Evidence-Based Decision Making

Evidence-Based Decision Making
Chapter 16 Evidence-Based Decision Making Copyright © 2016 Pearson Canada Inc.

Copyright © 2016 Pearson Canada Inc.
Learning Outcomes: Explain the nature and importance of control. Describe the three steps in the control process. Explain how organizational and employee performance are measured. Copyright © 2016 Pearson Canada Inc.

What Is Controlling, and Why Is It Important?
The process of monitoring activities to ensure that they are being accomplished as planned, correcting any significant deviations, and where necessary modifying the plan Learning Outcome 1: Explain the nature and importance of control. Control is the process of monitoring activities to ensure they are being accomplished as planned and of correcting any significant deviations. There are three different approaches to designing organizational control systems. Copyright © 2016 Pearson Canada Inc.

Why Is Control Important? It’s the final link in the four management functions. It is the only way managers know whether organizational goals are being met and, if not, the reasons why. Learning Outcome 1: Explain the nature and importance of control. Control is the process of monitoring activities to ensure they are being accomplished as planned and of correcting any significant deviations. There are three different approaches to designing organizational control systems. Copyright © 2016 Pearson Canada Inc.

Exhibit 16-1 The Planning–Controlling Link
Learning Outcome 1: Explain the nature and importance of control. Exhibit 16-1 shows the planning-controlling link. This helps students to realize that the four management functions are interrelated. Copyright © 2016 Pearson Canada Inc.

Decision support system : A computer-based information system that provides decision makers with information relevant to the decisions they are making. Learning Outcome 1: Explain the nature and importance of control. A decision support system (DSS), a subset of the management information system, is a computer-based information system that provides decision makers with information relevant to the decisions they are making. Copyright © 2016 Pearson Canada Inc.

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. Learning Outcome 1: Explain the nature and importance of control. Control is important for several reasons: 1. It serves as the final link in the functional chain of management. Exhibit 16-1 shows the planning-controlling link. 2. Controlling is also important to delegation. If managers develop an effective control system, it may lessen the resistance to delegation and results in greater employee empowerment. 3. It protects the organization and the physical workplace by heightening security alerts and protecting against such disruptive influence as internal scandal. Copyright © 2016 Pearson Canada Inc.

The Control Process Control Process A three-step process that includes measuring actual performance, comparing actual performance against a standard, and taking managerial action to correct deviations or inadequate standards. Learning Outcome 2: Describe the three steps in the control process. The control process is the three-step process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviations or inadequate standards (see Exhibit 16-2). Copyright © 2016 Pearson Canada Inc.

The Control Process The Process of Control Measuring actual performance Comparing actual performance against a standard Taking action to correct deviations or inadequate standards Learning Outcome 2: Describe the three steps in the control process. The control process is the three-step process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviations or inadequate standards (see Exhibit 16-2). Copyright © 2016 Pearson Canada Inc.

Exhibit 16-2 The Control Process
Learning Outcome 2: Describe the three steps in the control process. The control process is the three-step process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviations or inadequate standards (see Exhibit 16-2). Copyright © 2016 Pearson Canada Inc.

The Control Process Step 1 – Measuring Performance Sources of Information: Personal observations Statistical reports Oral reports Written reports Learning Outcome 2: Describe the three steps in the control process. Measuring is the first step in the control process. 1. How we measure is done through four common sources of information that managers use. Each of these sources has its own advantages and drawbacks. a. Personal observation b. Statistical reports c. Oral reports d. Written reports 2. What we measure is probably more critical than the how. Both objective and subjective measures are used. Copyright © 2016 Pearson Canada Inc.

The Control Process How We Measure Four sources of information frequently used by managers to measure actual performance are: personal observations statistical reports oral reports written reports Learning Outcome 2: Describe the three steps in the control process. Copyright © 2016 Pearson Canada Inc.

Exhibit 16-3 Common Sources of Information for Measuring Performance
Learning Outcome 2: Describe the three steps in the control process. Exhibit 16-3 summarizes the advantages and drawbacks of some sources of performance information. For most managers, using a combination of approaches increases both the number of input sources and the probability of getting reliable information. Copyright © 2016 Pearson Canada Inc.

The Control Process What We Measure - What we measure is probably more critical to the control process than how we measure. - The selection of the wrong criteria can result in serious dysfunctional consequences. Learning Outcome 2: Describe the three steps in the control process. Copyright © 2016 Pearson Canada Inc.

The Control Process Step 2 – Comparing Comparing requires 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 Learning Outcome 2: Describe the three steps in the control process. Comparing is the next step in the control process. 1. It determines the degree of variation between actual performance and the standard. 2. It’s critical to determine the range of variation, which are the acceptable parameters of variance between actual performance and the standard (see Exhibit 16-4). Copyright © 2016 Pearson Canada Inc.

