Chapter 9

CONTROL PROCESSES
& SYSTEMS
 LEARNING OBJECTIVES

Takeaway 1 Managerial control

Takeaway 2 The control process
Takeaway 3 Control tools & techniques
Takeaway 1 Managerial control

1. Importance of controlling
2. Types of controls
3. Internal and external control
 1. Importance of controlling

• Controlling: the process of measuring performance & taking

action to ensure desired results.

• An after-action review is a systematic assessment of lessons

learned and results accomplished in a completed project.
 1. Importance of controlling

Planning – to set the direction

• Decide where you want to go
• Decide how best to go about it
Organizing – Leading –
to create structures to inspire effort
Controlling –
to ensure results
• Measure performance
• Take corrective action

Figure 8.1 The roles of planning & controlling in the management process
 2. Types of control
Work inputs Work throughouts Work outputs

Feedforward controls
Concurrent controls Feedback controls
Ensure the right
Ensure the right things Ensure that final
directions are set & the
are being done as part results are up to
right resource inputs
of workflow operations desired standards
are available

Solve problems Solve problems

Solve problems
before they while they are
after they occur
occur occurring

Fig 9.2 Feedforward, concurrent, & feedback controls

 2. Types of control (cont.)
Work inputs

Feedforward controls
Ensure the right Feedforward controls (preliminary controls)
directions are set & the
right resource inputs ensures that:
are available
- Objectives are clear
- Proper directions are established
- The right resources are available to
Solve problems accomplish the objectives
before they
occur
 2. Types of control (cont.)
Work throughouts

Concurrent controls
Ensure the right things
are being done as part
of workflow operations
Concurrent controls (steering
controls) make sure things are being
done according to plan.

Solve problems
while they are
occurring
 2. Types of control (cont.)
Work outputs

Feedback controls
Ensure that final results
are up to desired
standards
Feedback controls (post-action
controls) focus on

- the quality of end results

- prevent future problems
Solve problems
after they occur
 3. Internal and external control

(1) Allow & expect people to control their own behavior

Internal control Self-control

Bureaucratic/administrative control

External control Clan/normative control

Market/regulatory control

(2) Structure situations to make sure things happen as planned

3. Internal and external control (cont.)

Internal control Self-control

Self-control is internal control that occurs through self-

discipline in fulfilling work & personal responsibilities.
 3. Internal and external control (cont.)

Internal control Self-control

• Self-control is internal control that occurs through self-

discipline in fulfilling work & personal responsibilities.

Better be considered as personal capacity, even a life skill.

3. Internal and external control (cont.)

Internal control Self-control

Managers can do:

 unlocking: help people to be good at self-management.
 allowing: give them freedom.
 supporting: encourage them to exercise self-discipline in
performing their jobs.
3. Internal and external control (cont.)

Internal control Self-control

The organizational culture should be like:

emphasize participation, empowerment & involvement.
everyone treats each other with respect &
consideration.
 3. Internal and external control (cont.)

External control Bureaucratic/administrative control

• Bureaucratic control uses authority, policies, procedures,

job descriptions, budgets, & day-to-day supervision to make
sure that people act in harmony with organizational
interests.
3. Internal and external control (cont.)

Bureaucratic/administrative control
Top
managers

Middle
managers
Bureaucratic control flows
First-line managers
through the organization’s
Non-managerial workers
hierarchy of authority.
 3. Internal and external control (cont.)

External control Clan/normative control

• Clan control influences behavior through norms and expectations

set by the organizational culture.

• Clan control happens as persons who share values and identify

strongly with one another behave in consistent ways.
 3. Internal and external control (cont.)

External control Market/regulatory control

• Market control: the influence of customers & competition on

the behavior of organizations & their members.

• Business firms show the market control in the way they adjust
products, pricing, promotions, & other practices in response to
customer feedback & what competitors are doing.
Takeaway 2 The Control Process

1. Establish objectives and

standards
2. Measure actual performance
3. Compare results with objectives
4. Take corrective action
Takeaway 2 The Control Process

Step 1
Establish performance
objectives & standards

Step 4 The Step 2

Take necessary control Measure actual
action process performance

Step 3
Compare actual
performance with
objectives & standards Fig 9.3 Four steps in the control
1. Step 1 – Establish objectives & standards

• Output standards measure actual outcomes or performance

results in terms of quantity, quality, cost, or time.

• Businesses use many output standards such as: earnings

per share, sales growth, market share, quantity & quality of
production, costs incurred, service or delivery time, & error
rates …
1. Step 1 – Establish objectives & standards (cont.)

• Input standards measure work efforts that go into a

performance tasks.

• These are common in situations where outputs are difficult

or expensive to measure.

• Measuring inputs does not mean the outputs are

achieved.
 2. Step 2 – Measure actual performance

• It is the point where output standards & input standards

are used to carefully document results.

