Chapter 14: Managerial Control

Vocabulary terms and definitions related to managerial control, including bureaucratic, market, and clan strategies, financial reporting, and performance measurement systems.

Control

Any process that directs the activities of individuals toward the achievement of organizational goals.

Bureaucratic Control

The use of rules, regulations, and authority to guide performance, measuring progress toward goals and applying corrective measures.

Market Control

The use of pricing mechanisms and economic information to regulate activities within organizations.

Clan Control

Control based on the norms, values, shared goals, and trust among group members.

Standards

Targets that establish desired performance levels, motivate performance, and serve as benchmarks against which to assess actual performance.

Principle of Exception

A managerial principle stating that control is enhanced by concentrating on the exceptions to or significant deviations from the expected result or standard.

Feedforward Control

A control approach that takes place before operations begin.

Concurrent Control

A control approach that takes place while plans are being carried out.

Feedback Control

Control that focuses on the use of information about results to correct deviations from the acceptable standard after they arise.

Six Sigma

A process operating at a 99.99966 \text{%} level of accuracy, producing fewer than $3.4$ defects per million opportunities.

Management Audit

An evaluation of the effectiveness and efficiency of various systems within an organization.

External Audit

An investigation of other organizations for mergers, acquisitions, supplier soundness, or competitor strengths and weaknesses.

Internal Audit

An assessment of what a company has done for itself and its customers or other recipients of its goods and services.

Triple Bottom Line

A measure of sustainability evaluating a company’s financial performance, environmental impact, and impact on people and communities.

Budgeting

The process of investigating what is being done and comparing the results with the corresponding budget data; also called budgetary controlling.

Accounting Audits

Procedures used to verify accounting reports and statements.

Activity-Based Costing (ABC)

A method of cost accounting designed to allocate costs across business processes according to the time employees devote to particular activities.

Balance Sheet

A report that shows the financial picture of a company at a given time and itemizes assets, liabilities, and stockholders’ equity.

Liabilities

The amounts a corporation owes to various creditors.

Assets

The values of the various items the corporation owns.

Stockholders’ Equity

The amount accruing to the corporation’s owners.

Profit and Loss Statement

An itemized financial statement of the income and expenses of a company’s operations.

Current Ratio

A liquidity ratio that indicates the extent to which short-term assets can decline and still be adequate to pay short-term liabilities.

Debt–equity Ratio

A leverage ratio that indicates the company’s ability to meet its long-term financial obligations.

Return on Investment (ROI)

A ratio of profit to capital used, or a rate of return from capital.

Management Myopia

When managers focus on short-term earnings and profits at the expense of long-term strategic goals.

Balanced Scorecard

A control system combining four sets of performance measures: financial, customer satisfaction, business process, and learning and growth.

Vanity (Performance Measurement Pitfall)

Using measures that make managers and the organization look good.

Provincialism (Performance Measurement Pitfall)

Limiting measures to functional/departmental responsibilities rather than the organization’s overall objectives.

Narcissism (Performance Measurement Pitfall)

Measuring from the employee’s, manager’s, or company’s viewpoint rather than the customer’s.

Laziness (Performance Measurement Pitfall)

Neglecting to expend the effort to identify what is important to measure.

Pettiness (Performance Measurement Pitfall)

Measuring just one component of what affects business performance.

Inanity (Performance Measurement Pitfall)

Failing to consider the way standards will affect real-world human behavior and company performance.

Frivolity (Performance Measurement Pitfall)

Making excuses for poor performance rather than taking performance standards seriously.

Transfer Price

An internal charge by one organizational unit for a good or service that it supplies to another unit.