CHAPTER 15
Essentials of
Control
Andrew J. DuBrin
Essentials of Management, 6/e
South-Western College Publishing
Copyright © 2003
Screen graphics created by:
Jana F. Kuzmicki, PhD, Christian Brothers University
After reading this chapter,
you should be able to:
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1 Explain how controlling relates to the other
management functions.
2 Understand the different types and strategies of
control.
3 Describe the steps in the control process.
4 Explain the use of non-budgetary control techniques.
5 Summarize the various types of budgets, and the use
of budgets and financial ratios for control.
6 Explain how managers and business owners manage
cash flow and control costs, and use non-traditional
measures of financial performance.
7 Outline the basics of an information system.
8 Specify several characteristics of effective controls.
15.1
The Links Between Controlling and
the Other Management Functions
Planning
Organizing
Leading
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15.2
Controlling
Control
Adapted from Exhibit 15.1
Steps in the Control Process
Measure
Actual
Performance
Set
Standards
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15.3
Compare
Actual
Performance
to Standard
Do Nothing
Solve the
Problem
Take Corrective
Action if
Necessary
Revise the
Standard
Adapted from Exhibit 15.3
Qualitative Control Techniques
Technique
Audit
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15.4
Definition
Examination of activities or records to verify their
accuracy or effectiveness
External
audit
Verification of financial records by external agency or
individual
Internal
audit
Verification of financial records by an internal group of
personnel
Management Use of auditing techniques to evaluate the overall
effectiveness of management
audit
Personal
observation
Manager’s first-hand observation of how well plans are
carried out
Performance
appraisal
Formal method or system of measuring, evaluating, and
reviewing employee performance
Policy
General guideline to follow in making decisions and
taking action
Adapted from Exhibit 15.5
Quantitative Control Techniques
Technique
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15.5
Definition
Gantt chart
Chart depicting planned and actual progress of work on
a project
CPM/PERT
Method of scheduling activities and events using time
estimates
Break-even
analysis
Ratio of fixed costs to price minus variable costs
EconomicInventory level that minimizes ordering and carrying
order quantity costs
ABC analysis
Method of assigning value to inventory; A items are
worth more than B or C items
Variance
analysis
Major control device in manufacturing
Adapted from Exhibit 15.6
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Master
budget
Capitalexpenditure
budget
Human
resources
budget
Materials
purchase
budget
Types of
Budgets
15.6
Cash budget
Revenueand-expense
budget
Production
budget
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15.7
Basic Elements of an Information System
Analyze
Information
Requirements
Develop an
Information
Base
Design an
Information
Processing
System
Build
Controls into
the System
Adapted from Exhibit 15.11
Characteristics of Effective Controls
An effective control system is one that is:
Accepted by employees, allowing them to have some
control over the results being measured
Relevant, timely, and meaningful
Diagnostic by design
Self-administering
Consistent with other controls already in place
Flexible, allowing for random variations
Cost effective
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15.8