Chapter 15: The Essentials of Control

Learning Objectives
 Understand what is meant
by organizational control
 Differentiate among
different levels, types, and
forms of control
 Know the essentials of
financial controls
 Know the essentials of
non-financial controls
 Know the basics of lean
control systems
 Develop a personal
balanced scorecard
Organizational Control in the P-O-L-C Framework

Planning Organizing Leading Controlling

1. Vision & Mission 1. Organization Design 1. Leadership 1. Systems/Processes

2. Strategizing 2. Culture 2. Decision Making 2. Strategic Human

Resources
3. Goals & Objectives 3. Social Networks 3. Communications

4. Groups/Teams

5. Motivation

Strategy Strategy Implementation

Formulation
 What Is Organizational Control?

The process by
which an Establish
standards
organization
influences its
subunits and Take
corrective
Measure
members to behave action
performance

in ways that lead to

the attainment of Compare
performance
organizational goals to standards
and objectives
The Costs and Benefits of Organizational Controls

Key Costs Key Benefits

Cost and productivity

Financial costs control

Culture and Quality control

reputation costs
Opportunity recognition
Responsiveness costs
Manage uncertainty and
complexity
Poorly implemented
controls Decentralized decision
making
Two Levels of Control: Strategic and Operational

Strategic control is
Operational control is
concerned with tracking
concerned with executing
the strategy as it is being
the strategy and includes
implemented, detecting
measuring return on
any problem areas, and
investment, net profit,
making any necessary
cost, and product quality
adjustments
 Types and Examples of Control
Behavioral Control Outcome Control
Organizational culture Market demand or economic
Feedforward

forecasts
Control
Control Proactivity

Hands-on management The real-time speed of a

Concurrent
Control

supervision during a project production line

Qualitative measures of Financial measures such as

Feedback

customer satisfaction profitability, sales growth

Control
 Feedback Controls
Concurrent involve the
Feedforward Controls gathering of
Controls information about
proactively address involve the real- a completed
what can be done time process of activity, evaluating
ahead of time to monitoring and that information,
help the plan adjusting ongoing and taking steps to
succeed activities and improve the similar
processes activities in the
future
Financial and Non-Financial Controls
Financial Controls Non-Financial Controls
 Costs & expenses and  Things expected to lead
to positive performance
Budgeting
 Includes customer loyalty,
 Includes assets, sales, referrals, employee
and/or profitability satisfaction, and other
forecasts such performance
measures
Financial controls tell you when good organizational
performance is reflected in good financial outcomes

The Balance Sheet

The Income/Profit and

Loss (P&L) Statement

Cash Flow Statement

 The “balance sheet”
The balance sheet is a snapshot that includes total
assets (what the business owns – items of value)
and total liabilities (what the business owes)

Balance Sheets are usually done

at the end of each month
 Contrasting Assets
Current Assets Fixed Assets are those
are those assets that are assets that are not easily
cash or can be readily converted to cash in the
converted to cash in the short term - they are
short term assets that only change
over the long term
 Examples include
accounts receivable or  Examples include land,
inventory buildings, equipment,
vehicles, furniture and
fixtures
 Liabilities
Current Liabilities are those coming
due in the short term

Long-term Debt/Liabilities come

due in a time period of more than
one year

Owner's Equity refers to the

amount of money the owner has
invested in the firm
 Non-Financial Controls

Customer satisfaction
is an increasingly
important metric in
strong non-financial
controls

Measuring non-financial controls is important as they are

likely to affect profitability in the long term
 Common Mistakes
with Non-Financial Controls

Not Using Non- Not Being Failing to

Financial Linked to Validate the
Controls Strategy Links

Failing to Set
Appropriate Measurement
Performance Failures
Targets
 Sample Mix of Non-Financial and Financial Controls

Non-Financial Controls
Financial Controls

Qualified,
Recruiting & Satisfied
Satisfied, Profitable
Selection Customers
Staff Store

G ofi
Su irn
W uc

Q qu

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or at

Pr
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pe es

Fr

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lit cy

th lit
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is
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Measures
Lean Controls
Lean is a system of
non-financial controls
used to improve
product and service
quality and decrease
waste

“it is a process for

measuring and
reducing inventory
and streamlining
production”
The Elimination of Waste
is the Soul of Lean

Muda is a key
concept in lean
control
Muda is a Japanese
term for activity that
is wasteful and
doesn't add value
Kaizen = Continuous Improvement

Companies that
implement lean
adopt the Japanese
mindset that it is
always possible to
improve any
business activity
Advantages of Balanced Scorecard

More clearly will tie goals and

objectives to the organizations’
vision, mission and strategy

Moves beyond the financial

measurement of just goals and
objectives
The Strategy Map: A Causal Relationship Between
Non-Financial and Financial Controls
 Your Personal Balanced Scorecard

Learning and growth: your skills and

learning ability

Internal: your physical health and mental

state

Customer (external): relations with your

spouse, children, friends, employer, and
colleagues

Financial stability. To what degree are

you able to fulfill your financial needs?