7 Keeping Things in Check Controls and the Control Process Learning Objectives After Studying This Chapter, Students Should Be Able To · Understand the elements of control, measurement tools, and corrective steps · Differentiate among the types of controls utilized within an organization · Employ control strategies for effective management · Identify which control processes are effective in an operational setting · Describe an integrated planning process Chapter Summary Chapter 7 focuses on maintaining control by becoming adept at utilizing various control techniques and processes. Components of the Control Process There are four basic components of the control process: 1. Planning: Sets the directions and allocates resources. 2. Organizing: Brings people and material resources together in working combinations. 3. Leading: Inspires people to best utilize these resources. 4. Controlling: Checks that the right things happen, in the right way, and at the right time. Objectives and Standards · Objectives provide the performance targets. · Output standards measure results in terms of performance quantity, quality, cost, or time. · Input standards measure effort in terms of the amount of work expended in task performance. Measurement Tools Managers are able to not only adopt measurement tools by which success can be determined, but they also can use historical comparison (historical information), relative comparison (comparing to performances of others), or engineering comparison (comparing to scientific standards as a means of evaluating performance). Corrective Action The last step in the control process is to take any action necessary to correct or improve future performance. Management by exception can be used to direct action on problems requiring more urgent attention. Effective Controls The best managers, by contrast, are proactive and positive in applying the control process to full advantage. Effective controls in organizations share the following characteristics: · Controls are understandable: They support decision making by presenting data in understandable terms; they do not involve complex reports and hard-to-understand statistics. · Controls encourage self-control: They allow for mutual trust, good communication and participation among everyone involved. · Controls are timely and exception-oriented: They report deviations quickly, lending insight into why a performance gap exists and what you can do to correct it. · Controls are positive in nature: They emphasize their contribution to development, change, and systems improvement; they deemphasize their role in penalties and reprimands. · Controls are fair and objective: They are considered impartial and accurate by everyone; they are respected for one fundamental purpose—performance enhancement. · Controls are flexible: They leave room for individual judgment and can be modified to fit new circumstances as they arise. Types of Control A variety of control strat.

1. 7
Keeping Things in Check
Controls and the Control Process
Learning Objectives
After Studying This Chapter, Students Should Be Able To
· Understand the elements of control, measurement tools, and
corrective steps
· Differentiate among the types of controls utilized within an
organization
· Employ control strategies for effective management
· Identify which control processes are effective in an
operational setting
· Describe an integrated planning process
Chapter Summary
Chapter 7 focuses on maintaining control by becoming adept at
utilizing various control techniques and processes.
Components of the Control Process
There are four basic components of the control process:
1. Planning: Sets the directions and allocates resources.
2. Organizing: Brings people and material resources together in
working combinations.
3. Leading: Inspires people to best utilize these resources.
4. Controlling: Checks that the right things happen, in the right
way, and at the right time.
Objectives and Standards

2. · Objectives provide the performance targets.
· Output standards measure results in terms of performance
quantity, quality, cost, or time.
· Input standards measure effort in terms of the amount of work
expended in task performance.
Measurement Tools
Managers are able to not only adopt measurement tools by
which success can be determined, but they also can use
historical comparison (historical information), relative
comparison (comparing to performances of others), or
engineering comparison (comparing to scientific standards as a
means of evaluating performance).
Corrective Action
The last step in the control process is to take any action
necessary to correct or improve future performance.
Management by exception can be used to direct action on
problems requiring more urgent attention.
Effective Controls
The best managers, by contrast, are proactive and positive in
applying the control process to full advantage. Effective
controls in organizations share the following characteristics:
· Controls are understandable: They support decision making by
presenting data in understandable terms; they do not involve
complex reports and hard-to-understand statistics.
· Controls encourage self-control: They allow for mutual trust,
good communication and participation among everyone
involved.

3. · Controls are timely and exception-oriented: They report
deviations quickly, lending insight into why a performance gap
exists and what you can do to correct it.
· Controls are positive in nature: They emphasize their
contribution to development, change, and systems improvement;
they deemphasize their role in penalties and reprimands.
· Controls are fair and objective: They are considered impartial
and accurate by everyone; they are respected for one
fundamental purpose—performance enhancement.
· Controls are flexible: They leave room for individual
judgment and can be modified to fit new circumstances as they
arise.
Types of Control
A variety of control strategies and techniques are examined.
Control systems such as:
· Feed forward controls, or those that are accomplished before a
work activity begins.
· Concurrent controls, which focus on what actually happens
during the work process.
· Feedback controls, which take place after work is completed.
Management Control
Managers maintain control by:
· Setting objectives by way of clear understanding of what is
being sought.
· Setting policies and procedures to guide behavior.
· Learning from past experience.
· Matching employee selection with ongoing training.
· Conducting performance appraisals to enhance productivity.
· Maintaining appropriate job design and work structure.
· Establishing performance norms.
· Establishing an organizational culture.
Information and Financial Controls

