© 2010 Cengage/South-Western. All rights reserved. Chapter 14: FUNDAMENTALS OF CONTROLLING Leonard: Supervision 11e

© 2010 Cengage/South-Western.All rights reserved.© 2010 Cengage/South-Western.All rights reserved.

Chapter 14:Chapter 14:FUNDAMENTALS OF FUNDAMENTALS OF CONTROLLINGCONTROLLINGLeonard: Supervision 11eLeonard: Supervision 11e

Chapter 14:Chapter 14:FUNDAMENTALS OF FUNDAMENTALS OF CONTROLLINGCONTROLLINGLeonard: Supervision 11eLeonard: Supervision 11e

© 2010 Cengage/South-Western. All rights reserved. 14–2

AFTER STUDYING THIS AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE CHAPTER, YOU WILL BE ABLE TO:TO:

AFTER STUDYING THIS AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE CHAPTER, YOU WILL BE ABLE TO:TO:1.1. Describe the nature and importance of the managerial Describe the nature and importance of the managerial

controlling function.controlling function.

2.2. Identify three types of control mechanisms based on Identify three types of control mechanisms based on time.time.

3.3. Explain the essential characteristics of effective Explain the essential characteristics of effective controls.controls.

4.4. Describe the essential steps in the control process.Describe the essential steps in the control process.

5.5. Discuss the supervisor’s role in controlling through Discuss the supervisor’s role in controlling through budgets.budgets.


AFTER STUDYING THIS AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE CHAPTER, YOU WILL BE ABLE TO: (cont’d)TO: (cont’d)

AFTER STUDYING THIS AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE CHAPTER, YOU WILL BE ABLE TO: (cont’d)TO: (cont’d)6.6. Discuss the supervisor’s role in maintaining cost Discuss the supervisor’s role in maintaining cost

consciousness and in responding to higher-level consciousness and in responding to higher-level managers’ orders to reduce costs.managers’ orders to reduce costs.

7.7. Identify additional control areas and explain how the Identify additional control areas and explain how the controlling function is closely related to the other controlling function is closely related to the other managerial functions.managerial functions.


The Supervisor’s Role in ControllingThe Supervisor’s Role in Controlling

• ControllingControlling Is ensuring that actual performance is in line with Is ensuring that actual performance is in line with

intended performance and taking corrective action, if intended performance and taking corrective action, if necessary.necessary.

Is essential whenever a supervisor assigns duties to Is essential whenever a supervisor assigns duties to employees because the supervisor remains employees because the supervisor remains responsible for assigned work.responsible for assigned work.

Is part of the supervisor’s job to keep activities in line Is part of the supervisor’s job to keep activities in line and, when necessary, to get those activities back on and, when necessary, to get those activities back on track. track.


The Supervisor’s Role in Controlling The Supervisor’s Role in Controlling (cont’d)(cont’d)

• Nature of the Controlling FunctionNature of the Controlling Function One of the five primary managerial One of the five primary managerial

functions.functions.

Most closely related to planning.Most closely related to planning.

Goes on simultaneously with the other Goes on simultaneously with the other managerial functions.managerial functions.



• Employee Responses to ControlsEmployee Responses to Controls Controls are viewed negatively because the amount Controls are viewed negatively because the amount

of control may determine how much freedom of control may determine how much freedom employees have to do their jobs.employees have to do their jobs.

Well designed and properly implemented controls Well designed and properly implemented controls can positively influence employee motivation and can positively influence employee motivation and behavior.behavior.

Supervisors should design and apply control systems Supervisors should design and apply control systems that will effectively monitor department performance that will effectively monitor department performance and be accepted by employees without resentment.and be accepted by employees without resentment.



• Controlling Should Be Forward LookingControlling Should Be Forward Looking A supervisor can do nothing about the past.A supervisor can do nothing about the past.

The main purpose of controlling is not to assign The main purpose of controlling is not to assign blame for mistakes but rather to identify deviations blame for mistakes but rather to identify deviations from standards and take prompt corrective action.from standards and take prompt corrective action.

