Chapter 15

Question 1

The process by which an
organization influences its
subunits and members to
behave in ways that lead to the
attainment of organizational
goals and objectives.

Answer 1

organizational control

*** the fourth facet of POLC

Question 2

Organizational control typically involves four steps:

Answer 2

(1) establish standards, (2) measure performance, (3) compare performance to standards, and then (4) take
corrective action as needed.

Question 3

15.2 KT

Answer 3

This chapter introduced the basics of controls, the process by which an
organization influences its subunits and members to behave in ways that
lead to attaining organizational goals and objectives. When properly
designed, controls lead to better performance by enabling the organization
to execute its strategy better. Managers must weigh the costs and benefits of
control, but some minimum level of control is essential for organizational
survival and success.

Question 4

Recognizing that organizational controls can be
categorized in many ways, it is helpful at this point to
distinguish between two sets of controls:

Answer 4

(1) strategic
controls and (2) management controls, sometimes called
operating controls.

Question 5

The process by which an
organization tracks the
strategy as it is being
implemented, detecting any
problem areas or potential
problem areas that might
suggest that the strategy is
incorrect, and making any
necessary adjustments.

Answer 5

strategic control

Question 6

A process concerned with
executing the strategy.

Answer 6

Operational control

Question 7

It is also valuable to understand that, within the strategic and operational levels of control, there are several types of control. The first two types can be mapped across two dimensions:

Answer 7

level of proactivity and outcome versus behavioral.

Question 8

The active monitoring of
problems in a way that
provides their timely
prevention, rather than afterthe-fact reaction.

Answer 8

feedforward control

Question 9

Processes that entail
monitoring and adjusting
ongoing activities.

Answer 9

concurrent control

Question 10

Processes that involve the gathering of information about
a completed activity,
evaluating that information,
and taking steps to improve the similar activities in the future.

Answer 10

feedback controls

Question 11

Processes that are generally
preferable when just one or
two performance measures
(say, return on investment or
return on assets) are good
gauges of a business’s health.

Answer 11

Outcome controls

Question 12

The direct evaluation of
managerial and employee
decision making, not of the
results of managerial decisions

Answer 12

Behavioral controls

Question 13

The management of a firm’s
costs and expenses to control
them in relation to budgeted
amounts.

Answer 13

Financial control

Question 14

Processes that track aspects of
the organization that aren’t
immediately financial in
nature but are expected to lead
to positive financial
performance outcomes.

Answer 14

nonfinancial controls

Question 15

15.3 KT

Answer 15

Organizational controls can take many forms. Strategic controls help
managers know whether a chosen strategy is working, while operating
controls contribute to successful execution of the current strategy. Within
these types of strategy, controls can vary in terms of proactivity, where
feedback controls were the least proactive. Outcome controls are judged by
the result of the organization’s activities, while behavioral controls involve
monitoring how the organization’s members behave on a daily basis.
Financial controls are executed by monitoring costs and expenditure in
relation to the organization’s budget, and nonfinancial controls complement
financial controls by monitoring intangibles like customer satisfaction and
employee morale.

Question 16

A listing of all planned
expenses and revenues.

Answer 16

Budgeting

Question 17

here are three basic financial reports that all
managers need to understand and interpret to manage their businesses
successfully:

Answer 17

(1) the balance sheet, (2) the income/profit and loss (P&L) statement,
and (3) the cash flow statement.

*** These three reports are often referred to
collectively as “the financials.”

Question 18

This financial report is a snapshot of the business’s financial position at a certain point in time. This can be any day of the year, but these are usually done at the
end of each month. With a budget in hand, you project forward and develop pro
forma statements to monitor actual progress against expectations.

Answer 18

Balance sheet

Question 19

Assets that are cash or can be readily converted to cash in
the short term, such as accounts receivable or
inventory.

