1. PowerPoint Presentation by Charlie Cook The University of West Alabama © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Learning Objectives 1.Explain the purpose of control, identify different types of control, and describe the steps in the control process. 2.Identify and explain the three forms of operations control. 3.Describe budgets and other tools for financial control. 4.Identify and distinguish between two opposing forms of structural control. 5.Discuss the relationship between strategy and control, including international strategic control. 6.Identify characteristics of effective control, why people resist control, and how managers can overcome this resistance. 20–2 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3. The Nature of Control ControlControl  The regulation of organizational activities so that some targeted element of performance remains within acceptable limits. Benefits of ControlBenefits of Control  Provides organizations with indications of how well they are performing in relation to their goals.  Provides a mechanism for adjusting performance to keep organizations moving in the right direction. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–3

4. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–4 20.1 The Purpose of Control

5. Types of Control Physical Resources Human Resources Information Resources Financial Resources Areas of Control © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–5

6. Types of Controls Physical ResourcesPhysical Resources  Inventory management, quality control, and equipment control Human ResourcesHuman Resources  Selection and placement, training and development, performance appraisal, and compensation Information ResourcesInformation Resources  Sales and marketing forecasts, environmental analysis, public relations, production scheduling, and economic forecasting Financial ResourcesFinancial Resources  Managing capital funds and cash flow, collection and payment of debts © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–6

7. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–7 20.2 Levels of Control

8. Responsibilities for Control ManagersManagers  Are responsible for overseeing the wide array of control systems and concerns in organizations. ControllerController  Is a staff member that helps line managers with their control activities. Operative EmployeesOperative Employees  Check the quality of their work and correct their own errors. 20–8 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9. 20–9 20.3 Steps in the Control Process

10. Steps in the Control Process Establish standardsEstablish standards  Control standard—a target against which subsequent performance will be compared should be:  Expressed in measurable terms.  Consistent with and relevant to organizational goals.  Identifiable as an indicator of performance. Measure performanceMeasure performance  Performance measurement is an ongoing process.  Performance measures must be valid indicators (e.g., sales, costs, units produced) of performance. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–10

11. Steps in the Control Process (cont’d) Compare performance against standardsCompare performance against standards  Define what is a permissible deviation from the performance standard.  Utilize the appropriate timetable for measurement. Consider corrective actionConsider corrective action  Maintain the status quo (do nothing).  Correct the deviation to bring operations into compliance with the standard.  Change the standard if it was set too high or too low. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–11

12. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–12 20.4 Forms of Operations Control

13. Financial Controls Financial ControlFinancial Control  Control of financial resources (revenues, shareholder investments) 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 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–13

14. Financial Controls (cont’d) Budgetary ControlBudgetary 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 resources and expectations.  Enable evaluation of the performance of managers and organizational units. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–14

15. Management Challenge Question How can budgetary controls help prevent conflicts in organizations?How can budgetary controls help prevent conflicts in organizations? © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–15

16. Types of Budgets Financial BudgetsOperating Budgets Nonmonetary Budgets Cash flow or cash budget Capital expenditures budget Balance sheet budget Sales and revenue budget Expense budget Profit budget Labor budget Space budget Production budget © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–16

17. Types of BudgetWhat Budget Shows Financial BudgetSources and Uses of Cash Cash flow or cash budgetAll sources of cash income and cash expenditures in monthly, weekly, or daily periods Capital expenditures budgetCosts of major assets such as a new plant, machinery, or land Balance sheet budgetForecast of the organization’s assets and liabilities in the event all other budgets are met Operating BudgetPlanned Operations in Financial Terms Sales or revenue budgetIncome the organization expects to receive from normal operations Expense budgetAnticipated expenses for the organization during the coming time period Profit budgetAnticipated differences between sales or revenues and expenses Nonmonetary BudgetPlanned Operations in Nonfinancial Terms Labor budgetHours of direct labor available for use Space budgetSquare feet or meters of space available for various functions Production budgetNumber of units to be produced during the coming time period © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–17 20.1 Developing Budgets in Organizations

18. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–18 20.5 Developing Budgets in Organizations

19. Budgeting Strengths of BudgetsStrengths of Budgets  Facilitate effective operational controls.  Facilitate coordination and communication between departments.  Establish records of organizational performance, which can enhance planning.  Link plans and control as part of plans and then serving as part of control Weaknesses of BudgetsWeaknesses of Budgets  Can hamper operations if applied too rigidly.  Can be time consuming to develop.  Can limit innovation and change. 20–19 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

20. Other Tools of Financial Control Financial StatementsFinancial 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. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–20

21. Other Tools of Financial Control (cont’d) Ratio AnalysisRatio Analysis  The calculation of one or more financial ratios to assess aspects of the organization’s financial health.  Liquidity ratios  Debt ratios  Operating ratios Financial AuditFinancial Audit  An independent appraisal of an organization’s accounting, financial, and operational systems.  External audits  Internal audits © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–21

22. Structural Control Bureaucratic (Centralized) ControlBureaucratic (Centralized) Control  A form of organizational control characterized by formal and mechanistic structural arrangements. Decentralized controlDecentralized control  An approach to organizational control based on informal and organic structural arrangements. The Control ChoiceThe Control Choice  Centralization creates more control and coordination, whereas decentralization fosters adaptability and innovation. 20–22 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. 20–23 20.6 Organizational Control

24. Strategic Control Integration of Strategic ControlIntegration of Strategic Control  Is aimed maintaining effective alignment with the environment and achieving strategic goals.  Focuses on structure, leadership, technology, human resources, and informational and operational systems.  Focuses on the extent to which implemented strategy achieves the organization’s goals. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–24

25. Strategic Control (cont’d) International Strategic ControlInternational Strategic Control  Focuses on whether to manage the global organization from a centralized or decentralized perspective.  Centralization allows the home office to stay better informed about foreign unit performance and to maintain more control over local decisions.  Decentralization allows foreign branches to report less frequently and in less detail, with fewer visits from the home office to monitor and assess performance. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–25

26. Managing Control in Organizations Integration with planning Flexibility Accuracy Timeliness Characteristics of Effective Controls Objectivity © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–26

27. Inappropriate Focus Overcontrol ControlControl Too Much Accountability Rewards for Inefficiency Sources of Resistance to Control © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–27

28. Overcoming Resistance to Control Resistance to control can be overcome by:Resistance to control can be overcome by:  Integrating and aligning controls with organizational planning, goals, and standards.  Creating flexible, accurate, timely, and objective controls.  Avoiding overcontrol.  Guarding against controls that reward inefficiencies.  Encouraging employee participation in the planning and implementing of control systems.  Developing checks and balances that verify the accuracy of performance indicators. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20–28

29. KEY TERMS controlcontrol operations controloperations control financial controlfinancial control structural controlstructural control strategic controlstrategic control controllercontroller control standardcontrol standard preliminary controlpreliminary control screening controlscreening control postaction controlpostaction control budgetbudget financial statementfinancial statement balance sheetbalance sheet income statementincome statement ratio analysisratio analysis auditsaudits bureaucratic controlbureaucratic control decentralized controldecentralized control 20–29 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.