Managerial Control Chapter Sixteen Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objectives LO 1 Explain why companies develop control systems for employees. LO 2 Summarize how to design a basic bureaucratic control system. LO 3 Describe the purposes for using budgets as a control device. LO 4 Define basic types of financial statements and financial ratios used as controls. LO 5 List procedures for implementing effective control systems. LO 6 Identify ways in which organizations use market control mechanisms. LO 7 Discuss the use of clan control in an empowered organization. 16-2

Managerial Control  Control  Any process that directs the activities of individuals toward the achievement of organizational goals 16-3

Characteristics of Control 16-4 Table 16.2

The Control Process 16-5 Figure 16.1

After-action review  After-action review  A frank and open-minded discussion of four basic questions aimed at continuous improvement. 16-6

Approaches to Bureaucratic Control  Feedforward control  The control process used before operations begin, including policies, procedures, and rules designed to ensure that planned activities are carried out properly. 16-7

Management Audits  Management audit  An evaluation of the effectiveness and efficiency of various systems within an organization 16-8

Budgetary Controls  Budgeting  The process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences  also called budgetary controlling. 16-9

A Sales-Expense Budget Table 16.4

Activity-Based Costing  Activity-based costing (ABC)  A method of cost accounting designed to identify streams of activity and then to allocate costs across particular business processes according to the amount of time employees devote to particular activities 16-11

Activity-Based Costing Example: ABC Medical Clinic Figure 16.3

The Profit and Loss Statement  Profit and loss statement  An itemized financial statement of the income and expenses of a company’s operations Table 16.6

Using Financial Ratios  Management myopia  Focusing on short- term earnings and profits at the expense of longer- term strategic obligations

Examples of Market Control Figure 16.4