Answer 19

Current assets

Question 20

Assets that are not easily
converted to cash in the short
term; that is, they are assets
that only change over the long
term. Land, buildings,
equipment, vehicles, furniture,
and fixtures are some examples
of fixed assets.

Answer 20

Fixed assets

Question 21

An asset that cannot be
physically touched, or is not
physical in nature.

Answer 21

Intangible assets (net)

Question 22

Liabilities coming due in the
short term, usually the coming
year.

Answer 22

Current liabilities

Question 23

Liabilities may be bank notes
or loans made to purchase the
business’s fixed asset structure.
Long-term debt/liabilities
come due in a time period of
more than 1 year.

Answer 23

Long-term debt

Question 24

This refers to the amount of money the owner has invested in the firm.
This amount is determined by subtracting current liabilities and long-term debt
from total assets. This is what the owner would
have left in the event of liquidation, or the dollar amount of the total assets that the
owner can claim after all creditors are paid.

Answer 24

owner’s equity

Question 25

This shows the relation of income and expenses for a
specific time interval.

Answer 25

The profit and loss statement (P&L)

Question 26

The P&L statement is divided into five major categories:

Answer 26

(1) sales or revenue, (2) cost of goods sold/cost of sales, (3) gross profit, (4) operating expenses, and (5) net
income.

Question 27

15.4 KT

Answer 27

The financial controls provide a blueprint to compare against the actual
results once the business is in operation. A comparison and analysis of the
business plan against the actual results can tell you whether the business is
on target. Corrections, or revisions, to policies and strategies may be
necessary to achieve the business’s goals. The three most important
financial controls are: (1) the balance sheet, (2) the income statement
(sometimes called a profit and loss statement), and (3) the cash flow
statement. Each gives the manager a different perspective on and insight
into how well the business is operating toward its goals. Analyzing monthly
financial statements is a must since most organizations need to be able to
pay their bills to stay in business.

Question 28

15.5 KT

Answer 28

Nonfinancial controls, such as those related to employee satisfaction,
customer service, and so on, are an important and increasingly applied form
of organizational control. While firms that use nonfinancial controls well
also perform much better than firms that don’t use them, there is a plethora
of managerial mistakes made with regard to their conceptualization,
implementation, or both. Beyond simply using nonfinancial controls, best
practices around such controls include aligning them with the strategy,
validating the links between nonfinancial controls and financial controls,
setting appropriate control performance targets, and confirming the right
measure of the desired control.

Question 29

A system of nonfinancial
controls used to improve
product and service quality
and decrease waste.

Answer 29

Lean

Question 30

A Japanese term for activity
that is wasteful and doesn’t
add value.

Answer 30

muda

Question 31

The Japanese term for
continuous improvement.

Answer 31

kaizen

Question 32

15.6 KT

Answer 32

Lean control, or simply lean, is the system of nonfinancial controls used to
improve product and service quality and decrease waste. While popularized
through the dramatic successes of Toyota in auto manufacturing, lean
processes are used to improve quality and decrease waste in most service
and manufacturing industries around the world. In this section, you saw
examples of the seven deadly wastes (muda) and the five core principles of
lean which culminate in continuous improvement, or kaizen.

Question 33

A framework designed to
translate an organization’s
vision and mission statements
and overall business strategy
into specific, quantifiable goals
and objectives and to monitor
the organization’s performance
in terms of achieving these
goals.

Answer 33

Balanced Scorecard

Question 34

15.7 KT

Answer 34

You learned about the essential components of the Balanced Scorecard and
saw how, when correctly conceived and implemented, it integrates an
organization’s vision, mission, and strategy with its nonfinancial and
financial controls. As with correctly implemented nonfinancial controls, the
components of the Balanced Scorecard need to be clearly tied to the
strategy, and relationships among nonfinancial and financial controls
validated. Appropriate control performance targets need to be set, and the
appropriate indicators of performance used to gauge nonfinancial and
financial performance. This section concluded by outlining for you the steps
you might follow in building a personal Balanced Scorecard.