Management
Sixteenth Edition, Global Edition
Chapter 18
Management Control
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Learning Objectives
18.1 Explain the nature and importance of control.
18.2 Describe the three steps in the control process.
18.3 Explain how organizational and employee performance
are measured.
18.4 Describe tools used to measure organizational
performance.
18.5 Discuss contemporary issues in control.
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What Is Controlling, and Why Is It Important?
• Controlling: management function that involves
monitoring, comparing, and correcting work performance
• Managers cannot really know whether their units are
performing properly until they have evaluated what
activities have been done and have compared the actual
performance with the desired standard
• So, all managers should control even if their units are
performing as planned
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Why Is Controlling Important?
• An organizational structure is created to facilitate efficient
achievement of goals and employees motivated through
effective leadership to execute their assigned activities
• So, there is need to check if activities are going as planned.
• The value of controlling is evident in the following areas:
– Planning -
– Empowering employees – an effective control system provides
information and feedback on employee performance
– Protecting the workplace and its assets – from natural disasters,
global supply chain disruptions, security breaches
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Exhibit 18-1 Planning-Controlling Link
Exhibit 18-1 shows how controlling provides a critical link back to planning.
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The Control Process
• Control process: a three-step process of measuring
actual performance, comparing actual performance against
a standard, and taking managerial action to correct
deviations or inadequate standards
• Key performance indicator (KPI): A measurable target
aligned with strategic goals that indicates how the
company is performing
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Exhibit 18-2 The Control Process
Exhibit 18-2 illustrates the three-step control process.
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Exhibit 18-3 Examples of Key Performance Indicators
Sales Department Sales Department
• Monthly sales growth • Monthly sales growth
• Monthly customers per sales rep • Monthly customers per sales rep
• Quarterly sales bookings • Quarterly sales bookings
• Number of engaged leads in sales • Number of engaged leads in sales
funnel funnel
• Average conversion time • Average conversion time
Human Resources Department Customer Service Department
• Monthly overtime hours • Customer satisfaction score
• Quarterly training costs • Customer retention rate
• Cost per new hire • Monthly support ticket submissions
• Employee productivity • Average resolution time
• Monthly absenteeism rate • Cost per resolution
Adapted from: L. Hennigan and K. Main, “What Is a KPI? Definition and Examples,” Forbes, August 24,
2023, [Link]
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Step 1: Measuring Actual Performance
• What we measure
– KPIs provide guidance in establishing what we measure
• How we measure
– Managers can use qualitative and quantitative sources of
information to measure performance
Qualitative sources include observations and oral reports.
Quantitative sources include statistical reports and self-reporting
devices.
Personal observation is a qualitative measure that provides
firsthand, intimate knowledge of the actual activity—information
that is not filtered through others
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Step 2: Comparing Actual Performance Against the
Standard
• Range of variation: the acceptable parameters of
variance between actual performance and the standard
– Deviations outside this range need attention
– The next two slides provide examples of a range of
variation and an application of this concept
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Exhibit 18-4 Acceptable Range of Variation
Exhibit 18-4 illustrates the acceptable range of variation.
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Exhibit 18-5 Green Earth Gardening Supply—June
Sales
Product Standard Actual Over (Under)
Vegetable plants 1,075 913 (162)
Perennial flowers 630 634 4
Annual flowers 800 912 112
Herbs 160 140 (20)
Flowering bulbs 170 286 116
Flowering bushes 225 220 (5)
Heirloom seeds 540 672 132
Total 3,600 3,777 177
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Step 3: Taking Managerial Action
• Correct actual performance
– Immediate corrective action: corrective action that
corrects problems at once to get performance back on
track
– Basic corrective action: corrective action that looks at
how and why performance deviated before correcting
the source of deviation
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Revise the Standard
• If performance consistently exceeds the goal, then a
manager should look at whether the goal is too easy and
needs to be raised.
• Managers must be cautious about revising a standard
downward.
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Exhibit 18-6 Managerial Decisions in the Control Process
Exhibit 18-6 summarizes the decisions a manager makes in controlling.
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What Is Organizational Performance?
• Performance: the end result of an activity
• Organizational performance: the accumulated results of
all the organization’s work activities
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Measures of Organizational Performance
• Organizational Productivity: the amount of goods or
services produced divided by the inputs needed to
generate that output
• Organizational effectiveness: a measure of how
appropriate organizational goals are and how well those
goals are being met
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Exhibit 18-7: Popular Industry and Company Rankings
Fortune IndustryWeek Forbes Customer INC.
([Link]) ([Link]. ([Link] Satisfaction ([Link])
com) ) Indexes
Fortune 500 IndustryWeek 1000 World’s Largest American Fastest-
Public Companies Customer growing private
Satisfaction companies
Index—
University of
Michigan
Business
School
Global 500 IndustryWeek US Customer
500 Blank
Satisfaction Blank
Measurement
Association
Blank
World’s Most 50 Best Blank Blank
Admired Companies Manufacturers
Blank
100 Best IndustryWeek Best
Companies to Work Plants Blank Blank
For
Blank
100 Fastest- Blank Blank Blank
Growing Companies
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Controlling for Employee Performance
• Disciplinary action: actions taken by a manager to
enforce the organization’s work standards and regulations
• Progressive disciplinary action: an approach to ensure
that the minimum penalty appropriate to the offense is
imposed
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Exhibit 18-8: Types of Discipline Problems
and Examples of Each
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Feedforward/Concurrent/Feedback Controls
• Feedforward control: control that takes place before a
work activity is done
• Concurrent control: control that takes place while a work
activity is in progress
• Management by walking around: a term used to
describe when a manager is out in the work area
interacting directly with employees
• Feedback control: control that takes place after a work
activity is done
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Exhibit 18-9 Types of Control
Exhibit 18-9 shows the three kinds of control.
