Chapter 16 ©2001 South-Western College Publishing Pamela S. Lewis Stephen H. Goodman Patricia M....

Chapter 16Chapter 16

©2001 South-Western College Publishing©2001 South-Western College Publishing©2001 South-Western College Publishing©2001 South-Western College Publishing

Pamela S. LewisPamela S. LewisStephen H. GoodmanStephen H. Goodman

Patricia M. FandtPatricia M. Fandt

Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer

University of Central FloridaUniversity of Central Florida

Pamela S. LewisPamela S. LewisStephen H. GoodmanStephen H. Goodman

Patricia M. FandtPatricia M. Fandt

Slides Prepared bySlides Prepared byBruce R. BarringerBruce R. Barringer

University of Central FloridaUniversity of Central Florida

Organizational Control in a Complex Business Environment

Organizational Control in a Complex Business Environment

Transparency 16-2Transparency 16-2© 2001 South-Western Publishing© 2001 South-Western Publishing

Learning ObjectivesSlide 1 of 3


1.Define and discuss the importance of organizational control.

2.Identify the sequence of steps to be undertaken in a thorough control system.

3.Identify the factors that are important considerations in the design of a control system.

4.Describe the various characteristics of effective control.




5.Identify the factors that help determine the proper amount of control.

6.Define feedforward control, concurrent control, and feedback control.

7.Describe the difference between the philosophies of bureaucratic control and organic control.




8.Describe some of the more important techniques and methods for establishing financial control.

9.Discuss some of the ethical issues related to the control of employee behavior.


Organizational Control DefinedOrganizational Control Defined

The systematic process through which managers regulate organizational activities to make them consistent with the expectations

established in plans and to help them achieve all predetermined standards of performance.


Process of Control Slide 1 of 3


• Setting Standards for Performance– Whenever possible, the standards should be set

in a manner that allows them to be compared with actual performance.

• Measuring Actual Performance– An organization must decide:

• What to measure.• When to measure.• How frequently to measure.




• Comparing Actual Performance With Standards– This step involves determining if actual

performance compared to standards falls within acceptable limits.

• Responding to Deviations– If the deviation from performance is

unacceptable, then corrective action is warranted. If the deviation is acceptable, no correction action is necessary.




Set performance

standards

Measureactual

performance

Compareperformance

withstandards

Take nocorrective

action

Takecorrective

action

If deviations are acceptable

If deviations are unacceptable


Designing Quality and Effectiveness into the Control

System

Designing Quality and Effectiveness into the Control

System

Factors to consider when designing a control system:

The amount of variety in the control system The amount of variety in the control system The amount of variety in the control system The amount of variety in the control system

The ability to anticipate problems The ability to anticipate problems The ability to anticipate problems The ability to anticipate problems

The sensitivity of the measuring device The sensitivity of the measuring device The sensitivity of the measuring device The sensitivity of the measuring device

The composition of the feedback reports The composition of the feedback reports The composition of the feedback reports The composition of the feedback reports


Design Factors Affecting Control System Quality

Slide 1 of 3


Slide 1 of 3

• The Amount of Variety in the Control System– Variety refers to the number of activities,

processes, or items that are measured and controlled.

– Law of requisite variety• Control systems must have enough variety to cope

with the variety in the systems they are trying to control.



Slide 2 of 3


Slide 2 of 3

• Ability to Anticipate Problems– If a deviation can be anticipated before it

occurs, corrective action can be instituted more quickly and the negative consequences of the deviation reduced.

• Sensitivity of the Measuring Device– Care must be taken to use a device that is

sensitive enough to adequately measure the system being controlled.



Slide 3 of 3


Slide 3 of 3

• Composition of Feedback Reports– Variance reporting

• Highlighting only those things that fail to meet the established standards.

– Management by exception• Focusing on the elements that are not

meeting the standards.


Control System Design IssuesSlide 1 of 2


Step 1: Set standardsof performance

Step 2: Measure actual

performance

Control Process Steps Design Considerations

Design factors- Variety

- Anticipation

- Sensitivity

- Feedback reporting

Effectiveness criteria- Related to strategy

- Complete

- Use objective and subjective

measures

- Timely

- Acceptable




Step 3: Compareperformance with

standards

Step 4: Respond todeviations

Control Process Steps Design Considerations

Select proper amount

- Cost

- Reliability

- Process importance

Select focal point

- Feedforward focus

- Concurrent focus

- Feedback focus

- Multiple focus


Criteria for Effective Control Slide 1 of 3


• Is Related to Organizational Strategy– A control system should measure what is

important now and what will be important in the future.

