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    Managing the Control Process

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    142

    The Nature of ControlThe Nature of Control

    ControlThe regulation of organizational activities so that some

    targeted element of performance remains within

    acceptable limits.

    Provides organizations with indications of how well theyare performing in relation to their goals.

    Provides a mechanism for adjusting performance to keep

    organizations moving in the right direction.

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    143

    The PlanningThe PlanningControlling LinkControlling Link

    Source: Van Fleet, David D., and Tim Peterson, Contemporary Management, Third Edition. Copyright 1994 by Houghton Mifflin Company. Used with permission.

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    144

    The Nature of Control (contd)The Nature of Control (contd)

    The Purpose of Control Control is one of the four basic management functions. The

    control function, in turn, has four basic purposes.

    Adapt to environmental change Limit the accumulation of error

    Control helps the organization

    Cope with organizational complexity Minimize costs

    Figure 14.1

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    The Nature of Control (contd)The Nature of Control (contd)

    Types of ControlsAreas of Control

    Physical resourcesinventory management, quality

    control, and equipment control.

    Human resourcesselection and placement, training

    and development, performance appraisal, and

    compensation.

    Information resourcessales and marketing forecasts,

    environmental analysis, public relations, productionscheduling, and economic forecasting.

    Financial resourcesmanaging capital funds and cash

    flow, collection and payment of debts.

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    146

    The Nature of Control (contd)The Nature of Control (contd)

    Types of Controls (contd)Levels of Control

    Strategic

    control

    Structural

    control

    Operations

    control

    Financial

    control

    Figure 14.2

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    147

    The Nature of Control (contd)The Nature of Control (contd)

    Types of Controls (contd)Responsibilities for Control

    Controllera position in organizations

    that helps line managers with

    their control activities.

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    148

    Responsibility for ControlResponsibility for Control

    Source: Van Fleet, David D., and Tim Peterson, Contemporary

    Management, Second Edition. Copyright 1991 by Houghton Mifflin

    Company. Used with permission.

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    149

    The Nature of Control (contd)The Nature of Control (contd)

    Steps in the Control Process

    Establish

    standards

    Measure

    performance

    Compare

    performance

    against standards

    Maintain the

    status quo

    Correct the

    deviation

    Change

    standards

    Determine need

    for corrective

    action

    21 43

    Figure 14.3

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    The Nature of Control (contd)The Nature of Control (contd)

    Steps in the Control Process (contd)Establish Standards

    Control standarda target against which subsequent

    performance will be compared.

    Control standards should be expressed in measurable terms.

    Control standards should be consistent with organizational goals.

    Control standards should be identifiable indicators of

    performance.

    Measure Performance

    Performance measurement is an ongoing process.

    Performance measures must be valid indicators (e.g.,

    sales, costs, units produced) of performance.

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    The Nature of Control (contd)The Nature of Control (contd)

    Steps in the Control Process (contd)Compare Performance Against Standards

    Define what is a permissible deviation from the

    performance standard.

    Utilize the appropriate timetable for measurement.

    Determine the Need for 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.

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    The Nature of Control (contd)The Nature of Control (contd)

    Forms of Operations Control

    Preliminary control

    Focuses on inputs

    to the organizationalsystem

    Inputs Transformation Outputs

    Screening control

    Focuses on how

    inputs are beingtransformed into

    outputs

    Postaction control

    Focuses on outputs

    from the organiza-tional system

    Feedback

    Figure 14.4

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    Financial ControlFinancial Control

    Financial ControlControl of financial resources (i.e., revenues,

    shareholder investment) as they flow into the

    organization, are held by the organization (i.e.,

    working capital, retained earnings),and flow out of the organization

    (i.e., payment of expenses).

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    Financial Control (contd)Financial Control (contd)

    Financial Control (contd)Budgets serve four purposes:

    Help managers coordinate resources and projects.

    Help define the established standards for control.

    Provide guidelines about the

    organizations resources

    and expectations.

    Enable the organization

    to evaluate theperformance of

    managers and

    organizational units.

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    Financial Control (contd)Financial Control (contd)

    Types of Budgets

    Type f B d et W t B d et S

    i i l d et S res d ses f sh

    Cas -flo or cas udget ll sources of cas inco e and case penditures in ont ly, eekly, or dailyperiods

    Capital-e penditures udget Costs of ajor assets suc as a ne plant,ac inery, or land

    Balance-s eet udget Forecast of t e organizations assets and

    lia ilities in t e e ent t at all ot er udgetsare et

    Table 14.1a

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    Financial Control (contd)Financial Control (contd)

    Types of Budgets (contd)

    Type f B d et What B d et Shows

    perati bud et lanned operations in financial ters

    ales or re enue udget Inco e t e organization e pects to recei e fronoral operations

    pense udget nticipated e penses for t e organization duringt e co ing ti e period

    rofit udget nticipated differences et een sales or re enuesand e penses

    Table 14.1b

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    Copyright by Houghton Mifflin Company. All rights reserved. 1418

    Financial Control (contd)Financial Control (contd)

    Types of Budgets (contd)

    Type of udget hat udget Shows

    Nonmonetary budget Planned operations in nonfinancial terms

    Labor budget Hours of direct labor available for use

    Space budget Square feet or meters of space available forvarious functions

    Production budget Number of units to be produced during the comingtime period

    Table 14.1c

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    Financial Control (contd)Financial Control (contd)

    Strengths

    Budgets facilitate effective

    operational controls.

