MANA3335 MindTap Learn It: Chapter 14: Basic Elements of Control

Which of the following are ways in which managers can overcome employees' resistance to control? Check all that apply.

*Align control with the organization's strategy *Invite employees to help develop controls. *Make control systems flexible and objective {Since a common reason employees resist control is that they think it is misguided, managers can preempt the problem by making sure control aligns with the organization's strategy and plans and by communicating clearly how it aligns. Managers can also avoid creating the perception that control is unfair by making it flexible and objective. Flexibility allows managers to change control in response to changing circumstances, making for a fairer system; objectivity allows employees to know exactly what is expected of them. In addition, if employees have helped build the system, they are more likely to feel it is a good idea and participate in it willingly. Using a single measure for each dimension of performance may make the system unfair. Such a control system will be unable to distinguish among various reasons for poor performance, so managers may blame employees when another aspect of operations is at fault. Alternatively, employees may view control cynically, as a system to be gamed: "Just make your number, and management doesn't care what else you do."}

Which of the following are advantages of using budgets for financial control? Check all that apply.

*Budgets facilitate coordination among departments *Budgets assign dollar values to operational activities *Budgets are records of organizational performance {Some advantages of using budgets for control are: •They assign values to operations. •They facilitate coordination and communication among departments by describing different activities in the same units. •They maintain records of organizational performance and express how well the organization is performing relative to its plans. Budgets often need to change. New opportunities may arise to expend resources profitably. Also, certain expenditures may no longer make sense or no longer be feasible, e.g., if the organization's revenues are less than expected or money has to be diverted to other activities}

What is the function of a financial budget?

*It describes where the organization will obtain cash for the upcoming period and how it plans to use the money {A financial budget shows what the organization needs cash for in the upcoming period and how the organization will procure that cash}

The organization has little cash, nor could it easily convert other assets into cash.

*Liquidity {Liquidity ratios indicate how easily an organization could convert its assets into cash}

At which stage in the operations management process does the manager use postaction control?

*Outputs {The manager uses postaction control to monitor the outputs or results after transformation is complete}

Which of the following are common reasons managers use budgets? Check all that apply.

*To be able to evaluate individual and departmental performance *To provide guidance about resources and expectations *To define standards for control {Budgets are useful for many reasons: •They help define the established standards for control. •They provide guidelines about the organization's resources and expectations. •They enable the organization to evaluate the performance of managers and organizational units. Budgets also help managers coordinate their use of resources and the timing and interaction of projects; budgets don't reduce the need for coordination}

An audit that is conducted by a certified public accountant (CPA) who is not an employee of the organization is an ____________ audit.

*external {Audits for shareholders and to meet government requirements are typically performed by a CPA from outside the organization. These are called external audits}

An audit that is conducted by an employee of the organization is an __________ audit; the scope often includes an examination of the organization's financial and accounting procedures.

*internal {Organizations can task one or more employees with auditing the accounting, financial, and operational systems}

Which of the following are steps in the four-step control process? Check all that apply.

*Compare performance to preset standards *Determine whether corrective action is needed *Measure performance {These are the four steps of the control process: 1.Establish standards. 2.Measure performance. 3.Compare performance to the standards of step 1. 4.Determine whether corrective action is needed.}

A global organization decides that local offices need not report performance to the home office very often. In addition, corporate managers will not visit local sites regularly for the purpose of monitoring performance. Which approach to strategic control is this organization using?

*Decentralized approach {An organization chooses a decentralized approach when managers feel that allowing local units latitude to innovate is more important than monitoring performance and coordinating decision making}

Which of the following are characteristics of the bureaucratic approach to control? Check all that apply.

*Emphasis on individual performance *Emphasis on meeting minimum acceptable levels of performance *Concern for employee compliance with rules *A reliance on a rigid hierarchy {The bureaucratic approach to control is characterized by the following: •A focus on enforcing employee compliance •A reliance on strict rules and formal controls •A tall structure with a rigid hierarchy where influence is top-down •An emphasis on meeting minimum levels of performance •An emphasis on individual performance •Limited employee participation in decision making, through formal channels}

Under what circumstances should the control system provide information very frequently?

