management chapter 19

Comparing performance against standards

-Define what is permissible deviation from the performance standard -utilize the appropriate timetable for measurement

Steps in the control process

-Establishing standards -measuring performance -comparing performance against standards -considering corrective action

developing budgets

-Top management generally issues a call for budget requests -Each operating unit submits request to division head -Division head integrates and consolidates all requests into one overall division budget

considering corrective action

-maintain the status quo -correct the deviation to bring operations into compliance with the standard -change the standard if it was set too high or too low

measuring performance

-performance measurement is an ongoing process -performance measures must be valid indicators of performance

Bureaucratic control

A form of organizational control characterized by formal and mechanistic structural arrangements

Audit

An independent appraisal of an organization's accounting, financial, and operational systems

preliminary control

Attempts to monitor the quality or quantity of financial, physical, human, and information resources before they actually become part of the system

Strategic control

Control aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals ▪ Focuses on structure, leadership, technology, human resources, and informational and operational systems ▪ Focuses on the extent to which an implemented strategy achieves the organization's goals

centralized system

Each organizational unit is responsible for reporting results of performance to headquarters

financial budget

Indicates where organization will get cash and how to use it

post-action control

Monitors the outputs or results of the organization after the transformation process is complete

rewards for inefficiency

Rewarding operational inefficiency can lead employees to behave in ways that are not in the best interests of the organization

inappropriate focus

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

Control

The regulation of organizational activities in such a way as to facilitate goal attainment without which they would have no indication of how well they are preforming

objectivity

a control system must be free from bias and distortion

timeliness

a control system should provide information as often as necessary

Budgets

a plan expressed in numerical terms • Budgets may be established at any organizational level. • Budgets are typically for one year or less • Budgets may be expressed in financial terms, units of output, or other quantifiable factors

controllers

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

financial statement

a profile of some aspect of an organization's financial circumstances

Income statement

a summary of financial performance over a period of time, usually one year

control standard

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

Decentralized control

an approach to organizational control that is characterized by informal and organic structural arrangements

internal audits

appraisals conducted by employees of the organization

structural control

concerned with how the elements of the organizations structure are serving their intended purpose

financial control

concerned with the organizations financial resources

too much accountability

efficient controls are resisted by poorly performing employees

External audits

financial appraisals conducted by experts who are not employees of the organization

strategic control

focuses on how effectively the organization's strategies are succeeding in helping the organization meet its goals

operations control

focuses on the processes that the organization uses to transform resources into products or services

Operations control

focuses on the processes the organization uses to transform resources into products or services

operating employees

help maintain effective control by giving workers responsibility for correcting their own mistakes

accuracy

inaccurate information results in bad decision making and inappropriate managerial actions

nonmonetary budget

includes units of outputs, hours of direct labor, machine hours. Most commonly used at lower levels of the organization

Physical resources

inventory management, quality control, and machinery and equipment controls

Balance sheet

list of assets and liabilities of an organization at a specific point in time

Responsibilities of control

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

financial resources

managing capital funds and cash flow, collection and payment of debts

operating budget

outlines what quantities of products or services organization intends to produce and what resources will be used to produce them

The purposes of control

provide organizations with indications of how well they are performing in relation to their goals

Screening control

relies heavily on feedback processes during the transformation activity

information resources

sales and marketing forecasts, environmental analysis, production scheduling, and economic forecasting

Human resources

selectiong and placement, training and development, performance appraisal, ethical behavior, and compensation

ratio analysis

the calculation of one more financial ratio to assess some aspect of the organization's financial health -liquidity ratios show how readily the firm's assets can be converted to cash -debt ratios reflect the firm's ability to meet long-term financial obligations

flexibility

the control system must be flexible enough to accommodate change

Integration with planning

the more control is linked to planning, the more effective the control system

overcontrol

trying to control too many details affects employee behavior when employees perceive control attempts as unreasonable

weaknesses of budgeting

• Budgets can hamper operations if applied too rigidly. • Budgets can be time-consuming to develop. • Budgets can limit innovation and change

Strengths of budgeting

• Budgets facilitate effective operational controls. • Budgets facilitate coordination and communication between departments. • Budgets establish records of organizational performance, which can enhance planning

Control of financial resources

• Flow into the organization • Are held by the organization as working capital and retained earnings • Flow out of the organization as payment of expenses

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 organizational units

Decentralized system

• Reports are less often and, in less detail, • May submit quarterly summaries and full statement just once per year • Helps to foster innovation