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  1. 1. Controlling as a Management FunctionControlling A process of monitoring performance and taking action to ensure desired results. It sees to it that the right things happen, in the right ways, and at the right time. Done well, it ensures that the overall directions of individuals and groups are consistent with short and long range plans. It helps ensure that objectives and accomplishments are consistent with one another throughout an organization. It helps maintain compliance with essential organizational rules and policies.Cybernetic Control System One that is self-contained in its performance monitoring and correction capabilities. (thermostat) The control process practiced in organizations is not cybernetic, but it does follow similar principles.The Control Process Establish objectives and standards. Measure actual performance. Compare results with objectives and standards. Take necessary action.Establish Objectives and Standards The control process begins with planning and the esta.blishment of performance objectives. Performance objectives are defined and the standards for measuring them are setThere are two types of standards: Output Standards -measures performance results in terms of quantity, quality, cost, or time. Input Standards - measures work efforts that go into a performance task.Measuring Actual Performance Measurements must be accurate enough to spot deviations or variances between what really occurs and what is most desired. Without measurement, effective control is not possible.Comparing Results with Objectives and Standards The comparison of actual performance with desired performance establishes the need for action. Ways of making such comparisons include:
  2. 2. o Historical / Relative / Engineering o BenchmarkingTaking Corrective Action Taking any action necessary to correct or improve things. Management-by-Exception focuses managerial attention on substantial differences between actual and desired performance. o Management-by Exception can save the managers time, energy, and other resources, and concentrates efforts on areas showing the greatest need. o There are two types of exceptions:  Problems - below standard  Opportunities - above standardEffective ControlsThe Best Controls in Organizationsare Strategic and results oriented Understandable Encourage self-controlThe Best Controls in Organizations are Timely and exception oriented Positive in nature Fair and objective FlexibleTypes Of ControlFeedforward control  Control that prevents anticipated problemsConcurrent control  Control that takes place while an activity is in progressFeedback control  Control that takes place after an action  Provides evidence of planning effectiveness  Provides motivational information to employees
  3. 3. (or)Types of ControlPreliminary Sometimes called the feedforward controls, they are accomplished before a work activitybegins. They make sure that proper directions are set and that the right resources are available to accomplishthem.Concurrent Focus on what happens during the work process. Sometimes called steering controls, they monitorongoing operations and activities to make sure that things are being done correctly.Postaction Sometimes called feedback controls, they take place after an action is completed. They focus on endresults, as opposed to inputs and activities.Managers have two broad options with respect to control. They can rely on people to exercise self-control (internal) over their own behavior. Alternatively, managers can take direct action (external) to control the behavior of others.Internal Controls Allows motivated individuals to exercise self-control in fulfilling job expectations. The potential for self-control is enhanced when capable people have clear performanceobjectives and proper resource support.External Controls It occurs through personal supervision and the use of formal administrative systems. Performance appraisal systems, compensation and benefit systems, employee discipline systems, and management-by-objectives.Management Processes Strategy and objectives Policies and procedures Selection and training Performance appraisal Job design and work structures Performance modeling, norms, and organization cultureCompensation and Benefits Attract talented people and retain them. Motivate people to exert maximum effort in their work. Recognize the value of their performance contributionsEmployee Discipline Discipline is defined as influencing behavior through reprimand.
  4. 4. Progressive Discipline ties reprimand to the severity and frequency of the employee’s infractions. Positive Discipline tries to involve people more positively and directly in making decisions to improve their behavior.The “Hot Stove Rule”To be Effective Discipline Should be: Immediate Focus on activity not personality Consistent Informative Occur in a supportive setting Support realistic rulesInformation and Financial Activity-based costing - the true cost of all products and services. Economic value added - examine the value added by all activities. Understand the implication of key financial measures of (ratios) organizational performancePurchasing Economic Order Quantity automatic reorder points Just-In-Time SchedulingProject Management Program Evaluation and Review Technique (PERT) - Identifies and controls the many separate events in complex projects.Statistical Quality Control Based on the establishment of upper and lower control limits, that can be graphically and statistically monitored to ensure that products meet standards.