The Control Process Range of variation The acceptable degree of variation between actual performance and the standard. Learning Outcome 2: Describe the three steps in the control process. The control process is the three-step process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviations or inadequate standards (see Exhibit 16-2). Copyright © 2016 Pearson Canada Inc.

Exhibit 16-4 Defining the Acceptable Range of Variation
Learning Outcome 2: Describe the three steps in the control process. It’s critical to determine the range of variation, which are the acceptable parameters of variance between actual performance and the standard (see Exhibit 16-4). Copyright © 2016 Pearson Canada Inc.

The Control Process Step 3 - Taking Managerial Action Summary of Managerial Decisions: “Doing nothing” Only if deviation is insignificant Correcting actual (current) performance Immediate or basic corrective action Revising the standard Determine whether the standard is realistic, fair, and achievable Learning Outcome 2: Describe the three steps in the control process. Taking managerial action is the final step in the control process. Although the manager might decide to “do nothing,” two other alternatives are possible. 1. Correct actual performance. Once the manager has decided to correct actual performance, he or she has another decision to make. a. Take immediate corrective action, which is correcting an activity at once in order to get performance back on track. b. Take basic corrective action, which is determining how and why performance has deviated and correcting the source of deviations. c. The action taken will depend on the cost/benefit of doing so. d. Possible corrective actions include: changing strategy, structure, compensation scheme, or training programs; redesigning jobs; or firing employees 2. Revise the standard. Manager has a choice when examining the standard: Manager may want to uphold the validity of the standard—which suggests that employees were not performing adequately. If the standard was set too high or too low, a manager may decide to reset goals that were initially set too low or too high. Copyright © 2016 Pearson Canada Inc.

The Control Process Immediate corrective action Corrective action that corrects problems at once to get performance back on track. Basic corrective action Learning Outcome 2: Describe the three steps in the control process. immediate corrective action Corrective action that corrects problems at once to get performance back on track. basic corrective action Corrective action that looks at how and why performance deviated and then proceeds to correct the source of deviation. Corrective action that looks at how and why performance deviated and then proceeds to correct the source of deviation. Copyright © 2016 Pearson Canada Inc.

The Control Process Revise the Standard In some cases, variance may be a result of an unrealistic standard—a goal that’s too low or too high. In this case, the standard—not the performance—needs corrective action. Copyright © 2016 Pearson Canada Inc.

Exhibit 16-6 Managerial Decisions in the Control Process
Learning Outcome 2: Describe the three steps in the control process. The control process is a continuous flow between measuring, comparing, and managerial action. Exhibit 16-6 summarizes the manager’s decisions in the control process. Copyright © 2016 Pearson Canada Inc.

Controlling for Organizational and Employee Performance
Performance Standards Managers in all types of businesses are responsible for managing organizational and employee performance. Learning Outcome 3: Explain how organizational and employee performance are measured. Performance is the end result of an activity. Managers are concerned with organizational performance—the accumulated end results of all the organization’s work processes and activities. Copyright © 2016 Pearson Canada Inc.

What Is Performance The end result of an activity. 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. Learning Outcome 3: Explain how organizational and employee performance are measured. Performance is the end result of an activity. Managers are concerned with organizational performance—the accumulated end results of all the organization’s work processes and activities. Copyright © 2016 Pearson Canada Inc.

Organizational Productivity The overall output of goods and/or services divided by the inputs needed to generate that output. Ultimately, a measure of how efficiently employees do their work. Learning Outcome 3: Explain how organizational and employee performance are measured. Employees need to see the connection between what they do and the outcomes. The most frequently used organizational performance measures include organizational productivity, organizational effectiveness, and industry rankings. Organizational productivity is the overall output of goods or services produced divided by the inputs needed to generate that output. It’s the management’s job to increase this ratio. Output: sales revenues Inputs: costs of resources (materials, labour expense, and facilities) Copyright © 2016 Pearson Canada Inc.

Controlling for Employee Performance Since managers manage employees, they also have to be concerned about controlling for employee performance; that is, making sure employees’ work efforts are of the quantity and quality needed to accomplish organizational goals. Learning Outcome 3: Explain how organizational and employee performance are measured. Copyright © 2016 Pearson Canada Inc.

Disciplinary actions: Actions taken by a manager to enforce the organization’s work standards and regulations. Learning Outcome 3: Explain how organizational and employee performance are measured. Copyright © 2016 Pearson Canada Inc.

