MCO 101 Unit 6 Lecture 5

MCO 101 • MANAGEMENTUnit 6: Executing and Controlling

MANAGEMENT 2MCO 101Issue date: 15 June 2008 Source: by South-Western, a division of Thomson Learning. All rights

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Managing Expectations

LEARNING OUTCOMES:

At the end of the course, students will be able to:

• Explain fundamental concepts and principles of management including the basic roles, skills, and functions of management

• Discuss the knowledgeable of historical development, theoretical aspects and practice application of managerial process

• Examine the environment, technology, human resources, and organisations in order to achieve high performance

• Discuss the ethical dilemmas faced by managers and the social responsibilities of businesses.


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SUBJECTS DISCUSSED:

1. Management, Managers and evolution of Management theory

2. Personality traits and diversity3. Organisation, Globalisation and the resulting

environments4. Decision-making and Planning5. Structure and Strategy6. Executing and Controlling7. Human Resources Management as a function8. Motivation, Leadership, Groups and Teams9. Communication, conflicts and politics10. Operations Management. Entrepreneurship. Innovation


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TOPIC DETAILS:

After going through UNIT 6, you should be able to:

1. describe the basic control process. discuss the various methods that managerscan use to maintain control.

2. describe the behaviours, processes, and outcomes that today’s managers are choosing to control their organisations.

3. discuss the various methods that managers can use to maintain control.

4. describe the behaviours, processes, and outcomesthat today’s managers are choosing to controltheir organisations.


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The Control Process

Begins with establishment of clear standards of performance

Involves a comparison of actual performance to desired performance

Takes corrective action to repair performance deficiencies

Is a dynamic, cybernetic process

Consists of feedback control, concurrent control, feedforward control

But… control isn’t always worthwhile

or possible


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Setting Standards

Begins with establishment of clear standards of performanceA good standard must enable goal

achievement. 1. Listening to customers or observing

competitors.2. Benchmarking other companies: a)

determine what to benchmark, b) identify the companies against which to benchmark, c) Collect data to determine other companies’ performance standards.

http://www.liedecke.dk/Gallery/


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Comparison to Standards

Compare actual performance to performance standards.



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Corrective Action

Identify performance deviations

Analyse those deviations

Develop and implement programs to correct them



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Dynamic, Cybernetic Process

Develop & ImplementProgram for

Corrective Action

Set Standards

Measure Performance

Compare withStandards

IdentifyDeviations

AnalyseDeviations


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Feedback, Concurrent, and Feedforward Control

FeedbackControl

Gather information about performancedeficiencies after they occur

ConcurrentControl

Gather information about performancedeficiencies as they occur

FeedforwardControl

Monitor performance inputs ratherthan outputs to prevent or minimiseperformance deficiencies before they occur


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Feedforward Control

Guidelines for Using Feedforward Control

1. Thorough planning and analysis are required.

2. Careful discrimination must be applied in selecting input variables.

3. The feedforward system must be kept dynamic.

4. A model of the control system should be developed.

5. Data on input variables must be regularly collected.

6. Data on input variables must be regularly assessed.

7. Feedforward control requires action.


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Control Loss or Loss Control or Out of Control?

Is control worthwhile…?

Maybe, maybe not…

Managers must assess the regulation costs and the cybernetic feasibility.


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Control Methods

NormativeNormative ConcertiveConcertive Self-ControlSelf-Control

BureaucraticBureaucratic ObjectiveObjective


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Bureaucratic Control

• Top-down control

• Use rewards and punishment to influence employee behaviours

• Use policies and rules to control employees

• Often inefficient and highly resistant to change


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Objective Control

ObjectiveControl

Use of observable measures of workerbehaviour or outputs to assessperformance and influence behaviour

BehaviourControl

Regulation of the behaviours andactions that workers perform on the job

OutputControl

Regulation of workers’ results oroutputs through rewards andincentives


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Effective Output Control

Output control measures must be reliable, fair, and accurate.

Employees and managers must believe that they can produce the desired results.

The rewards or incentives tied to outcome control measure must be dependent on achieving established standards of performance.

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Normative Control

Created by: careful selection of employees observing experienced employees & listening to stories about the company.


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Concertive Control

Regulation of workers’ behaviour and decisions through work group values and beliefs.

