CH 06 Ed 6

Exploring Management
John Schermerhorn, Jr. and Daniel Bachrach

Sixth Edition
Chapter 6
Controls and Control Systems

“Self-awareness is crucial . . .
but when it comes to
understanding how others see
us, many of us are in the dark . .
leads to bad decisions and
spoiled relationships.”
Copyright © 2018 John Wiley & Sons, Inc. 2

Your Chapter 6 Takeaways
• How and why do managers use the control
process? (6.1)
• What types of controls are used by
managers? (6.2)
• What are some useful organizational control
tools and techniques? (6.3)

HOW AND WHY MANAGERS USE THE CONTROL PROCESS 6.1
Takeaway 6.1 – answers to come

• Controlling is one of the four management
functions.
• Step 1 - Control begins with objectives and
standards.
• Step 2 - Control measures actual performance.
• Step 3 - Control compares results with objectives
and standards.
• Step 4 - Control takes corrective action as
needed.

Control as a Management Function

• Controlling is the process of measuring
performance and taking action to ensure desired
results.
Figure 6.1 Why Is Controlling So

Important in the Management Process?

Control Process
Step 1:
Control begins with
objectives and standards.
– Output standards measure
results in terms of
quantity, quality, cost, or
time.
– Input standards measure
the work efforts that go
into the performance task.
Figure 6.2 What Are the Four
Steps in the Control Process?

Control Process
Step 2:
Control measures actual
performance.
– Agreed-upon standards
– Accurate and timely
measurement


Control Process
Step 3:
Control compares results
with objectives and
standards
Desired Performance
- Actual Performance
Need for action


Control Process
Step 4:
Control takes corrective
action as needed.
–Management by
exception is the
practice of giving
attention to situations
that show the
greatest need.

Study Guide for Takeaway 6.1

Rapid Review:
• Controlling is the process of measuring performance and taking corrective action
as needed.
• The control process begins when performance objectives and standards are set;
both input standards for work efforts and output standards for work results can
be used.
• The second step in control is to measure actual performance in the control
process.
• The third step compares results with objectives and standards to determine the
need for corrective action.
• The final step in the control process involves taking action to resolve problems
and improve things in the future.
• The control equation states:
Need for Action = Desired Performance - Actual Performance.
• Management by exception focuses attention on the greatest need for action.


Questions for Discussion:
1. What performance standards should guide a
hospital emergency room or fire department?
2. Can one control performance equally well with
input standards and output standards?
3. What are the possible downsides to
management by exception?

Be Sure You Can…for Takeaway 6.1

• explain the role of controlling in the management
process
• list the steps in the control process
• explain how planning and controlling should
work together in management
• differentiate output standards and input
standards
• state the control equation
• explain management by exception

TYPES OF CONTROLS USED BY MANAGERS 6.2

• Managers use feedforward, concurrent, and
feedback controls.
• Managers use both internal and external controls.
• Management by objectives is a way of integrating
planning and controlling.

Types of Controls
• Organizations are open systems that interact with
environment with input, throughput, and output
controls
Figure 6.2 What Are the Differences Between Feedforward,

Concurrent, and Feedback Controls?

Internal and External Controls

• Internal Control
• Motivated employees exercise self-
control in their work.
• Participation in planning work and
having a sense of purpose facilitate
motivation.

Internal and External Controls

External Control
• Bureaucratic Control
• Involves policies, procedures, budgets and
supervision to influence behavior
• Clan Control
• Uses the organization’s culture to influence
behavior
• Market Control
• Influence that market competition has on
organizational decisions such as price, product
modification, and expansions.
Objectives
Management By Objectives (MBO)
• Superior and subordinate jointly plan objectives
Figure 6.4 How Does Managing by Objectives

Help To Integrate Planning and Controlling?

Objectives
• Types of objectives
• Improvement objectives state goals for
improvement in measurable terms.
• “increase sales by 6%”
• Personal development objectives focus on
personal growth.
• “learn a second language”

Objectives
How to Write a Good Performance Objective
Clarify the target—be specific; clearly describe the key result to be
accomplished.
Make it measurable—state how the key result will be measured and

documented.
Define the timetable—identify a date by which the key result will be
accomplished.
Avoid the impossible—be realistic; don’t promise what cannot be accomplished.
Add challenge—be optimistic; build in “stretch” to make the accomplishment
significant.
Don’t overcomplicate—stick to the essentials; write to fit a Post-it note reminder.


