13 Chapter Foundations of Control Copyright ©2011 Pearson Education

13-2 Learning Outcomes Explain the nature and importance of control Describe the three steps in the control process Discuss the types of controls organizations and managers use Discuss contemporary issues in control Copyright ©2011 Pearson Education

13-3 What is Control? Control – The management function that involves monitoring activities to ensure that they’re being accomplished as planned and correcting any significant deviations Copyright ©2011 Pearson Education

13-4 The Effective Control System The effective control system ensure that activities are completed in ways that lead to the attainment of the organization’s goals. The more a control system helps managers achieve their organization’s goals, the better it is. Copyright ©2011 Pearson Education

13-5 Why is Control Important? The value of the control function can be seen in three specific areas: Planning, Empowering employees, and Protecting the workplace. 1.Planning: After setting goals in planning>> the effective manager should follow up to ensure that what employees are supposed to do is being done and goals are being achieved. Controlling provide the critical link back to planning. If manager didn't control, he has no way of knowing whether his goals and plans were being achieved. Copyright ©2011 Pearson Education

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13-7 Why is Control Important? 2. Employee Empowerment: An effective control system can provide information and feedback on employee performance so managers feel comfortable empowering employees and minimize the chance of potential problems. 3. Protect the workplace: Org face threads from natural disasters, financial pressures, and possible terrorist attacks. Managers must protect their org in such events. Comprehensive controls and backup plans will assure minimal work disruptions. Copyright ©2011 Pearson Education

13-8 What is the Control Process? Control Process – A three-step process of: – 1. Measuring actual performance. – 2. Comparing actual performance against a standard. – 3. Taking managerial action to correct deviations or to address inadequate standards Copyright ©2011 Pearson Education

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13-10 How Do Managers Measure? To determine actual performance, a manager must first get information about it. Thus, the first step in control is measuring. Four common sources of information frequently used to measure actual performance are: – personal observation, statistical reports, oral reports, and written reports. – The use of a combination of them increase both number of input sources and the probability of receiving reliable info. Copyright ©2011 Pearson Education

13-11 Source of Information Personal observation: Strengths: Permits intensive coverage because minor and major performance activities can be observed. Manager can read between lines. Management By Walking Around (MBWA) – When a manager is out in the work area interacting with employees, and exchanging information about what is going on. – MBWA can pick up facial expressions, and tons of voice that may missed by other sources. Copyright ©2011 Pearson Education

13-12 Personal Observation Weaknesses: When quantitative information suggest objectivity, personal observation is considered low-grade info source. It is subject to perceptual biases: what one manager see, another might not. It is time consuming Employees may interpret a manager’s observation as a lack of confidence or a sign of mistrust Copyright ©2011 Pearson Education

13-13 Source of Information Statistical Reports Strengths: It is not limited to computer outputs, it also includes, graphs, bar charts to assess performance. Easy to visualize and effective for showing relationships Weaknesses: Provide limited info about an activity. Statistics report on only few key areas and may ignore other important, subjective factors. Copyright ©2011 Pearson Education

13-14 Source of Information Oral Reports >> through conference, meeting, one- to-one conversations, or telephone calls. Strengths: Fast info, allows for feedback, and permit expression and tone of voice. Weaknesses: It is difficult to document the info for later reference>> however, today technologies capabilities can taped oral report to become as permanent as if they were written. Copyright ©2011 Pearson Education

13-15 Source of Information Written Reports: Strengths: Its formality give greater comprehensive and conciseness than found in oral reports. It is easy to catalog and reference Copyright ©2011 Pearson Education

13-16 What do Manager Measure? A comprehensive control system need to recognize the diversity of activities among managers. Some activities are more difficult to measure in quantifiable terms. The manager need to determine what value a person, department, or unit contribute to the org and often convert the contribution into standards. Most jobs and activities can be expressed in tangible and measurable terms. When performance indicator cannot be stated in quantifiable terms, managers should look for and use subjective measures. Copyright ©2011 Pearson Education

13-17 How Do Managers Compare Performance to Planned Goals? The comparing step determine the variation between actual performance and the standard. It is critical to determine an acceptable Range of Variation >>> (it is difficult to be determined) – The acceptable parameters of variance between actual performance and a standard Deviations outside this range need attention Copyright ©2011 Pearson Education

13-18 What Management Action Can Be Taken? Managers can choose among three possible courses of action: do nothing, correct the actual performance, or revise the standards. -1) Doing nothing is self-explanatory. 2) Correcting the actual performance: Managers could take different corrective actions if the work is unsatisfactory is the reason of performance variations such as: training programs, disciplinary action, changes in compensation practices. Copyright ©2011 Pearson Education

