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Chapter 16Chapter 16
©2001 South-Western College Publishing©2001 South-Western College Publishing©2001 South-Western College Publishing©2001 South-Western College Publishing
Pamela S. LewisPamela S. LewisStephen H. GoodmanStephen H. Goodman
Patricia M. FandtPatricia M. Fandt
Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer
University of Central FloridaUniversity of Central Florida
Pamela S. LewisPamela S. LewisStephen H. GoodmanStephen H. Goodman
Patricia M. FandtPatricia M. Fandt
Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer
University of Central FloridaUniversity of Central Florida
Organizational Control in a Complex Business Environment
Organizational Control in a Complex Business Environment
Transparency 16-2Transparency 16-2© 2001 South-Western Publishing© 2001 South-Western Publishing
Learning ObjectivesSlide 1 of 3
Learning ObjectivesSlide 1 of 3
1.Define and discuss the importance of organizational control.
2.Identify the sequence of steps to be undertaken in a thorough control system.
3.Identify the factors that are important considerations in the design of a control system.
4.Describe the various characteristics of effective control.
Transparency 16-3Transparency 16-3© 2001 South-Western Publishing© 2001 South-Western Publishing
Learning ObjectivesSlide 2 of 3
Learning ObjectivesSlide 2 of 3
5.Identify the factors that help determine the proper amount of control.
6.Define feedforward control, concurrent control, and feedback control.
7.Describe the difference between the philosophies of bureaucratic control and organic control.
Transparency 16-4Transparency 16-4© 2001 South-Western Publishing© 2001 South-Western Publishing
Learning ObjectivesSlide 3 of 3
Learning ObjectivesSlide 3 of 3
8.Describe some of the more important techniques and methods for establishing financial control.
9.Discuss some of the ethical issues related to the control of employee behavior.
Transparency 16-5Transparency 16-5© 2001 South-Western Publishing© 2001 South-Western Publishing
Organizational Control DefinedOrganizational Control Defined
The systematic process through which managers regulate organizational activities to make them consistent with the expectations
established in plans and to help them achieve all predetermined standards of performance.
Transparency 16-6Transparency 16-6© 2001 South-Western Publishing© 2001 South-Western Publishing
Process of Control Slide 1 of 3
Process of Control Slide 1 of 3
• Setting Standards for Performance– Whenever possible, the standards should be set
in a manner that allows them to be compared with actual performance.
• Measuring Actual Performance– An organization must decide:
• What to measure.• When to measure.• How frequently to measure.
Transparency 16-7Transparency 16-7© 2001 South-Western Publishing© 2001 South-Western Publishing
Process of Control Slide 2 of 3
Process of Control Slide 2 of 3
• Comparing Actual Performance With Standards– This step involves determining if actual
performance compared to standards falls within acceptable limits.
• Responding to Deviations– If the deviation from performance is
unacceptable, then corrective action is warranted. If the deviation is acceptable, no correction action is necessary.
Transparency 16-8Transparency 16-8© 2001 South-Western Publishing© 2001 South-Western Publishing
Process of Control Slide 3 of 3
Process of Control Slide 3 of 3
Set performance
standards
Measureactual
performance
Compareperformance
withstandards
Take nocorrective
action
Takecorrective
action
If deviations are acceptable
If deviations are unacceptable
Transparency 16-9Transparency 16-9© 2001 South-Western Publishing© 2001 South-Western Publishing
Designing Quality and Effectiveness into the Control
System
Designing Quality and Effectiveness into the Control
System
Factors to consider when designing a control system:
The amount of variety in the control system The amount of variety in the control system The amount of variety in the control system The amount of variety in the control system
The ability to anticipate problems The ability to anticipate problems The ability to anticipate problems The ability to anticipate problems
The sensitivity of the measuring device The sensitivity of the measuring device The sensitivity of the measuring device The sensitivity of the measuring device
The composition of the feedback reports The composition of the feedback reports The composition of the feedback reports The composition of the feedback reports
Transparency 16-10Transparency 16-10© 2001 South-Western Publishing© 2001 South-Western Publishing
Design Factors Affecting Control System Quality
Slide 1 of 3
Design Factors Affecting Control System Quality
Slide 1 of 3
• The Amount of Variety in the Control System– Variety refers to the number of activities,
processes, or items that are measured and controlled.
– Law of requisite variety• Control systems must have enough variety to cope
with the variety in the systems they are trying to control.
Transparency 16-11Transparency 16-11© 2001 South-Western Publishing© 2001 South-Western Publishing
Design Factors Affecting Control System Quality
Slide 2 of 3
Design Factors Affecting Control System Quality
Slide 2 of 3
• Ability to Anticipate Problems– If a deviation can be anticipated before it
occurs, corrective action can be instituted more quickly and the negative consequences of the deviation reduced.