Rapid Review:
• Feedforward controls try to make sure things are set up
right before work begins; concurrent controls make sure
that things are being done correctly; feedback controls
assess results after an action is completed.
• Internal control is self-control that occurs as people take
personal responsibility for their work.
• External control is accomplished by use of bureaucratic,
clan, and market control systems.
• Management by objectives is a process through which
team leaders work with team members to “jointly” set
performance objectives and “jointly” review performance
results.

TYPES OF CONTROLS USED BY MANAGERS

1. How does bureaucratic control differ from clan
control?
2. What is Douglas McGregor’s main point
regarding internal control?
3. Can MBO work when there are problems in the
relationship between a team leader and a team
member?


• illustrate the use of feedforward, concurrent, and
feedback controls
• explain the nature of internal control or self-
control
• differentiate among bureaucratic, clan, and
market controls
• list the steps in the MBO process as it might
operate between a team leader and a team
member

CONTROL TOOLS AND TECHNIQUES 6.3

• Quality control is a foundation of modern management.
• Gantt charts and CPM/PERT improve project management
and control.
• Inventory controls help save costs.
• Breakeven analysis shows where revenues will equal
costs.
• Financial ratios measure key areas of financial
performance.
• Balanced scorecards help top managers exercise strategic
control.

Quality Control
• Quality Control is increasingly
important for global
competition
– Total Quality Management
• Commitment to quality
• Striving for zero defects
– Continuous Improvement
• Always searching for new
ways to improve work
quality and performance
• Six Sigma Control Charts are used to
• No more than 3.4 defects per spot trends and exceptions to
million units of goods quality standards

Charts for Project Management

Project Management
• Responsibility for overall
planning and control of
projects
Project Management Tools Gantt Chart
• Gantt Charts
• CPM/PERT Charts
• Critical Path
CPM/Pert Chart

Inventory Control
• Inventory controls reduce
inventory costs
• Economic order quantity
• Pre-determined amount
of inventory is ordered
when current inventory
reaches a certain level
• Just-in-time scheduling
• Inventory arrives exactly
when needed for The economic order quantity
form of inventory control
production or sale
Breakeven Analysis
• Breakeven Point
• is the point at which revenues equal costs.
• Breakeven Analysis
• calculates the point at which sales revenues cover
costs.
How to Calculate a Breakeven Point

Breakeven Point = Fixed Costs / (Price - Variable
Costs)

Breakeven Analysis
FIGURE 6.5 How Do Managers Use Breakeven Analysis

To Make Informed What-If Decisions?

Balance Sheet / Income Statement

Major
.
Financial Ratios
Liquidity—measures ability to meet Asset Management—measures asset
and inventory efficiency.
short-term obligations
• Asset Turnover = Sales/Total Assets
• Current Ratio =Current Assets/Current
• Inventory Turnover = Sales/Average
Liabilities Inventory
• Quick Ratio =Current Assets- • Higher is better: You want more sales
Inventory/Current Liabilities and fewer assets or lower inventory.
• Higher is better: You want more
Profitability
assets and fewer liabilities.
• Net Margin = Net Profit after
Leverage—measures use of debt. Taxes/Sales
• Debt Ratio = Total Debts/Total Assets • Return on Assets (RAO) = Net Profit
after Taxes/Total Assets
• Lower is better: You want fewer debts
• Return on Equity (ROE) = Net
and more assets. Income/Owner’s Equity
• Higher is better: You want as much
profit as possible for sales, assets, &
equity

Balanced Scorecard
Balanced Scorecards start with the organizational
mission and vision to build goals and performance
measures for:
• financial performance
• customer satisfaction
• internal process improvement
• innovation and learning


Rapid Review:
• Total quality management tries to meet customers’ needs and do things right
on time, the first time, and all the time.
• Organizations use control charts and statistical techniques such as the Six
Sigma system to measure the quality of work samples for quality control
purposes.
• Economic order quantities and just-in-time deliveries are common approaches
to inventory cost control.
• The breakeven equation is: Breakeven Point = Fixed Costs ÷ (Price - Variable
Costs).
• Breakeven analysis identifies the points where revenues will equal costs under
different pricing and cost conditions.
• Financial control of business performance is facilitated by use of financial
ratios, such as those dealing with liquidity, leverage, assets, and profitability.
• The balanced scorecard measures overall organizational performance in
respect to four areas: financial, customers, internal processes, innovation.


