Management a practical introduction 3rd kinicky chapter 16

16.2 Control: When Managers Monitor Performance Figure 16.2: Controlling for Productivity... 16.2 Control: When Managers Monitor Performance There are six reasons why control is needed:

Levels & Areas of Control

Some Financial Tools for Control

Total Quality Management

16.1 Managing for Productivity

WHAT IS PRODUCTIVITY?

Productivity is defined as outputs divided by inputs where: outputs are the goods and services produced, and inputs are labor, capital, materials, and energy

Productivity is important because it determines

whether a company will make a profit and affects a country’s standard of living

Maintaining productivity depends on control

16.1 Managing for Productivity

Figure 16.1: Managing for Productivity and Results

16.2 Control: When Managers

Monitor Performance

WHY IS CONTROL IMPORTANT?

Control is making something happen the way it was planned

to happen, while controlling is monitoring performance,

comparing it with goals, and taking corrective action as

needed

Recall that:

-planning is setting goals and deciding how to achieve them

-organizing is arranging tasks, people, and other resources

to accomplish the work

-leading is motivating people to work hard to achieve the

organization’s goals

-controlling is making sure performance meets objectives

16.2 Control: When Managers

Monitor Performance

Figure 16.2: Controlling for Productivity

Chapter 16: Control

CLASSROOM PERFORMANCE SYSTEM

The four management functions include all of the following except

A) implementing

B) organizing

C) planning

D) controlling

16.2 Control: When Managers

Monitor Performance

There are six reasons why control is needed:

1 To adapt to change & uncertainty - organizations need to be able to deal with change and uncertainty

in the environment

2 To discover irregularities and errors - without

checks and balances, companies might not survive

3 To reduce costs, increase productivity, or add

value - control systems can reduce costs, increase output, and add value to a product

16.2 Control: When Managers

customer bases, and so on

6 To decentralize decision making & facilitate

teamwork - controls allow top managers to

decentralize control to lower levels and encourage teamwork

16.2 Control: When Managers

Monitor Performance

There are four steps in the control process :

1 Establish Standards

The desired performance level for a given goal is a

control standard , or performance standard

Standards can be broad or narrow

2 Measure Performance

Performance is measured using three sources:

written reports, oral reports, and personal

observation

16.2 Control: When Managers

Monitor Performance

3 Compare Performance To Standards

Measured performance is compared to established

standards

The amount of deviation acceptable depends on the

predetermined range of variation

Some firms follow management by exception where

managers are informed of a situation only if data show a

significant deviation from standards

4 Take Corrective Action, If Necessary

Firms can make no changes to the current situation,

recognize and reinforce positive performance, or take action

to correct negative performance

16.2 Control: When Managers

Monitor Performance

Figure 16.4: Steps in the Control Process

16.3 The Balanced Scorecard, Strategy

Maps & Measurement Management

HOW CAN MANAGERS ESTABLISH STANDARDS AND MEASURE PERFORMANCE?

The balanced scorecard , strategy maps , and

measurement management are all techniques that managers use to establish standards and measure performance

The balanced scorecard gives top management a fast but comprehensive view of the organization

using four indicators: customer satisfaction, internal processes, innovation and improvement activities, and financial measures

16.3 The Balanced Scorecard, Strategy

Maps & Measurement Management

Figure 16.5:

The Balanced Scorecard

Chapter 16: Control

CLASSROOM PERFORMANCE SYSTEM

The balanced score card sets goals and performance measures from all of the following perspectives

16.3 The Balanced Scorecard, Strategy

Maps & Measurement Management

A strategy map is a visual representation of the

four perspectives of the balanced scorecard that

enables managers to communicate their goals so

that everyone in the company can understand how their jobs are linked to the overall objectives of the organization

There are two types of organizations:

- measurement-managed companies are ones that have set measurable criteria that are linked to

performance goals

- non-measurement managed firms do not have

measurable criteria linked to goals

16.3 The Balanced Scorecard, Strategy

Maps & Measurement Management

Figure 16.6: The Strategy Map

16.4 Levels & Areas of Control

HOW SHOULD CONTROL BE IMPLEMENTED?

There are three levels of control:

1 Strategic control is monitoring performance to

ensure that strategic plans are being implemented and taking corrective action as needed

Strategic control is performed by top managers

with reports being issued quarterly, semi-annually, or annually

16.4 Levels & Areas of Control

2 Tactical control is monitoring performance to

ensure that tactical plans – those at the divisional or departmental level – are being implemented and

taking corrective action as needed

Control is done by middle managers with reports

on a weekly or monthly basis

3 Operational control is monitoring performance to ensure that operational plans – day-to-day goals – are being implemented and taking corrective action

as needed

Control is by first-line managers with reports on a daily basis

Chapter 16: Control

CLASSROOM PERFORMANCE SYSTEM

Which type of control issues reports on a weekly or monthly basis?

