1. PowerPoint Presentation by Charlie Cook Controlling Gary Dessler Principles and Practices for Tomorrow’s Leaders Copyright © 2004 Prentice Hall, Inc. All rights reserved. Controlling and Building Commitment Controlling and Building Commitment 14 C H A P T E R

2. Copyright © 2004 Prentice Hall. All rights reserved.14–2 Chapter Objectives After studying this chapter and the case exercises at the end, you should be able to: 1.Rate the adequacy of the manager’s control system. 2.Recommend specific feedforward, concurrent, and feedback controls that the manager can use to control the activity. 3.Write a simple budget for the manager. 4.Specify a specific strategic ratio the manager should have employees focus on. 5.List five measures the manager can use to build a balanced scorecard.

3. Copyright © 2004 Prentice Hall. All rights reserved.14–3 The Fundamentals Of An Effective Control System Control  The task of ensuring that planned activities are getting the desired results.  All control systems try to influence behavior.  Controlling involves setting a target (planning), measuring performance (evaluation), and taking corrective action.  Control also applies to monitoring every task—large and small—that is delegated.

4. Copyright © 2004 Prentice Hall. All rights reserved.14–4 Management and the Control Process FIGURE 14–1 Source: © Gary Dessler, PH.D

5. Copyright © 2004 Prentice Hall. All rights reserved.14–5 Types of Process Controls Steering Control  A control that predicts results and takes corrective action before the operation or project is completed. Concurrent or Yes/No Control  A control system in which the manager exercises control as the activity takes place, and the work may not proceed until or unless it is acceptable. Feedback or Post-Action Control  Any control tool in which the project or operation being controlled is completed first, and then results are measured and compared to the standard.

6. Copyright © 2004 Prentice Hall. All rights reserved.14–6 How Effective Is Your Control System? FIGURE 14–2

7. Copyright © 2004 Prentice Hall. All rights reserved.14–7 Checklist 14.1 Requirements for Adequate Controls  Controls should reflect the nature and needs of the activity.  Controls should report deviations promptly.  Controls should be forward-looking.  Controls should point up exceptions at strategic points.  Controls should be objective.  Controls should be flexible.  Controls should reflect the organization structure.  Controls should be economical.  Controls should be understandable.  Controls should indicate corrective action.

8. Copyright © 2004 Prentice Hall. All rights reserved.14–8 FIGURE 14–3 Examples of Control Standards

9. Copyright © 2004 Prentice Hall. All rights reserved.14–9 Approaches To Maintaining Control The Traditional Control Process  Step 1:Set a standard, target, or goal.  Step 2:Measure actual performance against standards (observation and timing).  Step 3: Take corrective action. The Commitment-Based Control Process  Encouraging all employees to exercise ethical self- control (as they initiate process improvements and new ways of responding to customers’ needs.

10. Copyright © 2004 Prentice Hall. All rights reserved.14–10 Types of Traditional Control Systems Diagnostic controls  A control method, such as a budget, that ensures that standards are being met and that variances are diagnosed and explained. Boundary Controls  Policies, such as codes of conduct, that establish rules and identify the actions and pitfalls that employees must avoid.

11. Copyright © 2004 Prentice Hall. All rights reserved.14–11 Types of Traditional Control Systems (cont’d) Personal/Interactive Controls  Control methods that involve direct, face-to-face interaction with employees so as to monitor rapidly changing information and respond proactively to changing conditions.

12. Copyright © 2004 Prentice Hall. All rights reserved.14–12 FIGURE 14–4 Two Basic Categories of Control Systems

13. Copyright © 2004 Prentice Hall. All rights reserved.14–13 Diagnostic Controls and Budgetary Systems Principle of Exception (Management by Exception)  Employees should be left to pursue the standards set by management, and only significant deviations from the standard should be brought to a manager’s attention.

14. Copyright © 2004 Prentice Hall. All rights reserved.14–14 The Basic Management Control System Budget  Formal financial expression of a manager’s plans. Sales Budget  A planning document that shows the estimated number of units to be sold in each period (usually per month) or the expected sales activity to be achieved and the sales revenue expected from the sales. Operating Budget  Shows the expected sales and/or expenses for each of the company’s departments for the planning period in question.

15. Copyright © 2004 Prentice Hall. All rights reserved.14–15 Pro Forma Profit Planning Income Statement  Shows expected sales, expected expenses, and expected income or profit for the year. Cash Budget  Shows, for each month, the amount of cash the company can expect to receive and the amount it can expect to disperse. Balance Sheet  A projected statement of the financial position of the firm.

