20

Ready Notes

The Controlling
Process

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 Why Control?

• Control is an issue every

manager faces.
• How does control help
the manager?
– Control is a process to
regulate organizational
activities to make them
consistent with
established:
• Plans
• Targets
• Standards

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 What Is the Purpose of Control?

• It is one of the four

basic management
functions and has four
basic functions. What
are the functions?
– Adapts to change.
– Limits accumulation of
error.
– Helps coping with
complexity.
– Helps minimize costs.

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 The Purpose of Control

Adapt to Limit the

environmental change accumulation of error

Control helps the organization

Cope with organizational

Minimize costs
complexity

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 Name the Levels of Control?

• Operational control:
– Focuses on the processes used to transform
resources into products or services.
• Financial control:
– Concerned with financial resources.
• Structural control:
– How the elements of structure are serving the
intended purposes.
• Strategic control:
– How effective are the functional strategies helping
the organization meet its goals.

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 Figure 20.2: Levels of Control

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 Who Is Responsible for Control?

• Control rests with all

managers.
• Large corporations
have a controller.
• What does a
controller do?
– Helps line managers
with their control
activities.

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What Are the Steps in the Control Process?

• Establish standards.
• Measure performance.
• Compare performance against
standards.
• Determine need for corrective action.
• The sub-steps:
– Maintain status quo.
– Correct deviation.
– Change standards.

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Figure 20.3: Steps in the Control Process

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What Does Preliminary Control Monitor?

• It attempts to monitor quality and

quantity of:
– Financial resources.
– Material resources.
– Human resources.
– Information resources.
• Why?
– Before they become part of the system.

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What Is the Purpose of Screening Controls?

• They focus on how

inputs are being
transformed into
outputs.
• They also rely
heavily on feedback
processes during
the transformation
process.

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What Do Postaction Controls Focus On?

• Focus is on outputs from

the organizational system.
• What do they monitor?
– They monitor the output
results of the organization
after the transformation
process is complete.
– (see Figure 20.4 illustration)

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Figure 20.4: Forms of Operational Control

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What Are the Reasons for Financial Controls?

• They control the financial resources as

they flow into the organization.
• Then they are held by the organization.
• Then they flow out of the organization.
• Businesses must manage their finances
so that revenues are sufficient to cover
expenses and still return a profit.

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 What Is a Budget?

• It is a plan expressed in numerical

terms.
• What is the time frame for a budget?
– Usually a year, but sometimes broken
down into quarters and months.
• Budgets are quantitative in nature and
provide yardsticks for measuring
performance and facilitating
comparisons.
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 What Are the Types of Budgets?

• Types of budget: • What the budget

– Financial shows:
– Operating – Sources and use of
– Non-monetary cash.
– Operations in
financial terms.
– Operations in non-
financial terms.

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 Developing Budgets

Organizational
Budget Prepared
Operating Division
by Budget
Unit Budget
Committee
Budget Request
Approved by
Request
Budget
Committee

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 Figure 20.5: Developing Budgets in
Organizations

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 Other Tools for Financial Control
Balance Sheet: List of assets
Financial Statement:
and liabilities of an
A profile of
organization at a specific
some aspect of an
point in time, usually the last
organization’s financial
day of the fiscal year.
circumstances.

Ratio Analysis: The

Income Statement: A calculation of one or more
summary of financial financial ratios to assess
performance over a period of some aspect of the
time, usually one year. organization’s financial
health.

Audit: An independent appraisal of an organization’s

accounting, financial, and operational system.

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 What Is Bureaucratic Control?

• A form of organizational
control characterized by
formal and mechanistic
structural
arrangements.
• What is clan control?
– An approach to
organizational control
characterized by informal
and organic structural
arrangements.

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 Figure 20.6: Organizational Control

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 What Is Meant by Strategic Control

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

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 Characteristics of Effective Control

• Integration with
planning
• Flexibility
• Accuracy
• Timeliness
• Objectivity

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 What Influences Resistance to Control?

• Over-control
• Inappropriate focus
• Rewards for
inefficiency
• Too much
accountability

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 How Can Resistance to Control Be
Overcome?
• When employees are
involved with planning
and implementing the
control system, they are
less likely to resist.
• Verification procedures
need to be developed to
provide checks and
balances in order for
managers to verify the
accuracy of
performance indicators.

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