Management Lecture 19 Control by AbdulAleem5


									Principles of Management

  Foundations of Management
       Management Control
• The regulatory process directing the
  activities an organization conducts to
  achieve anticipated goals and standards.
• Types of Controls:
  – Financial and Budgetary control
  – Operations control
  – Marketing control
  – R & D control
  – Human Resource control
              Purpose of Control

  Adapt to environmental change            Limit the accumulation of error

                       Control helps the organization

Cope with organizational complexity               Minimize costs
          The Control Process
1.   Establish Standards
2.   Measure Performance
3.   Compare Performance to Standards
4.   Take Action
     1. Corrective Action
     2. Recognize Performance
     3. Change Standards and Measures
            1                 2                      3                           4
                                     Compare                    Determine need
Establish       Measure
                                     performance                for corrective
standards       performance
                                     against standards          action

                                  Maintain the    Correct the        Change
                                  status quo      deviation          standards
Levels of Control



 Operations               Financial
  control                  control
     Types of Control Methods
• Preliminary Control
  – The regulation of a process’s inputs to ensure they
    meet established standards
• Concurrent Control
  – The regulation of ongoing processes to ensue they
    adhere to established standards
• Post-action Control
  – The regulation of a process’s outputs to ensure they
    comply with established standards

      Inputs             Transformation          Outputs

Preliminary control     Screening control   Postaction control
Focus is on inputs      Focus is on how     Focus is on outputs
to the organizational   inputs are being    from the organiza-
system                  transformed into    tional system
           Control Systems
• Cybernetic Control Systems
  – Self-regulating control systems capable of
    automatically measuring, evaluating, and
    correcting a process.
• Non-Cybernetic Control System
  – Control systems that rely on human
    intervention for the measurement, evaluation,
    or correction of a control process
Organizational Forms of Control
• Bureaucratic Control
  – The regulation of organizational activities in a
    formal and inflexible manner designed to
    achieve employee compliance.
• Clan Control
  – The regulation of organizational activities in a
    flexible and informal manner designed to
    achieve employee commitment.
Organizational Forms of Control
  Bureaucratic Control                 Dimension                  Clan Control
                                 Goal of control approach
Employee compliance                                         Employee commitment

Strict rules, formal controls,      Degree of formality     Group norms, culture,
rigid hierarchy                                             self-control

Directed toward minimum          Performance expectations   Directed toward enhanced
levels of acceptable                                        performance above and
performance                                                 beyond the minimum

Tall structure, top-down           Organization design      Flat structure, shared
influence                                                   influence

Directed at individual               Reward system          Directed at group
performance                                                 performance

Limited and formal                                          Extended and informal
      Managing Effective Control
• Dysfunctional Control
  – Overcontrol and Undercontrol
  – Inconsistent Controls
  – Failure to Differentiate Controls
• Effective Control Systems
  –   Linked with planning
  –   Accurate
  –   Timely
  –   Relevant
  –   Objective and measurable
Managing Financial and Budgetary
• Financial Statement
   – A summary of the overall financial status of an organization.
• Balance Sheet
   – A financial statement detailing an organization’s assets,
     liabilities, and shareholder equity at a specific point in time.
• Budgeting
   – An allocation of organizational resources to units within the
     organization in order to support organizational plans and
• Budget
   – A financial plan for an organization or for a unit within the
      Responsibility Centres
• Responsibility Centres
  – A discrete organization unit headed by a
    manager responsible for achieving specific
• Types:
  – Profit Centre – profit targets
  – Expense Centre – expense targets
  – Revenue Centre – revenue targets
  – Investment Centre – ROI targets
           Type of Budget                 What Budget Shows

Types of   Operating budget
            Sales or revenue budget
                                          Planned operations in financial terms
                                          Income the organization expects to receive from
                                          normal operations

Budgets     Expense budget

            Profit budget
                                          Anticipated expenses for the organization during
                                          the coming time period
                                          Anticipated differences between sales or revenues
                                          and expenses

           Type of Budget                 What Budget Shows

           Nonmonetary budget             Planned operations in nonfinancial terms
            Labor budget                  Hours of direct labor available for use
            Space budget                  Square feet or meters of space available for
                                          various functions
            Production budget             Number of units to be produced during the coming
                                          time period

           Type of Budget                      What Budget Shows

           Financial budget                    Sources and uses of cash
            Cash-flow or cash budget           All sources of cash income and cash
                                               expenditures in monthly, weekly, or daily
            Capital expenditures budget        Costs of major assets such as a new plant,
                                               machinery, or land
            Balance sheet budget               Forecast of the organization’s assets and
                                               liabilities in the event that all other budgets
                                               are met
         Approaches to Budget
• Top-Down Budgeting
  – A process by which top managers impose budgets on
    lower level managers.
• Bottom-Up Budgeting
  – A process in which the lower level managers directly
    responsible for operations develop individual budgets
    that are combined to create an overall organizational
• Zero-Base Budgeting
  – A process by which managers calculate resource
    requirements based on the coming year’s priorities,
    rather than on the past year’s requirements
Operating unit    Division budget   Organizational budget
budget requests   requests          • Prepared by budget
                                    • Approved by budget
                                      committee, controller,
                                      and CEO


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