Chapter 13 - Control Systems: Financial and Human


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Chapter 13 - Control Systems: Financial and Human

  1. 1. Control Systems: Financial and Human
  2. 2. Learning Outcomes <ul><li>List the four stages of the systems process and describe the type of control used at each stage. </li></ul><ul><li>Describe the appropriate feedback process within and between the functional areas/departments. </li></ul><ul><li>List the four steps in the control systems process. </li></ul><ul><li>Describe the differences among the three categories of control frequency. </li></ul><ul><li>Explain how the capital expenditures budget is different from the expense budget. </li></ul><ul><li>List the three primary financial statements and what is presented in each of them. </li></ul>After studying this chapter, you should be able to:
  3. 3. Learning Outcomes (cont’d) <ul><li>Explain the importance of positive motivational feedback in coaching. </li></ul><ul><li>Explain the manager’s role in counseling and the role of the employee assistance program staff. </li></ul><ul><li>Define the key terms listed at the end of the chapter. </li></ul>After studying this chapter, you should be able to:
  4. 4. IDEAS ON MANAGEMENT at The Ranch Golf Club <ul><li>How does The Ranch control the organizational system? How does The Ranch control the functional systems? </li></ul><ul><li>How does The Ranch use the control systems process, and how is it performing? </li></ul><ul><li>What control methods are used to achieve objectives and standards at The Ranch? </li></ul><ul><li>What are the major operating budget revenues and expenses at The Ranch? </li></ul><ul><li>How does The Ranch use capital expenditure budgets? How does The Ranch use financial statements and budgets? </li></ul><ul><li>Does Peter Clark coach his Jiffy Lube business, The Ranch, and sports teams the same way? </li></ul><ul><li>How does The Ranch get feedback to improve performance? </li></ul>
  5. 5. Exhibit 13 – 1 ● The Systems Process with Types of Controls
  6. 6. Organizational Systems Control <ul><li>Controlling </li></ul><ul><ul><li>The process of establishing and implementing mechanisms to ensure that objectives are achieved. </li></ul></ul><ul><li>Preliminary Control (Feedforward Control) </li></ul><ul><ul><li>Controls designed to anticipate and prevent possible problems (e.g., preventive maintenance) </li></ul></ul><ul><ul><li>Planning and organizing are the keys to preliminary control. </li></ul></ul><ul><ul><ul><li>Standing plans are designed to control employee behavior in recurring situations to prevent problems. </li></ul></ul></ul><ul><ul><ul><li>Contingency plans tell employees what to do if problems occur. </li></ul></ul></ul>
  7. 7. Organizational Systems Control (cont’d) <ul><li>Concurrent Control </li></ul><ul><ul><li>Action taken to ensure that standards are met as inputs are transformed into outputs. </li></ul></ul><ul><li>Rework Control </li></ul><ul><ul><li>Action taken to fix an output. </li></ul></ul><ul><li>Damage Control </li></ul><ul><ul><li>Action taken to minimize negative impacts on customers/stakeholders due to faulty outputs. </li></ul></ul><ul><li>Feedback </li></ul><ul><ul><li>Information about outputs from customers and stakeholders. </li></ul></ul>
  8. 9. Exhibit 13 –2 ● Systems Processes for Functional Areas/Departments
  9. 10. Exhibit 13 –2 ● Systems Processes for Functional Areas/Departments (cont’d)
  10. 11. Exhibit 13 –3 ● The Feedback Process between Functional Areas/Departments
  11. 12. Exhibit 13 –4 ● The Control Systems Process <ul><li>Balanced Standards: </li></ul><ul><li>Quantity </li></ul><ul><li>Quality </li></ul><ul><li>Time </li></ul><ul><li>Cost </li></ul><ul><li>Behavior </li></ul>Identify Critical Success Factors (CSFs)
  12. 13. Exhibit 13 –5 ● Operations Performance Report
  13. 14. Join the Discussion Ethics & Social Responsibility <ul><li>Academic Grades </li></ul><ul><ul><li>Why are professors giving higher grades today than were given 5, 10, or 20 years ago? </li></ul></ul><ul><ul><li>Are students who are putting in less time and getting higher grades being well prepared for a career with high standards after graduation? </li></ul></ul><ul><ul><li>Is it ethical and socially responsible for professors to drop standards and for colleges to award higher grades today than they did 5, 10, or 20 years ago? </li></ul></ul><ul><ul><li>Should colleges take action to raise standards? If so, what should they do? </li></ul></ul>
  14. 15. Exhibit 13 –6 ● Types, Frequency, and Methods of Control
  15. 17. Exhibit 13 –7 ● Steps in the Master Budgeting Process
  16. 18. Budgeting <ul><li>Budget </li></ul><ul><ul><li>A planned quantitative allocation of resources for specific activities. </li></ul></ul><ul><li>Operating Budget </li></ul><ul><ul><li>Revenue Budget </li></ul></ul><ul><ul><ul><li>A forecast of total income for the year. </li></ul></ul></ul><ul><ul><li>Expense Budget </li></ul></ul><ul><ul><ul><li>A forecast of total operating spending for the year. </li></ul></ul></ul><ul><li>Capital Expenditures Budget </li></ul><ul><ul><li>All planned expenditures for major asset investments. </li></ul></ul>
  17. 19. Join the Discussion Ethics & Social Responsibility <ul><li>Expenses </li></ul><ul><ul><li>Is it ethical and socially responsible for PricewaterhouseCoopers to charge the full rate for travel expenses when it gets discounts? </li></ul></ul><ul><ul><li>If you worked for a company and knew it did this, would you say anything to anyone about it? If yes, to whom would you speak and what would you say? </li></ul></ul>
  18. 20. Financial Statements <ul><li>Income Statement </li></ul><ul><ul><li>Presents revenues and expenses and the profit or loss for the stated period of time. </li></ul></ul><ul><li>The Balance Sheet </li></ul><ul><ul><li>Presents the assets and liabilities and owners’ equity for the stated period of time. </li></ul></ul><ul><li>Cash Flow Statement </li></ul><ul><ul><li>Presents the cash receipts and payments for the stated time period. </li></ul></ul>
  19. 21. Exhibit 13 –8 ● IBM Financial Statements (in millions) Source :, as of December, 2006.