4. No control process would be complete without a discussion of
the fiscal implications and how management understanding of
the fiscal vitality is important to success.
· Liquidity ratios such as acid test and current ratios.
· Leverage ratios such as debt ratio and times interest earned.
· Asset management ratios such as inventory turnover and total
asset turnover.
· Profitability ratios such as net margin and return on
investment.
Inventory Control
· Economic order quantity (EOQ) is a quantitative method of
inventory control that involves ordering a fixed number of items
every time an inventory level falls to a predetermined point.
· Just-in-time JIT) scheduling reduces costs and improves
workflow by scheduling items to arrive just in time to be used.
· Quality control involves checking processes, materials,
products, and services to ensure that they meet high standards.
Management Philosophies
The chapter discusses two types of management philosophy:
· Six Sigma: a collection of rigorous, systematic control tools;
strives to identify and prevent “defects.”
· Management by objectives (MBO): useful technique that helps
to integrate planning and controlling.
Key Terms
Asset management
The ability to use resources efficiently and operate at minimum
cost.
Concurrent controls
Controls that focus on what actually happens during the work
process, also called steering controls.

5. Controlling
The process of measuring performance and taking action to
ensure desired results; a basic function for health care
managers.
Control process
A four-step method for measuring performance.
Discipline
The act of influencing behavior through reprimand.
Engineering comparison
Comparison that uses standards set scientifically through such
methods as time and motion studies.
EOQ
A quantitative method of inventory control that involves
ordering a fixed number of items every time an inventory level
falls to a predetermined point. Stands for economic order
quantity.
External control
Attempting to control the behavior of others through personal
supervision or formal administrative systems.
Feedback controls
Controls that take place after work is completed, also called
postaction controls.
Feed forward controls
Controls that are accomplished before a work activity begins,
also called preliminary controls.
Historical comparison
Comparison that uses past performance as a standard for
evaluating current performance.

6. Improvement objectives
MBO goals that document intentions for improving performance
in a specific way and with respect to a specific factor.
Input standards
Control measurements that focus on the amount of work
expended in task performance.
Internal control
Allowing motivated individuals and groups to exercise self-
discipline in fulfilling job expectations.
JIT scheduling
A Japanese model for industrial productivity, JIT systems try to
reduce costs and improve workflow by scheduling items to
arrive just in time to be used. Stands for just-in-time
scheduling.
Leverage
The ability to earn more in returns than the cost of debt.
Liquidity
The ability to generate cash to pay bills.
Management by exception
The practice of giving priority attention to situations that show
the greatest need for action.
MBO
A structured process of regular communication in which a
supervisor and subordinate jointly set performance objectives
for the subordinate and review results accomplished. Stands for
management by objectives.
Operations management
The portion of management duties that emphasizes utilizing
people, resources, and technology to the best advantage.

7. Opportunity situation
Actual performance is above the standard.
Output standards
Control measurement results that focus on performance
quantity, quality, cost, or time.
Personal development objectives
MBO goals that pertain to personal growth activities, often
those resulting in expanded job knowledge or skills.
Problem situation
Actual performance is below the standard.
Profitability
The ability to earn revenues greater than costs.
Progressive discipline
A discipline system in which reprimands are tied to the severity
and frequency of misbehavior.
Quality control
Checking processes, materials, products, and services to ensure
that they meet high standards.
Relative comparison
Comparison that uses the performance achievements of other
people, work units, or organizations as evaluation benchmarks.
Six Sigma
A collection of rigorous, systematic control tools that uses
information and statistical analysis to measure and improve an
organization’s performance, practices, and systems.

8. PAGE
*
Chapter 7
Keeping Things in Check
[These slides are intended to be used in conjunction with Health
Care Management by Donald J. Lombardi and John R.
Schermerhorn, Jr. with Brian Kramer (the Text). Please refer
to the Text for a more complete explanation of the materials
covered herein and for all source material references.]
Copyright by John Wiley and Sons, 2006
Copyright by John Wiley and Sons, 2006
*Controlling: the process of measuring performance and taking
action to ensure desired results – is a basic function for health

9. care managers, on par with organizing, planning, and leading.
The control process involves four steps: establishing objectives
and standards, measuring actual performance, comparing results
with objectives and standards, and taking corrective action as
needed.
Understanding the Control Process
*
Four Steps in Management Control
*
Steps in Control ProcessStep 1: Establishing Objectives and
Standards: performance objectives and standards are set through
planning. The objectives provide the performance targets, and
the standards provide the yardstick for assessing actual
accomplishments.Two types of standards can be used for this
purpose: Output standards measure results in terms of
performance quantity, quality, cost, or time. Input standards, by
contrast, measure effort in terms of the amount of work
expended in task performance. Step 2: Measuring Actual
Performance: the measurement must be accurate enough to spot
significant differences between what is really taking place and
what was originally planned.
*
Steps in Control Process (con’t)Step 3: Comparing Results with
Objectives and Standards: establishes whether or not any
corrective actions are needed. The control equation summarizes
this step:Need for Action = Desired Performance – Actual
Performance Types of comparisons includehistorical