  5. 5. www.authorstream.comControl  The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations  An effective control system ensures that activities are completed in ways that lead to the attainment of the organization’s goals.Steps in the Control Process • Measuring actual performance  Personal observation, statistical reports, oral reports, and written reports  Management by walking around (MBWA)  A phrase used to describe when a manager is out in the work area interacting with employeesSteps in the Control Process (cont’d) • Comparing actual performance against a standard  Comparison to objective measures: budgets, standards, goals  Range of variation  The acceptable parameters of variance between actual performance and the standard • Taking managerial action to correct deviations or inadequate standards  Immediate corrective action  Correcting a problem at once to get performance back on track  Basic corrective action  Determining how and why performance has deviated and then correcting the source of deviation  Revising the standard  Adjusting the performance standard to reflect current and predicted future performance capabilitiesTypes Of ControlFeedforward control  Control that prevents anticipated problemsConcurrent control  Control that takes place while an activity is in progressFeedback control  Control that takes place after an action  Provides evidence of planning effectiveness  Provides motivational information to employees
  6. 6. The Qualities Of An Effective Control System • Accuracy • Timeliness • Economy • Flexibility • Understandability • Reasonable criteria • Strategic placement • Emphasis on the exception • Multiple criteria • Corrective actionWhat Contingency Factors Affect the Design of A Control System? • Size of the organization • The job/function’s position in the organization’s hierarchy • Degree of organizational decentralization • Type of organizational culture • Importance of the activity to the organization’s success A Special Case of Control: Sarbanes-Oxley Act • A law establishing procedures for public companies to report their financial status.  The CEO and CFO must personally certify the organization’s financial reports.  The organization must have in place procedures and guidelines for audit committees.  CEOs and CFOs must reimburse the organization for bonuses and stock options when required by restatement of corporate profits.  Personal loans or lines of credit for executives are now prohibited.A Special Case of Control: Sarbanes-Oxley Act (cont’d)Penalties for noncompliance:  Falsely stating corporate financials, can result in the executive being fined up to $1 million and imprisoned for up to 10 years.  If the executive’s action is determined to be willful, both the fine and the jail time can be doubled. • Reporting of corporate misdeeds  Establish an environment free from reprisals  Protection for employees who come forward (whistle-blowing) and report wrongdoing by executives.Controls And Cultural Differences • Methods of controlling employee behavior and operations can be quite different in different countries.
  7. 7. • Distance creates a tendency for formalized controls in the form of extensive, formal reports. • In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control. • Local laws constraint the corrective actions that managers can take foreign countries.The Dysfunctional Side Of Control • Problems with unfocused controls  Failure to achieve desired or intended results occur when control measures lack specificity • Problems with incomplete control measures  Individuals or organizational units attempt to look good exclusively on control measures. • Problems with inflexible or unreasonable control standards  Controls and organizational goals will be ignored or manipulated.Contemporary Issues In Control • The right to personal privacy in the workplace versus:  Employer’s monitoring of employee activities in the workplace  Employer’s liability for employees creating a hostile environment  Employer’s need to protect intellectual propertyPerspective on Employee Theft • Industrial security  The opportunity to steal presents itself through lax controls and favorable circumstances. • Criminologists  Employees steal to relieve themselves of financial-based or vice-based pressures. • Clinical psychologists  Employees steal because they can rationalize whatever they are doing as being correct and appropriate behavior.How An Entrepreneur Can Control For Growth • Planning for growth
  8. 8.  By addressing growth strategies as part of business planning but not being overly rigid in planning. • Organizing for growth  The key challenges include finding capital, finding people, and strengthening the organizational culture. • Controlling for growth.  Maintaining good financial records and financial controls over cash flow, inventory, customer data, sales orders, receivables, payables, and costs.How Does the Entrepreneur Exit the Venture • Reasons for harvesting a venture  Cashing out of the investment in a venture  Exiting due to poor financial returns or organizational performance of the venture  A desire to pursue other ventures • Business valuation methods  Asset valuation  Earnings valuation  Cash flow valuation