Basic Elements of Control Copyright © Houghton Mifflin Company. All rights reserved.20–1

Copyright © Houghton Mifflin Company. All rights reserved.20–2 Controlling Process of evaluating and regulating ongoing activities to ensure goals are achieved.

Copyright © Houghton Mifflin Company. All rights reserved.20–3 Functions of Management Plan  Organize  Direct  Control Review and Modify     Control links us back to Planning function where we set our goals.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved.20– The Purpose of Control

Copyright © Houghton Mifflin Company. All rights reserved.20–5 Areas of Control Physical resources—inventory management, quality control, and equipment control. Human resources—selection and placement, training and development, performance appraisal, and compensation. Information resources—sales and marketing forecasts, environmental analysis, public relations, production scheduling, and economic forecasting. Financial resources—managing capital funds and cash flow, collection and payment of debts.

Copyright © Houghton Mifflin Company. All rights reserved.20–6 The Control Function 1. Set standards 2. Monitor actual performance 3. Compare actual performance against standard 4. Take corrective action    From planning function

Copyright © Houghton Mifflin Company. All rights reserved.20–7 -Establish standards Control standard—a target against which subsequent performance will be compared. Set during the Planning function. Should be expressed in measurable terms and consistent with organizational goals. -Measure performance Performance measurement is a constant, ongoing process. Performance measures must be valid indicators (e.g., sales, costs, units produced) of performance. -Compare performance against standards Define the permissible deviation from the performance standard. -Consider corrective action 1.Maintain the status quo (do nothing). 2.Correct the deviation to bring operations into compliance with the standard. 3.Change the standard if it was set too high or too low.

Copyright © Houghton Mifflin Company. All rights reserved.20–8 Forms of Operations Control

Copyright © Houghton Mifflin Company. All rights reserved.20–9 Financial Control Control of financial resources as they: Flow into the organization revenues Are held by the organization as working capital, retained earnings Flow out of the organization as payment of expenses

Copyright © Houghton Mifflin Company. All rights reserved.20–10 Budgetary Control –Budgets May be established at any organizational level. Are typically for one year or less. May be expressed in financial terms, units of output, or other quantifiable factors. –Purposes of budgets 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.

Copyright © Houghton Mifflin Company. All rights reserved.20–11

Copyright © Houghton Mifflin Company. All rights reserved.20–12 Financial Statements –Financial statement A profile of some aspect of an organization’s 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 performance—revenues less expenses as net income (i.e., profit or loss)—over a period of time, usually one year. Other Tools for Financial Control

Copyright © Houghton Mifflin Company. All rights reserved.20–13 Ratio Analysis –The calculation of one or more financial ratios to assess some aspect of the organization’s financial health. Liquidity ratios Debt ratios Operating ratios Financial Audit –An independent appraisal of an organization’s accounting, financial, and operational systems. External audits Internal audits Other Tools for Financial Control

Copyright © Houghton Mifflin Company. All rights reserved.20–14 –Integration with planning –Flexibility –Accuracy –Timeliness –Objectivity Characteristics of Effective Control

Copyright © Houghton Mifflin Company. All rights reserved.20–15 Overcontrol Inappropriate Focus Rewards for Inefficiency Too much accountability Why Resistance to Control?