10. comparisonrelative comparisonengineering comparisonStep 4:
Taking Corrective Action: to correct or improve future
performance. Allows for a judicious use of management by
exception – the practice of giving priority attention to situations
that show the greatest need for action. Two types of exceptions
are: problem situation opportunity situation
*
Setting up Effective Controls The best managers are proactive
and positive in applying the control process to full advantage.
Rather than simply assuming things are going right, they make
sure that everything works out as intended.
Effective controls in organizations share the following
characteristics: controls are strategic and results-oriented
controls are understandablecontrols encourage self-
controlcontrols are timely and exception-oriented controls are
positive in nature controls are fair and objective controls are
flexible
*
Types of Controls Health care managers utilize three major
types of managerial controls: feedforward, concurrent, and
feedback controls.
*
Types of Controls (con’t) Feedforward Controls or preliminary
controls are accomplished before a work activity begins. What
needs to be done before we begin? Concurrent Controls or
steering controls focus on what actually happens during the
work process. Now that we’ve started, what can we do to

11. improve things before we finish? Feedback Controls or post
action controls take place after work is completed. Now that we
are finished, how well did we do?
*
Control Strategies Two broad options with respect to control
are:Internal control: allowing motivated individuals and groups
to exercise self-discipline in fulfilling job expectations.
External control: attempting to control the behavior of others
through personal supervision or formal administrative systems.
Health care organizations with effective controls typically use
both strategies to good advantage, but more progressive
workplaces seem to have a renewed emphasis on internal and
self-controls.
*
Management Process Controls
Each of the other functions of the management process
facilitates control.
Planningcontrol via strategy and objectives control via policies
and procedures control via learning organizing Organizing
Control by selection and training Control via performance
appraisalControl via job design and work structures Leadership
Control by performance norms Control via organization culture
*
Employee Discipline Systems Discipline is the act of
influencing behavior through reprimand.
Progressive discipline ties reprimands to the severity and
frequency of misbehavior.

12. *
Information and Financial Controls
For control purposes, health care managers need to
generally understand the following important financial aspects
of organizational performance:
Liquidity: The ability to generate cash to pay bills.Leverage:
The ability to earn more in returns than the cost of debt.Asset
management: The ability to use resources efficiently and
operate at minimum cost.Profitability: The ability to earn
revenues greater than costs.
*Control is an essential part of operations management.
Operations management is the portion of management duties
that emphasizes utilizing people, resources, and technology to
the best advantage. Important aspects of operations management
today include:purchasing control Inventory control quality
control
Managing and Controlling Operations
*Purchasing Control: controlling the rising costs of materials
through efficient purchasing management. Organizations use
methods including:centralized purchasing to allow buying in
volume commit to only a small number of suppliers with whom
they can negotiate special contracts, gain quality assurances,
and get preferred serviceInventory Control: because inventories
represent costs, they must be well managed. Organizations use
methods including:economic order quantity (EOQ) is a
quantitative method of inventory control that involves ordering
a fixed number of items every time an inventory level falls to a

13. predetermined point. just-in-time scheduling (JIT) systems try
to reduce costs and improve workflow by scheduling items to
arrive just in time to be used. Quality Control: involves
checking processes, materials, products, and services to ensure
that they meet high standards.
Operations Control
*When planning is done well, control gets better – and vice
versa. Without good planning, control lacks a framework for
performance measurement. Without good control, planning
lacks the follow-through needed to ensure results. Six Sigma is
a collection of rigorous, systematic control tools that use
information and statistical analysis to measure and improve an
organization’s performance, practices and systems. Six Sigma
strives to identify and prevent “defects.” Management by
objectives, or MBO, is a structured process of regular
communication in which a supervisor and subordinate jointly set
performance objectives for the subordinate and review results
accomplished. (footnote 6)
Integrated Planning and Controlling
*
An MBO framework for integrated planning and controlling in a
work team.
Management by Objective
*Following certain steps can help managers make MBO as
successful as possible.Performance objectives are essential to
the MBO process, and the ways objectives are specified and
established influences how well MBO works. In many

14. organizations, the MBO process emphasizes both: improvement
objectives – which document intentions for improving
performance in a specific way and with respect to a specific
factor personal development objectives – which pertain to
personal growth activities, often those resulting in expanded job
knowledge or skills Effective MBO objectives arespecific:
targeting a key result to be accomplished;time-defined:
identifying a specific date for achieving results;challenging:
offering a realistic and attainable challenge;measurable: stating
goals in quantitative terms, whenever possible.
Management by Objective (con’t)
*Internal control, simply defined, is self-control. People
motivated to take charge of their own behavior on the job are
exercising internal control. People are more likely to do this
when they participate in setting performance objectives and the
standards of measurement. This, of course, is what the notion of
management by objectives is all about. Although they may
describe how they manage using differing language, many of the
best managers utilize MBO concepts.
Internal Control
and Self-Management
*
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