• Utilizes All Steps in the Control Process– To be effective, a control system must employ

all of the steps in the control process.




• Composed of Objective and Subjective Measures– Effective control systems typically require

managers to blend quantitative (objective) and qualitative (subjective) performance measures.

• Incorporates Timeliness in Feedback Reporting– Timeliness is the degree to which the control

system provides information when it is needed.




• Acceptable to a Diverse Work Force– To be effective, organizational controls must be

accepted by employees.– The control system should motivate workers to

recognize standards and act to achieve them.


Selecting the Proper Amount of Control Slide 1 of 3


• Costs in the Control System– Two basic categories of costs need to be

considered:• The costs associated with the information

needed to perform the control process.• The costs associated with undesirable

deviations from standards.




• Reliability of the System– Reliability refers to the probability that the

object or process being controlled will consistently behave in an acceptable manner.

– The basic premise is that the more reliable the process, the less control that is needed.




• Importance of the Process Being Controlled– The more important the object or process being

controlled, the greater the amount of control that should be exercised.


Selecting the Focal Point for Control Slide 1 of 2


• Feedforward (Preventive) Control– Focuses on detecting undesirable material,

financial, or human resources that serve as inputs to the transformation process.

• Concurrent Control– Focuses on the transformation process to ensure

that it is functioning properly.




• Feedback Control– Focuses on discovering undesirable output and

implementing corrective action.

• Multiple Focal Points– Most organizations use several control systems

focused on various phases of the transformation process.


Control Focal PointsControl Focal Points

Control system

Transformationprocess

Inputs Outputs

Feedforward control

Concurrent control

Feedback control


Managerial Control PhilosophiesManagerial Control Philosophies

Bureaucratic Control

Organic Control

Use of formal mechanisms to influence

behavior, assess performance, and correct unacceptable deviations

from standards.

Reliance upon social values, traditions, shared beliefs, flexible authority,

and trust to assess performance and correct unacceptable deviations.


Factors Favoring Bureaucratic vs. Organic Controls

Factors Favoring Bureaucratic vs. Organic Controls

Bureaucratic Control

Organic Control

Task-oriented management style

Culture favors decision making at the top

Employees that lack education and experience

Performance that can be quantified and measured

Relationship-oriented management style

Culture encourages employee participation

Highly educated, highly trained employees

Performance that is difficult to measure


Mechanisms for Financial Control Slide 1 of 3


• Financial Statements– Balance sheet

• Summary of an organization’s financial position at a given point in time, showing assets, liabilities, and owner’s equity.

– Income statement• Summary of an organization’s financial

performance over a given time interval, showing revenues, expenses, and bottom-line profit or loss.




• Financial Ratios– Liquidity ratios

• Indicators of the firm’s ability to meet its short-term debt obligations.

– Profitability ratios• Indicators of the relative effectiveness, or

profitability, of the organization.




• Financial Ratios (cont.)– Debt ratios

• Indicators of the firm’s ability to handle long-term debt.

– Activity ratios• Indicators of performance with respect to

key activities defined by management.


Ethical Issues in the Control of a Diverse Work Force

Ethical Issues in the Control of a Diverse Work Force

• Drug Testing

• Undercover Surveillance

• Computer Monitoring


Guidelines for the Successful Manager of the Future

Slide 1 of 4


Slide 1 of 4

• Develop a control system for each important product, service, process, or activity within the organization.

• Incorporate sufficient variety, sensitivity, anticipation capability, and feedback into the control system.



Slide 2 of 4


Slide 2 of 4

• Gauge the control system’s effectiveness by considering its relationship to corporate strategy, its completeness, the degree to which it incorporates objective and subjective performance measures, its timeliness, and its acceptability to individuals within the organization.



Slide 3 of 4


Slide 3 of 4

• Determine the appropriate points within the organization where control systems should be focused.

• Understand the intricacies of the financial data contained in the organization’s financial statements, and use various financial control techniques to assess the firm’s financial health.



Slide 4 of 4


Slide 4 of 4

• Adopt a philosophy of control that is consistent with the management style, corporate culture, employee professionalism, and performance measures present within the organization.

Chapter 16 ©2001 South-Western College Publishing Pamela S. Lewis Stephen H. Goodman Patricia M....

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Transcript of Chapter 16 ©2001 South-Western College Publishing Pamela S. Lewis Stephen H. Goodman Patricia M....