• Sensitivity of the Measuring Device– Care must be taken to use a device that is
sensitive enough to adequately measure the system being controlled.
Transparency 16-12Transparency 16-12© 2001 South-Western Publishing© 2001 South-Western Publishing
Design Factors Affecting Control System Quality
Slide 3 of 3
Design Factors Affecting Control System Quality
Slide 3 of 3
• Composition of Feedback Reports– Variance reporting
• Highlighting only those things that fail to meet the established standards.
– Management by exception• Focusing on the elements that are not
meeting the standards.
Transparency 16-13Transparency 16-13© 2001 South-Western Publishing© 2001 South-Western Publishing
Control System Design IssuesSlide 1 of 2
Control System Design IssuesSlide 1 of 2
Step 1: Set standardsof performance
Step 2: Measure actual
performance
Control Process Steps Design Considerations
Design factors- Variety
- Anticipation
- Sensitivity
- Feedback reporting
Effectiveness criteria- Related to strategy
- Complete
- Use objective and subjective
measures
- Timely
- Acceptable
Transparency 16-14Transparency 16-14© 2001 South-Western Publishing© 2001 South-Western Publishing
Control System Design IssuesSlide 2 of 2
Control System Design IssuesSlide 2 of 2
Step 3: Compareperformance with
standards
Step 4: Respond todeviations
Control Process Steps Design Considerations
Select proper amount
- Cost
- Reliability
- Process importance
Select focal point
- Feedforward focus
- Concurrent focus
- Feedback focus
- Multiple focus
Transparency 16-15Transparency 16-15© 2001 South-Western Publishing© 2001 South-Western Publishing
Criteria for Effective Control Slide 1 of 3
Criteria for Effective Control Slide 1 of 3
• Is Related to Organizational Strategy– A control system should measure what is
important now and what will be important in the future.
• Utilizes All Steps in the Control Process– To be effective, a control system must employ
all of the steps in the control process.
Transparency 16-16Transparency 16-16© 2001 South-Western Publishing© 2001 South-Western Publishing
Criteria for Effective Control Slide 2 of 3
Criteria for Effective Control Slide 2 of 3
• Composed of Objective and Subjective Measures– Effective control systems typically require
managers to blend quantitative (objective) and qualitative (subjective) performance measures.
• Incorporates Timeliness in Feedback Reporting– Timeliness is the degree to which the control
system provides information when it is needed.
Transparency 16-17Transparency 16-17© 2001 South-Western Publishing© 2001 South-Western Publishing
Criteria for Effective Control Slide 3 of 3
Criteria for Effective Control Slide 3 of 3
• Acceptable to a Diverse Work Force– To be effective, organizational controls must be
accepted by employees.– The control system should motivate workers to
recognize standards and act to achieve them.
Transparency 16-18Transparency 16-18© 2001 South-Western Publishing© 2001 South-Western Publishing
Selecting the Proper Amount of Control Slide 1 of 3
Selecting the Proper Amount of Control Slide 1 of 3
• Costs in the Control System– Two basic categories of costs need to be
considered:• The costs associated with the information
needed to perform the control process.• The costs associated with undesirable
deviations from standards.
Transparency 16-19Transparency 16-19© 2001 South-Western Publishing© 2001 South-Western Publishing
Selecting the Proper Amount of Control Slide 2 of 3
Selecting the Proper Amount of Control Slide 2 of 3
• Reliability of the System– Reliability refers to the probability that the
object or process being controlled will consistently behave in an acceptable manner.
– The basic premise is that the more reliable the process, the less control that is needed.
Transparency 16-20Transparency 16-20© 2001 South-Western Publishing© 2001 South-Western Publishing
Selecting the Proper Amount of Control Slide 3 of 3
Selecting the Proper Amount of Control Slide 3 of 3
• Importance of the Process Being Controlled– The more important the object or process being
controlled, the greater the amount of control that should be exercised.
Transparency 16-21Transparency 16-21© 2001 South-Western Publishing© 2001 South-Western Publishing
Selecting the Focal Point for Control Slide 1 of 2
Selecting the Focal Point for Control Slide 1 of 2
• Feedforward (Preventive) Control– Focuses on detecting undesirable material,
financial, or human resources that serve as inputs to the transformation process.
• Concurrent Control– Focuses on the transformation process to ensure
that it is functioning properly.
Transparency 16-22Transparency 16-22© 2001 South-Western Publishing© 2001 South-Western Publishing
Selecting the Focal Point for Control Slide 2 of 2
Selecting the Focal Point for Control Slide 2 of 2
• Feedback Control– Focuses on discovering undesirable output and
implementing corrective action.
