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Principles Of Management > Chapter 16 > Flashcards

Chapter 16 Flashcards

1
Q

INTRODUCTION

Symptoms of an Out-of-Control Company

A
  • Lax top management - senior managers do not emphasize or value the need for controls, or they set a bad example.
  • Absence of policies - the firm’s expectations are not established in writing.
  • Lack of agreed upon standards - organization members are unclear about what needs to be achieved.
  • “Shoot the messenger” management - employees that feel their careers would be at risk if they reported bad news.
  • Lack of periodic reviews - managers do not assess performance on a regular, timely basis.
  • Bad information systems - key data are not measured and reported in a timely and easily accessible way.
  • Lack of ethics in the culture - organization members have not internalized commitment to integrity.
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2
Q

INTRODUCTION

control

A
  • any process that direct the activities of individuals toward the achievement of organizational goals
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3
Q

INTRODUCTION

market control

A
  • Control based on the use of pricing mechanisms and economic information to regulate activities within the organization
  • Business units may be treated as profit centers and trade resources (services or goods) with one another via such mechanisms.
  • managers who run these units may be evaluated on the basis of profit and loss
  • uses prices, competition, profit centers, and exchange relationships
  • works best where tangible output can be identified and a market can be established between parties
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4
Q

INTRODUCTION

bureaucratic control

A
  • The use of rules, regulations, and authority to guide performance
  • it includes such items as budgets, statistical reports, and performance appraisals to regulate behavior and results
  • works best where tasks are certain and workers are independent
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4
Q

INTRODUCTION

clan control

A
  • Control based on the norms, values, shared goals, and trust among group members
  • also known as cultural control
  • when members of an organization have common values and goals – and trust one another – formal controls may be less necessary
  • works best where there is no one best way to do a job, and employees are empowered to make decisions
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5
Q

BUREAUCRATIC CONTROL SYSTEMS

Four Steps of Control Cycle

A
  1. Set performance standards
  2. Measure performance
  3. Compare performance with standards
  4. Reward successes, correct problems
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6
Q

BUREAUCRATIC CONTROL SYSTEMS

1. Setting performance standards

A
  • Performance standards can be set with respect to :
    1. Quantity
    2. Quality
    3. Time used
    4. Cost
  • many important aspects of performance, such as customer service, can be measured by the same standards – adequate supply and availability of products, quality of service, speed of delivery, and so forth
  • The downside of establishing performance targets and standards is that they may not be supported by other elements of the control system
  • each piece of the system is important and depends on the others
  • otherwise the system can get terribly out of balance
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7
Q

BUREAUCRATIC CONTROL SYSTEMS

standard

A
  • expected performance for a given goal: a target that establishes a desired performance level, motivates performance, and serves as a benchmark against which actual performance is assessed
  • Standards can be set for any activity – financial activities, operating activities, legal compliance, charitable contributions, and so on
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8
Q

BUREAUCRATIC CONTROL SYSTEMS

2. Measuring Performance

A
  • for example, managers can count units produced, days absent, papers filed, samples distributed, and dollars earned
  • performance data commonly are obtained from three sources:
    1. Written reports - include computer printouts and on screen reports. Thanks to computers’ data-gathering and analysis capabilities and decreasing costs, both large and small companies can gather huge amounts of performance data.
    2. Oral reports - One example of oral reports occurs when a sales person contacts his or her immediate manager at the close of each business day to report the accomplishments, problems, or customers’ reactions during the day. The manager can ask questions to gain additional information or clear up any misunderstandings. When necessary, tentative corrective actions can be worked out during the discussion.
    3. Personal observations - involves going to the area where activities take place and watching what is occurring. The manager can directly observe work methods, employees’ nonverbal signals, and the general operation. Personal observation gives a detailed picture of what is going on, but it also has some disadvantages. It does not provide accurate quantitative data; the information usually is general and subjective. Also, employees can misunderstand the purpose of personal observation as mistrust or lack of confidence. Still, many managers believe in the value of first-hand observation.
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9
Q

BUREAUCRATIC CONTROL SYSTEMS

3. Comparing Performance with the Standard

A
  • in this process, the manager evaluates the performance
  • for some activities, relatively small deviations from the standard are acceptable, whereas in others a slight deviation may be more serious
  • with principle of exception, only exceptional cases require corrective action
  • the principle is important in controlling
  • The manager is not concerned with performance that equals or closely approximates the expected results.
  • managers can save much time and effort if they apply the principle of exception.
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10
Q

