FOUNDATIONS
OF CONTROL
Chapter 10
1
WHAT IS CONTROL?
Control
The process of monitoring activities to
ensure that they are being accomplished as
planned and of correcting any significant
deviations
The Purpose of Control
Toensure that activities are completed in
ways that lead to accomplishment of
organizational goals
2
WHY IS CONTROL
IMPORTANT?
The final link in management functions:
Planning
Controls let managers know whether their goals
and plans are on target and what future actions
to take
Empowering employees
Control systems provide managers with
information and feedback on employee
performance
Protecting the workplace
Controls enhance physical security and help
minimize workplace disruptions
3
EXHIBIT 10-1 THE PLANNING–
CONTROLLING LINK
Planning
Goals
Objectives
Strategies
Plans
Controlling
Organizing
Standards
Structure
Measurements
Human Resource
Comparison Management
Actions
Leading
Motivation
Leadership
Communication
Individual and
Group Behaviour
4
THE CONTROL PROCESS
The Process of Control
1. Measuring actual
performance
2. Comparing actual
performance against a
standard
3. Taking action to correct
deviations or
inadequate standards
5
EXHIBIT 10-2 THE CONTROL PROCESS
Measuring
Step 1 Actual Performance
GOALS
Comparing Actual
Organizational Step 2
Performance
Divisional
Against Standard
Departmental
Individual
Taking
Step 3 Managerial Action
6
HOW AND WHAT WE
MEASURE
How: Sources of What: Control
Information Criteria
Personal observations Employees
Statistical reports Satisfaction
Oral reports Turnover
Written reports
Absenteeism
Budgets
Costs
Output
Sales
7
COMMON SOURCES OF
INFORMATION FOR MEASURING
PERFORMANCE
8
COMPARING
Determining the degree of variation
between actual performance and the
standard
Significance of variation is determined by:
The acceptable range of variation from the
standard (forecast or budget)
The size (large or small) and direction (over or
under) of the variation from the standard
9
DEFINING THE ACCEPTABLE RANGE OF
VARIATION
Acceptable
Upper Limit
Standard Acceptable
Range of
Variation
Acceptable
Lower Limit
t t+ 1 t+ 2 t+ 3 t+ 4 t+ 5
Time Period (t)
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STEP 3. TAKING
MANAGERIAL ACTION
3 possible courses of action:
1. “Doing nothing”
Only if deviation is judged to be insignificant.
2. Correcting actual (current) performance
Immediate corrective action to correct the problem at once to get
performance back on track.
Basic corrective action looks at how and why performance deviated before
correcting the source of the deviation.
3. Revise the Standard
In some cases, variance may be a result of an unrealistic standard – a goal
that is too low or too high. In this case, the standard, not the performance –
needs corrective action.
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EXHIBIT 10-6 MANAGERIAL DECISIONS
IN THE CONTROL PROCESS
Compare Is Yes
actual standard
being Do nothing
performance
with standard attained?
No
Is Yes
variance Do nothing
acceptable?
Measure
actual
Goals Standard
performance No
Is Yes
Identify
standard
cause of
acceptable?
variation
No
Revise Correct
standard performance
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CONTROLLING FOR
ORGANIZATIONAL PERFORMANCE
What Is Performance?
The end result of an activity
What Is Organizational
Performance?
Theaccumulated end results of all of the
organization’s work processes and activities
Designing strategies, work processes, and work
activities
Coordinating the work of employees
13
ORGANIZATIONAL
PERFORMANCE MEASURES
Organizational Productivity
The overall output of goods and/or services
divided by the inputs needed to generate
that output
Output: sales revenues
Inputs: costs of acquiring and transforming
resources into outputs
Ultimately,
a measure of how efficiently
employees do their work
Organizational Effectiveness (cont’d)
Measuring how appropriate organizational
goals are and how well the organization is
achieving its goals
14
ORGANIZATIONAL PERFORMANCE
MEASURES (CONT’D)
Industry Rankings
Manydifferent lists exist to rank
organizations. Some examples:
Report on Business Magazine’s Top 1000;
Canada’s Power Book
Report on Business Magazine’s 50 Best
Companies To Work For in Canada
Profit’s 100: Canada’s Fastest Growing
Companies
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TOOLS FOR CONTROLLING
ORGANIZATIONAL PERFORMANCE
Feedforward Control
Prevents anticipated problems before they
occur
Building in quality through design
Requiring suppliers conform to ISO 9002
Concurrent Control
Monitoring while activity is in progress
Direct supervision: management by walking
around
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TOOLS FOR CONTROLLING
ORGANIZATIONAL PERFORMANCE
(CONT’D)
Feedback Control
Takes place after an activity is done
Corrective action is after-the-fact, when the
problem has already occurred
Advantages
Feedback provides managers with information
on the effectiveness of their planning efforts
Feedback enhances employee motivation by
providing them with information on how well
they are doing
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EXHIBIT 10-9 TYPES OF
CONTROL
Input Processes Output
Feedforward Concurrent Feedback
Control Control Control
Corrects Corrects
Anticipates problems as problems after
problems they happen they occur
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TOOLS FOR CONTROLLING
ORGANIZATIONAL PERFORMANCE:
FINANCIAL CONTROLS
Traditional Controls
Ratio analysis
Liquidity- measure an organization’s ability to meet its current
debt obligations.
