powerpoint presentation by charlie cook controlling gary dessler principles and practices for...

Copyright © 2004 Prentice Hall, Inc. All rights reserved. Copyright © 2004 Prentice Hall, Inc. All rights reserved. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

ControllingControlling

Gary DesslerGary Dessler

Principles and Practices for Tomorrow’s LeadersPrinciples and Practices for Tomorrow’s Leaders

Controlling and Building Controlling and Building CommitmentCommitmentControlling and Building Controlling and Building CommitmentCommitment 1414

C H A P T E RC H A P T E R

Copyright © 2004 Prentice Hall. All rights reserved. 14–2

Chapter ObjectivesAfter studying this chapter and the case exercises at the end, you should be able to:

1. Rate the adequacy of the manager’s control system.

2. Recommend specific feedforward, concurrent, and feedback controls that the manager can use to control the activity.

3. Write a simple budget for the manager.

4. Specify a specific strategic ratio the manager should have employees focus on.

5. List five measures the manager can use to build a balanced scorecard.


The Fundamentals Of An Effective Control System

• ControlThe task of ensuring that planned activities are

getting the desired results. All control systems try to influence behavior.Controlling involves setting a target (planning),

measuring performance (evaluation), and taking corrective action.

Control also applies to monitoring every task—large and small—that is delegated.


Management and the Control Process

FIGURE 14–1Source: © Gary Dessler, PH.D


Types of Process Controls

• Steering ControlA control that predicts results and takes corrective

action before the operation or project is completed.

• Concurrent or Yes/No ControlA control system in which the manager exercises

control as the activity takes place, and the work may not proceed until or unless it is acceptable.

• Feedback or Post-Action ControlAny control tool in which the project or operation

being controlled is completed first, and then results are measured and compared to the standard.


How Effective Is Your Control System?

FIGURE 14–2


Checklist 14.1Requirements for Adequate Controls Controls should reflect the nature and needs of the

activity. Controls should report deviations promptly. Controls should be forward-looking. Controls should point up exceptions at strategic

points. Controls should be objective. Controls should be flexible. Controls should reflect the organization structure. Controls should be economical. Controls should be understandable. Controls should indicate corrective action.


FIGURE 14–3

Examples of Control Standards


Approaches To Maintaining Control

• The Traditional Control ProcessStep 1: Set a standard, target, or goal.Step 2: Measure actual performance against

standards (observation and timing).Step 3: Take corrective action.

• The Commitment-Based Control ProcessEncouraging all employees to exercise ethical self-

control (as they initiate process improvements and new ways of responding to customers’ needs.


Types of Traditional Control Systems

• Diagnostic controlsA control method, such as a budget, that ensures that

standards are being met and that variances are diagnosed and explained.

• Boundary ControlsPolicies, such as codes of conduct, that establish

rules and identify the actions and pitfalls that employees must avoid.


Types of Traditional Control Systems (cont’d)

• Personal/Interactive ControlsControl methods that involve direct, face-to-face

interaction with employees so as to monitor rapidly changing information and respond proactively to changing conditions.


FIGURE 14–4

Two Basic Categories of Control Systems


Diagnostic Controls and Budgetary Systems

• Principle of Exception (Management by Exception)Employees should be left to pursue the standards set

by management, and only significant deviations from the standard should be brought to a manager’s attention.


The Basic Management Control System

• BudgetFormal financial expression of a manager’s plans.

• Sales BudgetA planning document that shows the estimated

number of units to be sold in each period (usually per month) or the expected sales activity to be achieved and the sales revenue expected from the sales.

• Operating BudgetShows the expected sales and/or expenses for each

of the company’s departments for the planning period in question.


Pro Forma Profit Planning

• Income StatementShows expected sales, expected expenses, and

expected income or profit for the year.

• Cash BudgetShows, for each month, the amount of cash the

company can expect to receive and the amount it can expect to disperse.

• Balance SheetA projected statement of the financial position of the

firm.


FIGURE 14–5

Example of a Budget


Performance Reporting

• VariancesDifferences between budgeted and actual amounts.

• AuditA systematic process of objectively obtaining and

evaluating evidence of the firm’s performance, judging the accuracy and validity of the data, and communicating the results to interested users.

• Financial RatioAn arithmetic comparison of one financial measure to

another, generally used to monitor and control financial performance.


FIGURE 14–6

Example of a Performance Report


FIGURE 14–7a

Widely Used Financial Ratios


FIGURE 14–7b

Widely Used Financial Ratios (cont’d)


FIGURE 14–7c



FIGURE 14–7d



FIGURE 14–8

Ratio Analysis: Factors Affecting Return on Investment


Financial Responsibility Centers

• Financial Responsibility Centers Individuals or groups who are assigned the

responsibility for a particular set of financial outputs and/or inputs.

• Profit centersResponsibility centers whose managers are held

accountable for profit.

• Revenue centersResponsibility centers whose managers are held

accountable for generating revenues, which is a financial measure of output.


Other Diagnostic Financial and Managerial Controls

• Activity-Based Costing (ABC)A method for allocating costs to products and

services that takes all the product’s cost drivers into account when calculating the actual cost of each product or service.


Other Diagnostic Financial and Managerial Controls (cont’d)

• Balanced ScorecardA management tool, usually a computerized model,

that traces a multitude of performance measures simultaneously and shows their interactions.

• Enterprise Resource Planning SystemA companywide integrated computer system that

gives managers real-time, instantaneous information regarding the costs and status of every activity and project in the business.


Boundary Control Systems

• Boundary Control SystemsDefine the ethical rules for proper conduct in the

organization and specify which actions and pitfalls that employees must avoid.

Include ethics standards, codes of conduct, and strategic policies.

• Steps in establishing boundary controls:Emphasize top management’s commitment.Publish a code.Establish compliance mechanisms.Measure results.


FIGURE 14–9

Johnson & Johnson’s Corporate

Credo

Source: Source: Courtesy of Johnson & Johnson.


Personal/Interactive Control Systems

• Interactive ControlMaintaining control by personally monitoring how

everyone is doing is interactive control.

• Electronic Performance Monitoring (EPM)Monitoring the work activities of employees through

electronic means.


ControlsControlsControlsControls

Behavioral Consequences of Controls

Negative Negative AttitudesAttitudes

Negative Negative AttitudesAttitudes

Behavioral Behavioral DisplacementDisplacement

Behavioral Behavioral DisplacementDisplacement

Games-Games-manshipmanship

Games-Games-manshipmanship

Operating Operating DelaysDelays

Operating Operating DelaysDelays


Behavioral Consequences of Controls

• Behavioral DisplacementA reaction to being controlled in which the controls

encourage behaviors that are inconsistent with what the company actually wants to accomplish.

• GamesmanshipManagement actions that try to improve the

manager’s apparent performance in terms of the control system without producing any economic benefits for the company.


Implementing Commitment-based Control Systems

Commitment-Commitment-Building SystemsBuilding Systems

Commitment-Commitment-Building SystemsBuilding Systems

MotivationMotivationTechniquesTechniques

MotivationMotivationTechniquesTechniques

BeliefBeliefSystemsSystems

BeliefBeliefSystemsSystems

Commitment-Commitment-Based Control Based Control

SystemSystem

Commitment-Commitment-Based Control Based Control

SystemSystem


Using Commitment-Building Systems to Foster Self-Control

• Foster People-First Values• Guarantee Organizational Justice• Build a Sense of Shared Fate and Community• Use Value-based Hiring• Financial Rewards and Profit Sharing• Communicate Your Vision• Encourage Personal Development and Self-

Actualization

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