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MCO 101 • MANAGEMENTUnit 6: Executing and Controlling
MANAGEMENT 2MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Managing Expectations
LEARNING OUTCOMES:
At the end of the course, students will be able to:
• Explain fundamental concepts and principles of management including the basic roles, skills, and functions of management
• Discuss the knowledgeable of historical development, theoretical aspects and practice application of managerial process
• Examine the environment, technology, human resources, and organisations in order to achieve high performance
• Discuss the ethical dilemmas faced by managers and the social responsibilities of businesses.
MANAGEMENT 3MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Managing Expectations
SUBJECTS DISCUSSED:
1. Management, Managers and evolution of Management theory
2. Personality traits and diversity3. Organisation, Globalisation and the resulting
environments4. Decision-making and Planning5. Structure and Strategy6. Executing and Controlling7. Human Resources Management as a function8. Motivation, Leadership, Groups and Teams9. Communication, conflicts and politics10. Operations Management. Entrepreneurship. Innovation
MANAGEMENT 4MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Managing Expectations
TOPIC DETAILS:
After going through UNIT 6, you should be able to:
1. describe the basic control process. discuss the various methods that managerscan use to maintain control.
2. describe the behaviours, processes, and outcomes that today’s managers are choosing to control their organisations.
3. discuss the various methods that managers can use to maintain control.
4. describe the behaviours, processes, and outcomesthat today’s managers are choosing to controltheir organisations.
MANAGEMENT 5MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
The Control Process
Begins with establishment of clear standards of performance
Involves a comparison of actual performance to desired performance
Takes corrective action to repair performance deficiencies
Is a dynamic, cybernetic process
Consists of feedback control, concurrent control, feedforward control
But… control isn’t always worthwhile
or possible
MANAGEMENT 6MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Setting Standards
Begins with establishment of clear standards of performanceA good standard must enable goal
achievement. 1. Listening to customers or observing
competitors.2. Benchmarking other companies: a)
determine what to benchmark, b) identify the companies against which to benchmark, c) Collect data to determine other companies’ performance standards.
http://www.liedecke.dk/Gallery/
MANAGEMENT 7MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Comparison to Standards
Compare actual performance to performance standards.
http://www.liedecke.dk/Gallery/
MANAGEMENT 8MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Corrective Action
Identify performance deviations
Analyse those deviations
Develop and implement programs to correct them
http://www.liedecke.dk/Gallery/
MANAGEMENT 9MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Dynamic, Cybernetic Process
Develop & ImplementProgram for
Corrective Action
Set Standards
Measure Performance
Compare withStandards
IdentifyDeviations
AnalyseDeviations
MANAGEMENT 10MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Feedback, Concurrent, and Feedforward Control
FeedbackControl
Gather information about performancedeficiencies after they occur
ConcurrentControl
Gather information about performancedeficiencies as they occur
FeedforwardControl
Monitor performance inputs ratherthan outputs to prevent or minimiseperformance deficiencies before they occur
MANAGEMENT 11MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Feedforward Control
Guidelines for Using Feedforward Control
1. Thorough planning and analysis are required.
2. Careful discrimination must be applied in selecting input variables.
3. The feedforward system must be kept dynamic.
4. A model of the control system should be developed.
5. Data on input variables must be regularly collected.
6. Data on input variables must be regularly assessed.
7. Feedforward control requires action.
MANAGEMENT 12MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Control Loss or Loss Control or Out of Control?
Is control worthwhile…?
Maybe, maybe not…
Managers must assess the regulation costs and the cybernetic feasibility.
MANAGEMENT 13MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Control Methods
NormativeNormative ConcertiveConcertive Self-ControlSelf-Control
BureaucraticBureaucratic ObjectiveObjective
MANAGEMENT 14MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Bureaucratic Control
• Top-down control
• Use rewards and punishment to influence employee behaviours
• Use policies and rules to control employees
• Often inefficient and highly resistant to change
MANAGEMENT 15MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Objective Control
ObjectiveControl
Use of observable measures of workerbehaviour or outputs to assessperformance and influence behaviour
BehaviourControl
Regulation of the behaviours andactions that workers perform on the job
OutputControl
Regulation of workers’ results oroutputs through rewards andincentives
MANAGEMENT 16MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Effective Output Control
Output control measures must be reliable, fair, and accurate.
Employees and managers must believe that they can produce the desired results.
The rewards or incentives tied to outcome control measure must be dependent on achieving established standards of performance.
http://www.flickr.com/photos/genkigenki/117615171/
MANAGEMENT 17MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Normative Control
Created by: careful selection of employees observing experienced employees & listening to stories about the company.
