Principles of Management
Topic 10
CONTROL: WHEN
MANAGERS MONITOR
PERFORMANCE
MSc. Giang Nguyen
Learning Programme
Topic
Session topic
Indicative reading (core text)
1
Topic 1. An introduction to management concepts and theories
Ch1 & 2
2
Topic 2. Organization and environment
Ch3, Ch4 & Ch8
3
Topic 3. Planning
Ch5 & Ch6
4
Topic 4. Decision making
Ch7
5
Topic 5. Organizational Structure and design
Ch8
6
Ch9
7
Topic 6. Human Resource Management
Topic 7. Motivating employees
8
9
10
Topic 8. Power, Influence and Leadership
Topic 9. Organizational communication
Topic 10. Controlling
Ch14
Ch15
Ch16
Ch12
2
Core text: Kinicki, Angelo & Williams, Brian K. (2013). Management, a practical introduction. (6th Ed.). McGraw-Hill
1
LEARNING OUTCOMES
▰To understand the foundation of control, the control process, levels
and areas of control
▰To recognise different controlling tools and techniques i.e balance
scorecard, TQM etc
3
CONTENTS
1
The nature of control
2
Levels and areas of control
3
The balanced scorecard
4
Strategy map
5
Measurement management
4
2
1. THE NATURE OF CONTROL
What is Control?
Controlling is monitoring performance, comparing it with goals, and
taking corrective action as needed.
5
1. THE NATURE OF CONTROL
What is Control?
6
3
1. THE NATURE OF CONTROL
Why Control?
▰To adapt to change and uncertainty
▰To discover irregularities and errors
▰To reduce costs, increase productivity or add value
▰To detect opportunities
▰To deal with complexity
▰To de-centralize decision making and facilitate teamwork
7
1. THE NATURE OF CONTROL
The Control Process
“What is the
desired outcome
we want?”
Establish
standards
“What is the
actual outcome
we got?”
Measure
performance
“How do the
desired and
actual outcomes
differ?”
Compare
performance
to standards
“What changes
should we make
to obtain
desirable
outcomes?”
Take
corrective
action, if
necessary
8
4
1. THE NATURE OF CONTROL
The Control Process
Step 1: Establish Standards
▰ Standards are best measured when can be made quantifiable
▰ Standards in: Nonprofit institution vs for-profit organizations
▰ Standards can be subjective
▰ Technique for setting standards: the balanced scorecard
9
1. THE NATURE OF CONTROL
The Control Process
Step 2: Measure Performance
▰ Sources:
▻ written reports
▻ oral reports
▻ personal observation
▻ statistical reports
10
5
Personal
observation
Advantages
- Get firsthand knowledge
- Information isn’t filtered
- Intensive coverage of work
activities
- Easy to visualize
Statistical reports - Effective for showing
relationships
Oral reports
Written reports
Drawbacks
- Subject to personal biases
- Time-consuming
- Obstructive
- Provide limited information
- Ignore subjective factors
- Fast way to get information
- Allow for verbal and nonverval
feedback
- Information is filtered
- Information can’t be documented
- Comprehensive
- Formal
- Easy to file and retrieve
- Take more time to prepare
11
1. THE NATURE OF CONTROL
The Control Process
Step 3: Compare performance to standards
▰ The greater the difference between desired and actual performance,
the greater the need for action
▰ The acceptable deviation depends on the range of variation built in
to the standards in step 1.
12
6
1. THE NATURE OF CONTROL
The Control Process
Step 4: Take Corrective action, if necessary
3 possibilities:
▰ Make no changes
▰ Recognize and reinforce positive performance
▰ Take action to correct negative performance
13
1. THE NATURE OF CONTROL
The Control Process
14
7
Revision
Question 1
Establishing standards, comparing actual results with
standards and taking corrective actions are the steps included
in the process of
A. planning
B. controlling
C. directing
D. organizing
15
Question 2
Control function of management cannot be performed
without:
A. planning
B. organizing
C. staffing
D. motivation
16
8
Question 3
What is not true about controlling
A. Standards can be objective or subjective
B. Standards are best measured when can be made qualifiable
C. Different sources of measuring have different level of
reliability
D. Setting tandards are very important in controlling
17
Question 4
Daniel manages a team that has missed their production goals for the
past three months. After reviewing each employee's performance record,
Daniel adjusted the sales goal to take additional quality control
measures into consideration. Why is this an example of controlling?
