Control Flashcards
Control meaning in the organizational context?
The process of establishing performance standards, monitoring performance, and taking corrective measures when necessary to ensure the achievement of the organization.
Types of control
- Preventive control
- Concurrent control
- Post control
- Preventive control (Inputs)
Mechanisms intended to reduce errors, proactively, thereby minimizing the need to take corrective measures.
Concurrent control (Transformation)
known as steering control which indicates control measures that monitor activities while they are taking place.
Post control( Outputs)
Mechanisms intended to reduce or eliminate unwanted behavior or results to meet the organization’s regulations and standards.
Sources of control
1.Stakeholder control
2. Organizational control
3. Group control
4. Individual self control
Stakeholder control
Pressure from outside sources on the organization to change its behaviors
Organizational control
Formal procedures and regulations for preventing or correcting deviations for achieving desired goals.
Group control
Norms and values that individuals share and maintain through rewards and punishment.
Individual self-control
Guiding mechanisms that operate both consciously and unconsciously within each person.
The control process
- Define subsystem and key characteristics
- Set performance standard
- Collect information and measure the actual performance
- Compare performance against set performance
- Evaluate and correct problems if required
- Define subsystem and identify key characteristics.
A formal subsystem can be created and monitored for an organization, employee, department or the entire organization.
- Set performance standards
Standards are criteria for measuring quantitative (measurable ) and qualitative (subject ) characteristics and should be set foe each characteristics used
- Collect information and measure the actual performance
Information related to each standard can be collected manually or automatically. Measurement should be reliable and have the results for the same circumstances over the long term.
Top Managers can create a special department or rely on regular departments to collect information by monitoring certain activities
4.Compare the performance against the set performance standard
Comparisons are better to determine whether what is happening is what should be happening
Evaluate and correct problems if required
Diagnosis includes assessing the types, numbers, and causes of deviations from set standards. Actions can be taken to eliminate these deviations and correct problems.
Creating effective controls
One way to create and measure the effectiveness of organizational control is to compare their cost and benefits
3 questions to address the cost-benefit analysis
- For what behavior and results should organizational controls be developed?
- What are the costs and benefits of the organizational control required to achieve desired results or behavior
- What are the costs and benefits of utilizing alternative organizational controls to obtain the desired behavior and results
Criteria for effective control
Objective
Timely
Acceptable
Objective
Economical
Performance management
The performance of the organization is a measure of how effectively and efficiently managers use available resources to satisfy the multiple needs of existing customers and thereby achieve organizational goals and objective..
effectiveness
How well does the organization pursue its goals and to what extent it achieve these set goals
Efficiency
How well the resources are used in process of achieving these goals
How can the organization be efficient
By minimizing inputs and maximizing outputs/ Maintaining inputs and increasing outputs
Outcomes of applying controls to measure efficiency and effectiveness
- High efficiency and high effectiveness
- Low efficiency and low effectiveness
- High efficiency, Low effectiveness
- Low efficiency, high effectiveness
High efficiency and high effectiveness
The manager selected appropriate goals to achieve and optimally applied the resources to achieve the chosen goals
Low efficiency and low effectiveness
The manager did not select appropriate goals to pursue and did not optimally apply the resources to achieve the chosen goals
High efficiency, Low effectively
The manager did not select the appropriate goals to pursue but optimally applied resources to achieve the chosen goals
Low efficiency, high effectiveness
The managers selected the appropriate goals to pursue but did not optimally apply the resources to achieve the goals
Performance management allows employees and managers to?
- Develop performance standards
- Conduct observations
- Provide feedback
- Conduct appraisals
What does the factors do?
Allows individuals, teams, and management to achieve optimum results by managing employee performance
Market controls
The use of data to measure performance in terms of sales, prices, cost, and profits relating to products sold, market shares, and services rendered.
To be effective, market controls generally requires that?
- Costs and resources used to produce products be measured monetarily
- The value of goods and services produced be defined clearly and monetarily
- The price of products and services produced be set competitively
Financial Controls
Include a wide range of techniques, methods, and procedures intended to prevent or correct the misallocation of resources.
