1. Controlling PRIMAN

2. What is Control? The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations An effective control system ensures that activities are completed in ways that lead to the attainment of the organization’s goals

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. Management and the Control Process

5. Types of Control

6. Steps in the Control Process Measuring actual performance – Personal observation, statistical reports, oral reports, and written reports – Management by walking around (MBWA) Comparing actual performance against a standard – Comparison to objective measures: budgets, standards, goals

7. Steps in the Control Process (cont’d) Taking managerial action to correct deviations or inadequate standards – Immediate corrective action Correcting a problem at once to get performance back on track – Basic corrective action Determining how and why performance has deviated and then correcting the source of deviation – Revising the standard Adjusting the performance standard to reflect current and predicted future performance capabilities

8. The Control Process

9. Qualities of an Effective Control System AccuracyTimeliness EconomyFlexibility UnderstandabilityReasonable criteria Strategic placement Emphasis on the exception Multiple criteriaCorrective action

10. 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.

11. Two Basic Categories of Control Systems

12. Examples of Control Standards

13. The Basic Management Control System Budget – Formal financial expression of a manager’s plans. Capital Budget – Shows the expenses for equipment with a life longer than one year. Operating Budget – Shows the expected sales and/or expenses for each of the company’s departments for the planning period in question.

14. 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.

15. 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. Cost centers – Groups which are supported through internal taxes on other groups; overhead functions.

16. 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.

17. Balanced Scorecard

18. Controls and Cultural Differences Methods of controlling employee behavior and operations can be quite different in different countries Distance creates a tendency for formalized controls in the form of extensive, formal reports In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control Local laws may constrain the corrective actions that managers can take in foreign countries

19. The Dysfunctional Side of Control Unfocused controls – Failure to achieve desired or intended results occur when control measures lack specificity Incomplete control measures – Individuals or organizational units attempt to look good exclusively on control measures Inflexible or unreasonable control standards – Controls and organizational goals will be ignored or manipulated