• Controlling Should Be Consistent With StrategyControlling Should Be Consistent With Strategy Establishing feedback controls and monitoring Establishing feedback controls and monitoring

progress enables an organization to know if, how, progress enables an organization to know if, how, and when it has achieved its strategic goals and and when it has achieved its strategic goals and objectives.objectives.



• Controlling and Closeness of SupervisionControlling and Closeness of Supervision How closely supervisors should monitor an How closely supervisors should monitor an

employee’s work is based on an employee’s employee’s work is based on an employee’s experience, initiative, dependability, and experience, initiative, dependability, and resourcefulness.resourcefulness.

Permitting an employee to work without close Permitting an employee to work without close supervision is both a challenge and a test of a supervision is both a challenge and a test of a supervisor’s ability to delegate.supervisor’s ability to delegate.

By familiarizing themselves with employees’ abilities, By familiarizing themselves with employees’ abilities, supervisors can learn how much leeway to give and supervisors can learn how much leeway to give and how closely to follow up and control.how closely to follow up and control.


Time Factor Control MechanismsTime Factor Control Mechanisms

• Feedforward ControlFeedforward Control Anticipatory action (preventive measures) taken to Anticipatory action (preventive measures) taken to

ensure that problems do not occur.ensure that problems do not occur.

• Concurrent ControlConcurrent Control Corrective action taken during the production or Corrective action taken during the production or

delivery process to ensure that standards are being delivery process to ensure that standards are being met.met.

• Feedback (After-the-Process) ControlFeedback (After-the-Process) Control Action taken after the activity, product, or service has Action taken after the activity, product, or service has

been completed.been completed.


Characteristics of Effective ControlsCharacteristics of Effective Controls

UnderstandableUnderstandable

TimelyTimely

Suitable and Economical

Suitable and EconomicalIndicativeIndicative

FlexibleFlexible

Effective Controls

Effective Controls


Steps in the Control Process: Steps in the Control Process: Setting StandardsSetting Standards

• StandardsStandards Units of measure or criteria against which results are Units of measure or criteria against which results are

evaluated.evaluated.

• Tangible StandardsTangible Standards Standards for performance that are identifiable and Standards for performance that are identifiable and

measurable (e.g., quantity and quality of outputs).measurable (e.g., quantity and quality of outputs).

• Intangible StandardsIntangible Standards Standards for performance results that are difficult to Standards for performance results that are difficult to

measure and often relate to human characteristics measure and often relate to human characteristics (e.g., attitude, morale).(e.g., attitude, morale).


Steps in the Control Steps in the Control Process: Time and Motion Process: Time and Motion

StudiesStudies• Motion StudyMotion Study Is an analysis of work activities to identify ways (i.e., Is an analysis of work activities to identify ways (i.e.,

best methods) to improve, eliminate, change, or best methods) to improve, eliminate, change, or combine steps to make the job easier and faster.combine steps to make the job easier and faster.

• Time StudyTime Study Is a quantitative technique for analyzing a job to Is a quantitative technique for analyzing a job to

determine time standards for performing the job.determine time standards for performing the job. Select employees for observationSelect employees for observation Observe the times needed to accomplish parts of the jobObserve the times needed to accomplish parts of the job Apply correction factors, and make allowances for fatigue, Apply correction factors, and make allowances for fatigue,

personal needs, and unavoidable delayspersonal needs, and unavoidable delays


Steps in the Control Process: Steps in the Control Process: Setting Standards (cont’d)Setting Standards (cont’d)

• Employee ParticipationEmployee Participation Workers tend to accept standards as reasonable and Workers tend to accept standards as reasonable and

fair when they help formulate those standards.fair when they help formulate those standards. Workers resent imposed standards that appear Workers resent imposed standards that appear

designed solely to increase worker output.designed solely to increase worker output.



• Strategic Control Points (Strategic Standards)Strategic Control Points (Strategic Standards) Supervisors should choose performance criteria for Supervisors should choose performance criteria for

assessment that are key indicators of overall assessment that are key indicators of overall performance.performance.