Comparative financial analysis
Evaluation of an organization’s financial condition for two or more time periods.
The most common method of analysis
Ratio analysis
Ratio anaylsis
Selecting two significant figures, and expressing their relationship as a proportion or fraction and comparing its values for two periods of time
Types of ratios
Profitability
Liquidity
Activity
Leverage
Examples of ratios
Return on investment
Current ratio
Inventory ratio
Debt ratio
Return on investment
The most important example of profitability ratio is because it indicates how effectively and efficiently the organization uses its resources. 1.0
Current ratio
Indicates the organization’s ability to pay its account on time. should be 1.1
Inventory ratio
Indicates the average number of times the inventory is sold or restocked during the year
Debt ratio
Calculated to assess the organization’s ability to meet its long-term financial commitments
Budgeting
The process of categorizing the proposed expenditures (cost items) and linking them to goals
3 purposes when managing performance
- To help in planning work effectively
- To assist in allocating resources
- To assist in controlling and monitoring resource allocation during the budget period
Types of budget
Sales budget
Material budget
labor budget
capital budget
research and development budget
cash budget
Sales budget
Forecasts of expected revenue (sales) stated generally by a product line on a monthly basis and revised annually
Material budget
Expected purchases are generally stated by specific categories
Capital budget
Targeted spending for major tangible assets
Cash budget
The expected flow of monetary receipts and expenses
Activity-based costing
ABC is a performance management system that focuses on activities as the fundamental cost centers of the organization.
Activities become the focal point for the organizations
Activity
Any event that drives costs, including energy consumed, km driven, and shipments made.
Integrated strategic controls( The balanced score card)
The balanced scorecard is a format of describes the activities of an organization through a number of measures of each perspective
4 perspectives
Financial perspective
Customer perspective
Internal operations perspective
A learning and innovation perspective
Financial perspective
Profitability, Increased value, Lower costs
Customer perspective
How customers view the organization. customer satisfaction
Internal operations perspective
What the organization must excel at
Learning and innovation perspective
Can the organization continue to improve and create value, can it be sustainable
Elements to focus on when managing financial performance ( Scorecard)
Financial performance
performance in terms of customers
Internal operations performance
Learning and innovation performance
Financial performance
Organization consider how it is viewed by its stakeholders
Performance in terms of customers
Organizations consider how it is viewed by customers
Internal operations perfomance
Organization consider what it must excel at
Learning and innovation performance
Organizations consider whether it’s able to improve continuously and create value
Proposed perspective
Financial perspective - Outcome
Customer perspective - Stakeholder perspective
Learning and innovation - Enables
Quality control approaches
Six Sigma
Just in time
Total quality management
Six sigma steps
Define
Measure
Analyze
Improve
Control
Total Quality Management
Much broader in scope than regular quality control
The outcome is continuous improvement
Just in time( Stockless production)
The approach with the objective of producing the right part, at the right place and at the right time therefore the time just in time
The objective is to minimize waste
Aim to improve profits and ROI
4 Major principles of TQM
Focusing on delivering customer value
Continually improving the processes and systems
Focusing on managing the process rather than people
Using teams to improve continually
Corporate governance
Patterns of control and relations between the stakeholders, the board of directions, and the top management of the organizations
These relations and controls are defined by the corporate charter, by-laws, formal policy, governmental laws and regulations, and the courts
Successful business leaders of the future will be those who
Align internal organizations’ controls with risk management
Understand the financial data and value of financial control techniques
Determine the appropriate areas in the organization where control should be focused
Difference between internal mechanism and external mechanism
An internal mechanism is used to monitor the activities of the organization and take corrective action if needed.
The external mechanism is in control of those stakeholders outside the organization
Internal mechanism
Objectives include smooth operation, product offering, clearly defined reporting lines
External mechanism
Objectives include meeting industry standards, debt management, and legal compliance, and adhering to government regulations
