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Basic Elements of Control

Control and Its Nature 

The regulation of organizational activities so that some targeted element of performance remains within acceptable limits. 

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Provides organizations with indications of how well they are performing in relation to their goals. Provides a mechanism for adjusting performance to keep organizations moving in the right direction.

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Continued… 

Purpose of control: Control basically has four purposes: Adapt to environmental change

Limit the accumulation of error

Control helps the organization

Cope with organizational complexity

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Minimize costs

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Continued.. 

Types of Controls 

Areas of Control 

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Physical resources—inventory management, quality control, and equipment control. Human resources—selection and placement, training and development, performance appraisal, and compensation. Information resources—sales and marketing forecasts, environmental analysis, public relations, production scheduling, and economic forecasting. Financial resources—managing capital funds and cash flow, collection and payment of debts. S. M. Towhidur Rahman

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Continued… 

Types of Controls (cont’d)  Levels of Control Strategic control

Structural control

Operations control

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Financial control

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Continued… 

Responsibilities for Control 

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

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Responsibility for Control

Source: Van Fleet, David D., and Tim Peterson, Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permission.

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Steps in Control Process:

1 Establish standards

2 Measure performance

3 Compare performance against standards

Maintain the status quo

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Correct the deviation

Determine need for corrective action

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Change standards

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Continued… 

Establish Standards 

Control standard—a target against which subsequent performance will be compared.   

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Control standards should be expressed in measurable terms. Control standards should be consistent with organizational goals. Control standards should be identifiable indicators of performance.

Measure Performance  

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Performance measurement is an ongoing process. Performance measures must be valid indicators (e.g., sales, costs, units produced) of performance. S. M. Towhidur Rahman

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Continued… 

Compare Performance Against Standards 

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Define what is a permissible deviation from the performance standard. Utilize the appropriate timetable for measurement.

Determine the Need for Corrective Action  

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Maintain the status quo (do nothing). Correct the deviation to bring operations into compliance with the standard. Change the standard if it was set too high or too low.

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Operations Control 

Forms of operations control: Feedback Inputs

Transformation

Outputs

Preliminary control

Screening control

Postaction control

Focuses on inputs

Focuses on how

Focuses on outputs

to the organizational

inputs are being

from the organiza-

System

transformed into

tional system

outputs

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Financial Control 

Control of financial resources (i.e., revenues, shareholder investment) as they flow into the organization, are held by the organization (i.e., working capital, retained earnings), and flow out of the organization (i.e., payment of expenses).

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Financial Control (cont’d) 

Financial Control (cont’d) 

Budgetary Control    

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A budget is 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.

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Financial Control (cont’d) 

Financial Control (cont’d) 

Budgets serve four purposes:   

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Help managers coordinate resources and projects. Help define the established standards for control. Provide guidelines about the organization’s resources and expectations. Enable the organization to evaluate the performance of managers and organizational units. S. M. Towhidur Rahman

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Financial Control (cont’d) 

Types of Budgets Type of Budget

What Budget Shows

Financial budget

Sources and uses of cash

Cash-flow or cash budget

Capital-expenditures budget Balance-sheet budget

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All sources of cash income and cash expenditures in monthly, weekly, or daily periods Costs of major assets such as a new plant, machinery, or land Forecast of the organization’s assets and liabilities in the event that all other budgets are met

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Table 14.1a 15

Financial Control (cont’d) 

Types of Budgets (cont’d) Type of Budget

What Budget Shows

Operating budget

Planned operations in financial terms

Sales or revenue budget

Income the organization expects to receive from normal operations

Expense budget

Anticipated expenses for the organization during the coming time period

Profit budget

Anticipated differences between sales or revenues and expenses

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Table 14.1b 16

Financial Control (cont’d) 

Types of Budgets (cont’d) Type of Budget

What Budget Shows

Nonmonetary budget

Planned operations in nonfinancial terms

Labor budget

Hours of direct labor available for use

Space budget

Square feet or meters of space available for various functions

Production budget

Number of units to be produced during the coming time period

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Table 14.1c 17

Operating unit budget requests

Division budget requests

Organizational budget • Prepared by budget committee • Approved by budget committee, controller, and CEO

Financial Control (cont’d)  Developing Budgets in Organizations

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Figure 14.5 18

Financial Control (cont’d) 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.

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

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Other Tools of Financial Control 

Financial Statements  A financial statement is a profile of some aspect of an organization’s financial circumstances.  Balance sheet  A listing of assets (current and fixed), liabilities (short- and long-term), and stockholders’ equity at a specific point in time (typically year-ending) that summarizes the financial condition of the organization.  Income statement  Summary of financial performance—revenues less expenses as net income (i.e., profit or loss)—over a period of time, usually one year.

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Other Tools of Financial Control (cont’d) 

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Ratio Analysis  The calculation of one or more financial ratios to assess some aspect of the organization’s financial health. (liquidity ratio, debt ratio etc.) Financial Audits  Audit—an independent appraisal of an organization’s accounting, financial, and operational systems.  External audits—financial appraisals conducted by experts who are not employees of the organization. Internal audits—appraisals conducted by employees of the organization.

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Structural Control 

Structural control is concerned with how the elements of the organization’s structure are serving their intended purpose.  Bureaucratic Control  A form of organizational control characterized by formal and mechanistic structural arrangements.  Clan Control  An approach to organizational control characterized by informal and organic structural arrangements.

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Structural Control 

Organizational Control Bureaucratic Control

Employee compliance Strict rules, formal controls, rigid hierarchy Directed toward minimum levels of acceptable performance Tall structure, top-down influence Directed at individual performance Limited and formal

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Dimension Goal of control approach

Degree of formality

Performance expectations

Organization design

Reward system

Participation

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Clan control Employee commitment Group norms, culture, self-control Directed toward enhanced performance above and beyond the minimum Flat structure, shared influence Directed at group performance Extended and informal

Figure 14.6 23

Strategic Control 

Integrating Strategy and Control 

Strategic control 

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Control aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic plan. 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.

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Personal reading  

International strategic control Characteristics of effective control.

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Guidelines for final exam: 

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There will be 5 questions and examinee will have to answer any 4. Each question may have sub parts (1. a,b… ) It will be a 2 hour exam so for each question 30 minutes are allocated. Answers should be concise and to the point. Syllabus: (4 chapters)    

Staffing, Motivation Leading Controlling

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