*When the environment is highly dynamic {Frequent reporting is helpful when the environment is rapidly changing, since operations that produced strong performance one day may perform poorly the next. Managers will want to stay on top of control so they can make adjustments as soon as there's an indication of a problem}

A document that summarizes financial performance over a period of time, presenting revenues, expenses, and net income, is _____________ .

*an income statement {Whereas a balance sheet lists the organization's assets and liabilities as of a certain date, the income statement reports at a high level on the organization's financial activity and result (profit or loss)}

A manager who is responsible for coordinating the organization's control system and helping other managers with control activities is a ____________ .

*controller {This statement describes the job of the controller, a specialized management position found in most large organizations}

The aviation electronics department is not running effectively.

*Operating {Operating ratios indicate the effectiveness of specific functional areas of the organization. They often compare the department's operating expenses plus cost of goods sold to the net sales of those goods}

The focus is on the transformation of inputs into products or services.

*Screening control {Screening control focuses on how well the transformation process makes products or services that meet quality and quantity standards}

The focus is on inputs.

*Preliminary control {Preliminary control focuses on the quality and quantity of inputs to the transformation process. For example, a manager will ensure that capable workers are in place and materials of sufficient quantity and quality are procured}

The consumer electronics department is running effectively.

*Operating {Operating ratios indicate the effectiveness of specific functional areas of the organization. They often compare the department's operating expenses plus cost of goods sold to the net sales of those goods}

An organization design characterized by informal and organic structural arrangements is consistent with ______________ .

*decentralized control {Decentralized control foregoes formal control mechanisms and instead relies on employee participation in and commitment to control}

The focus is on the outputs of the transformation process.

*Postaction control {Postaction control focuses on whether outputs—that is, products or services—meet the established standards for quality and quantity. If customer complaints are below a certain threshold, for example, then performance is determined to be satisfactory}

Which of the following are disadvantages of using budgets for financial control? Check all that apply.

*Making accurate budgets can be very time-consuming *Managers may be reluctant to change budgets when needed *Budgets can limit innovation by specifying expenditures in advance {Some disadvantages of using budgets for control are: •Managers may be reluctant to change their budgets when environmental circumstances require change. •Assembling the information needed, coordinating with other managers, and performing calculations can make budgeting very time-consuming. •By virtue of being plans for the future, budgets may lock in resource expenditures. If there is no process for adding money for new ideas to the budget, these ideas may never be developed.}

The organization is earning relatively little profit from a certain type of asset.

*Return {Return ratios show how much value the organization is generating relative to its investment in assets. Different return ratios may be calculated for different types of assets, and they may use different metrics for "return," such as net income or operating profit}

Why might the information a manager uses for control be inaccurate?

*Information may be distorted by subordinates acting in their self-interest {One reason the information that reaches managers is may be inaccurate is that subordinates consciously or unconsciously bias the information they report in their favor. Another reason is that business systems may not capture or report data correctly. Too-frequent reporting may be annoying but it does not relate to the accuracy of the data. The same applies to irrelevant data: it's not helpful, but it may be perfectly correct. If different sources of information seem to tell different stories, that may be evidence of inaccuracy, but it is not a reason for the inaccuracy. It is essential for the manager to investigate the reason for the variance. It might be that different data sources are revealing different dimensions or causes of performance}

In the last step of the control process, managers determine whether there is a need for corrective action. Depending on what the managers find, what are their options? Check all that apply.

*Make no change *Try to improve performance *Adjust the standards to be more realistic {Managers compare performance against a preset standard and then determine whether corrective action is needed. If performance is meeting the standard, managers will likely decide that no change is needed. If performance is not up to standard, managers may make changes to try to improve performance. Alternatively, they may decide that the standard is unrealistic and lower it. If performance greatly exceeds the standard, managers might decide that the standard is not ambitious enough and adjust it upward. It is possible that, after the organization has worked hard to meet certain standards of performance, senior managers will decide that the organization's strengths simply do not align with the performance they are trying to achieve. At this point, top managers may reevaluate whether their strategy is a good one. However, this decision making is outside the scope of the control process}

The organization's assets of a certain kind are generating a large amount of profit.