BUREAUCRATIC CONTROL SYSTEMS

principle of exception

A
  • A managerial principal stating that control is enhanced by concentrating on the exceptions to or significant deviations from the expected results or standard
  • in comparing performance with the standard, managers need to direct their attention to the exception – for example, a handful of defective components produced on an assembly line or the feedback from customers who are upset or delighted with a service.
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11
Q

BUREAUCRATIC CONTROL SYSTEMS

4. Taking Action to Correct Problems and Reinforce Successes

A
  • this step ensures that operations are adjusted to achieve the planned results – or to continue exceeding the plan if the manager determines that is possible
  • in cases in which significant variances are discovered, the manager usually takes immediate and vigorous action
  • when corrective action is needed to solve a systemic problem, such as major delays in workflow, often a team approach is most effective
  • A corrective action is more likely to have greater acceptance in the organization if it is based on a common effort and takes into account multiple points of view
  • knowledgeable team members can often prevent managers from implementing simplistic solutions that don’t address the underlying causes of a problem
  • they are more likely to take into account the effects of any solution on other parts of the organization, preventing new problems from arising later
  • and they may well develop solutions that managers might not have considered on their own
  • as a result, any corrective action that is finally adopted will probably be more effective
  • an important added benefit of bringing employees together to develop corrective action is that it helps managers build and reinforce an organizationwide culture of high standards
  • after trying corrective action, a growing number of organizations conduct an after action review
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12
Q

BUREAUCRATIC CONTROL SYSTEMS

after-action review

A
  • a frank and open-minded discussion of four basic questions aimed at continuous improvement
  • questions for an after-action review :
    1. What were our intended results? (What was planned?)
    2. What were our actual results? (What really happened?)
    3. What caused our results? (Why did it happen?)
    4. What will we sustain? Improve? (What can we do better next time?)
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13
Q

BUREAUCRATIC CONTROL SYSTEMS

feedforward control

A
  • The control process used before operations begin, including policies, procedures, and rules designed to ensure that planned activities are carried out properly
  • examples include inspection of raw materials and proper selection and training of employees
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14
Q

BUREAUCRATIC CONTROL SYSTEMS

concurrent control

A
  • The control process used while plans are being carried out, including directing, monitoring, and fine-tuning activities as they are performed
  • is in effect when supervisors watch employees to ensure they work efficiently and avoid mistakes
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15
Q

BUREAUCRATIC CONTROL SYSTEMS

feedback control

A
  • Control that focuses on the use of information about previous results to correct deviations from the acceptable standard
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16
Q

BUREAUCRATIC CONTROL SYSTEMS

management audit

A
  • an evaluation of the effectiveness and efficiency of various systems within an organization
  • management audits may be internal or external
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17
Q

BUREAUCRATIC CONTROL SYSTEMS

external audit

A
  • an evaluation conducted by one organization, such as a CPA firm, on another
  • any company can conduct external audits of competitors or other companies for it’s own strategic decision making purposes
  • this type of analysis :
    1. Investigates other organizations for possible merger or acquisition
    2. Determines the soundness of a company that will be used as a major supplier
    3. Discovers the strengths and weaknesses of a competitor to maintain or better exploit the competitive advantage of the investigating organization
  • publicly available data usually are used for these evaluations
  • Provide an essential feedback control when they identify legal and ethical lapses that could harm the organization and its reputation
  • they are also useful for preliminary control because they can prevent problems from occurring
  • if a company seeking to acquire other businesses gathers adequate, accurate information about possible candidates, it is more likely to acquire the most appropriate companies and avoid unsound acquisitions
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18
Q

BUREAUCRATIC CONTROL SYSTEMS

internal audit

A
  • A periodic assessment of a company’s own planning, organizing, leading, and controlling processes
  • assesses :
    1. What company has done for itself
    2. What it has done for its customers or other recipients of its goods or services
  • The company can be evaluated on a number of factors, including financial stability, production efficiency, sales effectiveness, human resources development, earnings growth, energy use, public relations, civic responsibility, and other criteria of organizational effectiveness
  • The audit reviews the company’s past, present, and future, including any risks the organization should be prepared to face
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19
Q

BUREAUCRATIC CONTROL SYSTEMS

budgeting

A
  • The process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences
  • A primary consideration for budgeting is the length of the budget.
  • all budgets are prepared for a specific time period; Many budgets cover one, three, or six months or one year
  • The budge period Commonly coincides with other control devices such as managerial reports, balance sheets, and statements of profit and loss
  • in addition, the extent to which reasonable forecast can be made to be considered in selecting the length of the budgets
  • several stages :
    • expectancies – starts with a broad plan for the company and the estimate of sales, and it ends with budget approval and publication
    • next, the budgetary operations stage deals with finding out what is being accomplished and comparing the results with expectancies
    • The last stage, as in any control process, involves responding appropriately with some combination of reinforcing successes and correcting problem
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19
Q

