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Managing the Control Process
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The Nature of ControlThe 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 theyare performing in relation to their goals.
Provides a mechanism for adjusting performance to keep
organizations moving in the right direction.
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143
The PlanningThe PlanningControlling LinkControlling Link
Source: Van Fleet, David D., and Tim Peterson, Contemporary Management, Third Edition. Copyright 1994 by Houghton Mifflin Company. Used with permission.
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144
The Nature of Control (contd)The Nature of Control (contd)
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
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The Nature of Control (contd)The Nature of Control (contd)
Types of ControlsAreas of Control
Physical resourcesinventory management, quality
control, and equipment control.
Human resourcesselection and placement, training
and development, performance appraisal, and
compensation.
Information resourcessales and marketing forecasts,
environmental analysis, public relations, productionscheduling, and economic forecasting.
Financial resourcesmanaging capital funds and cash
flow, collection and payment of debts.
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146
The Nature of Control (contd)The Nature of Control (contd)
Types of Controls (contd)Levels of Control
Strategic
control
Structural
control
Operations
control
Financial
control
Figure 14.2
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147
The Nature of Control (contd)The Nature of Control (contd)
Types of Controls (contd)Responsibilities for Control
Controllera position in organizations
that helps line managers with
their control activities.
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148
Responsibility for ControlResponsibility for Control
Source: Van Fleet, David D., and Tim Peterson, Contemporary
Management, Second Edition. Copyright 1991 by Houghton Mifflin
Company. Used with permission.
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149
The Nature of Control (contd)The Nature of Control (contd)
Steps in the Control Process
Establish
standards
Measure
performance
Compare
performance
against standards
Maintain the
status quo
Correct the
deviation
Change
standards
Determine need
for corrective
action
21 43
Figure 14.3
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1410
The Nature of Control (contd)The Nature of Control (contd)
Steps in the Control Process (contd)Establish Standards
Control standarda 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.
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1411
The Nature of Control (contd)The Nature of Control (contd)
Steps in the Control Process (contd)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.
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1412
The Nature of Control (contd)The Nature of Control (contd)
Forms of Operations Control
Preliminary control
Focuses on inputs
to the organizationalsystem
Inputs Transformation Outputs
Screening control
Focuses on how
inputs are beingtransformed into
outputs
Postaction control
Focuses on outputs
from the organiza-tional system
Feedback
Figure 14.4
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1413
Financial ControlFinancial 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).
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Financial Control (contd)Financial Control (contd)
Financial Control (contd)Budgets serve four purposes:
Help managers coordinate resources and projects.
Help define the established standards for control.
Provide guidelines about the
organizations resources
and expectations.
Enable the organization
to evaluate theperformance of
managers and
organizational units.
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1416
Financial Control (contd)Financial Control (contd)
Types of Budgets
Type f B d et W t B d et S
i i l d et S res d ses f sh
Cas -flo or cas udget ll sources of cas inco e and case penditures in ont ly, eekly, or dailyperiods
Capital-e penditures udget Costs of ajor assets suc as a ne plant,ac inery, or land
Balance-s eet udget Forecast of t e organizations assets and
lia ilities in t e e ent t at all ot er udgetsare et
Table 14.1a
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1417
Financial Control (contd)Financial Control (contd)
Types of Budgets (contd)
Type f B d et What B d et Shows
perati bud et lanned operations in financial ters
ales or re enue udget Inco e t e organization e pects to recei e fronoral operations
pense udget nticipated e penses for t e organization duringt e co ing ti e period
rofit udget nticipated differences et een sales or re enuesand e penses
Table 14.1b
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Copyright by Houghton Mifflin Company. All rights reserved. 1418
Financial Control (contd)Financial Control (contd)
Types of Budgets (contd)
Type of udget hat udget 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 forvarious functions
Production budget Number of units to be produced during the comingtime period
Table 14.1c
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Financial Control (contd)Financial Control (contd)
Strengths
Budgets facilitate effective
operational controls.
Budgets facilitate
coordination and
communication between
departments.
Budgets establish records of
organizational performance,which can enhance
planning.
Weaknesses
Budgets can hamper
operations if applied too
rigidly.
Budgets can be time
consuming to develop.
Budgets can limit innovation
and change.
Strengths and Weaknesses of Budgeting
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Other Tools of Financial ControlOther Tools of Financial Control
Financial StatementsA financial statement is a profile of some aspect of an
organizations financial circumstances.
