Managemen

Principles and Practices for Tomorrows Leaders

Second Canadian Edition

Gary Dessler

Frederick A. Starke

C H AP T E R

16

Controlling

Part Five: Controlling

PowerPoint Presentation by Clive Cook and Dale Dilamarter

Copyright 2004 Pearson Education Canada, Inc. All rights reserved.

Chapter Objectives
After studying this chapter and the case exercises at
the end, you should be able to:
1. Rate the adequacy of a managers control
system.
2. Recommend specific feedforward, concurrent,
and feedback controls a manager should use to
control the activity.
3. Write a simple budget for a manager.
4. Specify a strategic ratio a manager should
have employees focus on.
5. List 10 measures a manager can use to build a
balanced scorecard.
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Control: A Central Issue in Management

Control
The task of ensuring that activities are providing the
desired results.
All control systems try to influence behaviour.
Controlling involves setting a target (planning),
measuring performance (evaluation), and taking
corrective action.
Control also applies to monitoring every tasklarge
and smallthat is delegated.

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Management and the Control Process

FIGURE 161

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Source: Gary Dessler, PH.D

164

Types of Process Controls

Steering Control
Controls that predict results and let the manager take
corrective action before the operation or project is
completed.

Concurrent (or Yes/No) Control

A control system in which the manager exercises
control as the activity takes place, and the work may
not proceed until or unless it is acceptable.

Feedback (or Post-Action) Control

Any control where results are compared to the
standard after the project is complete.
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Types of Process Controls

Quality Control
The activities that are carried out to ensure that the
quality level of all goods and services meets the
standards required by customers.

Total Quality Management (TQM)

A control concept based on the idea that no defects
are tolerable and that employees are responsible for
maintaining quality standards.

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Approaches to Maintaining Control

The Traditional Control Process
Step 1: Set a standard, target, or goal.
Step 2: Measure actual performance against
standards (observation and timing).
Step 3: Take corrective action.

The Commitment-Based Control Process

Relies on employees self-control to do the right
things.

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The Traditional Control Process

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Types of Traditional Control Systems

Diagnostic controls
Formal, pre-planned, methodical systems that help
managers zero in on discrepancies.

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Two Basic Categories of Control Systems

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Types of Performance Standards

Standards
Criteria for evaluating the quality and quantity of the
products or services produced by employees.

Time Standards
Standards that state the length of time it should take
to complete a task.

Output Standards
Standards that state the quantity of the product or
service that employees should be producing.

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Types of Performance Standards

Cost Standards
Standards that state the maximum cost that should be
incurred in the course of producing goods and
services.

Quality Standards
Standards that define the level of quality that is to be
maintained in the production of goods and services.

Behavioural Standards
Standards that state the types of behaviour that are
acceptable for employees.
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Measuring Performance
The goal is to accurately measure the output
that has resulted from employees efforts.
Output can be measured in various ways:
Personal observation
Written reports from subordinates about their
performance
Oral reports from subordinates about their
performance

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Comparing Performance with Standards

Control tolerances
State the degree of deviation from the standard that is
permissible.

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Take Corrective Action

Immediate corrective action
Actions that solve the problem immediately and get
output back to the desired level.

Long-term corrective action

Determines why deviations occur and what can be
done to prevent the problem from happening in the
future.

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Checklist 16.1
Requirements of Adequate Controls

Controls should reflect the nature and needs of the

activity.
Controls should report deviations promptly.
Controls should be forward-looking.
Controls should point up exceptions at strategic points.
Controls should be objective.
Controls should be flexible.
Controls should reflect the organization structure.
Controls should be economical.
Controls should be understandable.
Controls should indicate corrective action.

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Diagnostic Control Systems

Principle of Exception (Management by
Exception)
To conserve managers time, only significant
deviations or exceptions form the standard should be
brought to the managers attention.

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The Basic Management Control System

Budget
Formal financial expression of a managers plans.

Sales Budget
A budget that shows the planned sales activity for
each period (usually in units per month) and the
revenue expected from the sales.

Operating Budget
A budget that shows the expected sales and/or
expenses for each of the companys departments for
the planning period in question.
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Pro Forma Profit Planning

Income Statement
Shows expected sales, expected expenses, and
expected income or profit for the year.

Cash Budget
A control that shows, for each month, the amount of
cash the company can expect to receive and the
amount it can expect to disperse.

Balance Sheet
A control that shows managers, owners, and creditors
what the companys projected financial picture should
be at the end of the year.
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Example of a Budget

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Performance Reporting
Variances
Differences between budgeted and actual amounts.

Audit
A systematic process of objectively obtaining and
evaluating evidence regarding important aspects of
the firms performance, judging the accuracy and
validity of the data, and communicating the results to
interested users.

Financial Ratio
Calculations that compare one financial indicator on a
financial statement to another.
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Example of a Performance Report

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Widely Used Financial Ratios

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FIGURE 165a

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Widely Used Financial Ratios (contd)

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FIGURE 165b

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Widely Used Financial Ratios (contd)

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FIGURE 165c

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Widely Used Financial Ratios (contd)

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FIGURE 165d

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Ratio Analysis:
Factors Affecting
Return on Investment
FIGURE 166

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Financial Responsibility Centres

Financial responsibility centres
Units that are responsible for, and measured based
on, a specific set of financial activities.

Profit centres
Responsibility centres whose managers the company
holds accountable for profit.

Revenue centres
Responsibility centres whose managers are
accountable for generating revenues.

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Other Diagnostic Financial and

Managerial Controls
Activity-Based Costing (ABC)
A method for allocating costs to products and services
that takes all the products costs (including
production, marketing, distribution, and sales
activities) into account.

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Other Diagnostic Financial and

Managerial Controls (contd)
Balanced Scorecard
A management tool, usually a computerized model,
that traces a multitude of performance measures
simultaneously and shows their interactions.

Enterprise Resource Planning System

A companywide integrated computer system that
gives managers real-time, instantaneous information
regarding the costs and status of every activity and
project in the business.

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Boundary Control Systems

Boundary Controls
Systems that set the boundaries within which the firm
expects employees to operate, including ethics
standards, codes of conduct, and strategic policies.

Steps in establishing boundary controls:

Emphasize top managements commitment.
Publish a code.
Establish compliance mechanisms.
Measure results.

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Johnson &
Johnsons
Corporate
Credo

FIGURE 167

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Source: Source: Courtesy of Johnson & Johnson.

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Interactive Control Systems

Interactive Control
A system that maintains control by personally
monitoring how everyone is doing.

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Behavioural Consequences of Controls

Behavioural displacement
When controls encourage behaviours that are
inconsistent with what the company actually wants to
accomplish.

Gamesmanship
Management actions that improve the managers
performance in terms of the control system, without
producing any economic benefits for the firm.

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Behavioural Consequences of Controls

(contd)
Operating delays
Watch for control systems that unnecessarily slow
things down
Streamlining an approval process helps solve this
problem

Negative attitudes
Traditional control systems frequently trigger negative
employee attitudes

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Implementing Commitment-Based
Control Systems
Motivation
Motivation
Techniques
Techniques

Belief
Belief
Systems
Systems

CommitmentCommitmentBased
BasedControl
Control
System
System
CommitmentCommitmentBuilding
BuildingSystems
Systems

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Using Commitment-Building Systems to

Foster Self-Control
Foster People-First Values
Guarantee Organizational Justice
Build a Sense of Shared Fate and Community
Use Value-based Hiring
Communicate Your Vision
Financial Rewards and Profit Sharing
Encourage Personal Development and SelfActualization
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