What are the common organizational controls? Break-even analysis …

Determination of the point at which sales revenues are sufficient to cover costs.

Break-Even Point = Fixed Costs / (Price – Variable Costs)

Used in evaluating: New products New program initiatives

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Figure 8.7 Graphical approach to break-even analysis.

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Study Question 5: What are the common organizational controls? Purchasing control …

A productivity tool Trends in purchasing control:

Leveraging buying power Committing to a small number of suppliers Working together in supplier-purchaser partnerships

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Study Question 5: What are the common organizational controls? Inventory control

Goal is to ensure that inventory is just the right size to meet performance needs, thus minimizing the cost.

Methods of inventory control: Economic order quantity Just-in-time scheduling

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Study Question 5: What are the common organizational controls? Statistical quality control

Quality control involves checking processes, materials, products, and services to ensure that they meet high standards.

Statistical quality control involves: Taking samples of work. Measuring quality in the samples. Determining the acceptability of results.

Step 1: Measuring How and What We Measure

Sources of Information (How)

– Personal observation– Statistical reports– Oral reports– Written reports

Control Criteria (What)Employees– Satisfaction– Turnover– AbsenteeismBudgets– Costs– Output– Sales

Exhibit 17–3 Common Sources of Information for Measuring Performance

Step 2: 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).

Exhibit 17–4 Defining the Acceptable Range of Variation

Exhibit 17–5 Example of Determining Significant Variation

Step 3: 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

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.

Step 3: Taking Managerial Action (cont’d)

Managerial Decisions in the Control Process

Controlling for Organizational PerformanceWhat 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

Organizational Performance Measures Organizational Productivity

– Productivity: 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, productivity is a measure of how

efficiently employees do their work.

Organizational Effectiveness– Measuring how appropriate organizational goals are

and how well the organization is achieving its goals.– This is the bottom-line for managers.– It is what guides managerial decisions in designing

strategies and work activities and in coordinating the work of employees.

Organizational Performance Measures (cont’d)

Organizational Performance MeasuresIndustry and Company Rankings

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 satisfaction

surveys

Tools for Measuring Organizational Performance

1. Contrast feedforward, concurrent, and feedback controls.

2. Explain the types of financial and information controls managers can use.

3. Describe how balanced scorecards and benchmarking are used in controlling.

Feedforward, Concurrent, and Feedback Controls – 1 Feedforward Control

– A control that prevents anticipated problems before actual occurrences of the problem.

– Building in quality through design– Requiring suppliers conform to ISO 9002

Concurrent Control– A control that takes place while the monitored activity is in

progress. Direct supervision: management by walking around

Feedback Control– A 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:– Provide managers with information on the effectiveness of their

planning efforts.– Enhance employee motivation by providing them with

information on how well they are doing.

Feedforward, Concurrent, and Feedback Controls – 2

Exhibit 17–8 Types of Control

Financial Controls

Exhibit 17–9 Popular Financial Ratios

Objective Ratio Calculation Meaning

Exhibit 17–9 Popular Financial Ratios (cont’d)

Objective Ratio Calculation Meaning

7-73 Copyright © 2011 Pearson Education

Managing Earnings– “Timing” income and expenses to enhance current financial results, which gives an unrealistic picture of the organization’s financial performance.

– New laws and regulations require companies to clarify their financial information.

Financial Controls (cont’d)

Balanced Scorecard

Information Controls

Purposes of Information Controls– As a tool to help managers control other organizational activities.

– Managers need the right information at the right time and in the right amount.

– As an organizational area that managers need to control.

– Managers must have comprehensive and secure controls in place to protect the organization’s important information.

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.

Information Controls (cont’d)

Benchmarking of Best Practices

Benchmark— The standard of excellence against which to measure

and compare.Benchmarking— Is the search for the best practices among competitors

or noncompetitors that lead to their superior performance.

— Is a control tool for identifying and measuring specific performance gaps and areas for improvement.

Exhibit 17-10 Suggestions for Internal Benchmarking

Contemporary Issues in Control

1. Describe how managers may have to adjust controls for cross-cultural differences.

2. Discuss the types of workplace concerns managers face and how they can address those concerns.

3. Explain why control is important to customer interactions.

4. Define corporate governance.

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.

Workplace ConcernsWorkplace privacy versus workplace

monitoring— E-mail, telephone, computer, and Internet usage— Productivity, harassment, security, confidentiality,

intellectual property protectionEmployee 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.

Exhibit 17–11 Controlling Employee Theft

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.

Exhibit 17–12 Workplace Violence

Witnessed yelling or other verbal abuse42%Yelled at co-workers themselves29%Cried over work-related issues23%Seen someone purposely damage machines or furniture14%Seen physical violence in the workplace10%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.

Exhibit 17–13 Controlling 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.

Customer InteractionsService profit chain

– Is 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 Governance