Leverage - examine the organization’s use of debt to finance
its assets and whether it’s able to meet the interest payments
on the debt.
Activity - assess how efficiently a company is using its assets.
Profitability - how efficiently and effectively the company is
using its assets to generate profits.
Budget analysis
Quantitative standards
Deviations
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EXHIBIT 10-10 POPULAR
FINANCIAL RATIOS
20
TOOLS FOR CONTROLLING
ORGANIZATIONAL PERFORMANCE:
INFORMATION CONTROLS
Purpose of Informational Controls
As a tool to help managers control other
organizational activities
As an organizational area that managers
need to control
Management Information Systems (MIS)
A system used to provide management with
needed information on a regular basis
Data: an unorganized collection of raw, unanalyzed
facts (e.g., unsorted list of customer names)
Information: data that has been analyzed and
organized such that it has value and relevance to
managers
21
CONTROLLING ORGANIZATIONAL
PERFORMANCE:
BALANCED SCORECARD
Balanced Scorecard
A measurement tool that uses goals set by
managers in four areas to measure a
company’s performance:
Financial
Customer
Internal processes
People/innovation/growth assets
Is intended to emphasize that all of these
areas are important to an organization’s
success and that there should be a balance
among them
22
CONTROLLING ORGANIZATIONAL
PERFORMANCE
BENCHMARKING OF BEST
PRACTICES
Benchmarking
The search for the best practices among
competitors or noncompetitors that lead to
their superior performance
A control tool for identifying and measuring
specific performance gaps and areas for
improvement
23
CONTEMPORARY ISSUES
IN CONTROL
Cross-cultural Issues
The use of technology to increase direct
corporate control of local operations
Legal constraints on corrective actions in
foreign countries
Difficulty with the comparability of data
collected from operations in different
countries
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CONTEMPORARY ISSUES
IN CONTROL (CONT’D)
Workplace Concerns
Privacy versus monitoring:
E-mail, telephone, computer, and Internet usage
can all be monitored
Employee theft
The unauthorized taking of company property by
employees for their personal use
Violence
Anger, rage, and violence in the workplace is
affecting employee productivity
25
TYPES OF WORKPLACE MONITORING BY
EMPLOYERS
Internet use 54.7%
Telephone use 44.0%
E-mail messages 38.1%
Computer files 30.8%
Job performance using video cameras 14.6%
Phone conversations 11.5%
Voice-mail messages 6.8%
Source: Based on S. McElvoy, “E-Mail and Internet Monitoring and the Workplace: Do
Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69.
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EXHIBIT 10-12 CONTROLLING
EMPLOYEE THEFT
27
WORKPLACE VIOLENCE
Witnessed yelling or other verbal abuse 42%
Yelled at co-workers themselves 29%
Cried over work-related issues 23%
Seen someone purposely damage
machines or furniture 14%
Seen physical violence in the workplace 10%
Struck a co-worker 2%
Source: Integra Realty Resources, October-November Survey of Adults
18 and Over, in “Desk Rage.” BusinessWeek, November 20, 2000, p. 12.
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CONTEMPORARY ISSUES
IN CONTROL (CONT’D)
Customer Interactions
Service profit chain
Is the service sequence from employees
to customers to profit.
Service capability affects service value
which impacts on customer satisfaction
that, in turn, leads to customer loyalty in
the form of repeat business (profit).
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