• Multiple Focal Points– Most organizations use several control systems
focused on various phases of the transformation process.
Transparency 16-23Transparency 16-23© 2001 South-Western Publishing© 2001 South-Western Publishing
Control Focal PointsControl Focal Points
Control system
Transformationprocess
Inputs Outputs
Feedforward control
Concurrent control
Feedback control
Transparency 16-24Transparency 16-24© 2001 South-Western Publishing© 2001 South-Western Publishing
Managerial Control PhilosophiesManagerial Control Philosophies
Bureaucratic Control
Organic Control
Use of formal mechanisms to influence
behavior, assess performance, and correct unacceptable deviations
from standards.
Reliance upon social values, traditions, shared beliefs, flexible authority,
and trust to assess performance and correct unacceptable deviations.
Transparency 16-25Transparency 16-25© 2001 South-Western Publishing© 2001 South-Western Publishing
Factors Favoring Bureaucratic vs. Organic Controls
Factors Favoring Bureaucratic vs. Organic Controls
Bureaucratic Control
Organic Control
Task-oriented management style
Culture favors decision making at the top
Employees that lack education and experience
Performance that can be quantified and measured
Relationship-oriented management style
Culture encourages employee participation
Highly educated, highly trained employees
Performance that is difficult to measure
Transparency 16-26Transparency 16-26© 2001 South-Western Publishing© 2001 South-Western Publishing
Mechanisms for Financial Control Slide 1 of 3
Mechanisms for Financial Control Slide 1 of 3
• Financial Statements– Balance sheet
• Summary of an organization’s financial position at a given point in time, showing assets, liabilities, and owner’s equity.
– Income statement• Summary of an organization’s financial
performance over a given time interval, showing revenues, expenses, and bottom-line profit or loss.
Transparency 16-27Transparency 16-27© 2001 South-Western Publishing© 2001 South-Western Publishing
Mechanisms for Financial Control Slide 2 of 3
Mechanisms for Financial Control Slide 2 of 3
• Financial Ratios– Liquidity ratios
• Indicators of the firm’s ability to meet its short-term debt obligations.
– Profitability ratios• Indicators of the relative effectiveness, or
profitability, of the organization.
Transparency 16-28Transparency 16-28© 2001 South-Western Publishing© 2001 South-Western Publishing
Mechanisms for Financial Control Slide 3 of 3
Mechanisms for Financial Control Slide 3 of 3
• Financial Ratios (cont.)– Debt ratios
• Indicators of the firm’s ability to handle long-term debt.
– Activity ratios• Indicators of performance with respect to
key activities defined by management.
Transparency 16-29Transparency 16-29© 2001 South-Western Publishing© 2001 South-Western Publishing
Ethical Issues in the Control of a Diverse Work Force
Ethical Issues in the Control of a Diverse Work Force
• Drug Testing
• Undercover Surveillance
• Computer Monitoring
Transparency 16-30Transparency 16-30© 2001 South-Western Publishing© 2001 South-Western Publishing
Guidelines for the Successful Manager of the Future
Slide 1 of 4
Guidelines for the Successful Manager of the Future
Slide 1 of 4
• Develop a control system for each important product, service, process, or activity within the organization.
• Incorporate sufficient variety, sensitivity, anticipation capability, and feedback into the control system.
Transparency 16-31Transparency 16-31© 2001 South-Western Publishing© 2001 South-Western Publishing
Guidelines for the Successful Manager of the Future
Slide 2 of 4
Guidelines for the Successful Manager of the Future
Slide 2 of 4
• Gauge the control system’s effectiveness by considering its relationship to corporate strategy, its completeness, the degree to which it incorporates objective and subjective performance measures, its timeliness, and its acceptability to individuals within the organization.
Transparency 16-32Transparency 16-32© 2001 South-Western Publishing© 2001 South-Western Publishing
Guidelines for the Successful Manager of the Future
Slide 3 of 4
Guidelines for the Successful Manager of the Future
Slide 3 of 4
• Determine the appropriate points within the organization where control systems should be focused.
• Understand the intricacies of the financial data contained in the organization’s financial statements, and use various financial control techniques to assess the firm’s financial health.
Transparency 16-33Transparency 16-33© 2001 South-Western Publishing© 2001 South-Western Publishing
Guidelines for the Successful Manager of the Future
Slide 4 of 4
Guidelines for the Successful Manager of the Future
Slide 4 of 4
• Adopt a philosophy of control that is consistent with the management style, corporate culture, employee professionalism, and performance measures present within the organization.