Basic Elements of

Control
Control and Its Nature
 The regulation of organizational activities so that
some targeted element of performance remains
within acceptable limits.
 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.

04/15/09 S. M. Towhidur Rahman 2

Continued…

 Purpose of control: Control basically has

four purposes:
Adapt to environmental change Limit the accumulation of error

Control helps the organization

Cope with organizational complexity Minimize costs

04/15/09 S. M. Towhidur Rahman 3

Continued..
 Types of Controls
 Areas of Control
 Physical resources—inventory management, quality
control, and equipment control.
 Human resources—selection and placement, training
and development, performance appraisal, and
compensation.
 Information resources—sales and marketing forecasts,
environmental analysis, public relations, production
scheduling, and economic forecasting.
 Financial resources—managing capital funds and cash
flow, collection and payment of debts.

04/15/09 S. M. Towhidur Rahman 4

Continued…
 Types of Controls (cont’d)
 Levels of Control

Strategic
control

Structural
control

Operations Financial
control control

04/15/09 S. M. Towhidur Rahman 5

Continued…
 Responsibilities for Control
 Controller—a position in organizations
that helps line managers with
their control activities.

04/15/09 S. M. Towhidur Rahman 6

 Responsibility for Control

Source: Van Fleet, David D., and Tim Peterson, Contemporary

Management, Second Edition. Copyright © 1991 by Houghton Mifflin
Company. Used with permission.
04/15/09 S. M. Towhidur Rahman 7
Steps in Control Process:

1 2 3 4
Compare Determine need
Establish Measure
performance for corrective
standards performance
against standards action

Maintain the Correct the Change

status quo deviation standards

04/15/09 S. M. Towhidur Rahman 8

Continued…
 Establish Standards
 Control standard—a target against which subsequent
performance will be compared.
 Control standards should be expressed in measurable
terms.
 Control standards should be consistent with organizational
goals.
 Control standards should be identifiable indicators of
performance.
 Measure Performance
 Performance measurement is an ongoing process.
 Performance measures must be valid indicators (e.g.,
sales, costs, units produced) of performance.

04/15/09 S. M. Towhidur Rahman 9

Continued…
 Compare Performance Against Standards
 Define what is a permissible deviation from the
performance standard.
 Utilize the appropriate timetable for measurement.
 Determine the Need for 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.

04/15/09 S. M. Towhidur Rahman 10

Operations Control
 Forms of operations control:
Feedback

Inputs Transformation Outputs

Preliminary control Screening control Postaction control

Focuses on inputs Focuses on how Focuses on outputs
to the organizational inputs are being from the organiza-
System transformed into tional system
outputs

04/15/09 S. M. Towhidur Rahman 11

Financial Control
 Control of financial resources (i.e., revenues,
shareholder investment) as they flow into the
organization, are held by the organization (i.e.,
working capital, retained earnings),
and flow out of the organization
(i.e., payment of expenses).

04/15/09 S. M. Towhidur Rahman 12

Financial Control (cont’d)

 Financial Control (cont’d)

 Budgetary Control
 A budget is a plan expressed in numerical terms
 Budgets may be established at any organizational level.
 Budgets are typically for one year or less.
 Budgets may be expressed in financial
terms, units of output, or
other quantifiable factors.

04/15/09 S. M. Towhidur Rahman 13

Financial Control (cont’d)

 Financial Control (cont’d)

 Budgets serve four purposes:
 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.
04/15/09 S. M. Towhidur Rahman 14
Financial Control (cont’d)
 Types of Budgets
Type of Budget
Financial budget
Cash-flow or cash budget
Capital-expenditures budget
Balance-sheet budget
04/15/09
What Budget Shows
Sources and uses of cash
All sources of cash income and cash
expenditures in monthly, weekly, or daily
periods
Costs of major assets such as a new plant,
machinery, or land
Forecast of the organization’s assets and
liabilities in the event that all other budgets
are met
Table 14.1a
S. M. Towhidur Rahman 15
Financial Control (cont’d)

 Types of Budgets (cont’d)

