CHAPTER 15

Essentials of Control

Andrew J. DuBrinEssentials of Management, 6/eSouth-Western College Publishing

Copyright © 2003

Screen graphics created by:Jana F. Kuzmicki, PhD, Christian Brothers University

PPT

15.1After reading this chapter,you should be able to:

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.

PPTThe Links Between Controlling and

the Other Management Functions

Adapted from Exhibit 15.1

PlanningOrganizin

gLeading

Controlling

Control

15.2

PPT

Steps in the Control Process

Adapted from Exhibit 15.3

Set Standards

Measure Actual Performance

Compare Actual Performance to Standard

Take Corrective Action if Necessary

Do Nothing

Solve the Problem

Revise the Standard

15.3

PPT

Qualitative Control Techniques

Management auditPersonal observation

Performance appraisal

Policy

Technique

Audit

Definition

Examination of activities or records to verify their accuracy or effectiveness

External audit

Internal audit

Verification of financial records by external agency or individual

Verification of financial records by an internal group of personnel

Use of auditing techniques to evaluate the overall effectiveness of management

Manager’s first-hand observation of how well plans are carried out

Formal method or system of measuring, evaluating, and reviewing employee performance

General guideline to follow in making decisions and taking action

Adapted from Exhibit 15.5

15.4

PPT

Quantitative Control Techniques

Economic-order quantity

ABC analysis

Variance analysis

Technique

Gantt chart

Definition

Chart depicting planned and actual progress of work on a project

CPM/PERT

Break-even analysis

Method of scheduling activities and events using time estimates

Ratio of fixed costs to price minus variable costs

Inventory level that minimizes ordering and carrying costs

Method of assigning value to inventory; A items are worth more than B or C items

Major control device in manufacturing

Adapted from Exhibit 15.6

15.5

PPT

Production budget

Cash budget

Capital-expenditure

budget

Human resources

budget

Revenue-and-

expense budget

Masterbudget

Materials purchase budget

Types of Budgets

15.6

PPTBasic Elements of an Information

System

Adapted from Exhibit 15.11

Analyze Information Requirements

Develop an Information Base

Design an Information Processing System

Build Controls into the System

15.7

PPT

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

Characteristics of Effective ControlsAn effective control system is one that is:

15.8