  20. 22. Human Controls <ul><li>Coaching </li></ul><ul><ul><li>The process of giving motivational feedback to maintain and improve performance. </li></ul></ul><ul><li>The Importance of Positive Feedback </li></ul><ul><ul><li>Many managers spend more time giving negative criticism than praise. </li></ul></ul><ul><ul><li>Managers who only criticize employees tend to demotivate them. </li></ul></ul><ul><li>Management by Walking Around (MBWA) </li></ul><ul><ul><li>Listening rather than talking </li></ul></ul><ul><ul><li>Teaching rather than telling </li></ul></ul><ul><ul><li>Facilitating rather than ordering </li></ul></ul>
  21. 23. Exhibit 13 –9 ● Coaching Model
  22. 24. Human Controls (cont’d) <ul><li>Types of Problem Employees </li></ul><ul><ul><li>Employees who do not have the ability to meet the job performance standards. </li></ul></ul><ul><ul><li>Employees who do not have the motivation to meet job performance standards. </li></ul></ul><ul><ul><li>Employees who intentionally violate standing plans . </li></ul></ul><ul><ul><li>Employees with problems . </li></ul></ul><ul><li>Counseling </li></ul><ul><ul><li>Dealing with problem employees by attempting to help solve the problem. </li></ul></ul>
  23. 25. Exhibit 13 –10 ● Problem Employees The late employee The absent employee The dishonest employee The violent or destructive employee The alcoholic or drug user The nonconformist The employee with a family problem The insubordinate employee The employee who steals The sexual or racial harasser The safety violator The sick employee The employee who’s often socializing or doing personal work
  24. 26. Human Controls (cont’d) <ul><li>Management Counseling </li></ul><ul><ul><li>Giving employees feedback so they realize that a problem is affecting their job performance. </li></ul></ul><ul><ul><li>Referring employees with problems to the employee assistance program. </li></ul></ul><ul><li>Employee Assistance Program (EAP) </li></ul><ul><ul><li>A staff of people who help employees get professional assistance in solving their problems. </li></ul></ul>
  25. 27. Disciplining <ul><li>Discipline </li></ul><ul><ul><li>Corrective action to get employees to meet standards and standing plans. </li></ul></ul><ul><ul><li>Objectives: </li></ul></ul><ul><ul><ul><li>To change ineffective employee behavior. </li></ul></ul></ul><ul><ul><ul><li>To let employees know that action will be taken when standing plans or performance requirements are not met. </li></ul></ul></ul><ul><ul><ul><li>To maintain authority when challenged. </li></ul></ul></ul><ul><ul><li>Progressive discipline steps </li></ul></ul><ul><ul><ul><li>Oral warning, written warning, suspension, and dismissal </li></ul></ul></ul><ul><ul><ul><li>Documentation must be maintained. </li></ul></ul></ul>
  26. 28. Exhibit 13 – 11 ● Guidelines for Effective Discipline <ul><li>Clearly communicate the standards and standing plans to all employees. </li></ul><ul><li>Be sure that the punishment fits the crime. </li></ul><ul><li>Follow the standing plans yourself. </li></ul><ul><li>Take consistent, impartial action when the rules are broken. </li></ul><ul><li>Discipline immediately, but stay calm and get all the necessary facts before you discipline. </li></ul><ul><li>Discipline in private. </li></ul><ul><li>Document discipline. </li></ul><ul><li>When the discipline is over, resume normal relations with the employee. </li></ul>
  27. 30. Join the Discussion Ethics & Social Responsibility <ul><li>Disciplining Ethical Behavior </li></ul><ul><ul><li>Have you ever been in or known of a situation in which people were rewarded for being unethical and disciplined for being ethical? If so, describe the situation. </li></ul></ul><ul><ul><li>Is it ethical and socially responsible for firms to establish controls that reward unethical behavior and discipline ethical behavior to make more money? </li></ul></ul>
  28. 31. Exhibit 13 – 12 ● The Discipline Model
  29. 32. KEY TERMS <ul><li>controlling </li></ul><ul><li>preliminary control </li></ul><ul><li>concurrent control </li></ul><ul><li>rework control </li></ul><ul><li>damage control </li></ul><ul><li>control systems process </li></ul><ul><li>standards </li></ul><ul><li>critical success factors </li></ul><ul><li>control frequency </li></ul><ul><li>management audit </li></ul><ul><li>budget </li></ul><ul><li>operating budgets </li></ul><ul><li>capital expenditures budget </li></ul><ul><li>financial statements </li></ul><ul><li>coaching </li></ul><ul><li>management by walking around (MBWA) </li></ul><ul><li>management counseling </li></ul><ul><li>employee assistance program (EAP) </li></ul><ul><li>discipline </li></ul>