BUREAUCRATIC CONTROL SYSTEMS

Types of Budgets

A
  1. Sales budget - usually data for the sales budget include forecasts of the sales by month, sales area, and product.
  2. Production budget - The production budget commonly is expressed in physical units. Required information for preparing this budget includes types and capacities of machines, economic quantities to produce, and availability of materials.
  3. Cost budget - The cost budget is used for areas of the organization that incur expenses but no revenue, such as human resources and other support departments. Cost budgets may also be included in the production budget. Costs may be fixed, or independent of the immediate level of activity (such as rent), or variable, rising or falling with the level of activity (such as raw materials).
  4. Cash budget - the cash budget is essential to every business. It should be prepared after all other budget estimates are completed. The cash budget shows the anticipated receipts and expenditures, the amount of working capital available, the extent to which outside financing may be required, and the periods and amounts of cash available.
  5. Capital budget - The capital budget is used for the cost of fixed assets such as plants and equipment. Such costs are usually treated not as regular expenses but as investments because of their long-term nature and importance to the organization’s productivity.
  6. Master budget - The master budget includes all the major activities of the business. It brings together and coordinates all the activities of the other budgets and can be thought of as a budget of budgets.
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20
Q

BUREAUCRATIC CONTROL SYSTEMS

accounting audits

A
  • procedures used to verify accounting reports and statements
  • is performed by members of an outside firm of public accountants
  • knowing that accounting records are accurate, true, and in keeping with generally accepted accounting processes (GAAP) creates confident that a reliable base exists for sound overall controlling purposes
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21
Q

BUREAUCRATIC CONTROL SYSTEMS

activity-based costing (ABC)

A
  • A method of cost accounting designed to identify streams of activity and then to allocate costs across particular business processes according to the amount of time employees devote to particular activities
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22
Q

BUREAUCRATIC CONTROL SYSTEMS

balance sheet

A
  • A report that shows the financial picture of a company at a given time and itemizes assets, liabilities, and stockholders’ equity
  • summarizing balance sheet items over a long period of time uncovers important trends and gives a manager further insight into overall performance and areas in which adjustments need to be made
  • Assets = Liabilities + Stockholders’ Equity
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23
Q

BUREAUCRATIC CONTROL SYSTEMS

assets

A
  • The values of the various items the corporation owns
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25
Q

BUREAUCRATIC CONTROL SYSTEMS

liabilities

A
  • The amounts a corporation owes to various creditors
26
Q

BUREAUCRATIC CONTROL SYSTEMS

stockholders’ equity

A
  • The amount accruing to the corporation’s owners
27
Q

BUREAUCRATIC CONTROL SYSTEMS

profit and loss statement

A
  • an itemized financial statement of the income and expenses of a company’s operations
28
Q

BUREAUCRATIC CONTROL SYSTEMS

current ratio

A
  • a liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities
  • current assets to current liabilities ration; also called net working capital ratio
29
Q

BUREAUCRATIC CONTROL SYSTEMS

debt-equity ratio

A
  • A leverage ratio that indicate the company’s ability to meet its long-term financial obligations
30
Q

BUREAUCRATIC CONTROL SYSTEMS

return on investment (ROI)

A
  • A ratio of profit to capital used, or a rate of return from capital
  • this ratio allows managers and shareholders to assess how well the firm is doing compared with other investments
31
Q

BUREAUCRATIC CONTROL SYSTEMS

management myopia

A
  • focusing on short-term earnings and profits at the expense of longer-term strategic obligations
32
Q

THE OTHER CONTROLS : MARKETS AND CLANS

transfer price

A
  • Price charged by one unit for a good or service provided to another unit within the organization
  • ideally, the transfer price reflects the price that the receiving business unit would have to pay for that product or service in the marketplace
33
Q

THE OTHER CONTROLS : MARKETS AND CLANS

balanced scorecard

A
  • Control system combining four sets of performance measures: financial, customer, business process, and learning and growth
34
Q

REVIEW

Explain why companies develop control systems for employees.

A
  • Left to their own devices, employees may act in ways that do not benefit the organization.
  • Control systems are designed to eliminate idiosyncratic behavior and keep employees directed toward achieving the goals of the firm.
  • Control systems are a steering mechanism for guiding resources and for helping each individual act on behalf of the organization.
35
Q

REVIEW

Summarize how to design a basic bureaucratic control system.