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Financial Controls
• Traditional controls
– Ratio analysis:
Liquidity
Leverage
Activity
Profitability
– Budget analysis:
Quantitative standards
Deviations
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Exhibit 18-10: Popular Financial Ratios
Objective Ratio Calculation Meaning
Liquidity Current ratio Current assets Tests the organization’s ability to meet
short-term obligations
Current assets over current liabilities.
Current liabilities
Acid test Current assets less inventories Tests liquidity more accurately when
Current assets less inventories over current liabilities.
inventories turn over slowly or are
Current liabilities
difficult to sell
Leverage Debt to Total debt Total debt over total assets.
The higher the ratio, the more leveraged
assets Total assets the organization
Times interest Measures how many times the
earned Profits before interest/taxes
Profit before interest slash taxes over total interest charges.
organization is able to meet its interest
Total interest charges expenses
Activity Inventory Sales
The higher the ratio, the more efficiently
turnover inventory assets are used
Sales over inventory.
Inventory
Total asset The fewer assets used to achieve a
turnover Sales Sales over total assets.
given level of sales, the more efficiently
Total Assets management uses the organization’s
total assets
Profitability Profit margin Identifies the profits that are generated
Net profit after taxes
Net profit after taxes over Total sales.
on sales
Total sales
Return on Measures the efficiency of assets to
investment Net profit after taxes generate profits
Net profit after taxes over total assets.
Total assets
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Information Controls
• Management information system (M I S): a system used
to provide management with needed information on a
regular basis
• Data versus information
• Companies are investing to reduce cybersecurity risks
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END HERE
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Balanced Scorecard
• Balanced scorecard: a performance measurement tool
that looks at more than just the financial perspective
• A balanced scorecard typically looks at four areas that
contribute to a company’s performance: financial,
customer, internal processes, and
people/innovation/growth assets
• According to this approach, managers should develop
goals in each of the four areas and then measure whether
the goals are being met
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Benchmarking of Best Practices
• Benchmarking: a performance measurement tool that
looks at more than just the financial perspective
• Benchmark: the standard of excellence against which to
measure and compare
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Exhibit 18-11: Suggestions for Internal Benchmarking
Suggestions
1. Connect best practices to strategies and goals. The organization’s strategies and goals
should dictate what types of best practices might be most valuable to others in the
organization.
2. Identify best practices throughout the organization. Organizations must have a way to
find out what practices have been successful in different work areas and units.
3. Develop best practices reward and recognition systems. Individuals must be given an
incentive to share their knowledge. The reward system should be built into the
organization’s culture.
4. Communicate best practices throughout the organization. Once best practices have
been identified, that information needs to be shared with others in the organization.
5. Create a best practices knowledge-sharing system. There needs to be a formal
mechanism for organizational members to continue sharing their ideas and best
practices.
6. Nurture best practices on an ongoing basis. Create an organizational culture that
reinforces a “we can learn from everyone” attitude and emphasizes sharing information.
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Global Differences in Control
• Distance creates formalized controls, e.g. formal reports
• Impact of technology
• Constraints due to local laws
• Comparability issues in data collection
• Be prepared for global turmoil and disasters such as the
COVID-19 pandemic
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Workplace Privacy
• Employers can read your email, tap your telephone, monitor
your work by computer, store and review computer files.
– 26 percent of companies have fired an employee for email misuse;
– 26 percent have fired workers for misusing the internet;
– 6 percent have fired employees for inappropriate cell phone use;
– 4 percent have fired someone for instant messaging misuse;
– and 3 percent have fired someone for inappropriate text messaging.
• Reasons companies monitor:
– Productivity/internet traffic
– Concerns about offensive/inappropriate material
– Protecting company secrets
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Employee Theft
• Employee theft: any unauthorized taking of company
property by employees for their personal use
• It can range from embezzlement to fraudulent filing of
expense reports to removing equipment, parts, software,
or office supplies from company premises
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Exhibit 18-12 Controlling Employee Theft
Exhibit 18-12 summarizes several possible managerial actions to control employee theft.
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Corporate Governance
• Corporate governance: the system used to govern a
corporation so that the interests of corporate owners are
protected
– The role of boards of directors
– Financial reporting and the audit committee
– Compliance offices and positions
It failed abysmally at Enron, as it has at many companies caught
in financial scandals.
In the aftermath of these scandals, corporate governance has
been reformed.
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Artificial Intelligence
• Managers should be aware of both the opportunities and
the challenges in using AI in the control process,
particularly when it involves employees
• The use of AI to analyze data about employee behavior
may help alleviate concerns about workplace privacy
because managers can look at data at the group or
organizational level without compromising employee
identities
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Review Learning Objective 18.1
Explain the nature and importance of control.
• Controlling = monitoring, comparing, correcting
• Important:
– Are goals being met?
– Provides information/feedback
– Protects organization and assets
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Review Learning Objective 18.2
Describe the three steps in the control process.
• Measuring
• Comparing
• Taking action
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Review Learning Objective 18.3
Explain how organizational and employee performance
are measured.
• Productivity
• Effectiveness
• Industry and company rankings
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Review Learning Objective 18.4
Describe tools used to measure organizational
performance.
• Feedforward controls
• Concurrent controls
• Feedback controls
• Financial controls
• Information controls
• Balanced scorecards
• Benchmarking
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Review Learning Objective 18.5
Discuss contemporary issues in control.
• Cross-cultural differences
• Workplace privacy
• Employee theft
• Workplace violence
• Customer interactions
• Corporate governance
• Artificial intelligence
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