Management Control Fundamentals

Study Notes

This chapter covers the fundamentals of control in management.
Controlling is the process of measuring performance and taking action to ensure desired results.
Having a positive and necessary role in management, this process involves continuous adjustments to achieve desired outcomes.
It ensures that the right things occur, in the correct way, at the optimal time. This can lead to organizational learning.
A key example of this is the after-action review.

Controlling operates as a crucial component within the broader management process.
It complements the planning, organizing and leading functions.
Controlling ensures that the organizational plan translates into actual performance.

Controlling involves several steps to ensure results align with objectives.
These steps include establishing objectives and standards, measuring actual performance, comparing actual results against objectives and standards, and taking corrective action.
There are four key steps within this process.

There are three main types of controls, each based on the timing of when they occur
Feedforward controls are utilized before an activity starts. These controls aim to prevent problems before they arise.
Concurrent controls occur during the work process and ensure continuous adjustments are made in real-time to align with the standards.
Feedback controls take place after an activity has been completed. This type of control focuses on the end results and aims to prevent future issues.
The different types serve distinct purposes in the overall control process.

Project Management:
- Projects are unique, one-time events within a defined timeframe.
- Gantt charts are graphical tools used to display project schedules. They can be used to illustrate the dependency between different tasks in a visual timeline format.
- CPM/PERT is a combination of the Critical Path Method and Program Evaluation and Review Technique. This technique helps manage tasks related to projects.
Inventory Control:
- Aims to maintain adequate inventory levels to meet immediate needs with minimized carrying costs.
- Economic Order Quantity (EOQ) determines the optimal order quantities.
- Just-in-time scheduling (JIT) delivers material at the time it is needed to workstations.
Breakeven Analysis:
- Determines the point where revenues equal costs.
- It calculates the relationship between costs, sales, and profitability in diverse scenarios.

Internal control involves self-discipline by motivated individuals, allowing for self-control.
- Self-management, freedom, and participation will enhance this type of control.
External control is utilized via personal supervision or formal administrative systems.
- Bureaucratic control is implemented through designated authority structures like policies, procedures, budgets, and day-to-day supervision.
- Clan control is driven by norms and expectations in the organizational culture.
- Market control is influenced or dictated by market competition.

Basic elements of financial controls involve understanding the balance sheet and income statement.
Balance sheets reflect assets, liabilities and stockholders’ equity at a specific point in time.
Income statements portray the results of a period of operation (e.g., a month, a quarter, or a year) measuring profit or loss.

Examining ratios relevant to financial performances allows the evaluation of liquidity and leverage.
Liquidity refers to generating cash to meet short-term obligations.
Leverage assesses returns on debt relative to cost.

The Balanced Scorecard is a tool to evaluate overall organizational performance across different perspectives.
Organizations frequently use these perspectives in a variety of areas.
There are four key perspectives this framework involves: financial performance, customer satisfaction, internal process improvement, and learning and growth.