TWELFTH EDITION MANAGEMENT Ricky W Griffin Part Six: The Controlling Process Chapter Nineteen: Basic Elements of Control © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Learning Outcomes Explain the purpose of control, identify different types of control, and describe steps in the control process Identify and explain three forms of operations control Describe budgets and other tools for financial control Identify and distinguish between two opposing forms of structural control Discuss the relationship between strategy and control, including international strategic control Identify characteristics of effective control, why people resist control, and how managers can overcome this resistance © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - The Nature of Control Control Is the regulation of organizational activities in such a way as to facilitate goal attainment Without this regulation, organizations have no indication of how well they are performing in relation to their goals © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Figure 19.1 The Purpose of Control The control function has four basic purposes © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Types of Control Organizations practice control – in a number of different areas, and – at different levels, and the – responsibility for managing control is widespread © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Types of Control Control areas Physical Human Information Financial Control can focus on any area of the organization but most define areas of control in terms of the four basic types of resources they use © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Types of Control Control can be broken down by level – Operations control • focuses on the processes used to transform resources into products and services – Financial control • is concerned with financial resources – Structural control • focuses on how structure serves its intended purpose – Strategic control • focuses on if strategies are succeeding in meeting goals © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Figure 19.2 Levels of Control © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Types of Control Control is the responsibility of all managers – Most organizations have one or more specialized managers called controllers – A controller is a position that helps line managers with their control activities – Organizations are increasingly giving employees more control over their jobs © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - Figure 19.3 Steps in the Control Process A control standard is a target against which subsequent performance is compared © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 10 Budgetary Control A budget • Is a plan expressed in numerical terms Budgets serve four primary purposes They help managers coordinate resources and projects They help define the established standards for control They provide guidelines about resources and expectations Budgets allow evaluation of manager performance and organizational units © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 15 Budgetary Control Organizations use three types of budgets – A financial budget indicates where the cash will come from and plans to use the cash – An operating budget is concerned with planned operations – A nonmonetary budget expresses the budget in nonfinancial terms such as • units of output, hours of direct labor, machine hours, or square-foot allocations © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 16 Table 19.1 Developing Budgets in Organizations © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 17 Figure 19.5 Developing Budgets in Organizations © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 18 Budgetary Control Budget Strengths Budget Weaknesses Facilitate effective control Facilitate coordination and communication between departments Maintain records of performance and complement planning Budgets link plans and control Managers may fail to adjust budgets for changing circumstances Developing budgets is very time consuming Budgets may limit innovation and change © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 19 Other Tools for Financial Control A financial statement – is a profile of some aspect of an organization’s financial circumstances The balance sheet – is a list of assets and liabilities at a specific point in time The income statement – is a summary of financial performance over a period of time, usually a year © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 20 Other Tools for Financial Control Ratio analysis – is the calculation of one or more financial ratios to assess some aspect of the organization’s financial health – Liquidity ratios – Debt ratios – Return ratios – Coverage ratios – Operating ratios © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 21 Other Tools for Financial Control An audit is an independent appraisal of an organization’s accounting, financial, and operational systems – External audits are conducted by experts who are not employees of the organization • Publicly traded companies require regular audits – Internal audits are handled by employees • Its objectives are the same as an external audit, to verify the accuracy of financial and accounting procedures © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 22 Structural Control There are two major forms of structural control: bureaucratic and decentralized – Bureaucratic control • is characterized by formal and mechanistic structural arrangements o It follows the bureaucratic model with the goal of employee compliance – Decentralized control • is based on informal and organic structural arrangements © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 23 Figure 19.6 Organizational Control © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 24 Strategic Control Integrating strategy and control – Strategic control • ensures the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals International strategic control – Global organizations must take a pronounced strategic view of their control systems – A basic question is whether to manage control from a centralized or decentralized perspective © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 25 Characteristics of Effective Control Explicit and precise linkages between planning and control Flexible enough to accommodate changes Must be based on accurate information Provides information as often as necessary Provided information must be as objective as possible © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 26 Resistance to Control Overcontrol occurs when an organization tries to control too many things – Employees resist The control system may be too strict If the organization rewards inefficiency, others resist Some people resist increased accountability © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 27 Overcoming Resistance to Control The best way is to create effective control to begin with Employee participation lowers resistance Use checks and balances to ensure the system is providing data needed to compare to standards Use multiple systems to crosscheck the accuracy of the control system reports © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 28 Summary The chapter first explained the purpose of control, then looked at the types of control and the steps in the control process Next, the chapter examined the four levels of control: operations, financial, structural, and strategic The chapter concluded by discussing the characteristics of effective control, noting why some resist control and describing ways to overcome that resistance © 2017 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - 29 ... distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 - The Nature of Control Control Is the regulation of organizational activities in such a way... scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use... scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use