A) strategic

B) operational

C) supervisory

D) tactical

16.4 Levels & Areas of Control

There are six areas of organizational control:

1 Physical area control includes things like

equipment controls to monitor computer use,

inventory management controls to keep track of

inventory levels, and quality controls to ensure that products are being produced properly

2 Controls to monitor human resources include

personality tests, drug tests, and performance tests

3 Controls of informational areas include production schedules, sales forecasts, and analyses of the

competition

16.4 Levels & Areas of Control

4 Financial controls affect debt payments, payroll,

budgets, and so on

5 Structural control involves the organizational

hierarchy

Bureaucratic control is characterized by rules,

regulations, and formal authority

Decentralized control is characterized by informal and organic structural arrangements

6 Cultural controls influence the norms and values of the organization’s culture which then affect the work

16.3 Some Financial Tools For Control

WHAT ARE THE MAJOR FINANCIAL TOOLS FOR MANAGERS?

Financial controls including budgets and financial statements are especially important to firms

A budget is a formal financial projection

Budgets provide a yardstick against which

performance can be measured and comparisons can

be made to other time periods, departments, and so on

16.3 Some Financial Tools For Control

There are two different ways to budget:

Incremental budgeting allocates increased or decreased

funds to a department by using the last budget as a reference point—only incremental changes in the budget request are reviewed

Zero-based budgeting forces each department to start from zero in projecting its funding needs for the budget period

There two different types of budgets:

Fixed budgets allocate resources on the basis of a single estimate of costs

Variable budgets allow the allocation of resources to vary in proportion with various levels of activity

16.3 Some Financial Tools For Control

A summary of some aspect of an organization’s financial status is a financial statement

There are two basic types of financial statements:

A balance sheet summarizes an organization’s overall

financial worth (assets and liabilities) at a specific point in time where:

-assets are the resources the organization controls, current assets are cash and other assets that are readily convertible

to cash fixed assets are property, buildings, and equipment that are harder to convert to cash, and liabilities are claims by suppliers, lenders, and others

16.3 Some Financial Tools For Control

The income statement summarizes an organization’s

financial results - revenues (the assets from the sale of goods) and expenses (the costs required to produce goods and

services) - over a specified period of time

Liquidity ratios indicate how easily a company’s assets can

be converted to cash

Debt-management ratios indicate the degree to which an

organization can meet its long-term financial obligations

Asset management ratios indicate how effectively an

organization is managing resources

Return ratios indicate how effective management is at

generating a return on assets

Chapter 16: Control

CLASSROOM PERFORMANCE SYSTEM

Ratios that indicate how effectively an organization is managing resources are

A) return ratios

B) liquidity ratios

C) asset management ratios

D) debt management ratios

16.3 Some Financial Tools For Control

Formal verifications of an organization’s financial and operational systems are called audits

There are two types of audits:

An external audit is a formal verification of an

organization’s financial accounts and statements by outside experts

An internal audit is a verification of an

organization’s financial accounts and statements by the organization’s own professional staff

16.6 Total Quality Management

HOW CAN QUALITY BE IMPROVED?

Total quality management (TQM) is a comprehensive

approach, led by top manager and supported throughout the organization, dedicated to continuous quality improvement, training, and customer satisfaction

The two core principles of TQM are people orientation

(everyone involved in the organization should focus on

delivering value to customers), and improvement orientation (everyone should work on continuously improving work

processes)

There are several techniques for improving quality including employee involvement, benchmarking, outsourcing, reduced cycle time, and statistical process control

16.7 Managing Control Effectively

HOW CAN CONTROL BE MANAGED

SUCCESSFULLY?

Successful control systems are:

1 Strategic & results oriented – they support strategic plans and focus on activities that will make a real difference to the firm

2 Timely, accurate, & objective

3 Realistic, positive, & understandable & encourage

self-control

Chapter 16: Control

There are several barriers that can limit successful control: 1.Too much control - when companies exert too much control, employees may rebel

2 Too little employee participation - employee participation can enhance productivity

3 Overemphasis on means instead of ends

4 Overemphasis on paperwork - unnecessary emphasis on paperwork can reduce effort in other areas

5 Overemphasis on one instead of multiple approaches -

using multiple control activities can increase accuracy and

objectivity

Chapter 16: Control

CLASSROOM PERFORMANCE SYSTEM

Which of the following is not a barrier to successful control?

Finale: Some Life Lessons

WHAT ARE THE KEYS TO MANAGERIAL

SUCCESS?

Initiative is always in short supply

If you have an active desire to learn new things,

you’ll be ready for the next step

Think ahead, understand what your obstacles are, and develop a strategy to win

Be flexible, keep your cool, and take yourself lightly