1. Professor: Zvi Aronson, Ph.D.
Foundation of Control
Professor:
Zvi Aronson, Ph.D.

2. What is the Control Process?
The Control Process is a three-step process of measuring actual performance, comparing actual performance against a standard, and taking managerial action to correct deviations or to address inadequate standards
Control is scalable.. It happens at the most detailed level (e.g., individual product defect) and gets aggregated to larger levels of analysis (department; business; company).
It is critical for making decisions
and for evaluating strategies.
The control process is a three-step process of measuring actual performance, comparing actual performance against a standard, and taking managerial action to correct deviations or to address inadequate standards. (See Exhibit 13-2). The control process assumes that performance standards already exist, and they do. They’re the specific goals created during the planning process

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4. Control & The Strategic Management Process
STEP 1: Identifying the organization’s current mission, goals and strategies
STEP 2: Doing an external analysis
STEP 3: Doing an internal analysis
STEP 4: Formulating the strategies
STEP 5: Implementing strategies
STEP 6: Evaluating results
Control & The Strategic Management Process
Identify mission, goals and strategies
SWOT
External Analysis
Internal Analysis
Formulate Strategies
The strategic management process (see Exhibit 4-2) is a six-step process that encompasses strategy planning, implementation, and evaluation. Although the first four steps describe the planning that must take place, implementation and evaluation are just as important! Even the best strategies can fail if management doesn’t implement or evaluate
them properly.
Implement Strategies
Evaluate Results

5. Actual Performance
To determine actual performance, a manager must first get information about it. Thus, the first step in control is measuring
Four common sources of information frequently used to measure actual performance are:
personal observation
statistical reports
oral reports
written reports
Four common sources of information frequently used to measure actual performance are personal observation, statistical reports, oral reports,
and written reports. Each has particular strengths and weaknesses; however, use of a combination of them increases both the number of input sources and the probability of receiving reliable information

6. Evaluating Actual Performance
Actual Performance must be compared against a standard. Standards come from goals and are often based on benchmarks.
Benchmarks derive from a variety of sources like competitors and prior periods.

7. Corrective Action
Corrective action is needed when there is a gap between actual performance and standards.
Immediate Corrective Action
Corrective action that addresses problems at once to get performance back on track
Basic Corrective Action
Corrective action that looks at how and why performance deviated before correcting the source of deviation
Corrective action can mean steps to address performance problems (performance fell short of standards) OR adjusting standards (maybe goals were not realistic).
Managers can choose among three possible courses of action: do nothing, correct the actual performance, or revise the standards.
One decision that a manager must make is whether to take immediate corrective action, which corrects problems at once to get performance back on track, or to use basic corrective action, which looks at how and why performance deviated before correcting the source of deviation

8. Control is about Avoiding or Performance Problems
Input
Feedforward Control
Anticipates problems
Process
Concurrent Control
Corrects problems as they happen
Output
Feedback Control
Corrections made after
The most desirable type of control—feedforward control—prevents problems since it takes place before the actual activity. For instance, when McDonald’s opened its first restaurant in Moscow, it sent company quality control experts to help Russian farmers learn techniques for growing high-quality potatoes and to help bakers learn processes for baking high-quality breads.
Concurrent control, as its name implies, takes place while a work activity is in progress. For instance, the director of business product
management at Google and his team keep a watchful eye on one of Google’s most profitable businesses—online ads

9. What are Contemporary Control Issues?
Employee Theft
Any unauthorized taking of company property by employees for their personal use
Workplace Violence
According to the U.S. National Institute of Occupational Safety and Health, 2 million American workers per year are victims of some type of workplace violence
Would you be surprised to find that up to 85 percent of all organizational theft and fraud is committed by employees, not outsiders? And, it’s a costly problem—estimated to be around $4,500 per worker per year
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10. What is The Balanced Scorecard?
A performance measurement tool that incorporates all performance areas a company wants to track and control.
The balanced scorecard approach is a way to evaluate organizational performance from more than just the financial perspective. A balanced scorecard typically looks at four areas that contribute to a company’s performance: financial, customer, internal processes, and people/
innovation/growth assets
Relies on developing strong metrics, financial and non-financial.
These are often tracked on what is called a “dashboard”.
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11. The Balanced Scorecard and Its Components

12. Tracking Financial Performance
A critical form of control is tracking financial performance against financial goals.
Traditional financial measures managers might use include
ratio analysis
budget analysis
Managers collect and analyze performance and compare it against standards, which are benchmarks based on prior periods (e.g., last year) and to external benchmarks (e.g., competitors)
Every business wants to earn a profit. To achieve this goal, managers need financial controls. For instance, they might
analyze quarterly income statements for excessive expenses. They might calculate financial ratios to ensure that sufficient cash is available to pay ongoing expenses, that debt levels haven’t become too high, or that assets are being used productively
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13. Financial Ratios by Type
Liquidity ratios
measure an organization’s ability to meet its current debt obligations
Leverage ratios
examine the organization’s use of debt to finance its assets and whether it’s able to meet the interest payments on the debt
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14. Financial Ratios (cont.)
Activity ratios
assess how efficiently a company is using its assets.
Profitability ratios
measure how efficiently and effectively the company is using its assets to generate profit
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Exhibit 13-6 summarizes some of the most popular financial ratios that managers will analyze
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