MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Functional Subsystems Finance Human resources Marketing Operations (production) Management information systems

MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Control Techniques

MultiMedia by Stephen M. Peters© 2002 South-Western Finance Managers Prepare estimates and forecasts for future sources and uses of funds. Determine current and future ability to meet financial obligations. Measure and monitor ongoing operations.

MultiMedia by Stephen M. Peters© 2002 South-Western Financial Controls Ratio AnalysisAudits Responsibility Centers Financial Statements

MultiMedia by Stephen M. Peters© 2002 South-Western The Equation that Describes a Balance Sheet Assets = Liabilities + Stockholders’ Equity

MultiMedia by Stephen M. Peters© 2002 South-Western Assets Fall Into One of Two Categories 1. Current assets are cash or items that are normally converted into cash within one year from the date of the balance sheet. 2. Fixed assets are assets not intended for sale or conversion to cash. Fixed assets include land, buildings, and equipment.

MultiMedia by Stephen M. Peters© 2002 South-Western Liabilities Current and Long-Term Debts  Current liabilities are debts due and payable within one year of the date of the balance sheet.  Long-term liabilities are those due after one year from that date.

MultiMedia by Stephen M. Peters© 2002 South-Western Income Statement Equation Income - Expenses = Profit or Loss

MultiMedia by Stephen M. Peters© 2002 South-Western Income Statement Seven Categories  Net sales  Costs of goods sold  Gross profit  Operating expenses  Net income (or loss) before taxes  Taxes  Net income, the profit left after paying taxes

MultiMedia by Stephen M. Peters© 2002 South-Western Financial Audits Internal Audits –Keep problems in-house. –Are likely to be conducted by people who know operations well. –May lack objectivity. –May also lack the power to penetrate cover-ups. External Audits –An independent public accounting firm conducts an external audit. –Federal regulations require publicly traded companies to conduct certified external audits each year. –Enhances creditability.

MultiMedia by Stephen M. Peters© 2002 South-Western Budgets Serve Managers in Four Important Ways 1.They expedite allocation and coordination of resources for programs and projects. 2.They operate as a powerful monitoring system when supplemented with periodic budget updates. 3.They provide rigorous control guidelines for managers by setting limits on expenditures. 4.They facilitate evaluation of individual and department performance.

MultiMedia by Stephen M. Peters© 2002 South-Western Five Budget Considerations  Setting goals  Planning and scheduling to reach the goals  Identifying and pricing resources  Locating needed funds  Adjusting goals, plans, and resources to match actual fund availability.

MultiMedia by Stephen M. Peters© 2002 South-Western Budgets Four Standardized Approaches (1 of 4) Top-Down Budgeting Senior managers prepare budgets and distribute them to lower levels, with or without input from below. This method may plan and control without cooperation and knowledge of subordinates.

MultiMedia by Stephen M. Peters© 2002 South-Western Budgets Four Standardized Approaches (2 of 4) Bottom-Up Budgeting Taps the knowledge and experiences of all organization members. Those closest to the planned activities contribute to building the budget that affects them.

MultiMedia by Stephen M. Peters© 2002 South-Western Budgets Four Standardized Approaches (3 of 4) Zero-Based Budgeting Eliminates complacency. Must justify every dollar requested in light of strategic plans and goals. Must list the costs of all resources. Must choose priorities and create alternatives for accomplishing the unit’s part in the overall strategic plan.

MultiMedia by Stephen M. Peters© 2002 South-Western Budgets Four Standardized Approaches (4 of 4) Flexible Budgeting Levels of expense are correlated with specified output levels. Sets “meet or beat” standards with which expenditures can be compared. Unit expenses within budgeted amounts are usually permitted.

MultiMedia by Stephen M. Peters© 2002 South-Western Financial Budgets Cash Budgets project the amount of cash that will flow into and out of an organization and its subsystems during a fixed period. Capital Expenditure Budgets project the short- and long-term funding needed to acquire capital goods.

MultiMedia by Stephen M. Peters© 2002 South-Western Marketing Umbrella Product design Packaging Pricing Distribution Sales Customer service

MultiMedia by Stephen M. Peters© 2002 South-Western Marketing Control Techniques Market research StockageSales quotas Test marketing Marketing ratios

MultiMedia by Stephen M. Peters© 2002 South-Western Marketing Research A feedforward control technique Consists of gathering and analyzing geographic, demographic, and psychographic data .. ..

MultiMedia by Stephen M. Peters© 2002 South-Western Test Marketing–Four Points 1. Introduce it to a limited market on a small scale to assess its acceptance. 2. Disadvantage of extensive test marketing is that it can tip a company’s hand to competitors. 3. Planners analyze the results of testing to determine if the company should proceed with manufacturing, distribution, or modifications. 4. Limits the risks a company faces when introducing something new.

MultiMedia by Stephen M. Peters© 2002 South-Western Marketing Ratios Frequently used measures include: Ratio of profit to sales Costs of selling to gross profit Sales calls to orders generated Profitability of each order Changes in sales volume to price changes Ratio of bad debts to total credit granted Sales volume to production capacity for the entire organization Market share Order turnaround time

MultiMedia by Stephen M. Peters© 2002 South-Western Stockage  Level of inventory.  Money tied up in inventories is unavailable for other uses.  Must reduce the number of slow-moving items or eliminate the items altogether.  Devote most of the best display areas to items that yield the largest profits.  Tracking stockage levels, managers can:  Determine normal usage rates.  Maintain minimum levels.  Set efficient reorder points.

MultiMedia by Stephen M. Peters© 2002 South-Western Cost of Maintaining Inventories