1. Controls and Control Systems
Exploring Management
Chapter 6
Controls and Control Systems

2. Chapter 6 How and why do managers use the control process?
What types of controls are used by managers?
What are some useful organizational control tools and techniques?
Control is measurement. Grades in a management class are a great example.

3. Controlling is one of the four management functions.
Control begins with objectives and standards.
Control measures actual performance
Control compares results with objectives and standards.
Control takes corrective action as needed.
Control is intended to allow management to see if things are going according to plan.

4. CONTROL Control as a Management Function
Controlling is the process of measuring performance and taking action to ensure desired results.
The sooner you can take corrective action, the easier it will be to correct the problem.

5. CONTROL Control Process
Step 1:
Control starts with objectives and standards
Output standards measure results in terms of quantity, quality, cost or time
Input standards measure the work efforts that go into the performance task
Input standards include material, labor and overhead in the form of administrative and operating costs.

6. CONTROL Control Process
Step 2:
Control measures actual performance
Agreed-upon standards
Accurate and timely measurement
What to measure and when to measure it are important to the process.

7. CONTROL Control Process
Step 3:
Control compares results with objectives and standards
Desired Performance
- Actual Performance
Need for action
The question to ask is “did we do what we intended to do?”

8. CONTROL Control Process
Step 4:
Control takes corrective action as needed
Management by exception is the practice of giving attention to situations that show the greatest need
Management by exception establishes priorities for action.

9. 6.2 How Managers Use Control
Managers use feedforward, concurrent and feedback controls
Managers use both internal and external controls
Management by objectives is a way of integrating planning and controlling
Understanding these elements of control are important to success.

10. HOW MANAGERS USE CONTROL Types of Controls
Organizations are open systems that interact with environment with input, throughput and output controls
As mentioned earlier, grades are one type of control we use in our personal lives, others include weight, salary, savings and fitness. UPS uses a large number of output controls to measure productivity in package sort, transportation and delivery.

11. HOW MANAGERS USE CONTROL Types of Controls
Feedforward controls are important because it’s usually a lot less expensive to solve problems before they occur. If you have access to one of W. Edwards Deming’s Bead Box Games, they illustrate control in a fun, interactive way.

12. HOW MANAGERS USE CONTROL Internal and External Controls
Internal Control
Motivated employees exercise self-control in their work
Participation in planning work and having a sense of purpose facilitate motivation
Internal control is easy if employees are intrinsically motivated.

13. HOW MANAGERS USE CONTROL Internal and External Controls
Bureaucratic control
involves polices, procedures, budgets and supervision to influence behavior
Clan control
uses the organization’s culture to influence behavior
Market control
influence that market competition has on organizational decisions such as price, product modification and expansion
External control is often a reaction to an external force.

14. HOW MANAGERS USE CONTROL Objectives
Management By Objectives (MBO)
Superior and subordinate jointly plan objectives
It is important to have regular (monthly) reviews. Once or twice a year is not enough to stay on track.

15. HOW MANAGERS USE CONTROL Objectives
Types of objectives
Improvement objectives state goals for improvement in measurable terms
“increase sales by 5%”
Personal development objectives focus on personal growth
“learn a second language”
This is a great place to ask students their personal objectives, then categorize them as “improvement” or “personal growth”.

16. 6.3 Control Systems and Techniques
Quality control is a foundation of modern management
Gantt charts and CPM/PERT are used in project management and control
Inventory controls help save costs
Breakeven analysis shows where revenues will equal costs
Financial ratios and balanced scorecards strengthen organizational controls
Control systems can establish a competitive advantage for cost efficiency or quality products.

17. CONTROL SYSTEMS AND TECHNIQUES Quality Control
Quality Control is increasingly important for global competition
Total Quality Management
Commitment to quality
Striving for zero defects
Continuous Improvement
Always searching for new ways to improve work quality and performance
A global economy makes it easier to find quality substitute products or services.

18. CONTROL SYSTEMS AND TECHNIQUES Project Management
Responsibility for planning and control of projects
Project managers handle projects as diverse as merging the ATM machines for a large bank merger or building a regional shopping center.

19. CONTROL SYSTEMS AND TECHNIQUES Project Management
Project Management Tools
Gantt Charts
CPM/PERT Charts
Critical Path
The critical path indicates activities that may delay completion of the project.

20. CONTROL SYSTEMS AND TECHNIQUES Inventory Control
Inventory controls reduce inventory costs
Economic order quantity
Pre-determined amount of inventory is ordered when current inventory reaches a certain level
Just-in-time scheduling
Inventory arrives exactly when needed for production or sale
Inventory is expensive to own and to store. Reducing the amount of inventory the organization must have can improve the financial picture. Just-in-time scheduling takes strong planning, cooperative suppliers and logistical support otherwise production of goods or services halts until the necessary inventory items are delivered.

21. CONTROL SYSTEMS AND TECHNIQUES Breakeven Analysis
Breakeven Point
is the point at which revenues equal costs
Breakeven Analysis
calculates the point at which sales revenues cover costs.
How to Calculate a Breakeven Point
Breakeven Point = Fixed Costs / (Price - Variable Costs)
It is important to include one time “start up” costs in the calculation. These are costs that occur once at the beginning of operations. They are not fixed or variable costs.

22. CONTROL SYSTEMS AND TECHNIQUES Breakeven Analysis

23. Major Financial Ratios for Organizational Control
Liquidity—measures ability to meet short-term obligations.
• Current Ratio =Current Assets/Current Liabilities
• Quick Ratio =Current Assets-Inventory/Current Liabilities
Higher is better: You want more assets and fewer liabilities
Leverage—measures use of debt.
• Debt Ratio = Total Debts/Total Assets
Lower is better: You want fewer debts and more assets.
Asset Management—measures asset and inventory efficiency.
• Asset Turnover = Sales/Total Assets
• Inventory Turnover = Sales/Average Inventory
Higher is better: You want more sales and fewer assets or lower inventory.
Profitability
• Net Margin = Net Profit after Taxes/Sales
• Return on Assets (RAO) = Net Profit after Taxes/Total Assets
• Return on Equity (ROE) = Net Income/Owner’s Equity
Higher is better: You want as much profit as possible for sales, assets, & equity.
Financial analysis is important to determine the financial health of any organization.

24. CONTROL SYSTEMS AND TECHNIQUES Balanced Scorecard
Balanced Scorecards start with the organizational mission and vision to build goals and performance measures for
Financial performance
Customer satisfaction
Internal process improvement
Innovation and learning
Balanced scorecards are a more comprehensive view of organizational performance, but many of the things they measure are hard to quantify.