MCO 101 Unit 6 Lecture 5


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MCO 101 Unit 6 Lecture 5

  1. 1. Unit 6: Executing and Controlling
  2. 2. Managing Expectations <ul><li>LEARNING OUTCOMES: </li></ul><ul><li>At the end of the course, students will be able to: </li></ul><ul><ul><li>Explain fundamental concepts and principles of management including the basic roles, skills, and functions of management </li></ul></ul><ul><ul><li>Discuss the knowledgeable of historical development, theoretical aspects and practice application of managerial process </li></ul></ul><ul><ul><li>Examine the environment, technology, human resources, and organisations in order to achieve high performance </li></ul></ul><ul><ul><li>Discuss the ethical dilemmas faced by managers and the social responsibilities of businesses. </li></ul></ul>
  3. 3. Managing Expectations <ul><li>SUBJECTS DISCUSSED: </li></ul><ul><ul><li>Management, Managers and evolution of Management theory </li></ul></ul><ul><ul><li>Personality traits and diversity </li></ul></ul><ul><ul><li>Organisation, Globalisation and the resulting environments </li></ul></ul><ul><ul><li>Decision-making and Planning </li></ul></ul><ul><ul><li>Structure and Strategy </li></ul></ul><ul><ul><li>Executing and Controlling </li></ul></ul><ul><ul><li>Human Resources Management as a function </li></ul></ul><ul><ul><li>Motivation, Leadership, Groups and Teams </li></ul></ul><ul><ul><li>Communication, conflicts and politics </li></ul></ul><ul><ul><li>Operations Management. Entrepreneurship. Innovation </li></ul></ul>
  4. 4. Managing Expectations <ul><li>TOPIC DETAILS: </li></ul><ul><li>After going through UNIT 6, you should be able to: </li></ul><ul><ul><li>describe the basic control process. discuss the various methods that managers can use to maintain control. </li></ul></ul><ul><ul><li>describe the behaviours, processes, and outcomes that today’s managers are choosing to control their organisations. </li></ul></ul><ul><ul><li>discuss the various methods that managers can use to maintain control. </li></ul></ul><ul><ul><li>describe the behaviours, processes, and outcomes that today’s managers are choosing to control their organisations. </li></ul></ul>
  5. 5. The Control Process But… control isn’t always worthwhile or possible Begins with establishment of clear standards of performance Involves a comparison of actual performance to desired performance Takes corrective action to repair performance deficiencies Is a dynamic, cybernetic process Consists of feedback control, concurrent control, feedforward control
  6. 6. Setting Standards Begins with establishment of clear standards of performance <ul><li>A good standard must enable goal achievement. </li></ul><ul><li>Listening to customers or observing competitors. </li></ul><ul><li>Benchmarking other companies: a) determine what to benchmark, b) identify the companies against which to benchmark, c) Collect data to determine other companies’ performance standards. </li></ul>
  7. 7. Comparison to Standards Compare actual performance to performance standards.
  8. 8. Corrective Action Identify performance deviations Analyse those deviations Develop and implement programs to correct them
  9. 9. Dynamic, Cybernetic Process Develop & Implement Program for Corrective Action Set Standards Measure Performance Compare with Standards Identify Deviations Analyse Deviations
  10. 10. Feedback, Concurrent, and Feedforward Control Feedback Control Gather information about performance deficiencies after they occur Concurrent Control Gather information about performance deficiencies as they occur Feedforward Control Monitor performance inputs rather than outputs to prevent or minimise performance deficiencies before they occur
  11. 11. Feedforward Control <ul><li>Guidelines for Using Feedforward Control </li></ul><ul><ul><li>Thorough planning and analysis are required. </li></ul></ul><ul><ul><li>Careful discrimination must be applied in selecting input variables. </li></ul></ul><ul><ul><li>The feedforward system must be kept dynamic. </li></ul></ul><ul><ul><li>A model of the control system should be developed. </li></ul></ul><ul><ul><li>Data on input variables must be regularly collected. </li></ul></ul><ul><ul><li>Data on input variables must be regularly assessed. </li></ul></ul><ul><ul><li>Feedforward control requires action. </li></ul></ul>
  12. 12. Control Loss or Loss Control or Out of Control? Is control worthwhile…? Maybe, maybe not… Managers must assess the regulation costs and the cybernetic feasibility.
  13. 13. Control Methods Normative Concertive Self-Control Bureaucratic Objective
  14. 14. Bureaucratic Control <ul><li>Top-down control </li></ul><ul><li>Use rewards and punishment to influence employee behaviours </li></ul><ul><li>Use policies and rules to control employees </li></ul><ul><li>Often inefficient and highly resistant to change </li></ul>
  15. 15. Objective Control Objective Control Use of observable measures of worker behaviour or outputs to assess performance and influence behaviour Behaviour Control Regulation of the behaviours and actions that workers perform on the job Output Control Regulation of workers’ results or outputs through rewards and incentives
  16. 16. Effective Output Control Output control measures must be reliable, fair, and accurate. Employees and managers must believe that they can produce the desired results. The rewards or incentives tied to outcome control measure must be dependent on achieving established standards of performance.