A. Because somebody will likely get fired as a result of this analysis
B. Because Daniel acted as a leader and took responsibility for the project
C. Because Daniel looked at team results and took appropriate corrective
action.
D. Because Daniel is micromanaging his employees.
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9
Question 5
What is a benefit of controlling?
A. To deal with change
B. To deal with complexity
C. To deal with uncertainty
D. To deal with threats
19
2. LEVELS AND AREAS OF CONTROL
Levels of Control
Strategic control
Operational
control
Tactical
control
20
10
2. LEVELS AND AREAS OF CONTROL
Levels of Control
▰Strategic Control:
- monitoring performance to ensure that strategic plans are being
implemented and taking corrective action as needed
- mainly performed by top managers (CEO and VP levels)
- every 3, 6, 12, or more months
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2. LEVELS AND AREAS OF CONTROL
Levels of Control
▰Tactical Control:
- monitoring performance to ensure that tactical plans (divisional or
departmental level) are being implemented and taking corrective action
as needed
- done mainly by middle managers (division head, plant manager,…)
- done on a weekly or monthly basis
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11
2. LEVELS AND AREAS OF CONTROL
Levels of Control
▰Operational Control:
- monitoring performance to ensure that operational plans (day-to-day
goals) are being implemented and taking corrective action as needed
- done mainly by first-level managers (department head, team leader,
supervisor…)
- done on a daily basis
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2. LEVELS AND AREAS OF CONTROL
Areas of Control
Physical
Area
Human
Resources
Area
Cultural
Area
Informati
onal Area
Structural
Area
Financial
Area
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12
2. LEVELS AND AREAS OF CONTROL
Areas of Control
▰Physical Area
Equipment controls
Quality
controls
Inventorymanagement
control
25
2. LEVELS AND AREAS OF CONTROL
Areas of Control
▰ Human Resources Area
Personality Tests &
drug testing
v For hiring
Performance evaluations
v Work productivity
Performance tests
v For training
Employee surveys
v Access job
satisfaction and
leadership
26
13
2. LEVELS AND AREAS OF CONTROL
Areas of Control
▰Informational Area
Production Schedules
Sales forecasts
Environmental impact statement
Analyses of competition
PR briefings
27
2. LEVELS AND AREAS OF CONTROL
Areas of Control
▰Financial Area
budgets
Bills, money
owed, cash on
hand…?
ratio
analysis
financial
statements
audits
28
14
2. LEVELS AND AREAS OF CONTROL
Areas of Control
▰Structural Area
Bureaucratic
control
Decentralized
control
▰ Cultural Area: informal method of control
29
3. THE BALANCED SCORECARD
• adopted by over 50% of large US
firms
• top ten most widely used
management tools around the
world
• the most influential business ideas
of
the
past
75
years
Robert S. Kaplan
Havard Business
School
David P. Norton
Renaissance
Strategy Group
30
15
3. THE BALANCED SCORECARD
4 indicators in Balanced Scorecard:
- Financial measures
- Innovation and improvement activities
- Customer satisfaction
- Internal processes
31
3. THE BALANCED SCORECARD
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16
3. THE BALANCED SCORECARD
The balanced scorecard establishes goals and performance measures
according to four “perspectives” or areas:
▰ Financial Perspective: “How do we look to shareholders?”
▰ Innovation and Learning Perspective: “Can we continue to improve
and create value?”
▰ Customer perspective: “How do customers see us”
▰ Internal Business perspective: “What must we excel at?”
