1. © 2010 Cengage/South-Western. All rights reserved. Chapter 14: FUNDAMENTALS OF CONTROLLING Leonard: Supervision 11e

2. © 2010 Cengage/South-Western. All rights reserved. 14–2 AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE TO: 1.Describe the nature and importance of the managerial controlling function. 2.Identify three types of control mechanisms based on time. 3.Explain the essential characteristics of effective controls. 4.Describe the essential steps in the control process. 5.Discuss the supervisor’s role in controlling through budgets.

3. © 2010 Cengage/South-Western. All rights reserved. 14–3 AFTER STUDYING THIS CHAPTER, YOU WILL BE ABLE TO: (cont’d) 6.Discuss the supervisor’s role in maintaining cost consciousness and in responding to higher-level managers’ orders to reduce costs. 7.Identify additional control areas and explain how the controlling function is closely related to the other managerial functions.

4. © 2010 Cengage/South-Western. All rights reserved. 14–4 The Supervisor’s Role in Controlling ControllingControlling  Is ensuring that actual performance is in line with intended performance and taking corrective action, if necessary.  Is essential whenever a supervisor assigns duties to employees because the supervisor remains responsible for assigned work.  Is part of the supervisor’s job to keep activities in line and, when necessary, to get those activities back on track.

5. © 2010 Cengage/South-Western. All rights reserved. 14–5 The Supervisor’s Role in Controlling (cont’d) Nature of the Controlling FunctionNature of the Controlling Function  One of the five primary managerial functions.  Most closely related to planning.  Goes on simultaneously with the other managerial functions.

6. © 2010 Cengage/South-Western. All rights reserved. 14–6 The Supervisor’s Role in Controlling (cont’d) Employee Responses to ControlsEmployee Responses to Controls  Controls are viewed negatively because the amount of control may determine how much freedom employees have to do their jobs.  Well designed and properly implemented controls can positively influence employee motivation and behavior.  Supervisors should design and apply control systems that will effectively monitor department performance and be accepted by employees without resentment.

7. © 2010 Cengage/South-Western. All rights reserved. 14–7 The Supervisor’s Role in Controlling (cont’d) Controlling Should Be Forward LookingControlling Should Be Forward Looking  A supervisor can do nothing about the past.  The main purpose of controlling is not to assign blame for mistakes but rather to identify deviations from standards and take prompt corrective action. Controlling Should Be Consistent With StrategyControlling Should Be Consistent With Strategy  Establishing feedback controls and monitoring progress enables an organization to know if, how, and when it has achieved its strategic goals and objectives.

8. © 2010 Cengage/South-Western. All rights reserved. 14–8 The Supervisor’s Role in Controlling (cont’d) Controlling and Closeness of SupervisionControlling and Closeness of Supervision  How closely supervisors should monitor an employee’s work is based on an employee’s experience, initiative, dependability, and resourcefulness.  Permitting an employee to work without close supervision is both a challenge and a test of a supervisor’s ability to delegate.  By familiarizing themselves with employees’ abilities, supervisors can learn how much leeway to give and how closely to follow up and control.

9. © 2010 Cengage/South-Western. All rights reserved. 14–9 Time Factor Control Mechanisms Feedforward ControlFeedforward Control  Anticipatory action (preventive measures) taken to ensure that problems do not occur. Concurrent ControlConcurrent Control  Corrective action taken during the production or delivery process to ensure that standards are being met. Feedback (After-the-Process) ControlFeedback (After-the-Process) Control  Action taken after the activity, product, or service has been completed.

10. © 2010 Cengage/South-Western. All rights reserved. 14–10 Characteristics of Effective Controls Effective Controls UnderstandableTimely Suitable and Economical IndicativeFlexible

11. © 2010 Cengage/South-Western. All rights reserved. 14–11 Steps in the Control Process: Setting Standards StandardsStandards  Units of measure or criteria against which results are evaluated. Tangible StandardsTangible Standards  Standards for performance that are identifiable and measurable (e.g., quantity and quality of outputs). Intangible StandardsIntangible Standards  Standards for performance results that are difficult to measure and often relate to human characteristics (e.g., attitude, morale).

12. © 2010 Cengage/South-Western. All rights reserved. 14–12 Steps in the Control Process: Time and Motion Studies Motion StudyMotion Study  Is an analysis of work activities to identify ways (i.e., best methods) to improve, eliminate, change, or combine steps to make the job easier and faster. Time StudyTime Study  Is a quantitative technique for analyzing a job to determine time standards for performing the job.  Select employees for observation  Observe the times needed to accomplish parts of the job  Apply correction factors, and make allowances for fatigue, personal needs, and unavoidable delays

13. © 2010 Cengage/South-Western. All rights reserved. 14–13 Steps in the Control Process: Setting Standards (cont’d) Employee ParticipationEmployee Participation  Workers tend to accept standards as reasonable and fair when they help formulate those standards.  Workers resent imposed standards that appear designed solely to increase worker output.

14. © 2010 Cengage/South-Western. All rights reserved. 14–14 Steps in the Control Process: Setting Standards (cont’d) Strategic Control Points (Strategic Standards)Strategic Control Points (Strategic Standards)  Supervisors should choose performance criteria for assessment that are key indicators of overall performance.  A supervisor should be careful to choose strategic control points that do not significantly impede other important standards.  By closely watching trends and changes in these indicators, the supervisor should be able to spot problems requiring corrective action.