*Return {Return ratios show how much value the organization is generating relative to its investment in assets. Different return ratios may be calculated for different types of assets, and they may use different metrics for "return," such as net income or operating profit}

If managers discover that aspects of the organization are not functioning in a way that supports the organization's strategy, what should the managers do next?

*They should evaluate what changes are needed to the organization or its strategy {The purpose of strategic control is to learn whether the organization is functioning in a way that supports achievement of its strategy. If managers discover through the control process that this is not occurring, their next step is to consider what to change. There are many options, none of which should be chosen before careful thought}

The organization's balance sheet and income statement are examples of __________ , because they outline aspects of the organization's financial circumstances.

*financial statements {The balance sheet and income statement are both financial statements. Such statements are usually audited, and an audit report will be produced to describe the statements' accuracy. A budget is a different, forward-looking document. Ratio analysis is a comparison of one financial measure to another in the form of a ratio}

The level of control concerned with how well the organization's highest-level plans are helping the organization meet its goals ____________ control.

*strategic {Strategic control seeks to monitor and improve how well the organization's corporate, business, and functional strategies are helping it meet its goals. This level of control usually focuses on structure, leadership, technology, human resources, and information and operational control systems}

A document that lists the assets and liabilities of the organization at a specific point in time is __________ .

*a balance sheet {One key difference between a balance sheet and an income statement is that the balance sheet is a snapshot at a point in time, whereas the income statement describes activity over a period of time}

The organization will have difficulty meeting its long-term obligations to creditors.

*Debt {Debt ratios reflect the organization's ability to meet long-term financial obligations}

Which of the following are common reasons that employees resist control? Check all that apply.

*They feel overcontrolled *They do not want to be held accountable *They believe the control is misguided {Employees often resist control when they feel it is overbearing, intrusive, or directed at the wrong measure or behavior. Employees tend to feel uncooperative toward management decisions they believe are unreasonable or ill considered, and control is no different. Employees may also resist control for the self-serving reason of wanting to avoid accountability; this is especially the case for employees who are not meeting performance standards. Including employees in the design of the control system tends to increase their willingness to participate}

If management orders _________ , the result will be an independent appraisal of the organization's accounting, financial, and operational systems.

*an audit {An independent appraisal of the organization's accounting, financial, and operational systems is an audit. It may be done by an external expert or by an employee}

In step 1 of the control process, managers establish ____________ , a target expressed in measurable terms to which later performance will be compared.

* a control standard {As early as the planning process, managers should establish standards for performance. These control standards are the values that actual performance will be measured against. If performance does not meet the standard, then managers will either work to improve performance or adjust the standard. The control standard might be expressed as a ratio (e.g., number of defects to total parts manufactured). However, it might also be a percent change (e.g., 7% increase in sales), an integer (customer satisfaction score of 80), some other type of number, or even a more subjective value expressed in words}

In general terms, what is a budget?

*A plan that is expressed in numerical terms {A budget is a plan for future activity that is expressed in numbers, usually in dollars or other currency. A budget may be for the entire organization, for one unit of the organization, or even for a specific project}

Which of the following are true statements about the budget development process at most large organizations? Check all that apply.

*Once unit budgets are finalized, they are communicated to the appropriate managers *There are multiple levels of review where the budget is checked for errors and expenses are questioned *The organization's budget is approved by a budget committee that includes the controller and CEO {In large organizations, budgets are usually developed at the operating unit level and then communicated upward, where they go through multiple rounds of review until they are approved by a group of top leaders, including usually the CEO and controller. At that time, the approved unit budgets are communicated to the respective unit managers so that tactical and operational planning can begin and the money can be spent as intended}

The level of control concerned with how well the elements of the organization's structure serve their intended purpose is ____________ control.

*structural {Structural control seeks to monitor and improve the alignment of the organization's design with its strategic goals}