9
Chapter 12
Fundamentals of Control
● Identify the types of controls
used by managers
Planning ● and the reasons for them.
● List and describe the steps
Ahead - Key in the control process.
● Explain the use of common
Takeaways control tools and
● techniques.
1. Managerial Control
○ Importance of controlling
○ Types of controls
Chapter 12 ○ Internal and external
control
Outline 2. The Control Process
○ Establish objectives and
standards
○ Measure actual
performance
○ Compare results with
objectives
○ Take corrective action
3. Control Tools and
Techniques
Chapter 12 ○ Project management
and control
Outline ○ Inventory control
○ Breakeven analysis
○ Financial controls
○ Balanced scorecards
● Controlling
○ The process of measuring
Why and How performance and taking
action to ensure desired
Managers Control results
○ Has a positive and
necessary role in the
management process
○ Ensures that the right
things happen, in the right
way, at the right time
○ Benefit: Organizational
learning (Example: After-
action review)
Figure 9.1 The role of controlling in
the management process
● Feedforward controls
○ Employed before a work
Why and How activity begins
○ Ensures that:
Managers ■ Objectives are clear
Control ■ Proper directions are
established
■ Right resources are
available
○ Goal is to solve problems
before they occur
● Concurrent controls
○ Focus on what happens
Why and How during work process
○ Monitor ongoing
Managers operations to make sure
they are being done
Control according to plan
○ Goal is to solve problems
as they occur
● Feedback controls
○ Take place after work is
Why and How completed
○ Focus on quality of end
Managers results
Control ○ Goal is to solve problems
after they occur and
prevent future ones
Figure 9.2 Feedforward, concurrent, and
feedback controls
● Internal and external control
○ Internal control
Why and How ■ Allows motivated
individuals and groups
Managers to exercise self-
discipline in fulfilling job
Control expectations
○ External control
■ Occurs through
personal supervision
and the use of formal
administrative systems
● Self-control
○ Internal control that occurs
Why and How through self-discipline in
fulfilling work and personal
Managers goals and responsibilities
Control
● Bureaucratic control
○ Influences behavior
Why and How through authority, policies,
procedures, job
Managers descriptions, budgets, and
day-to-day supervision
Control ● Clan control
○ Influences behavior
through norms and
expectations set by the
organizational culture
● Market Control
○ Influence of market
Why and How competition on the
behavior of organizations
Managers and their members
Control
Figure 9.3 Four steps in the control process
● Step 1 — establishing
objectives and standards
The Control ○ Output standards
■ Measure performance
Process results in terms of
quantity, quality, cost, or
time
○ Input standards
■ Measure effort in terms
of amount of work
expended in task
performance
● Step 2 — measuring actual
performance
The Control ○ Goal is accurate
measurement of actual
Process performance results
and/or performance efforts
○ Must identify significant
differences between
actual results and original
plan
○ Effective control requires
measurement
● Step 3 — comparing results
with objectives and standards
The Control ○ Need for action = Desired
Performance –
Process Actual Performance
○ Comparison methods:
■ Historical comparison
■ Relative comparison
■ Engineering
comparison
● Step 4 — taking corrective
action
The Control ○ Taking action when a
discrepancy exists
Process between desired and
actual performance
○ Management by exception
■ Giving attention to
situations showing the
greatest need for action
■ Types of exceptions
● Problem situation
● Opportunity situation
● Project Management
○ Overall planning,
supervision, and control of
projects
Control Tools ■ Projects – unique one-
time events that occur
and within a defined time
period
Techniques ■ Gantt chart – graphic
display of scheduled
tasks required to
complete a project
■ CPM/PERT –
combination of the critical
path method and program
evaluation and review
technique
Gantt Chart
CPM/PERT CHART
● Inventory control
○ Ensures that inventory is
Control Tools only big enough to meet
immediate needs
and ○ Economic order quantity
Techniques ■ Places new orders
when inventory levels
fall to predetermined
points
○ Just-in-time scheduling
■ Routes materials to
workstations just in time
for use
● Breakeven analysis
○ Breakeven point
Control Tools ○ Occurs where revenues
just equal costs
and ○ Breakeven analysis
○ Performs what-if
Techniques calculations under
different revenue and
cost conditions
Figure 9.4 Use of breakeven analysis to make
informed “what-if” decisions
Figure 9.5 Basic foundations of a balance sheet
and income statement
● Basic Financial Ratios
○ Liquidity
■ The ability to generate
cash to pay bills
Control Tools ○ Leverage
and ■ The ability to earn more in
returns than the cost of
Techniques debt
○ Asset management
■ The ability to use
resources efficiently and
operate at minimum cost
○ Profitability
■ The ability to earn
revenues greater than
costs
● Balanced Scorecard
● Factors used to develop
Control Tools scorecard goals and
measures:
and ○ Financial performance
○ Customer Satisfaction
Techniques ○ Internal process
improvement
○ Innovation and learning