19: Basic Elements of Control

Organizations use three types of budgets

-A financial budget indicates where the cash will come from and plans to use the cash. -An operating budget is concerned with planned operations. -A nonmonetary budget expresses the budget in nonfinancial terms such as •units of output, hours of direct labor, machine hours, or square-foot allocations.

Structural Control

-Bureaucratic control •is characterized by formal and mechanistic structural arrangements.oIt follows the bureaucratic model with the goal of employee compliance. -Decentralized control •is based on informal and organic structural arrangements.

International strategic control

-Global organizations must take a pronounced strategic view of their control systems. -A basic question is whether to manage control from a centralized or decentralized perspective.

Ratio analysis

-Liquidity ratios. -Debt ratios. -Return ratios. -Coverage ratios. -Operating ratios.

Control is the responsibility of all managers

-Most organizations have one or more specialized managers called controllers. -A controlleris a position that helps line managers with their control activities. -Organizations are increasingly giving employees more control over their jobs.

Control can be broken down by level.

-Operations control •focuses on the processes used to transform resources into products and services. -Financial control •is concerned with financial resources. -Structural control •focuses on how structure serves its intended purpose. -Strategic control •focuses on if strategies are succeeding in meeting goals.

-Strategic control

-Strategic control •ensures the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals.

Financial Control

-is concerned with the organization's financial resources. -This means control of financial resources as they flow into the organization, •(revenues, shareholder investments) -are held by the organization •(working capital, retained earnings) -and flow out of the organization.•(pay, expenses)

Other Tools for Financial Control

A financial statement -is a profile of some aspect of an organization's financial circumstances. The balance sheet -is a list of assets and liabilities at a specific point in time. The income statement -is a summary of financial performance over a period of time, usually a year.

Characteristics of Effective Control

Explicit and precise linkages between planning and control. Flexible enough to accommodate changes. Must be based on accurate information. Provides information as often as necessary. Provided information must be as objective as possible.

Budget Strengths

Facilitate effective control. Facilitate coordination and communication between departments. Maintain records of performance and complement planning. Budgets link plans and control.

Operations control

Focuses on the processes used by the organization to transform inputs into finished products or services. The three forms of operations control are preliminary, screening, and postaction.

budget (budgetary control)

Is a plan expressed in numerical terms. Budgets serve four primary purposes. They help managers coordinate resources and projects. They help define the established standards for control. They provide guidelines about resources and expectations. Budgets allow evaluation of manager performance and organizational units.

control

Is the regulation of organizational activities in such a way as to facilitate goal attainment. Without this regulation, organizations have no indication of how well they are performing in relation to their goals.

Budget Weaknesses

Managers may fail to adjust budgets for changing circumstances. Developing budgets is very time consuming. Budgets may limit innovation and change

Types of Control

Organizations practice control -in a number of different areas, and -at different levels, and the -responsibility for managing control is widespread.

Resistance to Control

Overcontrol occurs when an organization tries to control too many things. -Employees resist. The control system may be too strict. If the organization rewards inefficiency, others resist. Some people resist increased accountability

Control areas

Physical, Human, Information, Financial Control can focus on any area of the organization but most define areas of control in terms of the four basic types of resources they use.

Operations Control2

Preliminary control -monitors the quality or quantity of financial, physical, human, and information resources before they become part of the system. Screening control -relies heavily on feedback processes during the transformation process. Postaction control -monitors the outputs or results of the organization after the transformation process is complete.

Overcoming Resistance to Control

The best way is to create effective control to begin with. Employee participation lowers resistance. Use checks and balances to ensure the system is providing data needed to compare to standards. Use multiple systems to crosscheck the accuracy of the control system reports.

audit

is an independent appraisal of an organization's accounting, financial, and operational systems. -External audits are conducted by experts who are not employees of the organization. •Publicly traded companies require regular audits .-Internal audits are handled by employees. •Its objectives are the same as an external audit, to verify the accuracy of financial and accounting procedures.