A supervisor should be careful to choose strategic A supervisor should be careful to choose strategic control points that do not significantly impede other control points that do not significantly impede other important standards.important standards.

By closely watching trends and changes in these By closely watching trends and changes in these indicators, the supervisor should be able to spot indicators, the supervisor should be able to spot problems requiring corrective action.problems requiring corrective action.



• Examples of Strategic Control Points:Examples of Strategic Control Points: Number of employees’ voluntary resignations and Number of employees’ voluntary resignations and

requests for transferrequests for transfer Levels of absenteeism, tardiness, and turnoverLevels of absenteeism, tardiness, and turnover Accident frequency and severity ratesAccident frequency and severity rates Number and types of employee grievances and Number and types of employee grievances and

complaintscomplaints Number and types of customer complaintsNumber and types of customer complaints Amount of scrap and rejects and unexplained losses Amount of scrap and rejects and unexplained losses

of materials and inventoryof materials and inventory


Checking Performance against Checking Performance against StandardsStandards

PersonalPersonalObservationObservation

PersonalPersonalObservationObservation

Oral and WrittenOral and WrittenReportsReports

Oral and WrittenOral and WrittenReportsReports

SpotSpotChecksChecks

SpotSpotChecksChecks

SamplingSamplingTechniquesTechniques

SamplingSamplingTechniquesTechniques


Checking Performance against Checking Performance against Standards (cont’d)Standards (cont’d)

• Exception PrincipleException Principle Concept that supervisors should concentrate their Concept that supervisors should concentrate their

investigations on activities that deviate substantially investigations on activities that deviate substantially from standards.from standards.

• SamplingSampling The technique of evaluating some number of items The technique of evaluating some number of items

from a larger group to determine whether the group from a larger group to determine whether the group meets acceptable quality standards.meets acceptable quality standards. Statistical quality control (SQC): a method to determine not Statistical quality control (SQC): a method to determine not

only which items or services to inspect but also how many to only which items or services to inspect but also how many to inspect.inspect.


Taking Corrective ActionTaking Corrective Action

• Deviations from standards occur because:Deviations from standards occur because: Standards were based on faulty forecasts or Standards were based on faulty forecasts or

assumptionsassumptions

Unforeseen problems arose and distorted resultsUnforeseen problems arose and distorted results

Failure occurred in some preceding job or activityFailure occurred in some preceding job or activity

The employee who performed the job was unqualified The employee who performed the job was unqualified or was given inadequate directions or instructionsor was given inadequate directions or instructions

The employee who performed the job was negligent The employee who performed the job was negligent or failed to follow directions or proceduresor failed to follow directions or procedures


Taking Corrective Action (cont’d)Taking Corrective Action (cont’d)

• Before taking corrective action, the Before taking corrective action, the supervisor should:supervisor should: Determine the causes of the deviation by Determine the causes of the deviation by

analyzing the situation:analyzing the situation: Standards?Standards?

Employees?Employees?

Decide which remedial actions will obtain Decide which remedial actions will obtain better results.better results.


Budgetary ControlsBudgetary Controls

• BudgetBudget A financial plan that projects expected revenues and A financial plan that projects expected revenues and

expenditures during a set period.expenditures during a set period.

• Budgetary ControlBudgetary Control The use of budgets by supervisors, accountants, and The use of budgets by supervisors, accountants, and

higher-level managers to control operations so that higher-level managers to control operations so that they comply with organizational standards for making they comply with organizational standards for making budgets.budgets.

• Operating BudgetOperating Budget The assignment of dollar allocations to the costs and The assignment of dollar allocations to the costs and

expenses needed to run the business, based on expenses needed to run the business, based on expected revenues.expected revenues.


Budgetary Controls (cont’d)Budgetary Controls (cont’d)

• Supervisory Participation in Budget MakingSupervisory Participation in Budget Making Incremental budgetingIncremental budgeting

A technique for projecting revenues and expenses based on A technique for projecting revenues and expenses based on history. history.

