Mgmt 371
Chapter Twenty
Basic Elements of Control
Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©
1
The Nature of Control in
Organizations
 Control
 The regulation of organizational activities
so that some targeted element of
performance remains within acceptable
limits.
 Comparing actual results to intended
results and determining the cause of any
substantial deviation.
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The Benefits of Control in
Organizations
 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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The Purpose of Control
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The Nature of Control in
Organizations (Areas of Control)
 Types of Controls


Physical resources

inventory management

quality control

equipment [usage] control.
Human resources

selection and placement

training and development

performance appraisal

compensation.
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The Nature of Control in
Organizations (Areas of Control)
 Types of Controls


Information resources

sales and marketing forecasts

environmental analysis

public relations

production scheduling

economic forecasting.
Financial resources


managing capital funds and cash flow
collection and payment of debts.
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Levels of Control
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Levels of Control
 Strategic- ensures the organization is
maintaining acceptable progress to its
strategic goals.
 Structural-ensures that the organization’s
structure serves its intended purpose.
 Operations- ensures that the process the
firm uses to produce goods and services is
efficient.
 Financial-ensures that the organization is
operating within financial resource
constraints.
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The Nature of Control in
Organizations
 Responsibilities for
Control

Controller—a position
in organizations that
helps line managers
with their control
activities.
9
Steps in the Control Process
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Steps in the Control Process
 Establish standards

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.
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Steps in the Control Process
 Measure performance

Performance measurement is a constant,
ongoing process.

Performance measures must be valid
indicators (e.g., sales, costs, units produced)
of performance.
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Steps in the Control Process
 Compare performance against standards

Define what is a permissible deviation from the
performance standard.

Identify the cause of any impermissible
deviation.


You cannot correct the deviation unless you know
what caused it.
Utilize the appropriate timetable for
measurement.
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Steps in the Control Process
 Consider corrective action

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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Forms of Operations Control
a.k.a., Concurrent Control
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Financial Control
 Financial Control

Control of financial resources
(revenues, shareholder
investments) as they:
Flow into the
organization revenues
 Are held by the
organization as working
capital, retained
earnings
 Flow out of the
organization as payment
of expenses

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Financial Control
 Budgetary Control
 Budgets
 May be established at any organizational level.
 Are typically for one year or less.
 May be expressed in financial terms, units of output,
or other quantifiable factors.
 Purposes of budgets
 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.
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Developing Budgets in
Organizations
18
Developing Budgets in
Organizations
19
Strengths and Weaknesses of
Budgeting
 Strengths
 Weaknesses

Budgets facilitate effective
operational controls.


Budgets facilitate
coordination and
communication between
departments.
Budgets can hamper
operations if applied too
rigidly.

Budgets can be time
consuming to develop.

Budgets can limit
innovation and change.

Budgets establish records
of organizational
performance, which can
enhance planning.

Budgets link plans and
control as part of plans
and then serving as part
of control
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Other Tools of Financial Control
 Financial Statements
 Financial statement
 A profile of some aspect of an organization’s financial
circumstances.
 Balance sheet
 A listing of assets (current and fixed), liabilities (shortand 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
 Ratio Analysis
 The calculation of one or more financial ratios to
assess some aspect of the organization’s financial
health.
Liquidity ratios
 Debt ratios
 Operating ratios
 Financial Audit
 An independent appraisal of an organization’s
accounting, financial, and operational systems.
 External audits
 Internal audits

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Structural Control
 Bureaucratic Control
 A form of organizational control
characterized by formal and
mechanistic structural
arrangements.
 Decentralized control
 An approach to organizational
control based on informal and
organic structural
arrangements.
23
Organizational Control
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Strategic Control: Integrating Strategy
& Control
 Strategic control
Is aimed maintaining an effective alignment
with the environment and moving toward
achieving strategic goals.
 Focuses on structure, leadership,
technology, human resources, and
informational and operational systems.
 Focuses on the extent to which
implemented strategy achieves the
organization’s goals.

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Strategic Control: Integrating Strategy
& Control
 International Strategic Control
 Focuses on whether to manage the global
organization from a centralized or
decentralized perspective.
 Centralization creates more control and
coordination, whereas decentralization
fosters adaptability and innovation.
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Managing Control in
Organizations
 The Five Characteristics of Effective
Control
Integration with planning
 Flexibility
 Accuracy
 Timeliness
 Objectivity

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Managing Control in
Organizations (Resistance)
 Resistance to Control Due To:
 Overcontrol
 Inappropriate Focus
 Rewards for Inefficiency
 Too much accountability
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Overcoming Resistance to Control
Designing controls integrated with
organizational planning and aligned with goals
and standards.
Creating flexible, accurate, timely, and
objective controls.
Avoiding overcontrol in the implementation of
controls.
Guarding against controls that reward
inefficiencies.
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Overcoming Resistance to Control
Encouraging employee participation in the
planning and implementing of control systems.
Developing a system of checks and balances
that can verify the accuracy of performance
indicators.
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