MANAGEMENT 18MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Concertive Control
Regulation of workers’ behaviour and decisions through work group values and beliefs.
Autonomous work groups:
1. operate without managers;
2. group members control processes, output, and behaviours.
MANAGEMENT 19MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
BOSS NOT
REQUIRED !
Self-Control
1. Also known as self-management
2. Employees control their own behaviour
3. Employees make decisions within well-established boundaries
4. Managers teach others the skills they need to maximise work effectiveness
5. Employees set goals and monitor their own progress
MANAGEMENT 20MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
What to Control?
CustomerDefections
CustomerDefections QualityQuality Waste and
Pollution
Waste andPollution
BalancedScorecard
BalancedScorecard
Budgets,Cash Flow,
EVA
Budgets,Cash Flow,
EVA
MANAGEMENT 21MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Advantages of the Balanced Scorecard
Forces managers to set goals and measure performance in each of the four areas
Minimises the chances of sub-optimisation – performance improves in one area, but at the expense of others
MANAGEMENT 22MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
The Financial Perspective
Cash flow analysis
Predicts how changes in a business will affect its ability to take in more cash than it pays out
Balance sheetsProvide a snapshot of a company’sfinancial position at a particular time
Income statements
Show what has happened to an organization’s income, expenses, and net profit over a period of time
Financialratios
Used to track liquidity, efficiency, and profitability over time comparedto other businesses in its industry
MANAGEMENT 23MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Basic Accounting Tools
1. Forecast sales
2. Project changes in anticipated cash flows
3. Project anticipated cash outflows
4. Project net cash flows by combining anticipated cash inflows and outflows
Steps for a Basic Cash Flow Analysis
Parts of a Basic Balance Sheet
1. Assets: Current assets; Fixed assets
2. Liabilities: Current liabilities; Long-term liabilities
3. Owner’s equity: Stock; Additional paid in capital; Retained earnings
Basic Income Statement
SALES REVENUE- sales returns and allowances+ other income= NET REVENUE- cost of goods sold= GROSS PROFIT- total operating expenses= INCOME FROM OPERATIONS- interest expense= PRETAX INCOME- income tax= NET INCOME
MANAGEMENT 24MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Financial Ratios
LIQUIDITY RATIOS
Current Ratio
Quick (Acid Test) Ratio
LEVERAGE RATIOS
Debt to Equity
Debt Coverage
EFFICIENCY RATIOS
Inventory Turnover
Average CollectionsPeriod
PROFITABILITY RATIOS
Gross Profit Margin
Return on Equity
MANAGEMENT 25MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Common Kinds of Budgets
CashBudgets
Used to forecast the cash a company will have for expenses
ExpenseBudgets
Used to determine spending onsupplies, projects, or activities
ProfitBudgets
Used by profit centers, which have“profit and loss” responsibility
RevenueBudgets
Used to project or forecastfuture sales
Variable BudgetsUsed to project costs across
varying levels of sales/revenues
Capital ExpenditureBudgets
Used to forecast large, long-lasting investments
MANAGEMENT 26MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Economic Value Added (EVA)
Economic ValueAdded
The amount by which company profits exceed the cost of capital in a given year
Common Costs of Capital
Long-term bank loans Interest paid to bondholders Dividends and growth in stock value that accrue to
shareholders
MANAGEMENT 27MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Economic Value Added (EVA)
1. Calculate net operating profit after tax
2. Identify how much capitalthe company has invested
3. Determine the cost paidfor capital
4. Multiply capital used (step 2)times cost of capital (step 3)
5. Subtract total dollar cost of capital from net profit after taxes
$3,500,000
$16,800,000
10%
(10% x $16,800,000) = $1,680,000
$3,500,000 net profit-$1,680,000 cost of capital$1,820,000 EVA
MANAGEMENT 28MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Why Is EVA Important?
• Shows whether a business, division, department, profit center, or product is paying for itself
• Makes managers at all levels pay closer attention to their segment of the business
• Encourages managers and workers to be creative in looking for ways to improve EVA performance
MANAGEMENT 29MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
The Customer PerspectiveControlling Customer Defections
• Monitoring customer defections: identify which customers are leaving the company measuring the rate at which they are leaving
• Obtaining a new customer costs five times as much as keeping a current one
• Customers who have left are likely to tell you what you are doing wrong
• Understanding why a customer leaves can help fix problems and make changes
MANAGEMENT 30MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
The Internal PerspectiveControlling Quality
Excellence
Value
Conformance to Expectations
MANAGEMENT 31MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
The Internal PerspectiveControlling Quality
MANAGEMENT 32MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights
reserved
Controlling Waste and Pollution
Good housekeeping
Material/product substitution
Process modification