Balance sheet
A listing of assets (current and fixed), liabilities (short-and long-term), and stockholders equity at a specific
point in time (typically year-ending) that summarizes the
financial condition of the organization.
Income statement Summary of financial performancerevenues less
expenses as net income (i.e., profit or loss)over a
period of time, usually one year.
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Other Tools of Financial Control (contd)Other Tools of Financial Control (contd)
Ratio AnalysisThe calculation of of one or more financial ratios to
assess some aspect of the organizations financial
health.
Financial AuditsAuditan independent appraisal of an organizations
accounting, financial, and operational systems.
External auditsfinancial appraisals conducted by
experts who are not employees of the organization.Internal auditsappraisals conducted by employees of
the organization.
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Structural ControlStructural Control
Organizational Control
Dimension
Employee complianceGoal of control approach
Strict rules, formal controls,rigid hierarchy
Directed toward minimum
levels of acceptable
performance
Tall structure, top-down
influence
Directed at individualperformance
Limited and formal
Employee commitment
Group norms, culture,self-control
Directed toward enhancedperformance above andbeyond the minimum
Flat structure, shared
influence
Directed at group
performance
Extended and informal
Performance expectations
Degree of formality
Organization design
Reward system
Participation
ureaucratic Control Clan Control
Figure 14.6
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Structural Control (contd)Structural Control (contd)
Bureaucratic ControlA form of organizational control characterized by
formal and mechanistic structural arrangements.
Clan Control
An approach to organizational
control characterized by
informal and organic
structural arrangements.
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1425
Strategic ControlStrategic Control
Integrating Strategy and ControlStrategic control
Control aimed at ensuring that the organization is
maintaining an effective alignment with its environment
and moving toward achieving its strategic plan. Focuses on structure, leadership, technology, human
resources, and informational and operational systems.
Focuses on the extent to which an implemented strategy
achieves the organizations goals.
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Strategic Control (contd)Strategic Control (contd)
Integrating Strategy and Control (contd)International Strategic Control
Focuses on whether to manage the global organization
from a centralized or decentralized perspective.
Centralization creates more control and coordination,whereas decentralization fosters adaptability and
innovation.
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Managing Control in OrganizationsManaging Control in Organizations
Characteristics of Effective ControlIntegration with Planning
the more control is linked to planning, the more effective
the control system.
Flexibility
the control system must be flexible enough to
accommodate change.
Accuracy
Inaccurate information results in bad decision makingand inappropriate managerial actions.
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Managing Control in Organizations (contd)Managing Control in Organizations (contd)
Characteristics of Effective Control (contd)Timeliness
A control system should provide information as often as
necessary.
Ob ectivity
A control system
must be free from bias
and distortion.
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1429
Managing Control in Organizations (contd)Managing Control in Organizations (contd)
Resistance to ControlOvercontrol
Trying to control too many details becomes problematic
when control affects employee behavior and employees
perceive control attempts as unreasonable.Inappropriate Focus
The control system may be too narrow or it may focus
too much on quantifiable variables and leave no room
for analysis or interpretation.
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Managing Control in Organizations (contd)Managing Control in Organizations (contd)
Resistance to Control (contd)Rewards for Inefficiency
Rewarding operational inefficiency can lead employees
to behave in ways that are not in the best interests of the
organization.Too much accountability
Efficient controls are resisted
by poorly performing
employees.
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Overcoming Resistance to ControlOvercoming Resistance to Control
Resistance to control can be overcome by:Designing effective controls that are properly
integrated with organizational planning and aligned
with organizational goals and standards.
Creating controls that are flexible, accurate, timely,and ob ective.
Avoiding overcontrol in the implementation of controls.
Guarding against creating controls that reward
inefficiencies.
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Overcoming Resistance to Control (contd)Overcoming Resistance to Control (contd)
Resistance to control can be overcome by(contd):
Encouraging employee participation in the planning
and implementing of control systems.
Developing a system of checks and balances in thecontrol systems through the use of multiple standards
and information systems that allow the organization to
verify the accuracy of performance indicators.
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Types of ControlTypes of Control
Feedforward ControlPrevents anticipated problems before they occur
Building in quality through design
Requiring suppliers conform to ISO 9002
Concurrent Control
Monitoring while activity is in progress
Direct supervision: management by walking around
Feedback ControlTakes place after an activity is done Corrective action is after-the-fact, when the problem has
already occurred
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11
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
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