Management Control Chapter 19

The Importance of Management Control Managers plan under the assumption that everything will run smoothly –However, you anticipate what could go wrong Managers use CONTROLS to identify and correct problems Without controls, managers would be unaware that problems existed

What is a Control CONTROL –Looking at a business activity, comparing it to what is supposed to be happening, and address problems that are found Example –61% of Juniors meet or exceed state standards in math –Should be 80% –Initiate Late Start Program for Juniors

Why are management controls needed? Prevent crises Catch small problems before they become major problems Standardize outputs Allows for comparisons and allows for processes to be improved Appraise employee performance Objective evaluations equal for everyone Update plans Easier to make changes if you know what is going on Protect the organizations assets Protect against waste and theft

Three Requirements for Control 1.Setting Standards A standard outlines what is expected of the employee or organizational unit. Ex..Sales for 2007 will be $5,000,000 2.Monitoring Performance Managers monitor performance to gather data and detect problem areas. Ex…collect monthly sales data to track progress 3.Correcting Deviations Managers must correct problems as they are encountered. Ex…make changes/corrections of numbers arent good

Causes of Performance Deviation Performance Doesnt Meet Expectations: 1.Faulty Planning Overlooked details, poor strategies 2.Insufficient Communication Employees are unclear what is expected and/or how to go about accomplishing a goal 3.Training Performance may be slow while learning Poor training will result in poor results 4.Lack of Motivation Employees unhappy, lazy, etc 5.Unforeseen Forces New Laws, Disasters can be harmful to production

The Control Pyramid Informational Controls Supervisory Controls Operator Controls Automatic Controls Control By Foolproofing

Types of Controls Preliminary Control Designed to prevent problems from occurring Concurrent Controls Designed to pick up problems as they occur Post-Action Controls Designed to detect problems after they occur

Tools for Control Zero-Based Budgeting Requires each manager to justify each budget request in detail Need to show why each expense is necessary Every year, the importance of every activity is evaluated and ranked Each activity competes for a share of the organizations available resources Direct Observation Written Reports Audits

Types & Purposes of Budgets Revenue & Expense Budget –Details on sales and the cost of making sales Cash Budget –Forecasts cash receipts and disbursements Capital Expenditure Budget –Outlines specific spending for plant, equipment, machinery, inventories, and other capital items Production, Material, or Time Budget –Expresses the physical requirements of production capabilities, material, or time for the budget period Balance Sheet Budgets –Forecasts assets, liabilities, and net worth at the end of the fiscal period (Monthly, Quarterly, Yearly)