• Performance measurements must be accurate enough to

spot significant differences between what is really taking
place & what was originally planned.
 3. Step 3 –
Compare results with objectives & standards

The control equation:

Need for Desired Actual

action performance performance
 3. Step 3 –
Compare results with objectives & standards (cont.)

What constitutes “desired performance”?

Engineering comparisons
Historical comparisons: where past experience becomes
the baseline for evaluating current performance.
Relative comparisons: benchmark performance against
that being achieved by other people, work units, or
organizations.
 4. Step 4 – Take corrective action

• Management by exception focuses attention on substantial

differences between actual & desired performance.

Managers should be alert of 2 types of exceptions:

(1) A problem situation where actual performance is less than what
was desired => corrective action can restore performance to
the desired level.
(2) An opportunity situation where actual performance turns out
higher than what was desired => continue or increase the high
level of accomplishment in the future.
Takeaway 3 Control Tools and Techniques

1. Project management and control

2. Inventory control
3. Breakeven analysis
4. Financial controls
5. Balanced scorecards
1. Special techniques of project management

• Projects: complex one-time events with unique components &

an objective that must be met within a set time.

• Project management: the responsibility for overall planning,

supervision, & control of projects.
(ensure that a project is well planned, then completed as planned:
on time, within budget, & consistent with objectives)
1. Special techniques of project management (cont.)

2 useful techniques for project management & control:

A Gantt chart graphically displays the CPM/PERT is a combination of the

scheduling of tasks required to critical path method & the program
complete a project. evaluation & review technique.
 2. Inventory control

• Inventory control ensures that

inventory is only big enough to
meet immediate needs.
• The economic order quantity
method places new orders
when inventory levels fall to
predetermined points.
• Just-in-time scheduling (JIT)
routes materials to workstations
just in time for use.
 3. Breakeven analysis

• Breakeven point occurs where revenues just equal

costs.

• Breakeven point formula:

Breakeven Fixed Variable

Price
point costs costs
 3. Breakeven analysis (cont.)

• Breakeven analysis
perform what-if calculations
under different projected
cost & revenue conditions.

Fig 9.4 Use of breakeven analysis to make

informed “what-if” decisions.
 4. Financial controls

• The balance sheet shows assets & liabilities at a point in time.

• Format: Assets = Liabilities

• The income statement shows profits or losses at a point in time.

• Format: Sales – Expenses = Net income
4. Financial controls (cont.)

Fig 9.5 Basic foundations of a balance sheet & income

 4. Financial controls (cont.)

• Liquidity measures ability to meet short-term obligations.

• Current Ratio = Current Assets/Current Liabilities
• Quick Ratio or Acid Test = Current Assets –
Inventories/Current Liabilities
• Higher is better: You want more assets & fewer liabilities.

• Leverage measures use of debt.

• Debt Ratio = Total Debts/Total Assets
• Lower is better: You want fewer debts & more assets.
 4. Financial controls (cont.)

• Asset management measures asset & inventory efficiency.

• Asset Turnover = Sales/Total Assets
• Inventory Turnover = Sales/Average Inventory
• Higher is better: You want more sales relative to assets inventory.

• Profitability measures ability to earn revenues greater than costs.

• Net Margin = Net Income/Sales
• Return on Assets (ROA) = Net Income/Total Assets
• Return on Equity (ROE) = Net Income/Owner’s Equity
• Higher is better: You want high net income relative to sales,
assets, & equity.
 5. Balanced scorecards (BSC)

• A balanced scorecard tallies organizational performance in

financial, customer service, internal process, & innovation &
learning areas.

balanced scorecards (intrafocus)

 5. Balanced scorecards (BSC) (cont.)

“How well do our actions

directly contribute to improved Financial
performance
financial performance?”
“How well do we serve our
customers & clients?”

Mission
Innovation & & Customer
learning vision satisfaction

“How well are we learning,

changing, & improving things
over time? Internal “How well do our activities &
process processes directly increase the value
improvement we provide our customers & clients?”
 5. Balanced scorecards (BSC) (cont.)

Financial performance:
- Sample goals: survive, succeed, prosper.
- Sample measures: cash flow, sales growth & operating
income, increased market share, & return on equity.

Customer satisfaction:
- Sample goals: new products, responsive supply.
- Sample measures: percentage sales from new
products, percentage on-time deliveries.
 5. Balanced scorecards (BSC) (cont.)

Internal process improvement:

- Sample goals: manufacturing excellence, design productivity,
new product introduction.
- Sample measures: cycle times, engineering efficiency, new
product time.

Innovation & learning:

- Sample goals: technology leadership, time to market.
- Sample measures: time to develop new technologies, new
product introduction time vs competition.
Case study
chapter 9

ELECTRONIC ARTS

Inside fantasy
sports
 END OF
CHAPTER 9