Page 384 - Business Principles and Management

Chapter 14 • Implementing and Controlling

Generally, businesses pay more attention to cost
controls than to any other type of control. The control business note
devices used, as a result, are numerous. One of the main
purposes of the accounting department is to provide
detailed cost information. This is why the head of an Effective controlling requires that managers
accounting department is often called a controller. Most study a large amount of numerical data,
managers, however, act as cost controllers in some way. determine its meaning, and make good deci-
Increasingly, employee work teams and individual em- sions based on that information. An impor-
ployees are assigned responsibility for cost controls. tant business skill is understanding data
The most widely used controlling device is the
budget. Like schedules and standards, budgets are presented in a number of forms—tables,
graphs, charts, and even unorganized or
also planning devices. When a budget is prepared, it “raw” data. Often simple statistics are used
is a planning device; after that, it is a controlling de- to summarize data, such as percentages,
vice. Actual cost information is collected and compared averages, and comparisons. Managers need
with budgeted amounts. These comparisons permit to understand how to review data to make
judgments about the success of planning efforts and sure the information is complete, unbiased,
provide clues for making changes that will help the and objective. They must make sure the
company reach its financial goals. Again, managers reports provide all the information needed
should not wait too long to check on costs. They can to understand the situation being studied.
take corrective action if they identify budget problems What experience have you had in reading
early. If they wait too long, the needed changes may and interpreting data? Have you had any
cause serious problems.
coursework in statistics?

MEASURING AND COMPARING PERFORMANCE
Standards become the basis for determining effective
performance. Managers gather information on all parts
of business operations for which they are responsible. They compare that infor-
mation against the standards to determine if performance is meeting the stan-
dards. A variance is a difference between current performance and the standard.
A variance can be positive (performance exceeds standard) or negative (perfor-
mance falls short of standard). Whenever a variance exists, managers must
identify the reasons for the difference.
Actual performance exceeding the standard may seem to be an ideal situa-
tion that requires no corrective action. However, it is important to understand
why the higher-than-expected performance occurred so that it can be repeated.
Or, perhaps the positive performance in one area of the business is having a neg-
ative effect on another area. In addition, managers should review the process for
developing standards to see why they set the standard lower than the performance
that could actually be achieved.
The greatest concern occurs when performance is lower than the standard.
That means that the company will probably not be able to perform at the expected
level. It also says that there are problems between planning and implementing
activities. Managers not only need to take corrective action as soon as possible
to improve performance but must review procedures carefully to avoid the same
problem in the future. Managers must be careful in the way they communicate the
problem to employees and how they take corrective action. If employees believe
the manager is blaming them for the poor performance, they may not be motivated
to help solve the problem. On the other hand, if employees do not recognize the
seriousness of the problem, they will continue the past level of performance, which
will not result in improvement.
Monitoring all activities for which managers are responsible can take a great
deal of time. Managers can use information systems to reduce the amount of time
spent on controlling. Computers can monitor performance and compare it to

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