Type of Budget What Budget Shows

Operating budget Planned operations in financial terms

Sales or revenue budget Income the organization expects to receive from
normal operations
Expense budget Anticipated expenses for the organization during
the coming time period
Profit budget Anticipated differences between sales or revenues
and expenses

Table 14.1b
04/15/09 S. M. Towhidur Rahman 16
Financial Control (cont’d)

 Types of Budgets (cont’d)

Type of Budget What Budget Shows

Nonmonetary budget Planned operations in nonfinancial terms

Labor budget Hours of direct labor available for use

Space budget Square feet or meters of space available for

various functions

Production budget Number of units to be produced during the coming

time period

Table 14.1c
04/15/09 S. M. Towhidur Rahman 17
 Operating unit Division budget Organizational budget
budget requests requests • Prepared by budget
committee
• Approved by budget
committee, controller,
and CEO

Financial
Control
(cont’d)
 Developing

Budgets in
Organizations

Figure 14.5
04/15/09 S. M. Towhidur Rahman 18
Financial Control (cont’d)
Strengths and Weaknesses of Budgeting
 Strengths  Weaknesses
 Budgets facilitate effective  Budgets can hamper
operational controls. operations if applied too
 Budgets facilitate
rigidly.
coordination and  Budgets can be time
communication between
departments. consuming to develop.
 Budgets can limit
 Budgets establish records

of organizational innovation and change.

performance, which can
enhance planning.

04/15/09 S. M. Towhidur Rahman 19

Other Tools of Financial
Control
 Financial Statements
 A financial statement is a profile of some aspect of an

organization’s financial circumstances.

 Balance sheet

 A listing of assets (current and fixed), liabilities (short- and

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.

04/15/09 S. M. Towhidur Rahman 20

Other Tools of Financial
Control (cont’d)
 Ratio Analysis
 The calculation of one or more financial ratios to

assess some aspect of the organization’s financial

health. (liquidity ratio, debt ratio etc.)
 Financial Audits
 Audit—an independent appraisal of an organization’s

accounting, financial, and operational systems.

 External audits—financial appraisals conducted by

experts who are not employees of the organization.

Internal audits—appraisals conducted by
employees of the organization.

04/15/09 S. M. Towhidur Rahman 21

Structural Control
 Structural control is concerned with how the elements of
the organization’s structure are serving their intended
purpose.
 Bureaucratic Control

 A form of organizational control characterized by

formal and mechanistic structural arrangements.

 Clan Control

 An approach to organizational control characterized

by informal and organic structural arrangements.

04/15/09 S. M. Towhidur Rahman 22

Structural Control
 Organizational Control

Bureaucratic Control Dimension Clan control

Goal of control approach
Employee compliance Employee commitment

Strict rules, formal controls, Degree of formality Group norms, culture,

rigid hierarchy self-control

Directed toward minimum Performance expectations Directed toward enhanced

levels of acceptable performance above and
performance beyond the minimum

Tall structure, top-down Organization design Flat structure, shared

influence influence

Directed at individual Reward system Directed at group

performance performance

Participation
Limited and formal Extended and informal

Figure 14.6
04/15/09 S. M. Towhidur Rahman 23
Strategic Control

 Integrating Strategy and Control

 Strategic control
 Control aimed at ensuring that the organization is
maintaining an effective alignment with its environment
and moving toward achieving its strategic plan.
 Focuses on structure, leadership, technology, human
resources, and informational and operational systems.
 Focuses on the extent to which an implemented strategy
achieves the organization’s goals.

04/15/09 S. M. Towhidur Rahman 24

Personal reading

 International strategic control

 Characteristics of effective control.

04/15/09 S. M. Towhidur Rahman 25

Guidelines for final exam:
 There will be 5 questions and examinee will have to
answer any 4. Each question may have sub parts (1.
a,b… )
 It will be a 2 hour exam so for each question 30 minutes
are allocated.
 Answers should be concise and to the point.
 Syllabus: (4 chapters)
 Staffing,
 Motivation
 Leading

Controlling

04/15/09 S. M. Towhidur Rahman 26