Chapt08

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Chapt08

  1. 1. Managing Engineering and Technology Third Edition Babcock and Morse <ul><li>Controlling </li></ul><ul><li>Chapter 8 </li></ul>
  2. 2. Advanced Organizer
  3. 3. Chapter Objective <ul><li>Explain different financial and non-financial systems </li></ul>
  4. 4. Controlling Definition <ul><li>“Compelling Events to Conform to Plans” </li></ul>
  5. 5. Control Process <ul><li>Establish Performance Standards Planning </li></ul><ul><li>Measure Actual Performance </li></ul><ul><li>Compare Performance with Standards Measurement of Variance Feedback and Analysis </li></ul><ul><li>Corrective Action </li></ul>
  6. 6. Control: Closed Loop vs. Open Loop <ul><li>Closed Loop </li></ul><ul><ul><li>Automatic or cybernetic </li></ul></ul><ul><ul><li>Monitors or manages process by internal, self-regulating system </li></ul></ul><ul><ul><li>Essential feature is strong feedback system </li></ul></ul><ul><ul><li>Example: Home thermostat system </li></ul></ul>
  7. 7. Control: Closed Loop vs. Open Loop <ul><li>Open Loop </li></ul><ul><ul><li>Requires external monitoring or agent to activate control </li></ul></ul><ul><ul><li>Example: Cruise control on an automobile </li></ul></ul>
  8. 8. Timing of Control <ul><li>Feedback Control (Output) </li></ul><ul><ul><li>Measures system output and variance with predetermined standard </li></ul></ul><ul><ul><li>Adjusts system to maintain variance within a specified range </li></ul></ul>
  9. 9. Timing of Control <ul><li>Screening Control (Concurrent) </li></ul><ul><ul><li>Control applied concurrently with effort being controlled </li></ul></ul>
  10. 10. Timing of Control <ul><li>Feedforward Control (Steering or Preliminary) </li></ul><ul><ul><li>Attempts to predict the impact of current actions/events </li></ul></ul><ul><ul><li>Current decisions are refined to facilitate goal attainment </li></ul></ul>
  11. 11. Characteristics of Effective Control Systems <ul><li>Effective </li></ul><ul><li>Efficient </li></ul><ul><li>Timely </li></ul><ul><li>Flexible </li></ul><ul><li>Understandable </li></ul><ul><li>Tailored </li></ul><ul><li>Highlight deviations </li></ul><ul><li>Lead to corrective actions </li></ul>
  12. 12. Three Types of Control <ul><li>Financial </li></ul><ul><li>Human Resource </li></ul><ul><li>Social </li></ul>
  13. 13. Financial Three Major Statements <ul><li>Income Statement </li></ul><ul><ul><li>Shows financial performance of a firm over a period of time </li></ul></ul><ul><li>Cash Flow </li></ul><ul><ul><li>Shows where cash comes from and what it is used for </li></ul></ul><ul><li>Balance Sheet </li></ul><ul><ul><li>Shows the firm’s financial position at a particular instant in time </li></ul></ul><ul><ul><li>Assets and liabilities </li></ul></ul>
  14. 14. Ratio Analysis <ul><li>Ratios of two financial numbers taken from financial statements and compared to industry averages </li></ul><ul><li>Four Types </li></ul><ul><ul><li>Liquidity: Measures ability to meet short term obligations </li></ul></ul>
  15. 15. Ratio Analysis, cont. <ul><ul><li>Leverage: Measures the level of debt in a firm’s financial structure </li></ul></ul><ul><ul><li>Activity: Measures how effectively a firm uses its resources </li></ul></ul><ul><ul><li>Profitability: Measures profit producing performance of firm </li></ul></ul>
  16. 16. Budgets <ul><li>Financial Budgets: Identify sources of cash and intended uses </li></ul><ul><ul><li>Cash Budgets </li></ul></ul><ul><ul><li>Capital Expenditure Budgets </li></ul></ul><ul><ul><li>Balance Sheet Budget </li></ul></ul>
  17. 17. Responsibility Centers <ul><li>Cost Centers </li></ul><ul><ul><li>Manager’s primary concern is control of costs </li></ul></ul><ul><li>Revenue Center </li></ul><ul><ul><li>Manager’s primary concern is attaining revenue target </li></ul></ul><ul><li>Profit Center </li></ul><ul><ul><li>Manager has more freedom to manipulate costs to increase profit </li></ul></ul>
  18. 18. Budget Preparation <ul><li>Top Management </li></ul><ul><ul><li>Estimates of future sales and production </li></ul></ul><ul><ul><li>Priorities used to meet new objectives </li></ul></ul><ul><li>Middle Management </li></ul><ul><ul><li>Prepares proposed revenue and expense budgets designed to attain estimated sales/production levels </li></ul></ul>
  19. 19. Audits of Financial Data <ul><li>Verify accuracy of firm’s financial data </li></ul><ul><li>May be internal or external </li></ul><ul><li>Internal audits also evaluate organizational efficiency </li></ul>
  20. 20. Non-financial Controls <ul><li>Management Audits </li></ul><ul><ul><li>Evaluate efficiency </li></ul></ul><ul><li>Human Resources Accounting </li></ul><ul><ul><li>Quantifies the value of human resources investment </li></ul></ul><ul><ul><ul><li>Costs of recruiting </li></ul></ul></ul><ul><ul><ul><li>Costs of training </li></ul></ul></ul><ul><ul><ul><li>Costs of process improvement </li></ul></ul></ul>
  21. 21. Non-financial Controls <ul><ul><li>Social Controls </li></ul></ul><ul><ul><ul><li>Standards </li></ul></ul></ul><ul><ul><ul><li>Comparison with outcomes </li></ul></ul></ul><ul><ul><ul><li>Corrective action </li></ul></ul></ul>
  22. 22. Non-financial Controls <ul><li>Effectiveness of research activities </li></ul><ul><li>Systems for release of drawing release </li></ul><ul><li>Inventory control </li></ul><ul><li>Quality control </li></ul>

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