6 6 Controlling

6-1. Describe the control process Contrast two types of corrective action Compare preventive, concurrent, and corrective control Explain how a supervisor can reduce costs. Chapter Outcomes and Learning Objectives © 2016 Pearson Education, Inc.6-2

6-5. Explain what is meant by the term just-in- time inventory systems Describe what is meant by the term value chain management List the characteristics of an effective control system. © 2016 Pearson Education, Inc.6-3 Chapter Outcomes and Learning Objectives

6-8. Explain potential negatives that controls can create Identify the ethical dilemmas in employee monitoring Explain what is meant by employee theft and its effect on the organization. © 2016 Pearson Education, Inc.6-4 Chapter Outcomes and Learning Objectives

Control process - A three-step process that consists of: 1.measuring actual performance 2.comparing results with standards, and 3.taking corrective action © 2016 Pearson Education, Inc.6-5 The Control Process

Exhibit 6-1, The control process © 2016 Pearson Education, Inc.6-6

Personal observation provides firsthand, intimate knowledge of the actual activity Statistical reports are computer outputs including graphs, bar charts, and numerical displays of any form Oral reports are from meetings, conferences, and one-on-one conversations Written reports are often combined with statistical reports © 2016 Pearson Education, Inc.6-7 Measuring Performance

Range of variation - Variation in performance that can be expected in all activities Cause-effect diagram - A depiction of the causes of a problem that groups the causes according to common categories such as machinery, materials, methods, personnel, finances, or management © 2016 Pearson Education, Inc.6-8 Comparing Results with Standards

Exhibit 6-3, Example of a cause-effect (fishbone) diagram © 2016 Pearson Education, Inc.6-9

Flowchart - Visual representation of the sequence of events for a particular process that clarifies how things are being done so that inefficiencies can be identified and the process can be improved © 2016 Pearson Education, Inc.6-10 Comparing Results with Standards continued…

Scatter diagram - An illustration of the relationship between two variables that shows correlations and possible cause and effect Control chart - A statistical technique used to measure variation in a system to produce an average standard with statistically determined upper and lower limits © 2016 Pearson Education, Inc.6-11 Comparing Results with Standards continued…

Exhibit 6-5, Example of a scatter diagram © 2016 Pearson Education, Inc.6-12

Exhibit 6-6, Example of a control chart © 2016 Pearson Education, Inc.6-13

Immediate corrective action - Action that adjusts something right now and gets things back on track Basic corrective action - Action that gets to the source of a deviation and seeks to adjust the differences permanently © 2016 Pearson Education, Inc.6-14 Taking Corrective Action

Preventive control - A type of control that anticipates and prevents undesirable outcomes Concurrent control - A type of control that takes place while an activity is in progress © 2016 Pearson Education, Inc.6-15 Types of Control

Corrective control - A type of control that provides feedback after an activity is finished to prevent future deviations © 2016 Pearson Education, Inc.6-16 Types of Control continued…

Exhibit 6-7, Three types of control © 2016 Pearson Education, Inc.6-17

Major Cost Categories: 1.Direct labor costs 2.Indirect labor costs 3.Raw materials cost 4.Supportive supplies cost 5.Utility costs 6.Maintenance costs 7.Waste costs © 2016 Pearson Education, Inc.6-18 Focus of Control

Exhibit 6-8, Focus of control © 2016 Pearson Education, Inc.6-19

Here is a six-step program that can guide you in reducing costs in your department: 1.Improve methods 2.Level the work flow 3.Minimize waste 4.Install modern equipment 5.Invest in employee training 6.Make cuts selectively © 2016 Pearson Education, Inc.6-20 Cost Reduction Programs

Just-in-time (JIT) inventory system - A system in which inventory items arrive when they are needed in the production process instead of being stored in stock: see also kanban © 2016 Pearson Education, Inc.6-21 Inventory

Kanban - In Japanese, it means a “card” or “sign;” shipped in a container, a kanban is returned to the supplier when the container is opened and initiates the shipment of a second container that arrives just as the first container is emptied © 2016 Pearson Education, Inc.6-22 Kanban

Value chain management - The process of managing the entire sequence of integrated activities and information about product flows from start to finish—when the product is in the hands of the ultimate user © 2016 Pearson Education, Inc.6-23 Value Chain Management

Supply chain management - An internally oriented process that focuses on the efficient flow of incoming materials to the organization © 2016 Pearson Education, Inc.6-24 Value Chain Management continued…

Quality control - Identification of mistakes that may have occurred; monitoring quality to ensure that (it) meets some pre-established standard © 2016 Pearson Education, Inc.6-25 Focus on Quality

Timeliness - The best information has little value if it is dated Economy - Has to justify the benefits that it gives in relation to the costs it incurs Flexibility - Must be flexible enough to adjust to adverse change or to take advantage of few opportunities © 2016 Pearson Education, Inc.6-26 Characteristics of Effective Controls

Understandability - If not understood, a system will cause mistakes and be ignored Reasonable Criteria - Control standards must be reasonable and attainable Critical Placement – Place controls on those factors that are critical to your unit’s performance goals © 2016 Pearson Education, Inc.6-27 Characteristics of Effective Controls continued…

Exhibit 6-9, Characteristics of effective controls © 2016 Pearson Education, Inc.6-28

Control by exception - A system that ensures that one is not overwhelmed by information on variations from standard © 2016 Pearson Education, Inc.6-29 Characteristics of Effective Controls continued…

Employee Resistance - Many individuals don’t like to be told what to do or to feel that they’re being “checked up on” Misdirection of Effort - People may misdirect their efforts to look good on the control criteria Ethics and Control Devices - Difficult questions regarding what managers have the right to know about employees © 2016 Pearson Education, Inc.6-30 Problems with Control

Employee Theft - Estimated to be around $4,500 per worker per year Sarbanes-Oxley Act - Establishes procedures for public companies regarding how they handle and report their financial picture © 2016 Pearson Education, Inc.6-31 Contemporary Control Issues

Top management (the CEO and chief financial officer [CFO]) must personally certify the organization’s financial reports The organization must have in place procedures and guidelines for audit committees © 2016 Pearson Education, Inc.6-32 Sarbanes–Oxley Requirements

CEOs and CFOs must reimburse the organization for bonuses and stock options when required by restatement of corporate profits Personal loans or lines of credit for executives are now prohibited © 2016 Pearson Education, Inc.6-33 Sarbanes–Oxley Requirements continued…

6-1. Describe the control process Contrast two types of corrective action Compare preventive, concurrent, and corrective control Explain how a supervisor can reduce costs. Chapter Summary © 2016 Pearson Education, Inc.6-34

6-5. Explain what is meant by the term just-in- time inventory systems Describe what is meant by the term value chain management List the characteristics of an effective control system. © 2016 Pearson Education, Inc.6-35 Chapter Summary continued…

6-8. Explain potential negatives that controls can create Identify the ethical dilemmas in employee monitoring Explain what is meant by employee theft and its effect on the organization. © 2016 Pearson Education, Inc.6-36 Chapter Summary continued…

© 2016 Pearson Education, Inc.6-37