Zero-base budgetingZero-base budgeting The process of assessing, on a benefit-and-cost basis, all The process of assessing, on a benefit-and-cost basis, all

activities to justify their existence.activities to justify their existence.

Departmental expense budgetDepartmental expense budget A budget that covers the expenditures incurred by the A budget that covers the expenditures incurred by the

department.department.


Budgetary Controls (cont’d)Budgetary Controls (cont’d)

• Supervising within the BudgetSupervising within the Budget

Supervisors must manage their departments within Supervisors must manage their departments within budget limits and refer to their budgets to monitor budget limits and refer to their budgets to monitor their expenditures during the operating period.their expenditures during the operating period.

If the expenditures for an item greatly exceed the If the expenditures for an item greatly exceed the item’s budgeted amount, the supervisor must find out item’s budgeted amount, the supervisor must find out what happened.what happened.

A supervisor’s budget should not be so detailed and A supervisor’s budget should not be so detailed and rigidly applied that it becomes a burden.rigidly applied that it becomes a burden.


Cost Control and the SupervisorCost Control and the Supervisor

Responding to a Cost-Responding to a Cost-Cutting OrderCutting Order

Responding to a Cost-Responding to a Cost-Cutting OrderCutting Order

Sharing Information and Sharing Information and Responsibility with Responsibility with

EmployeesEmployees

Sharing Information and Sharing Information and Responsibility with Responsibility with

EmployeesEmployees

Maintaining Cost Maintaining Cost AwarenessAwareness

Maintaining Cost Maintaining Cost AwarenessAwareness

Controlling Controlling CostsCosts

Controlling Controlling CostsCosts


Other Control Areas: Specialized Other Control Areas: Specialized ControlsControls

• Inventory ControlInventory Control Is keeping watch over raw materials, supplies, work-Is keeping watch over raw materials, supplies, work-

in-process, finished goods, and the like.in-process, finished goods, and the like. Is maintaining sufficient, though not excessive, Is maintaining sufficient, though not excessive,

inventory; keeping status records of all inventory; inventory; keeping status records of all inventory; ordering economic lot sizes; and many other tasks.ordering economic lot sizes; and many other tasks.

• Quality ControlQuality Control Is maintaining the quality standards a firm sets for its Is maintaining the quality standards a firm sets for its

products or services by monitoring and continual products or services by monitoring and continual improvement to ensure that quality is maintained.improvement to ensure that quality is maintained.


Other Control Areas: Specialized Other Control Areas: Specialized Controls (cont’d)Controls (cont’d)

• Production ControlProduction Control Consists of a number of activities that are designed to Consists of a number of activities that are designed to

keep overall operations on schedule.keep overall operations on schedule. Involves routing operations, scheduling, and, when Involves routing operations, scheduling, and, when

necessary, expediting work flow.necessary, expediting work flow. Gantt chartsGantt charts

– A diagram or pictorial representation of the progress and status A diagram or pictorial representation of the progress and status of various jobs in production.of various jobs in production.

Computerized network analysesComputerized network analyses– Program evaluation review technique (PERT)Program evaluation review technique (PERT)

– Critical path method (CPM)Critical path method (CPM)


Controlling and the Other Controlling and the Other Managerial FunctionsManagerial Functions

LeadingLeading

PlanningPlanning

OrganizingOrganizing

StaffingStaffing

ControllingControlling


KEY TERMSKEY TERMS

• BudgetBudget

• Concurrent controlConcurrent control

• ControllingControlling

• Exception principleException principle

• Feedback controlFeedback control

• Feedforward controlFeedforward control

• Incremental budgetingIncremental budgeting

• Intangible standardsIntangible standards

• Managerial controllingManagerial controlling

• Motion studyMotion study

• Operating budgetOperating budget

• SamplingSampling

• StandardsStandards

• Strategic control points Strategic control points (strategic standards )(strategic standards )

• Tangible standardsTangible standards

• Time studyTime study

• Zero-base budgetingZero-base budgeting

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© 2010 Cengage/South-Western. All rights reserved. Chapter 14: FUNDAMENTALS OF CONTROLLING Leonard: Supervision 11e