Chapter 15

12/14/2013 9:34:00 AM

Chapter 15
Controlling is known as the Terminal Management Function becase it
takes place after other manage functions are completed
Types of Control
Time Based
o Preventive take place prior to the performance of an
activity, as when quality standards are applied. Hiring
standards are a form of preventative control
o Concurrent - monitor activities while they are being carried
out, such as computerized supervisory system
o Feedback evaluate an activity after its carried out, financial
statements are a form of feedback control
External traditional controls; they assume that people are
motivated by external rewards and so employees can be controlled
by external forces
Internal assume existing employee commitment to
organizational goals, these controls require participation and a
problem solving attitude
Steps in Control Process
Set appropriate performance standards
Measure actual performance
Compare performance to standard
Take corrective action
Non-budgetary control techniques
Qualitative Controls control techniques are based on human
judgment about performance
Quantitative Controls control techniques are based on
numerical measures of performance
Budget a spending plan for a future period of time, expressed in
numerical terms
Budgets are an inescapable part of management
Types of Budgets
Fixed allows for expenditures based on one time allocation of
resources
Flexible allows for variation in use of resources based on activity

Suggestions for Preparing a budget

Leave wiggle room
Research the competition
Embrace reality
Do not neglect intuition
Hold back some of the money
Gross profit margin = Sales COGS(Cost of Goods Sold)/Sales
Examines overall financial health by revealing the proportion of
money left over from revenues after accounting costs. GPM is whats
left over to pay for additional expenses
Profit Margin = Net Income/Sales
Examines the organizations profitability
Return on Equity = Net income/Owners Equity
Examines the amount of net income as a percentage of
shareholders equity
Revenue Per Employee = Revenue/Numbers of Employees
Looks at a companys sales in relation to number of people
employed
Economic Value Added refers to the earnings in comparison to minimum
amount investors expect to earn
EBITDA earning before interest, taxes, depreciation and amortization
Pro-forma is often used to designate a financial statement that excludes
one-time charges not affecting future earnings
Cash Flow the amount of net cash generated by a business during a
specific period
Types of Cost cutting
Constructive cost cutting might include finding lower-price for
commodities, such as laser cartridges and office paper

Destructive cost cutting might include company eliminating

health benefits via reduced hours
Characteristics of Effect Controls
Accepted by employees
Appropriate and meaningful
Provides diagnostic information
Allow for self feedback and self control
Provides timely information

Allows employees control over results measured

Does not conduct itself
Allows for random deviation from standard
Cost effective
Does not limit innovation

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