  17. 17. Normative Control Created by: careful selection of employees observing experienced employees & listening to stories about the company.
  18. 18. Concertive Control <ul><li>Regulation of workers’ behaviour and decisions through work group values and beliefs. </li></ul><ul><li>Autonomous work groups: </li></ul><ul><ul><li>operate without managers; </li></ul></ul><ul><ul><li>group members control processes, output, and behaviours. </li></ul></ul>
  19. 19. Self-Control BOSS NOT REQUIRED ! <ul><li>Also known as self-management </li></ul><ul><li>Employees control their own behaviour </li></ul><ul><li>Employees make decisions within well-established boundaries </li></ul><ul><li>Managers teach others the skills they need to maximise work effectiveness </li></ul><ul><li>Employees set goals and monitor their own progress </li></ul>
  20. 20. What to Control? Customer Defections Quality Waste and Pollution Balanced Scorecard Budgets, Cash Flow, EVA
  21. 21. Advantages of the Balanced Scorecard Forces managers to set goals and measure performance in each of the four areas Minimises the chances of sub-optimisation – performance improves in one area, but at the expense of others
  22. 22. The Financial Perspective Cash flow analysis Predicts how changes in a business will affect its ability to take in more cash than it pays out Balance sheets Provide a snapshot of a company’s financial position at a particular time Income statements Show what has happened to an organization’s income, expenses, and net profit over a period of time Financial ratios Used to track liquidity, efficiency, and profitability over time compared to other businesses in its industry
  23. 23. Basic Accounting Tools <ul><li>Forecast sales </li></ul><ul><li>Project changes in anticipated cash flows </li></ul><ul><li>Project anticipated cash outflows </li></ul><ul><li>Project net cash flows by combining anticipated cash inflows and outflows </li></ul>Steps for a Basic Cash Flow Analysis Parts of a Basic Balance Sheet <ul><li>Assets: Current assets; Fixed assets </li></ul><ul><li>Liabilities: Current liabilities; Long-term liabilities </li></ul><ul><li>Owner’s equity: Stock; Additional paid in capital; Retained earnings </li></ul>Basic Income Statement SALES REVENUE - sales returns and allowances + other income = NET REVENUE - cost of goods sold = GROSS PROFIT - total operating expenses = INCOME FROM OPERATIONS - interest expense = PRETAX INCOME - income tax = NET INCOME
  24. 24. Financial Ratios LIQUIDITY RATIOS Current Ratio Quick (Acid Test) Ratio LEVERAGE RATIOS Debt to Equity Debt Coverage EFFICIENCY RATIOS Inventory Turnover Average Collections Period PROFITABILITY RATIOS Gross Profit Margin Return on Equity
  25. 25. Common Kinds of Budgets Cash Budgets Used to forecast the cash a company will have for expenses Expense Budgets Used to determine spending on supplies, projects, or activities Profit Budgets Used by profit centers, which have “profit and loss” responsibility Revenue Budgets Used to project or forecast future sales Variable Budgets Used to project costs across varying levels of sales/revenues Capital Expenditure Budgets Used to forecast large, long-lasting investments
  26. 26. Economic Value Added (EVA) Common Costs of Capital <ul><li>Long-term bank loans </li></ul><ul><li>Interest paid to bondholders </li></ul><ul><li>Dividends and growth in stock value that accrue to shareholders </li></ul>Economic Value Added The amount by which company profits exceed the cost of capital in a given year
  27. 27. Economic Value Added (EVA) 1. Calculate net operating profit after tax 2. Identify how much capital the company has invested 3. Determine the cost paid for capital <ul><li>Multiply capital used (step 2) times cost of capital (step 3) </li></ul>5. Subtract total dollar cost of capital from net profit after taxes $3,500,000 $16,800,000 10% (10% x $16,800,000) = $1,680,000 $3,500,000 net profit -$1,680,000 cost of capital $1,820,000 EVA
  28. 28. Why Is EVA Important? <ul><li>Shows whether a business, division, department, profit center, or product is paying for itself </li></ul><ul><li>Makes managers at all levels pay closer attention to their segment of the business </li></ul><ul><li>Encourages managers and workers to be creative in looking for </li></ul><ul><li>ways to improve EVA performance </li></ul>
  29. 29. The Customer Perspective Controlling Customer Defections <ul><li>Monitoring customer defections: </li></ul><ul><ul><li>identify which customers are leaving the company </li></ul></ul><ul><ul><li>measuring the rate at which they are leaving </li></ul></ul><ul><li>Obtaining a new customer costs five times as much as keeping a current one </li></ul><ul><li>Customers who have left are likely to tell you what you are doing wrong </li></ul><ul><li>Understanding why a customer leaves can help fix problems and make changes </li></ul>
  30. 30. The Internal Perspective Controlling Quality Excellence Value Conformance to Expectations
  31. 31. The Internal Perspective Controlling Quality
  32. 32. Controlling Waste and Pollution Good housekeeping Material/product substitution Process modification