33
4. STRATEGY MAP
▰ Strategy map is a visual representation of the four perspectives of
the balanced scorecard that enables managers to communicate their
goals so that everyone in the company can understand how their jobs
are linked to the overall objective of the organizations
34
17
4. STRATEGY MAP
▰ “Strategy maps show the cause-and-effect links by which specific
improvements create desired outcomes”
35
4. STRATEGY MAP
(Kaplan & Norton 1996)
36
18
37
5. SOME FINANCIAL TOOLS FOR
CONTROL
▰2 tools:
▻ Budget: a formal financial projection
▻Financial statement: A summary of some aspect of an organization’s
financial status
38
19
5. SOME FINANCIAL TOOLS
FOR CONTROL
There are two different ways to budget:
❖ Incremental budgeting allocates increased or decreased funds to a
department by using the last budget as a reference point—only
incremental changes in the budget request are reviewed
❖ Zero-based budgeting forces each department to start from zero in
projecting its funding needs for the budget period
There two different types of budgets:
❖ Fixed budgets allocate resources on the basis of a single estimate of
costs
❖ Variable budgets allow the allocation of resources to vary in
proportion with various levels of activity
39
5. SOME FINANCIAL TOOLS
FOR CONTROL
❖ There are two basic types of financial statements:
❖ A balance sheet summarizes an organization’s overall financial
worth (assets and liabilities) at a specific point in time
where:
❖ -assets are the resources the organization controls, current assets are
cash and other assets that are readily convertible to cash fixed assets
are property, buildings, and equipment that are harder to convert to
cash, and liabilities are claims by suppliers, lenders, and others
40
20
5. SOME FINANCIAL TOOLS
FOR CONTROL
❖ The income statement summarizes an organization’s financial results
- revenues (the assets from the sale of goods) and expenses (the
costs required to produce goods and services) - over a specified
period of time
❖ Liquidity ratios indicate how easily a company’s assets can be
converted to cash
❖ Debt-management ratios indicate the degree to which an
organization can meet its long-term financial obligations
❖ Asset management ratios indicate how effectively an organization is
managing resources
❖ Return ratios indicate how effective management is at generating a
return on assets
41
5. SOME FINANCIAL TOOLS
FOR CONTROL
❖ Formal verifications of an organization’s financial and operational
systems are called audits
❖ There are two types of audits:
❖ An external audit is a formal verification of an organization’s
financial accounts and statements by outside experts
❖ An internal audit is a verification of an organization’s financial
accounts and statements by the organization’s own professional staff
42
21
6. MANAGING CONTROL
EFFECTIVELY
Successful control systems are:
1. Strategic & results oriented – they support strategic plans and focus
on activities that will make a real difference to the firm
2. Timely, accurate, & objective
3. Realistic, positive, & understandable & encourage self-control
4. Flexible - so that they can be modified as needed
43
6. MANAGING CONTROL
EFFECTIVELY
There are several barriers that can limit successful control:
1. Too much control - when companies exert too much control,
employees may rebel
2. Too little employee participation - employee participation can
enhance productivity
3. Overemphasis on means instead of ends
4. Overemphasis on paperwork - unnecessary emphasis on paperwork
can reduce effort in other areas
5. Overemphasis on one instead of multiple approaches - using
multiple control activities can increase accuracy and objectivity
44
22
Question
The balanced score card sets goals and performance measures from
all of the following perspectives except
A) innovation and learning
B) financial
C) customer
D) productivity
45
Question
Which type of control issues reports on a weekly or monthly basis?
A) strategic
B) operational
C) supervisory
D) tactical
46
23
Question
Ratios that indicate how effectively an organization is managing
resources are
A) return ratios
B) liquidity ratios
C) asset management ratios
D) debt management ratios
47
Question
Which of the following is not a barrier to successful control?
A) flexibility
B) too much control
C) overemphasis on paperwork
D) too little employee participation
48
24
Question
A UPS driver fails to perform according to the standards set for the
route and traffic conditions. A supervisor rides along and gives
suggestions for improvement. This is the ____________ stage of
the control process.
A. Compare performance to standards
B. Establish standards
C. Take corrective action
D. Measure performance
Question
A drug test employed by an organization in its hiring process is an
example of a(n) _______ resource control.
A. Physical
B. Human
C. Financial
D. Informational
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