1. Can a firm such as Wal-Mart ever go too far in
controlling its inventory costs?
2. Is the concept of total quality management out
of date?
3. Does the “balanced scorecard” as described in
this chapter measure the right things?


• explain the role of continuous improvement in TQM
• explain how Gantt charts and CPM/PERT helps
organizations with project management
• explain two common approaches to inventory cost
control
• state the equation to calculate a breakeven point and
its use in explaining breakeven analysis
• state the common financial ratios used in
organizational control
• identify the balanced scorecard components and
control questions
Copyright
Copyright © 2018 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.

CH 06 Ed 6

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 06 Ed 6

Uploaded by

Copyright:

Available Formats

Exploring Management

John Schermerhorn, Jr. and Daniel Bachrach

Controls and Control Systems

Copyright © 2018 John Wiley & Sons, Inc. 2

Copyright © 2018 John Wiley & Sons, Inc. 3

Takeaway 6.1 – answers to come

Copyright © 2018 John Wiley & Sons, Inc. 4

Control as a Management Function

Figure 6.1 Why Is Controlling So

Copyright © 2018 John Wiley & Sons, Inc. 5

Copyright © 2018 John Wiley & Sons, Inc. 6

Figure 6.2 What Are the Four

Copyright © 2018 John Wiley & Sons, Inc. 7

Figure 6.2 What Are the Four

Copyright © 2018 John Wiley & Sons, Inc. 8

Copyright © 2018 John Wiley & Sons, Inc. 9

Study Guide for Takeaway 6.1

Copyright © 2018 John Wiley & Sons, Inc. 10

Study Guide for Takeaway 6.1

Copyright © 2018 John Wiley & Sons, Inc. 11

Be Sure You Can…for Takeaway 6.1

Copyright © 2018 John Wiley & Sons, Inc. 12

Takeaway 6.2 – answers to come

Copyright © 2018 John Wiley & Sons, Inc. 13

Figure 6.2 What Are the Differences Between Feedforward,

Copyright © 2018 John Wiley & Sons, Inc. 14

Internal and External Controls

Copyright © 2018 John Wiley & Sons, Inc. 15

Internal and External Controls

Figure 6.4 How Does Managing by Objectives

Copyright © 2018 John Wiley & Sons, Inc. 17

Copyright © 2018 John Wiley & Sons, Inc. 18

Make it measurable—state how the key result will be measured and

Copyright © 2018 John Wiley & Sons, Inc. 19

Study Guide for Takeaway 6.2

Copyright © 2018 John Wiley & Sons, Inc. 20

Study Guide for Takeaway 6.2

Copyright © 2018 John Wiley & Sons, Inc. 21

Be Sure You Can…for Takeaway 6.2

Copyright © 2018 John Wiley & Sons, Inc. 22

Takeaway 6.3 – answers to come

Copyright © 2018 John Wiley & Sons, Inc. 23

Copyright © 2018 John Wiley & Sons, Inc. 24

Charts for Project Management

Copyright © 2018 John Wiley & Sons, Inc. 25

How to Calculate a Breakeven Point

Copyright © 2018 John Wiley & Sons, Inc. 27

FIGURE 6.5 How Do Managers Use Breakeven Analysis

Copyright © 2018 John Wiley & Sons, Inc. 28

Balance Sheet / Income Statement

Copyright © 2018 John Wiley & Sons, Inc. 29

Copyright © 2018 John Wiley & Sons, Inc. 30

Copyright © 2018 John Wiley & Sons, Inc. 31

Study Guide for Takeaway 6.3

Copyright © 2018 John Wiley & Sons, Inc. 32

Study Guide for Takeaway 6.3

Copyright © 2018 John Wiley & Sons, Inc. 33

Be Sure You Can…for Takeaway 6.3

Copyright © 2018 John Wiley & Sons, Inc. 35

You might also like