Tools for Measuring Organizational Performance
Feed-forward Control: A type of control that focuses on preventing anticipated problems, since it takes place before the actual activity. Building in quality through design Requiring suppliers conform to ISO 9002 Concurrent Control: A type of control that takes place while an activity is in progress Direct supervision: management by walking around Learning Outcome 4: Describe tools used to measure organizational performance. There are three basic types of controls: feedforward, concurrent, and feedback (see Exhibit 16-8). 1. Feedforward control is control that prevents anticipated problems. 2. Concurrent control is control that occurs while an activity is in progress. a. The best-known form of concurrent control is direct supervision. b. When managers use management by walking around, which is a term used to describe a manager being out in the work area, interacting directly with employees, they’re using concurrent control. Copyright © 2016 Pearson Canada Inc.

Exhibit 16-8 Types of Control
Learning Outcome 4: Describe tools used to measure organizational performance. There are three basic types of controls: feedforward, concurrent, and feedback (see Exhibit 16-8). Copyright © 2016 Pearson Canada Inc.

Management by walking around: A term used to describe a manager being out in the work area, interacting directly with employees. Learning Outcome 4: Describe tools used to measure organizational performance. There are three basic types of controls: feedforward, concurrent, and feedback (see Exhibit 16-8). 1. Feedforward control is control that prevents anticipated problems. 2. Concurrent control is control that occurs while an activity is in progress. a. The best-known form of concurrent control is direct supervision. b. When managers use management by walking around, which is a term used to describe a manager being out in the work area, interacting directly with employees, they’re using concurrent control. Copyright © 2016 Pearson Canada Inc.

Feedback Control: Control that takes place after a work activity is done. Learning Outcome 4: Describe tools used to measure organizational performance. 3. Feedback control is control that takes place after an action has occurred. Copyright © 2016 Pearson Canada Inc.

Feedback Control: Takes place after an activity is done Corrective action is after-the-fact, when the problem has already occurred. Advantages Feedback provides managers with information on the effectiveness of their planning efforts. Feedback enhances employee motivation by providing them with information on how well they are doing. Learning Outcome 4: Describe tools used to measure organizational performance. 3. Feedback control is control that takes place after an action has occurred. Copyright © 2016 Pearson Canada Inc.

Financial Controls: Managers might use traditional financial measures such as ratio analysis and budget analysis. Includes: Leverage ratios Activity ratios Profitability ratios Learning Outcome 4: Describe tools used to measure organizational performance. Copyright © 2016 Pearson Canada Inc.

Information Controls: Managers deal with information controls in two ways: (1) as a tool to help them control other organizational activities and (2) as an organizational asset they need to protect. Learning Outcome 4: Describe tools used to measure organizational performance. Copyright © 2016 Pearson Canada Inc.

Data: Raw, unanalyzed facts. Dashboard: An interface that presents managers and other decision makers with an easy-to-read, real-time user interface often employing a graphical presentation of the data to enable decision makers to make informed decisions quickly. Learning Outcome 4: Describe tools used to measure organizational performance. Controlling information can be vital to an organization’s success. 1. Management Information Systems (MIS) are systems that provide managers with needed and usable information on a regular basis. Copyright © 2016 Pearson Canada Inc.

Management Information Systems (MIS): A system used to provide management with needed information on a regular basis. Learning Outcome 4: Describe tools used to measure organizational performance. Controlling information can be vital to an organization’s success. 1. Management Information Systems (MIS) are systems that provide managers with needed and usable information on a regular basis. Copyright © 2016 Pearson Canada Inc.

Balanced Scorecard: A measurement tool that uses goals set by managers in four areas to measure a company’s performance. Financial Customer Internal processes People/innovation/growth assets Learning Outcome 4: Describe tools used to measure organizational performance. Balanced Scorecard is a performance measurement that looks at four areas: financial, customer, internal processes, and people, innovation, and growth assets. Copyright © 2016 Pearson Canada Inc.

Benchmarking The search for the best practices among competitors or noncompetitors that lead to their superior performance. Benchmark The standard of excellence against which to measure and compare. Learning Outcome 4: Describe tools used to measure organizational performance. Controlling information can be vital to an organization’s success. 1. Management Information Systems (MIS) are systems that provide managers with needed and usable information on a regular basis. Copyright © 2016 Pearson Canada Inc.

Contemporary Issues in Control
Controlling Customer Interactions Service profit chain The service sequence from employees to customers to profit Learning Outcome 5: Discuss contemporary issues in control. The service profit chain is the service sequence from employees to customers to profit. Copyright © 2016 Pearson Canada Inc.

