Chapter 15
Foundations of Control
with Duane Weaver
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 1
What Is Control?
• Control
– The process of monitoring activities to ensure
that they are being accomplished as planned and
of correcting any significant deviations
• The Purpose of Control
– To ensure that activities are completed in ways
that lead to accomplishment of organizational
goals
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 2
Why Is Control Important?
• The final link in management functions:
– Planning
• Controls let managers know whether their goals and
plans are on target and what future actions to take
– Empowering employees
• Control systems provide managers with information and
feedback on employee performance
– Protecting the workplace
• Controls enhance physical security and help minimize
workplace disruptions
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 3
Exhibit 15.3 The Control Process
Measurin
Step 1 Actual
g Performance
GOAL
S Comparing
Organizationa Step 2
Performance
Actual
l Divisiona Against
Departmental
l
Individua Standard
l
Takin
Step 3 Managerial
g
Action
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 4
How and What We Measure
• How: Sources of
Information
– Personal observations
– Statistical reports
– Oral reports
– Written reports
– Self-Monitoring
Devices
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 5
Exhibit 15.4 Common Sources of
Information for Measuring
Performance
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 6
Exhibit 15.5 Defining the Acceptable
Range of Variation
Acceptable
Upper
Limit
Standar Acceptable
Range
d
Variatio
of
n
Acceptable
Lower
Limit
t t+ t+ t+ t+ t+
1 Time 2 Period 3 t ) 4 5
( Eighth Canadian Edition.
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management,
Copyright © 2005 Pearson Education Canada Inc. 7
Taking Managerial Action
• Courses of Action
– “Doing nothing”
• Only if deviation is insignificant
– Correcting actual (current) performance
• Immediate or basic corrective action
– Revising the standard
• Determine whether the standard is realistic, fair, and
achievable
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 8
Exhibit 15.7 Managerial Decisions in
the Control Process
Compar I Ye
e actua standar
s s
d bein Do nothing
performanc
l
with
e attained
g
standard ?
No
I Ye
varianc
s s Do nothing
acceptable
e
Measur ?
Goal Standar e actua
performanc
l No
s d
e
I Ye
standar s Identif
s
acceptable cause
y
d
variatio
of
?
n
No
Revis Correc
standar
e performanc
t
d e
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 9
Tools for Controlling
Organizational Performance
• Feedforward Control
– Prevents 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 Control
– Takes place after an activity is done
• Corrective action is after-the-fact, when the problem has already occurred
– Advantages
• Feedback provides managers with information on the effectiveness of their
planning efforts
• Feedback enhances employee motivation by providing them with information on
how well they are doing
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 10
Tools for Controlling Organizational
Performance: Financial Controls
• Traditional Controls • Other Measures
– Ratio analysis – Economic value added
• Liquidity (EVA)
• Leverage – Market value added
• Activity (MVA)
• Profitability
– Budget analysis
• Quantitative standards
• Deviations
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 11
Exhibit 15.9 Popular Financial Ratios
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 12
Exhibit 15.9 Popular Financial Ratios
(cont’d)
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 13
Tools for Controlling Organizational
Performance: Financial Controls
(cont’d)
• Other Measures
– Economic value added (EVA)
• How much value is created by what a company does with its assets, less any capital investments in those assets: the
rate of return earned over and above the cost of capital
– Market value added (MVA)
• The value that the stock market places on a firm’s past and expected capital investment projects
• If the firm’s market value (its stock and debt) exceeds the value of its invest capital (its equity and retained
earnings), then managers have created wealth
– Balanced Scorecard
• A measurement tool that uses goals set by managers in four areas to measure a company’s performance:
– Financial
– Customer
– Internal processes
– People/innovation/growth assets
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 14
Benchmarking of Best Practices
• Benchmarking
– The search for the best practices among
competitors or noncompetitors that lead to their
superior performance
– A control tool for identifying and measuring
specific performance gaps and areas for
improvement
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 15
Exhibit 15.10 Steps to
Implementing a Best Nurture best practices
on an ongoing basis
Practices Program
Create best practices
knowledge sharing system
Communicate best practices
throughout the organization
Develop best practices
reward and recognition systems
Identify best practices
throughout the organization
Connect best practices
to strategies and goals
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 16
Contemporary Issues in Control
• Growing reliance on employee surveillance
[Link]
• Growing focus on corporate governance
–The 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
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 17
Qualities of an Effective Control
System
Corrective
Action Accuracy
Timeliness
Multiple
Criteria
Effective
Emphasis
on
Control Economy
Exceptions System
Strategic
Placement Flexibility
Reasonable Understand
Criteria ability
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 18
Contingency Factors in the Design of
Control Systems
Chapter 15, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Eighth Canadian Edition.
Copyright © 2005 Pearson Education Canada Inc. 19