A
  • The design of a basic control system involves four steps:
    1. Setting performance standards
    2. Measuring performance
    3. Comparing performance with the standards
    4. Eliminating unfavorable deviations by taking corrective action
  • Performance standards should be valid and should cover issues such as quantity, quality, time, and cost.
  • Once performance is compared with the standards, the principle of exception suggests that the manager needs to direct attention to the exceptional cases that have significant deviations.
  • Then the manager takes the action most likely to solve the problem.
36
Q

REVIEW

Describe the purposes for using budgets as a control device.

A
  • Budgets combine the benefits of feedforward, concurrent, and feedback controls.
  • They are used as an initial guide for allocating resources, a reference point for using funds, and a feedback mechanism for comparing actual levels of sales and expenses with their expected levels.
  • Recently companies have modified their budgeting processes to allocate costs over basic processes (such as customer service) rather than to functions or departments.
  • By changing the way they prepare budgets, many companies have discovered ways to eliminate waste and improve business processes.
37
Q

REVIEW

Define basic types of financial statements and financial ratios used as controls.

A
  • The basic financial statements are the balance sheet and the profit and loss statement.
  • The balance sheet compares the value of company assets to the obligations the company owes to owners and creditors.
  • The profit and loss statement shows company income relative to costs incurred.
  • In addition to these statements, companies look at liquidity ratios (whether the company can pay it’s short-term debts), leverage ratios (the extent to which the company is funding operations by going into debt), and profitability ratios (profit relative to investment).
  • These ratios provide a goal for managers as well as a standard against which to evaluate performance.
38
Q

REVIEW

List procedures for implementing effective control systems.

A
  • To maximize the effectiveness of controls, managers should :
    1. Establish valid performance standards
    2. Provide adequate information to employees
    3. Ensure acceptability
    4. Maintain open communication
    5. See that multiple approaches are used (such as bureaucratic, market, and clan control)
39
Q

REVIEW

Identify ways in which organizations use market control mechanisms.

A
  • Market controls can be used at the level of the corporation, the business unit or department, or the individual.
  • At the corporate level, business units are evaluated against one another based on profitability.
  • At times, less profitable businesses are sold while more profitable businesses receive more resources.
  • Within business units, transfer pricing may be used to approximate market mechanisms to control transactions among departments.
  • At the individual level, market mechanisms control the wage rate of employees and can be used to evaluate the performance of individual managers.
40
Q

REVIEW

Discuss the use of clan control in an empowered organization.

A
  • Approaching control from a centralized, mechanistic viewpoint is increasingly impractical.
  • In today’s organizations, it is difficult to program one best way to approach work, and it is often difficult to monitor performance.
  • To be responsive to customers, companies must harness the expertise of employees and give them freedom to act on their own initiative.
  • To maintain control while empowering employees, companies should
    1. Use self-guided teams
    2. Allow decision making at the source of the problems
    3. Build trust and mutual respect
    4. Base control on a guiding framework
    5. Use incentive systems that encourage teamwork
41
Q

QUESTIONS

Describe three types of control systems.

A

-

42
Q

QUESTIONS

What types of control systems have you seen in operation in your organization (or one you know well)?

A

-

43
Q 
QUIZ 
Bureaucratic control deals with:
(A) economic forces
(B) pricing mechanisms 
(C) values and beliefs
(D) rules and regulations 
(E) exchange relationships
A

ANSWER

(D) rules and regulations

44
Q 
QUIZ 
\_\_\_\_\_\_ control systems are designed to measure progress toward set performance goals, and if necessary, to apply corrective measures to ensure that performance achieves managers' objectives.
(A) bureaucratic 
(B) clan
(C) pricing
(D) market
(E) informal
A

ANSWER

(A) bureaucratic

45
Q 
QUIZ 
Control based on the norms, values, shared goals, and trust among group members is referred to as \_\_\_\_\_\_ control. 
(A) feedforward 
(B) market
(C) clan 
(D) concurrent 
(E) feedback
A

ANSWER

(C) clan

46
Q 
QUIZ 
A control system that combines four sets of performance measures - financial, customer, business process, and learning and growth - is referred to as a(n) \_\_\_\_\_\_.
(A) input control system
(B) balance sheet
(C) output control system
(D) balanced scorecard
(E) equilibrium record
A