Autonomous work groups:

1. operate without managers;

2. group members control processes, output, and behaviours.


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BOSS NOT

REQUIRED !

Self-Control

1. Also known as self-management

2. Employees control their own behaviour

3. Employees make decisions within well-established boundaries

4. Managers teach others the skills they need to maximise work effectiveness

5. Employees set goals and monitor their own progress


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What to Control?

CustomerDefections

CustomerDefections QualityQuality Waste and

Pollution

Waste andPollution

BalancedScorecard

BalancedScorecard

Budgets,Cash Flow,

EVA

Budgets,Cash Flow,

EVA


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Advantages of the Balanced Scorecard

Forces managers to set goals and measure performance in each of the four areas

Minimises the chances of sub-optimisation – performance improves in one area, but at the expense of others


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The Financial Perspective

Cash flow analysis

Predicts how changes in a business will affect its ability to take in more cash than it pays out

Balance sheetsProvide a snapshot of a company’sfinancial position at a particular time

Income statements

Show what has happened to an organization’s income, expenses, and net profit over a period of time

Financialratios

Used to track liquidity, efficiency, and profitability over time comparedto other businesses in its industry


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Basic Accounting Tools

1. Forecast sales

2. Project changes in anticipated cash flows

3. Project anticipated cash outflows

4. Project net cash flows by combining anticipated cash inflows and outflows

Steps for a Basic Cash Flow Analysis

Parts of a Basic Balance Sheet

1. Assets: Current assets; Fixed assets

2. Liabilities: Current liabilities; Long-term liabilities

3. Owner’s equity: Stock; Additional paid in capital; Retained earnings

Basic Income Statement

SALES REVENUE- sales returns and allowances+ other income= NET REVENUE- cost of goods sold= GROSS PROFIT- total operating expenses= INCOME FROM OPERATIONS- interest expense= PRETAX INCOME- income tax= NET INCOME


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Financial Ratios

LIQUIDITY RATIOS

Current Ratio

Quick (Acid Test) Ratio

LEVERAGE RATIOS

Debt to Equity

Debt Coverage

EFFICIENCY RATIOS

Inventory Turnover

Average CollectionsPeriod

PROFITABILITY RATIOS

Gross Profit Margin

Return on Equity


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Common Kinds of Budgets

CashBudgets

Used to forecast the cash a company will have for expenses

ExpenseBudgets

Used to determine spending onsupplies, projects, or activities

ProfitBudgets

Used by profit centers, which have“profit and loss” responsibility

RevenueBudgets

Used to project or forecastfuture sales

Variable BudgetsUsed to project costs across

varying levels of sales/revenues

Capital ExpenditureBudgets

Used to forecast large, long-lasting investments


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Economic Value Added (EVA)

Economic ValueAdded

The amount by which company profits exceed the cost of capital in a given year

Common Costs of Capital

Long-term bank loans Interest paid to bondholders Dividends and growth in stock value that accrue to

shareholders


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Economic Value Added (EVA)

1. Calculate net operating profit after tax

2. Identify how much capitalthe company has invested

3. Determine the cost paidfor capital

4. Multiply capital used (step 2)times cost of capital (step 3)

5. Subtract total dollar cost of capital from net profit after taxes

$3,500,000

$16,800,000

10%

(10% x $16,800,000) = $1,680,000

$3,500,000 net profit-$1,680,000 cost of capital$1,820,000 EVA


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Why Is EVA Important?

• Shows whether a business, division, department, profit center, or product is paying for itself

• Makes managers at all levels pay closer attention to their segment of the business

• Encourages managers and workers to be creative in looking for ways to improve EVA performance


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The Customer PerspectiveControlling Customer Defections

• Monitoring customer defections: identify which customers are leaving the company measuring the rate at which they are leaving

• Obtaining a new customer costs five times as much as keeping a current one

• Customers who have left are likely to tell you what you are doing wrong

• Understanding why a customer leaves can help fix problems and make changes


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The Internal PerspectiveControlling Quality

Excellence

Value

Conformance to Expectations


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The Internal PerspectiveControlling Quality


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Controlling Waste and Pollution

Good housekeeping

Material/product substitution

Process modification

MCO 101 Unit 6 Lecture 5

Business

Transcript of MCO 101 Unit 6 Lecture 5