Management (Griffin) – Chapter 20

Audit
An independent appraisal of an organization’s accounting, financial, and operational systems
Balance sheet
List of assets and liabilities of an organization at a specific point in time
Budget
A plan expressed in numerical terms
Bureaucratic control
A form of organizational control characterized by formal and mechanistic structural arrangements.
GOAL is employee compliance.
Organizations that use it rely on STRICT RULES and a RIGID HIERARCHY (with TALL structure), and insist that employees meet MINIMALLY ACCEPTABLE STANDARDS OF PERFORMANCE.
Rewards focused on individual performance.
Allows only limited and formal employee participation.
Control
The regulation of organizational activities in such a way as to facilitate goal attainment
Control standard
A target against which subsequent performance will be compared
Controller
A position in organizations that helps line managers with their control activities
Decentralized control
An approach to organizational control based on informal and organic structural arrangements.
GOAL is EMPLOYEE COMMITMENT to organization.
RELIES heavily on GROUP NORMS and a STRONG CORPORATE CULTURE
EMPLOYEES ARE MADE RESPONSIBLE FOR SELF-CONTROL
Employees ENCOURAGED to perform BEYOND minimally acceptable level
Relatively FLAT structure
Rewards directed at GROUP performance
Favor widespread participation
Financial control
Concerned with the organization’s financial resources
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
Operations control
Focuses on the processes the organization uses to transform resources into products or services
Postaction control
Monitors the outputs or results of the organization after the transformation process is complete
Preliminary control
Attempts to monitor the quality or quantity of financial, physical, human, and information resources before they actually become part of the system
Ratio analysis
The calculation of one or more financial ratios to assess some aspect of the organization’s financial health. Five commonly used financial ratios are liquidity, debt, return, coverage, and operating
Screening control
Screening control relies on feedback processes during the transformation process. FOR EXAMPLE, when quality checks are used to provide feedback to workers manufacturing a product, the workers know what, if any, corrective actions to take.
Strategic control
Control aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic goals.
Focuses on 5 aspects of organizations (and whether they help or hinder goal attainment):
(1) structure
(2) leadership
(3) technology
(4) human resources
(5) informational & operational control systems
Structural control
Concerned with how the elements of the organization’s structure are serving their intended purpose
levels of control
strategic control (TOP LEVEL)
structural control (MIDDLE LEVEL)
operations control & financial control (BOTTOM LEVEL)
areas of control
PHYSICAL (inventory management, quality control, equipment control)
HUMAN(selection & placement, training & development, performance appraisals)
INFORMATION (sales & marketing forecasting, environmental analysis, public relations, production scheduling, economic forecasting)
FINANCIAL (debt management, cash flow management)
steps in control process
(1) establishing standards
(2) measuring performance
(3) compare performance against standards
(4) determine need for corrective action
THREE OPTIONS: maintain status quo, OR correct the deviation, OR change the standard)
forms of operations control
PRELIMINARY control — focus is on INPUTS to org system
SCREENING control—focus on how inputs are being TRANSFORMED into outputs
POSTACTION control — focus is on OUTPUTS from org system
primary purposes of budgets (4)
(1) help managers coordinate resources & projects (because they use a common denominator, usually dollars)
(2) help define the established standards for control
(3) provide guidelines about the organization’s resources & expectations
(4) enable organization to evaluate the performance of managers and org units
strengths of budgeting
(1) facilitate effective control
(2) faciltate coordination and communication between departments (because diverse activities expressed in common denominator, usually dollars)
(3) help maintain records of organizational performance
(4) form a logical complement to planning (as plans being made, mgrs should also consider budgetary control measures)
weaknesses of budgeting
(1) some managers apply budgets too rigidly (should be considered framework, not straightjacket)
(2) process of budget development can be very time consuming
(3) budgets may limit innovation and change (because when all funds accounted for in budget, may be difficult to find money for unexpected opportunities)
international strategic control
Global organizations must decide whether to control from a centralized or decentralized perspective.
CENTRALIZED: each unit reports frequently to headquarters on its performance (in great detail), and there are frequent visits by home office staff to assess performance
DECENTRALIZED: less frequent reporting (and in less detail), with fewer visits by home office to assess performance
characteristics of effective control
(1) integration with planning
(2) flexibility (to accommodate change)
(3) accuracy
(4) timeliness (provides info as often as necessary)
(5) objectivity (focus on numbers & verifiable facts as opposed to subjective impressions of how things are going)
resistance to control
Can be caused by:
(1) overcontrol (especially with regard to employee behavior)
(2) inappropriate focus (may be too narrow, or focused too much on quantifiable variables, leaving no room for analysis or interpretation)
(3) rewards for inefficiency (e.g., departments who overspend their budgets get more money the following year)
(4) too much accountability—People who DON’T want to answer for their mistakes may resist controls that make them accountable
overcoming resistance to control
(1) encourage employee participation in planning & implementing control system
(2) develop verification procedures — The accuracy of performance indicators can be verified by having multiple standards and information systems. These checks and
balances can be important verification procedures.
purposes of organizational control
(1) Helps organization adapt to environmental change
(2) Helps limit the accumulation of error (quality control)
(3) Helps cope with organizational complexity
(4) Minimizes costs
financial budget
Shows the sources of cash, and how it will be used
operating budget
Shows what quantities of products or services the organization intends to create, and what financial resources will be used to create them
non-monetary budget
expresses planned operations in non financial terms, such as units of output and machine hours