Organizational Governance: The system used to govern a corporation so that the interests of stakeholders are protected. Changes in the role of boards of directors Increased scrutiny of financial reporting Learning Outcome 5: Discuss contemporary issues in control. Corporate governance is a system used to govern a corporation so that the interests of corporate owners are protected. 1. Role of Boards of Directors. Directors sitting on the board of a company are meant to be independent monitors of company policies and practices. Unfortunately, board members have often developed a relationship far too “cozy” with managers, and their objectivity is compromised. These practices, however, seem to be changing. 2. Financial reporting. The Canadian Securities Administrators rules require more financial disclosure by organizations. In the U.S., senior managers are now required by law (Sarbanes-Oxley Act) to certify their companies’ financial results. Canadian legislation does not require senior managers to provide a qualitative assessment of the company’s internal compliance controls. Copyright © 2016 Pearson Canada Inc.

Twenty-First-Century Governance Principles for Public Companies (Exhibit 16-10) Meetings and Information Leadership Disclosure Committees Internal Audit Interaction Board Purpose Board Responsibilities Independence Expertise Learning Outcome 5: Discuss contemporary issues in control. Copyright © 2016 Pearson Canada Inc.

Adjusting Controls for Cross-Cultural Differences & Global Turmoil 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. Learning Outcome 5: Discuss contemporary issues in control. What should managers know about adjusting controls for national differences? 1. Methods of controlling people vary in different countries. 2. Technology has an impact on control relative to the level of sophistication of technology in a particular country. 3. There may be legal constraints for managers in different countries. 4. Challenge of comparability from one country to another even when comparing similar products. Copyright © 2016 Pearson Canada Inc.

Emerging Workplace Concerns Privacy versus monitoring: , telephone, computer, and Internet usage can all be monitored Employee theft The unauthorized taking of company property by employees for their personal use Violence Anger, rage, and violence in the workplace is affecting employee productivity Learning Outcome 5: Discuss contemporary issues in control. 1. Workplace Privacy. Employers have the right to monitor employees while at work. Exhibit summarizes the frequency of different forms used. Control is focused on the following: a. Web surfing while at work is a problem that needs to be monitored. b. and computer usage is monitored for potentially offensive material that would put the company at risk. c. The employer must ensure that the company’s secrets are not being leaked. 2. Employee theft is defined as any unauthorized taking of company property by employees for their personal use. Exhibit summarizes managerial actions for dealing with employee theft. 3. Workplace violence can adversely affect productivity. There are several contributors to the potential for workplace violence: a. Work driven by TNC (time, numbers, and crises) b. Rapid and unpredictable change c. Destructive communication styles of managers d. Authoritarian leadership e. Little or no feedback f. Double standards in terms of policies g. Unresolved grievances h. Emotionally unstable employees i. Repetitive, boring work . Copyright © 2016 Pearson Canada Inc.

Exhibit 16-11 Types of Workplace Monitoring by Employers
Learning Outcome 5: Discuss contemporary issues in control. Exhibit summarizes the percentage of employers engaging in different forms of workplace monitoring. Copyright © 2016 Pearson Canada Inc.

Exhibit Control Measures for Deterring or Reducing Employee Theft or Fraud Learning Outcome 5: Discuss contemporary issues in control. Exhibit summarizes several possible managerial actions for deterring or reducing employee theft or fraud. Copyright © 2016 Pearson Canada Inc.

Customer Interactions Service profit chain The service sequence from employees to customers to profit Learning Outcome 5: Discuss contemporary issues in control. The service profit chain is the service sequence from employees to customers to profit. Copyright © 2016 Pearson Canada Inc.

Summary and Implications
Explain the nature and importance of control. Control is the process of monitoring activities to ensure that they are being accomplished as planned and correcting any significant deviations. Learning Outcome 1 Copyright © 2016 Pearson Canada Inc.

Describe the three steps in the control process. The control process is a three-step process: measuring actual performance, comparing actual performance against a standard, and taking managerial action to correct deviations or inadequate standards. Learning Outcome 2 Copyright © 2016 Pearson Canada Inc.

Explain how organizational and employee performance are measured. Rankings are a popular way for managers to measure their organization’s performance. It’s particularly important for managers to deliver effective performance feedback and to be prepared, if needed, to use disciplinary actions. Learning Outcome 3 Copyright © 2016 Pearson Canada Inc.

Describe tools used to measure organizational performance. Managers can implement controls before an activity begins (feed-forward control), during the time the activity is going on (concurrent control), and after the activity has been completed (feedback control). Learning Outcome 4 Copyright © 2016 Pearson Canada Inc.

Discuss contemporary issues in control. Some important current issues in control include controlling customer interactions, organizational governance, adjusting controls for cross-cultural differences and global turmoil, and emerging workplace concerns. Learning Outcome 5 Copyright © 2016 Pearson Canada Inc.

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