Management Control

Management Control 3 Chapter 11

Learning Objectives • Explain why management controls are necessary. • Describe the control pyramid. • Differentiate between preliminary, concurrent, and post-action controls. • List the four basic types of financial ratios. • Explain the determinants of performance. • Describe the major performance appraisal methods.

Controlling • Control: Performance to standards comparison and corrective action • Planning occurs before actions; control occurs after action Why Practice Management Control? • Alert managers to potential critical problems • Five actions for managers • Prevent crisis, standardize outputs, appraise employee performance, update plans, and protect the organization’s assets

The Control Pyramid Where Should Control Reside? • James Champy – control at lower level • Several advantages

Types of Control • Two categories • Behavior control • Output control • Not substitutes for each other Preliminary, Concurrent, or Post-action Control? • Preliminary – steering control • Concurrent – screening control • Post-action – most controls

Types of Control Budgetary Control • Most widely used • Dangers • Inflexibility • Inefficiencies • “Padded” • The answer Zero-Based Budgeting • Justifiable budget request

Types of Control Financial Controls • Other tools: Balance sheets, income statement, and financial ratios • Financial Ratio Analysis • Four basic types: profitability, liquidity, debt, and activity Sarbanes-Oxley Act of 2002 • Prevents financial meltdowns • Major concern: hefty compliance costs

Types of Control Direct Observation • Time consuming • Hazards Written Reports • Two basic types: analytical and informational • Four or five-step process depending on type Electronic Monitors • Monitor what is going on

Types of Control Balanced Scorecard • Balance four categories • Advantages Management Information Systems • Reports and mathematical simulations outputs Audits • Management audits Break-Even Charts • Break-even points

Appraising Performance Understanding Performance • Performance versus Effort Determinants of Performance • Net effect of effort modified by: • Abilities • Role perception • Results

Appraising Performance Performance Appraisal Process • Informs employees how well they are performing and clarifies needed improvements • Common uses • Provide input for training and development • Encourage performance improvement • Must be supported by documentation and management commitment • Additional concern – how often to conduct

Performance Appraisal Methods Goal Setting, or Management by Objectives • Value of linking MBO to appraisal process • MBO process consists of 6 steps: • Establish objectives for work an employee is to do • Develop an action plan • Allow employee to implement the plan • Appraise performance based on achievement • Take corrective action where needed • Establish new objectives for future • Requirements to be met

Performance Appraisal Methods Production Standards • Normal output • Advantage Essay Appraisal • Written account form • Primary problem – varying length and content • Difficult to compare

Performance Appraisal Methods Critical-Incident Appraisal • Written record of incidents • Drawbacks Graphic Rating Scale • Assess on various factors • Weaknesses Checklist • Yes or no to a series of questions • Bias

Performance Appraisal Methods Ranking Methods • Most commonly used • Alternation ranking • Paired comparison ranking • Forced distribution • Multirater assessment

Selecting a Performance Appraisal Method • Job-related • Job analysis and job descriptions Potential Errors in Performance Appraisals • Leniency • Central tendency • Recency • Halo effect • Personal preference, prejudices, and biases

Conducting Effective Performance Appraisals • Training for managers • Dos and don’ts Providing Feedback Through The Appraisal Interview • Important factors • Skeptical employees Developing Performance Improvement Plans • Components

Management Control