1. CHAPTER 15 Essentials of Control Andrew J. DuBrin
Essentials of Management, 6/e South-Western College Publishing Copyright © 2003
Screen graphics created by:
Jana F. Kuzmicki, PhD, Christian Brothers University 1

2. After reading this chapter, you should be able to:
15.1
After reading this chapter, you should be able to:
1 Explain how controlling relates to the other management functions.
2 Understand the different types and strategies of control.
3 Describe the steps in the control process.
4 Explain the use of non-budgetary control techniques.
5 Summarize the various types of budgets, and the use of budgets and financial ratios for control.
6 Explain how managers and business owners manage cash flow and control costs, and use non-traditional measures of financial performance.
7 Outline the basics of an information system.
8 Specify several characteristics of effective controls. 2

3. The Links Between Controlling and the Other Management Functions
15.2
The Links Between Controlling and the Other Management Functions
Planning
Organizing
Leading
Controlling
Control
Adapted from Exhibit 15.1 3

4. Steps in the Control Process
15.3
Steps in the Control Process
Set Standards
Measure Actual Performance
Compare Actual Performance to Standard
Take Corrective Action if Necessary
Do Nothing
Solve the Problem
Revise the Standard
Adapted from Exhibit 15.3 4

5. Qualitative Control Techniques
15.4
Qualitative Control Techniques
Management
audit
Personal observation
Performance appraisal
Policy
Technique
Audit
Definition
Examination of activities or records to verify their accuracy or effectiveness
External
Internal
Verification of financial records by external agency or individual
Verification of financial records by an internal group of personnel
Use of auditing techniques to evaluate the overall effectiveness of management
Manager’s first-hand observation of how well plans are carried out
Formal method or system of measuring, evaluating, and reviewing employee performance
General guideline to follow in making decisions and taking action
Adapted from Exhibit 15.5 3 5

6. Quantitative Control Techniques
15.5
Quantitative Control Techniques
Economic-order quantity
ABC analysis
Variance analysis
Technique
Gantt chart
Definition
Chart depicting planned and actual progress of work on a project
CPM/PERT
Break-even analysis
Method of scheduling activities and events using time estimates
Ratio of fixed costs to price minus variable costs
Inventory level that minimizes ordering and carrying costs
Method of assigning value to inventory; A items are worth more than B or C items
Major control device in manufacturing
Adapted from Exhibit 15.6 3 6

7. Capital-expenditure budget Human resources budget
15.6
Master
budget
Capital-expenditure budget
Cash budget
Types of Budgets
Human resources budget
Revenue-and-expense budget
Materials purchase budget
Production budget 7

8. Basic Elements of an Information System
15.7
Basic Elements of an Information System
Analyze Information Requirements
Develop an Information Base
Design an Information Processing System
Build Controls into the System
Adapted from Exhibit 15.11 8

9. 15.8
Characteristics of Effective Controls An effective control system is one that is:
Accepted by employees, allowing them to have some control over the results being measured
Relevant, timely, and meaningful
Diagnostic by design
Self-administering
Consistent with other controls already in place
Flexible, allowing for random variations
Cost effective 9