Management & Organization: Ch. 14 Basic Elements of Control

purpose of budgets

-help coordinate resources and projects -help define the established standards for control -provide guidelines about resources and expectations -evaluate the performance of managers and org units

Purposes of Control

1. a properly designed control system can help managers anticipate, monitor, and respond to a changing environment 2. over time, small mistakes may accumulate and become serious; an adequate control system will help limit this 3. as organizations expand and create a variety of products, control helps them to cope with organizational complexity 4. control can help to minimize costs, reduce waste and improve productivity

strengths and weaknesses of budgeting

STRENGTHS: -budgets facilitate effective operational controls -budgets facilitate coordination and communication between departments -budgets establish records of organizational performance which can enhance planning WEAKNESSES -budgets can hamper operations if applied too rigidly -budgets can be time consuming to develop -budgets can limit innovations and change

controller

a person in organizations that helps line managers with their control activities

financial statements

a physical statement is a profile of some aspect of an org's financial circumstances -balance sheet -income statement

strategic control

aims to maintain effective alignment with the environment and achieving strategic goals; focuses on structure, leadership, tech, HR, and informational operating systems; focuses on extent to which an implemented strategy achieves the orgs goals

decentralized control

an approach to org control characterized by informal and organic structural arrangements

preliminary control

attempts to monitor the quality of financial, physical, human and information resources before they actually become part of the system; thus preliminary control concentrates on inputs to the system early in the overall process

operating budgets

concerned with planned operations within the organization ex: sales budgets and expense budgets

levels of control

control can also be classified by level, such as operations, financial, structural or strategic control

Areas of control

control is concerned with efficiently and effectively combining an organization's physical, human, information and financial resources into appropriate outputs

financial control

control of financial resources as they -flow into org -are held by org as working capital and retained earnings -flow out of the org as payment expenses

step 1 in the control process: establishing standards

control standard is a target against which subsequent performance will be compared -should be expressed in measurable terms -should be consistent with org goals -should be identifiable indicators of performance

step 3: comparing performance against standards

define what is permissible deviation from the performance standard; utilize the appropriate timetable for measurement

too much accountability

efficient controls are resisted by poorly performing employees

nonmonetary budgets

expressed in nonfinancial terms, such as units of output or hours of direct labor ex: production budgets and space budgets

operations control

focuses on the processes used to transform resources into products or services. most firms use multiple control systems

international strategic control

focuses on whether to manage the global org from a centralized or decentralized perspective -centralization creates more control and coordination whereas decentralization fosters adaptability and innovation

bureaucratic control

form of org control characterized by formal and mechanistic structural arrangements

financial budgets

indicate where the org expects to get its cash for the coming time period and how it plans to use it ex: balance sheet budgets and cash budgets

financial audit

is an independent appraisal of an org's accounting, financial and operational systems -external audits--financial appraisals conducted by experts who are not employees of the org -internal audits--appraisals conducted by employees of org

balance sheet

lists the assets and liabilities of an org at a specific point in time listing of assets, liabilities, stockholder's equity at a specific point in time that summarizes condition of the org

step 4: considering corrective action

maintain the status quo (do nothing); correct the deviation to bring operations into compliance with standard; change the standard if it was too high or low

responsibilities for control

managers are accountable for and involved in activities for which control is their responsibility

types of budgets

most organizations use three types of budgets 1. financial budgets 2. operating budgets 3. nonmonetary budgets

step 2: measuring performance

performance measurement is an ongoing process; must be valid indicators of performance (sales, costs, units produced)

budgetary control

plan expressed in numerical terms; budgets may be established at any org level; are typically for one year or less; may be expressed in financial terms,, units of output or other quantifiable factors

rewards for inefficiency

rewarding operational inefficiency can lead employees to behave in ways that are not in best interest of org

income statement

summarizes financial performance over a period of time summary of financial performance--revenues less expenses as net income--over a period of time, usually one year

inappropriate focus

the control system may be too narrow or it may focus too much on quantifiable variables and leave no room for analysis and interpretation

over control

trying to control too many details affects employee behavior when they see control as unreasonable