    Budgets facilitate

    coordination and

    communication between

    departments.

    Budgets establish records of

    organizational performance,which can enhance

    planning.

    Weaknesses

    Budgets can hamper

    operations if applied too

    rigidly.

    Budgets can be time

    consuming to develop.

    Budgets can limit innovation

    and change.

    Strengths and Weaknesses of Budgeting

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    Other Tools of Financial ControlOther Tools of Financial Control

    Financial StatementsA financial statement is a profile of some aspect of an

    organizations 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 performancerevenues less

    expenses as net income (i.e., profit or loss)over a

    period of time, usually one year.

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    Other Tools of Financial Control (contd)Other Tools of Financial Control (contd)

    Ratio AnalysisThe calculation of of one or more financial ratios to

    assess some aspect of the organizations financial

    health.

    Financial AuditsAuditan independent appraisal of an organizations

    accounting, financial, and operational systems.

    External auditsfinancial appraisals conducted by

    experts who are not employees of the organization.Internal auditsappraisals conducted by employees of

    the organization.

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    Structural ControlStructural Control

    Organizational Control

    Dimension

    Employee complianceGoal of control approach

    Strict rules, formal controls,rigid hierarchy

    Directed toward minimum

    levels of acceptable

    performance

    Tall structure, top-down

    influence

    Directed at individualperformance

    Limited and formal

    Employee commitment

    Group norms, culture,self-control

    Directed toward enhancedperformance above andbeyond the minimum

    Flat structure, shared

    influence

    Directed at group

    performance

    Extended and informal

    Performance expectations

    Degree of formality

    Organization design

    Reward system

    Participation

    ureaucratic Control Clan Control

    Figure 14.6

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    Structural Control (contd)Structural Control (contd)

    Bureaucratic ControlA form of organizational control characterized by

    formal and mechanistic structural arrangements.

    Clan Control

    An approach to organizational

    control characterized by

    informal and organic

    structural arrangements.

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    Strategic ControlStrategic Control

    Integrating Strategy and ControlStrategic control

    Control aimed at ensuring that the organization is

    maintaining an effective alignment with its environment

    and moving toward achieving its strategic plan. Focuses on structure, leadership, technology, human

    resources, and informational and operational systems.

    Focuses on the extent to which an implemented strategy

    achieves the organizations goals.

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    Strategic Control (contd)Strategic Control (contd)

    Integrating Strategy and Control (contd)International Strategic Control

    Focuses on whether to manage the global organization

    from a centralized or decentralized perspective.

    Centralization creates more control and coordination,whereas decentralization fosters adaptability and

    innovation.

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    Managing Control in OrganizationsManaging Control in Organizations

    Characteristics of Effective ControlIntegration with Planning

    the more control is linked to planning, the more effective

    the control system.

    Flexibility

    the control system must be flexible enough to

    accommodate change.

    Accuracy

    Inaccurate information results in bad decision makingand inappropriate managerial actions.

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    Managing Control in Organizations (contd)Managing Control in Organizations (contd)

    Characteristics of Effective Control (contd)Timeliness

    A control system should provide information as often as

    necessary.

    Ob ectivity

    A control system

    must be free from bias

    and distortion.

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    Managing Control in Organizations (contd)Managing Control in Organizations (contd)

    Resistance to ControlOvercontrol

    Trying to control too many details becomes problematic

    when control affects employee behavior and employees

    perceive control attempts as unreasonable.Inappropriate Focus

    The control system may be too narrow or it may focus

    too much on quantifiable variables and leave no room

    for analysis or interpretation.

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    Managing Control in Organizations (contd)Managing Control in Organizations (contd)

    Resistance to Control (contd)Rewards for Inefficiency

    Rewarding operational inefficiency can lead employees

    to behave in ways that are not in the best interests of the

    organization.Too much accountability

    Efficient controls are resisted

    by poorly performing

    employees.

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    Overcoming Resistance to ControlOvercoming Resistance to Control

    Resistance to control can be overcome by:Designing effective controls that are properly

    integrated with organizational planning and aligned

    with organizational goals and standards.

    Creating controls that are flexible, accurate, timely,and ob ective.

    Avoiding overcontrol in the implementation of controls.

    Guarding against creating controls that reward

    inefficiencies.

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    Overcoming Resistance to Control (contd)Overcoming Resistance to Control (contd)

    Resistance to control can be overcome by(contd):

    Encouraging employee participation in the planning

    and implementing of control systems.

    Developing a system of checks and balances in thecontrol systems through the use of multiple standards

    and information systems that allow the organization to

    verify the accuracy of performance indicators.

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    Types of ControlTypes of Control

    Feedforward ControlPrevents anticipated problems before they occur

    Building in quality through design

    Requiring suppliers conform to ISO 9002

    Concurrent Control

    Monitoring while activity is in progress

    Direct supervision: management by walking around

    Feedback ControlTakes place after an activity is done Corrective action is after-the-fact, when the problem has

    already occurred

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    11

    Corporate GovernanceThe system used to govern a corporation so that the

    interests of the corporate owners are protected

    Changes in the role of boards of directors

    Increased scrutiny of financial reporting

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