15. © 2010 Cengage/South-Western. All rights reserved. 14–15 Steps in the Control Process: Setting Standards (cont’d) Examples of Strategic Control Points:Examples of Strategic Control Points:  Number of employees’ voluntary resignations and requests for transfer  Levels of absenteeism, tardiness, and turnover  Accident frequency and severity rates  Number and types of employee grievances and complaints  Number and types of customer complaints  Amount of scrap and rejects and unexplained losses of materials and inventory

16. © 2010 Cengage/South-Western. All rights reserved. 14–16 Checking Performance against Standards Personal Observation Oral and Written Reports Spot Checks Sampling Techniques

17. © 2010 Cengage/South-Western. All rights reserved. 14–17 Checking Performance against Standards (cont’d) Exception PrincipleException Principle  Concept that supervisors should concentrate their investigations on activities that deviate substantially from standards. SamplingSampling  The technique of evaluating some number of items from a larger group to determine whether the group meets acceptable quality standards.  Statistical quality control (SQC): a method to determine not only which items or services to inspect but also how many to inspect.

18. © 2010 Cengage/South-Western. All rights reserved. 14–18 Taking Corrective Action Deviations from standards occur because:Deviations from standards occur because:  Standards were based on faulty forecasts or assumptions  Unforeseen problems arose and distorted results  Failure occurred in some preceding job or activity  The employee who performed the job was unqualified or was given inadequate directions or instructions  The employee who performed the job was negligent or failed to follow directions or procedures

19. © 2010 Cengage/South-Western. All rights reserved. 14–19 Taking Corrective Action (cont’d) Before taking corrective action, the supervisor should:Before taking corrective action, the supervisor should:  Determine the causes of the deviation by analyzing the situation:  Standards?  Employees?  Decide which remedial actions will obtain better results.

20. © 2010 Cengage/South-Western. All rights reserved. 14–20 Budgetary Controls BudgetBudget  A financial plan that projects expected revenues and expenditures during a set period. Budgetary ControlBudgetary Control  The use of budgets by supervisors, accountants, and higher-level managers to control operations so that they comply with organizational standards for making budgets. Operating BudgetOperating Budget  The assignment of dollar allocations to the costs and expenses needed to run the business, based on expected revenues.

21. © 2010 Cengage/South-Western. All rights reserved. 14–21 Budgetary Controls (cont’d) Supervisory Participation in Budget MakingSupervisory Participation in Budget Making  Incremental budgeting  A technique for projecting revenues and expenses based on history.  Zero-base budgeting  The process of assessing, on a benefit-and-cost basis, all activities to justify their existence.  Departmental expense budget  A budget that covers the expenditures incurred by the department.

22. © 2010 Cengage/South-Western. All rights reserved. 14–22 Budgetary Controls (cont’d) Supervising within the BudgetSupervising within the Budget  Supervisors must manage their departments within budget limits and refer to their budgets to monitor their expenditures during the operating period.  If the expenditures for an item greatly exceed the item’s budgeted amount, the supervisor must find out what happened.  A supervisor’s budget should not be so detailed and rigidly applied that it becomes a burden.

23. © 2010 Cengage/South-Western. All rights reserved. 14–23 Cost Control and the Supervisor Responding to a Cost- Cutting Order Sharing Information and Responsibility with Employees Maintaining Cost Awareness Controlling Costs

24. © 2010 Cengage/South-Western. All rights reserved. 14–24 Other Control Areas: Specialized Controls Inventory ControlInventory Control  Is keeping watch over raw materials, supplies, work- in-process, finished goods, and the like.  Is maintaining sufficient, though not excessive, inventory; keeping status records of all inventory; ordering economic lot sizes; and many other tasks. Quality ControlQuality Control  Is maintaining the quality standards a firm sets for its products or services by monitoring and continual improvement to ensure that quality is maintained.

25. © 2010 Cengage/South-Western. All rights reserved. 14–25 Other Control Areas: Specialized Controls (cont’d) Production ControlProduction Control  Consists of a number of activities that are designed to keep overall operations on schedule.  Involves routing operations, scheduling, and, when necessary, expediting work flow.  Gantt charts –A diagram or pictorial representation of the progress and status of various jobs in production.  Computerized network analyses –Program evaluation review technique (PERT) –Critical path method (CPM)

26. © 2010 Cengage/South-Western. All rights reserved. 14–26 Controlling and the Other Managerial Functions Leading Planning Organizing Staffing Controlling

27. © 2010 Cengage/South-Western. All rights reserved. 14–27 KEY TERMS BudgetBudget Concurrent controlConcurrent control ControllingControlling Exception principleException principle Feedback controlFeedback control Feedforward controlFeedforward control Incremental budgetingIncremental budgeting Intangible standardsIntangible standards Managerial controllingManagerial controlling Motion studyMotion study Operating budgetOperating budget SamplingSampling StandardsStandards Strategic control points (strategic standards )Strategic control points (strategic standards ) Tangible standardsTangible standards Time studyTime study Zero-base budgetingZero-base budgeting