13-19 What Management Action Can Be Taken? Manager should make a decision whether to take Immediate Corrective Action – Corrective action that addresses problems at once to get performance back on track. Or manager could use Basic Corrective Action – Corrective action that looks at how and why performance deviated before correcting the source of deviation Copyright ©2011 Pearson Education

13-20 What Management Action Can Be Taken? 3) Revise the standard: Standards can be revised by either raising or lowering them. It is possible that the variance was a result of an unrealistic standard- too low or too high goal, therefore, the standard needs corrective action, not the performance. When performance is not up to the bar, it is not a good idea to blame the goal or standard immediately. If the manager believe that the standard is realistic, fair and achievable, then the future performance should be improved. Copyright ©2011 Pearson Education

13-21 When Does Control Take Place? There are three types of controls that organizations and managers use: Feedforward Control (before an activity begin) – Control that takes place before a work activity is done. – Prevent problems since it takes place before the actual activity. – This type of control require timely and accurate information that is not always easy to get. Copyright ©2011 Pearson Education

13-22 When Does Control Take Place? Concurrent Control – Control that takes place while a work activity is in progress – Technical equipment ( such as, computers and computerized machine controls) can be designed to include concurrent controls. – The best known form for concurrent control, is direct supervision – All managers can benefit from using this type of control cuz they can correct problems before they become too costly. MBWA is a great way for managers to do this Copyright ©2011 Pearson Education

13-23 Feedback Control Feedback Control (After completing the activity) It is the most popular type of control – Control that takes place after a work activity is done. – It gives managers meaningful info on how effective their planning efforts were. Feedback that shows little variance between standard and actual performance, indicate that the planning was generally on target. If the deviation is significant, a manager can use that info to formulate new plans – Feedback can also enhance motivation as people want to know how well they are doing and feedback provide this. Copyright ©2011 Pearson Education

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13-25 In What Areas Might Managers Need Control? How Do Managers Keep Track of Finances? In order to meet profitability goals, managers need financial controls Traditional financial measures managers might use include – ratio analysis (internal control tools) – budget analysis Copyright ©2011 Pearson Education

13-26 Financial Ratios by Type Liquidity ratios – measure an organization’s ability to meet its current debt obligations Leverage ratios – examine the organization’s use of debt to finance its assets and whether it’s able to meet the interest payments on the debt Activity ratios – assess how efficiently a company is using its assets. Copyright ©2011 Pearson Education

13-27 Financial Ratios (cont.) Profitability ratios – measure how efficiently and effectively the company is using its assets to generate profit – These are calculated using selected info from organization’s two primary financial statements ( the balance sheet and the income statement) Budget: It is important for controlling as it is provide the manager with quantitative standard against which to measure and compare resource consumption Copyright ©2011 Pearson Education

13-28 How is an Organization’s Information Controlled? Managers deal with information controls in two ways: 1. as a tool to help them control other organizational activities 2. as an organizational area they need to control Management Information System (MIS) – A system used to provide management with needed information on a regular basis – An MIS focuses specially on providing managers with information (processed and analyzed data)not (raw, unanalyzed facts) Copyright ©2011 Pearson Education

13-29 What is The Balanced Scorecard? Balanced Scorecard – A performance measurement tool that looks at more than just the financial perspective – It looks at four areas that contribute to a company’s performance: Financial, customer, internal processes, and people/ innovation/ growth assets. – Therefore, managers should develop goals in each of the four areas and then measure whether the goals are being met. Copyright ©2011 Pearson Education

13-30 What are Contemporary Control Issues? There are two controlling issues that managers face today: 1) Cross- cultural differences. The differences in organizational control systems of global org are primarily in the measurement and corrective action steps of control process. Organization in technologically advanced nations such as US, Japan, Canada, Germany, and Australia use direct control devices( computer- related reports and analyses) and standardized rules and direct supervision to ensure that activities are going as planned. Copyright ©2011 Pearson Education

13-31 What are Contemporary Control Issues? In less technologically advanced countries, direct supervision and highly centralized decision making are basic mean of control 2) Workplace concerns: Employee Theft – Any unauthorized taking of company property by employees for their personal use Copyright ©2011 Pearson Education

13-32 Contemporary Issues (cont.) Workplace Violence – According to the U.S. National Institute of Occupational Safety and Health, 2 million American workers per year are victims of some type of workplace violence Copyright ©2011 Pearson Education

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