16. Copyright © 2004 Prentice Hall. All rights reserved.14–16 FIGURE 14–5 Example of a Budget

17. Copyright © 2004 Prentice Hall. All rights reserved.14–17 Performance Reporting Variances  Differences between budgeted and actual amounts. Audit  A systematic process of objectively obtaining and evaluating evidence of the firm’s performance, judging the accuracy and validity of the data, and communicating the results to interested users. Financial Ratio  An arithmetic comparison of one financial measure to another, generally used to monitor and control financial performance.

18. Copyright © 2004 Prentice Hall. All rights reserved.14–18 FIGURE 14–6 Example of a Performance Report

19. Copyright © 2004 Prentice Hall. All rights reserved.14–19 FIGURE 14–7a Widely Used Financial Ratios

20. Copyright © 2004 Prentice Hall. All rights reserved.14–20 FIGURE 14–7b Widely Used Financial Ratios (cont’d)

21. Copyright © 2004 Prentice Hall. All rights reserved.14–21 FIGURE 14–7c Widely Used Financial Ratios (cont’d)

22. Copyright © 2004 Prentice Hall. All rights reserved.14–22 FIGURE 14–7d Widely Used Financial Ratios (cont’d)

23. Copyright © 2004 Prentice Hall. All rights reserved.14–23 FIGURE 14–8 Ratio Analysis: Factors Affecting Return on Investment

24. Copyright © 2004 Prentice Hall. All rights reserved.14–24 Financial Responsibility Centers  Individuals or groups who are assigned the responsibility for a particular set of financial outputs and/or inputs. Profit centers  Responsibility centers whose managers are held accountable for profit. Revenue centers  Responsibility centers whose managers are held accountable for generating revenues, which is a financial measure of output.

25. Copyright © 2004 Prentice Hall. All rights reserved.14–25 Other Diagnostic Financial and Managerial Controls Activity-Based Costing (ABC)  A method for allocating costs to products and services that takes all the product’s cost drivers into account when calculating the actual cost of each product or service.

26. Copyright © 2004 Prentice Hall. All rights reserved.14–26 Other Diagnostic Financial and Managerial Controls (cont’d) Balanced Scorecard  A management tool, usually a computerized model, that traces a multitude of performance measures simultaneously and shows their interactions. Enterprise Resource Planning System  A companywide integrated computer system that gives managers real-time, instantaneous information regarding the costs and status of every activity and project in the business.

27. Copyright © 2004 Prentice Hall. All rights reserved.14–27 Boundary Control Systems  Define the ethical rules for proper conduct in the organization and specify which actions and pitfalls that employees must avoid.  Include ethics standards, codes of conduct, and strategic policies. Steps in establishing boundary controls:  Emphasize top management’s commitment.  Publish a code.  Establish compliance mechanisms.  Measure results.

28. Copyright © 2004 Prentice Hall. All rights reserved.14–28 FIGURE 14–9 Johnson & Johnson’s Corporate Credo Source: Source: Courtesy of Johnson & Johnson.

29. Copyright © 2004 Prentice Hall. All rights reserved.14–29 Personal/Interactive Control Systems Interactive Control  Maintaining control by personally monitoring how everyone is doing is interactive control. Electronic Performance Monitoring (EPM)  Monitoring the work activities of employees through electronic means.

30. Copyright © 2004 Prentice Hall. All rights reserved.14–30 ControlsControls Behavioral Consequences of Controls Negative Attitudes Behavioral Displacement Games- manship Operating Delays

31. Copyright © 2004 Prentice Hall. All rights reserved.14–31 Behavioral Consequences of Controls Behavioral Displacement  A reaction to being controlled in which the controls encourage behaviors that are inconsistent with what the company actually wants to accomplish. Gamesmanship  Management actions that try to improve the manager’s apparent performance in terms of the control system without producing any economic benefits for the company.

32. Copyright © 2004 Prentice Hall. All rights reserved.14–32 Implementing Commitment-based Control Systems Commitment- Building Systems Motivation Techniques Belief Systems Commitment- Based Control System

33. Copyright © 2004 Prentice Hall. All rights reserved.14–33 Using Commitment-Building Systems to Foster Self-Control Foster People-First Values Guarantee Organizational Justice Build a Sense of Shared Fate and Community Use Value-based Hiring Financial Rewards and Profit Sharing Communicate Your Vision Encourage Personal Development and Self- Actualization