Unit5 Control

8/3/2019 Unit5 Control

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Control Function inManagement

n Controln Regulation of activities and behaviors within

organizationsn Adjustment or conformity to specifications or objectives

n Effective control depends heavily on otherfunctions that precede it and feeds back to themn Planning

n Organizingn Leading


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Basic Elements inControl Process

Adapted from Exhibit 16.3: The Basic Elements in the Control Process

Establish standards

Establish standards Specification starts at the top of the

organization and involves every levelof employee

Standards are the targets ofperformance Involving employees in setting

standards Commits the employees to

achieving the standards

Results in more appropriatestandards


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Specificity of Standards andPerformance Measurement

Adapted from Exhibit 16.4: The Effect of Specificity of Standards on Performance Measurement

High

LowConcrete

AbstractSpecificity of standards

Leve

lofconfusionin

performancemeasu

rement


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Establishing Standards

Adapted from Exhibit 16.5: Issues in Establishing Standards

Standards

How

spe

cific

sho

uldth

eybe?

Who

shouldsetthem?

How difficult should they be to reach?


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Establish standards

Measureperformance

Measure performance Obtain consensus about how to

assess performance If performance involves multiple

activities, measure must becomprehensive Measurement is costly and hence

usefulness of the information mustjustify the costs


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Measurement ofPerformance

Adapted from Exhibit 16.6: Issues in the Measurement of Performance

PerformanceMeasurement

Canexpensive,b

utnoncritical

,controls

Areallneces

sa

Isth

er

ec

o

Ca

nme

as

ur

eme

nt

cr


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Establish standards

Measureperformance

Compareperformance againststandards

Compare performance againststandards

Comparisons are affected by the kindsof measurements available

Managers must interpret the patternsof comparisons (some negative/somepositive)

Comparisons often involve subjectiveandobjective measures


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Establish standards

Measureperformance

Compareperformance againststandards

Evaluate results andtake any necessarycorrective action

Evaluate results/take necessary correctiveaction

Not all results require action Evaluate importance and magnitude

of the deviation Determine what action to take if necessary

Diagnosis skills of managers Level of expertise Evaluate the standards and the

measures

Employees performing better thanstandard should be recognized andrewarded


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Outcomes of PerformanceMeasurement

Adapted from Exhibit 16.7: Outcomes of Performance Measurement

Actual performancemeasured against standardfor performance

GapDetected

Reinforcing Action Taken(e.g., increase rewards andrecognition, consider increasing

production targets, add newproduct lines)

Corrective Action Taken(e.g., increase training, modify

supervision, invest in newerequipment)

Actual performancebetter than expectedperformance+

-Actual performanceworse than expectedperformance


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Scope of Control

n Assess and regulate how theorganization fits its externalenvironment and meets itslong-range objectives andgoals

n Control becomes less

efficient in uncertain orchanging environments

Strategic Control


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Types and Scope of Control

Adapted from Exhibit 16.8: Types and Scope of Control

Scope(Narrow)

(Broad)

Operational Controls

Tactical Controls

Strategic Controls


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Centralization of Control andEnvironmental Stability

Adapted from Exhibit 16.9: Degree of Centralization of Control in Relation to Environmental Stability

Environmental stability

Deg

reeofcentralization

Decentralized

Centralized Stabl

eTurbulent


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Scope of Control

n Assess and regulate day-to-day functions of theorganization and its major units in implementingits strategyn Financial controlsn Budgetary controlsn Supervisory structure controlsn Human resource controls

Tactical Control


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Strategic and Tactical Controls

Adapted from Exhibit 16.11: Characteristics of Strategic and Tactical Controls

TacticalControls

StrategicControlsTime Frame

Objective

Types of Comparisons

Focus

Limited Long, unspecific

Controls relate to

specific, functionalareas

Controls relate to

organization as awhole

Comparisons madewithin organization

Comparisons madeto other organization

Implementationof strategy

Determination ofoverall organizationalstrategy


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Ratio Formula Company

Company Financial Ratios

Adapted from exhibit 16.12: Examples of Company Financial Ratios

The GAP, Inc.2001 in $ millions

The Limited, Inc.2001 in $ millions

ProfitReturn onInvestment

Net Profitbefore taxes

Total Assets

241

7,5910.03

904

4,7190.19

LiquidityCurrentRatio

CurrentAssets

CurrentLiabilities

3,044

2,0561.4

2,682

1,3192.0

LiabilitiesLeverageDebt toAssets

Total Debts

Total Assets

2,525

7,5910.33

1,975

4,7190.42


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Ratio Formula Company

Company Financial Ratios

Adapted from exhibit 16.12: Examples of Company Financial Ratios

The GAP, Inc.2001 in $ millions

The Limited, Inc.2001 in $ millions

ActivityInventoryTurnover

Sales

Inventory

13,847

1,6778.3

9,363

9669.7


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Issue Questions

Budgetary Control

Adapted from exhibit 16.13: Issues in Budgetary Control

Rolling budgetsand revision

Should the budget period be for 12 months followed byanother 12-month budget a year later, or should acalendar quarter be added each time a new calendarquarter begins?

Should the budget remain fixed for the budget period or

should it be revised periodically during the period?

Fixed or flexiblebudgets

Should performance be evaluated against the originalbudget or against a budget that incorporates the actualactivity level of the business?

Bonuses based onbudgets

Should incentive compensation, if any, be based on actualversus budgeted performance, or on actual performanceagainst some other standard?


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Issue Questions

Budgetary Control

Adapted from exhibit 16.13: Issues in Budgetary Control

Evaluation criteria Should the budget used to evaluate performance includeonly those items over which the evaluated manager hascontrol, or should it include all unit costs and revenuesappropriate to the managerial unit?

Tightness of thebudget

What degree of stretch should there be in the budget?

Source: Adapted from N. C. Churchill, Budget Choices: Planning vs. Control,Harvard Business Review 62, no. 4 (1984), pp.150164, (p. 151).


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Scope of Control

n Assess and regulatespecific activities andmethods used to producegoods and services

n Precontrol of operations

n Concurrent control of

operationsn Postcontrol of operations

Operational Control


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Operational Controls

Adapted from Exhibit 16.16: Operational Controls

ConcurrentControl

Evaluates theconversion process asit occurs

Provides immediatefeedback, which

impacts workermotivation

Precontrol

Controls thequality, quantity,and othercharacteristics ofthe inputs to the

process

Postcontrol

Traditionally,quality control

Many of thesecontrols are beingchanged to pre- and

concurrent controls


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Control Effectiveness

n Focus of controln Balanced scorecard

n Financial perspective

n Customer perspective

n Internal businessperspective

n Innovation and learningperspective

n Amount of control


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Control Effectiveness

n Quality of informationn Usefulness

n Accuracy

n Timeliness

n Objectivity

n Flexibility

n Favorable cost-benefit ration Source of control


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Importance of OperationsManagement

n Complex management activity includingplanning production, organising

resources, directing operations andpersonnel and monitoring systemperformance

n Operational planning and controldecisions


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Designing operation systems

n What to produce DFM, CAD, BOM

n How many to produce capacity

planningn How to produce Technology,

component, process flow, facility

location, layout planningn Who will do the work Worker skill,

safety, workplace collaboration


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Information and control

n Nature of informationn Quality

n Timelinessn Quantity

n Relevance

n MIS for operational control


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Unit5 Control