Chapter 14 - Basic Elements of Control - Principles of Management

Centralized system

- Each organizational unit is responsible for reporting results of performance to headquarters - Frequent visits to foreign branches

Purposes 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

Objectivity

A control system must be free from bias and distortion

Timeliness

A control system should provide information as often as necessary

Bureaucratic control

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

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

Controller

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

Decentralized control

An approach to organizational control characterized by informal and organic 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

Structural control

Concerned with how the elements of the organization's structure are serving their intended purpose

Financial control

Concerned with the organization's financial resources

Strategic control

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

Too much accountability

Efficient controls are resisted by poorly performing employees.

Control of financial resources

Ex.(revenues, shareholder investment) as they: - Flow into the organization - Are held by the organization as working capital and retained earnings - Flow out of the organization as payment of expenses

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

Accuracy

Inaccurate information results in bad decision making and inappropriate managerial actions

Non-monetary budget

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

Financial budget

Indicates where organization will get cash and how to use it

Physical resources Control

Inventory management, quality control, and equipment control

Balance sheet

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

Financial resources

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

Postaction control

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

Operating budget

Outlines what quantities of products or services organization intends to create and what resources will be used to create 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 process. Ex.(Effective way to promote employee participation and catch problems early in the transformation process)

Rewards for inefficiency

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

Information resources

Sales and marketing forecasts, environmental analysis, public relations, production scheduling, and economic forecasting

Human resources control

Selection and placement, training and development, performance appraisal, and compensation

Ratio analysis

The calculation of one or more financial ratios to assess some aspect of the organization's financial health

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

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.

Control

The regulation of organizational activities in such away as to facilitate goal attainment

Overcontrol

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

Internal audits

appraisals conducted by employees of the organization

External audits

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

Operating employees

help maintain effective control• Resolve quality issues, assembly line processes

Debt ratios

reflect the firm's ability to meet long-term financial obligations

Liquidity ratios

show how readily the firm's assets can be converted to cash