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1. Controlling is the process whereby managers monitor and regulate how effectively and efficiently an organization and its members are performing the activities necessary to achieve organizational goals.
The types of control:
Feedforward control is the control that allows managers to anticipate problems before they arise.
Concurrent control is the control that gives managers immediate feedback on how effectively and efficiently inputs are being transformed into outputs so that managers can correct problems as they arise.
Feedback control is the control that gives managers information about customers’ reactions to goods and services so that corrective action can be taken as necessary.
2.
Four steps in organizational control:
· Establish the standards of performance, goal, or targets against which performance is to be evaluated;
· Measure actual performance;
· Compare actual performance against chosen standards performance;
· Evaluate the result and initiate corrective action if the standard is not being achieved.
3.
| Type of control | Mechanisms of control |
| Output Control | Financial measures of performance Organizational goals Operating budgets |
| Behavior Control | Direct supervision Management by objectives Rules and standard operating procedures |
| Organizational Culture/Clan Control | Values Norms Socialization |
Four measures of financial performance:
| Profit ratios | ||
| Return of investment | Net profit before taxes/total asset | Measures how well managers are using organization’s resources to generate profits. |
| Gross profit margin | (sales revenues – cost of goods sold)/ sales revenues | The differences between the amount of revenue generated from the product and the resources used to produce the product. |
| Liquidity ratios | ||
| Current ratio | Current assets/current liabilities | Do managers have resources available to meet claims of short-term creditors? |
| Quick ratio | (Current assets – inventory)/current liabilities | Can managers pay off claims of short-term creditors without selling inventory? |
| Leverage ratios | ||
| Debt-to-assets ratio | Total debt/total assets | To what extent have managers used borrowed funds to finance investments? |
| Times-covered ratio | EBIT/ total interest charges | Measures how far profits can decline before managers can not meet interest changes. If ratio declines to less than 1, the organization is technically insolvent. |
| Activity ratios | ||
| Inventory turnover | Cost of goods sold /inventory | Measures how efficiently managers are turning inventory over so excess inventory is not carried. |
| Days sales outstanding | Accounts receivable/total sales/300 | Measures how efficiently managers are collecting revenues from customers to pay expenses. |
Operating budget is a budget that states how managers intend to use organizational resources to achieve organizational goals.
Direct supervision – managers actively monitor and observe the behavior of their subordinates, teach subordinates the behaviors that are appropriate and inappropriate, and intervene to take corrective action as needed.
Management by objectives is a goal setting process in which a manager and his or her subordinates negotiate specific goals and objectives for the subordinate to achieve and then periodically evaluate the extent to which the subordinate is achieving those goals.
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