ANSWER

(D) balanced scorecard

47
Q

QUIZ
In order to gain employment acceptance of a control system, manager should:
(A) make their own decisions while setting performance standards
(B) set performance standards that employees view as possible to achieve
(C) tell employees that they need not necessarily use the standards
(D) Focus on controlling negative behavior than enforcing positive behavior
(E) set standards low enough that all employees can easily meet them

A

ANSWER

(B) set performance standards that employees view as possible to achieve

48
Q 
QUIZ 
A common disadvantage of \_\_\_\_\_\_\_ control is the long time lags that often occur between performance and review, slowing down managerial response.
(A) output
(B) feedback
(C) reactionary
(D) corrective
(E) concurrent
A

ANSWER

(B) feedback

49
Q 
QUIZ 
When legal experts advise companies to establish policies forbidding disclosure of proprietary information, they are exercising \_\_\_\_\_ control.
(A) market
(B) feedforward 
(C) concurrent
(D) feedback 
(E) clan
A

ANSWER

(B) feedforward

50
Q

QUIZ
To increase the likelihood that employees will accept a control system, it should have performance standards that are :
(A) descriptive and idealized
(B) established solely by the top management
(C) bureaucratic and authoritative
(D) not directly measurable
(E) useful and achievable

A

ANSWER

(E) useful and achievable

51
Q

QUIZ
Which of the following should be the subsequent step in a typical control process after setting performance standards?
(A) reinforcing successes
(B) taking actions to correct problems
(C) determining deviations
(D) measuring performance
(E) comparing performance against the standards

A

ANSWER

(D) Measuring performance

52
Q 
QUIZ 
The principle of \_\_\_\_\_\_\_ states that only cases with significant deviation from the standard require corrective action, and that managers need not be concerned with performance that equals or closely approximates the expected results.
(A) standards
(B) exception
(C) significance
(D) deviation 
(E) correction
A

ANSWER

(B) exception

53
Q 
QUIZ 
\_\_\_\_\_\_\_ has become and essential part of clan control because employees' jobs, the nature of management, and the employment relationship have all changed.
(A) transfer pricing
(B) activity-based costing
(C) empowerment
(D) zero tolerance for mistakes
(E) rigid behavior
A

ANSWER

(C) empowerment

54
Q 
QUIZ 
\_\_\_\_\_\_\_ is designed to reduce defects and all organization processes – not just product defects but anything that may result in customer dissatisfaction.
(A) vroom model
(B) organizational ambidexterity 
(C) after-action review
(D) six sigma
(E) a quality circle
A

ANSWER

(D) six sigma

55
Q 
QUIZ 
\_\_\_\_\_\_ refers to focusing on short-term earnings and profits at the expense of longer-term strategic obligations.
(A) goal displacement 
(B) groupthink 
(C) feedforward control 
(D) social loafing
(E) management myopia
A

ANSWER

(E) management myopia

56
Q 
QUIZ 
Which of the following control takes place before operations begin?
(A) feedback control
(B) clan control
(C) feedforward control
(D) concurrent control
(E) initial control
A

ANSWER

(C) feedforward control

57
Q 
QUIZ 
When an organization investigates several companies as potential new suppliers, it is conducting a(n) \_\_\_\_\_ audit.
(A) external
(B) six sigma
(C) production 
(D) activity-based
(E) quality control
A

ANSWER

(A) external

58
Q 
QUIZ 
Which of the following types of control systems depends on pricing mechanisms and economic information to regulate activities within an organization?
(A) feedforward control
(B) bureaucratic control
(C) market control
(D) clan control
(E) feedback control
A

ANSWER

(C) market control

59
Q 
QUIZ 
Periodically assessing a company's own planning, organizing, leading, and controlling efforts is the essential function of \_\_\_\_.
(A) feedforward control
(B) competitive audits
(C) strategic audits
(D) feedback control
(E) internal audits
A

ANSWER

(E) internal audits

60
Q 
QUIZ 
The control process used while plans are being carried out, including directing, monitoring, and fine-tuning activities as they are performed, is referred to as \_\_\_\_\_\_\_ control.
(A) market
(B) feedforward 
(C) preliminary 
(D) concurrent 
(E) feedback
A

ANSWER

(D) concurrent

61
Q 
QUIZ 
The final step in the control process is:
(A) comparing performance with standards
(B) taking corrective action
(C) Setting performance standards
(D) determining deviations
(E) measuring performance
A

ANSWER

(B) taking corrective action

62
Q 
QUIZ 
Which of the following is the first major step in the formal control process?
(A) comparing performance with standards
(B) developing values
(C) measuring performance 
(D) taking corrective action
(E) setting standards
A

ANSWER

(E) setting standards

Principles Of Management (15 decks)

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