On Line Review - Business Principles and Practices

Slide 1 – What is an organization

An organization is a systematic arrangement of two or more people who fulfill formal
roles and share a common purpose. All organizations share three common
characteristics:
 Have a distinct purpose which is typically expressed in terms of a goal or set of
goals.
 Is composed of people
 Develop a structure that defines formal roles and limits the behavior of its
members.
Development of a structure might include creating rules and regulations, defining teams,
identifying formal leaders and giving them authority over other members and writing job
descriptions so that members know what they are supposed to do.

Slide 2 – Organizational Principles

In the design of a sound organizational framework there are six widely held principles
that need to be in place:
 Work should be divided according to some logical plan
 Clear lines of authority and responsibility should exist
 Span of control
 Unity of command
 Responsibility must exist with authority and accountability
 Coordination to meet organizational goals

Slide 3 – Logical Division of Work

The degree to which tasks in the organization are subdivided into separate jobs is called
work specialization or division of labor. The manner and extent of the divisions
influences the product or performance qualitatively as well a quantitatively. There are
five primary ways in which work can be divided;
 Purpose
 Process or method
 Clientele
 Time
 Geography

Slide 4 – Lines of Authority and Responsibility

Once work has been properly divided, an organization takes on the appearance of a
pyramid-like structure. Each part of the pyramid defines a function or responsibility and
to whom that function is responsible. Authority refers to the rights inherent in a
managerial position to give orders and expect the orders to be obeyed. The establishment
of clear lines of authority and responsibility in an open climate of communications is
critical to the success of the organization. Lack of such organizational structure can be a
major contributor to ineffective job performance on the part of the individual employee.
Slide 5 – Span of Control
There is a limit to the number of subordinates who can be supervised effectively by one
person, and that limit should not be exceeded. Traditionally this limit ranges from a
maximum of five at the highest level of the organization, to a maximum of twelve at the
lowest level. The question of span of control is important because, to a large degree, it
determines the number of levels and managers within the organization. All things being
equal, the wider or larger the span, the more efficient the organization in terms of cost.
However, at some point wider spans reduce effectiveness given the lack of time to
provide leadership and support. Smaller spans allow for closer control but are more
expensive given the added levels of management, make vertical communications more
complex in the organization and discourage employee autonomy given the tight
supervision.

Slide 6 – Unity of Command

This principle helps preserve the concept of an unbroken line of authority. It states that a
person should have one and only one immediate superior to whom he or she is directly
responsible. If the unity of command is broken, an employee might have to cope with
conflicting demands or priorities form several superiors. Often called the “one boss”
theory. Exceptions to this organizational concept may occur during emergency
situations.

Slide 7 – Responsibility, Authority, and Accountability

The true art of delegation includes giving responsibility with commensurate authority and
then holding the employee fully accountable for his or her use of that authority. All too
frequently this principle is unwilling or unknowingly violated by management in an
attempt to maintain control over the outcome that has been delegated.

Slide 8 – Coordination to Meet Organizational Goals

In theory, if the previous organizational principles are adhered to, everything should
function smoothly given management’s ongoing coordination of the efforts of all work
units and individual employees. Training and communication play an important role in:
 Educating employees about the organization and its objectives;
 Defining the importance of each work unit’s contribution to the whole;
 Developing organizational pride and employee self-esteem;
 Creating a sense of unity; and
 Developing a climate wherein the individual employee includes organizational
goals within his or her own personal goals.

Slide 9 - Defining an organization’s purpose

The best statements of an organization’s purpose are short, clear and easy to understand.
The mission statement is the vision that defines an organization’s purpose and gives
important guidance to both managers and employees to focus on a strategic direction. No
organization can be all things to all people. Every organization has its strengths and
weaknesses. The best managers are able to capitalize on the strengths in order to make
their organization more effective. A clear mission statement helps this process.
Slide 10 - Organizational Culture
Organizational culture refers to a system of shared meaning held by members that
distinguishes the organization from others organizations. This system of shared meaning
is a set of key characteristics that the organization values. Recent research has identified
seven primary characteristics that capture the essence of an organization’s culture.
 Innovation and risk taking. The degree it hick employees are encouraged to be
innovative and take risks.
 Attention to detail. The degree to which employees are expected to exhibit
precision, analysis, and attention to detail.
 Outcome orientation. The degree to which management focuses on results or
outcomes rather than on the techniques and processes used to achieve those
outcomes.
 People orientation. The degree to which management decisions take into
consideration the effect of outcomes on the people in the organization.
 Team orientation. The degree to which work activities are organized around
teams rather than individuals.
 Aggressiveness. The degree to which people are aggressive and competitive.
 Stability. The degree to which organizational activities emphasize maintaining
the status quo in contrast to growth.

Slide 11 – Organizational Culture

A strong culture is characterized by core values that are intensely held and widely shared.
The ultimate source of an organization’s culture is the organization’s founder. Employees
learn their organization’s culture through:
 Stories: Narrative events that anchor the present in the past and provide
explanation and legitimacy for current practices.
 Rituals: Repetitive sequences of activities that express and reinforce the key
values of the organization.
 Material symbols: Convey to employees who is important and the kinds of
behavior that are appropriate. Examples include management perks and the
expected dress attire.
 Language: Unique terms to describe business components.

Slide 12 – Sustaining an Organization’s Culture

Once a culture is in place, there are practices within the organization that act to maintain
and reinforce it by giving employees a set of similar experiences. The primary forces that
sustain a culture are the organization’s:
 Selection practices: The process of identifying and hiring individuals who have
the knowledge, skills, and abilities to perform the jobs within the organization.
 Top management behavior: Trough actions and statements, senior executives
influence the desirable behaviors of employees and establish norms and rewards.
 Socialization methods: The process that adapts employees to the organization’s
culture.
Slide 13 – What is a Manager?
A manager is a person who integrates the work of others. That might mean direct
responsibility for a group of people; supervising a single person; coordinating individuals
in other departments; working with people from other organizations; and includes
facilitators or leaders who integrate work-team activities. Managers give an
organizational unit direction, coordinate their unit’s activities with the activities of other
units, and provide accountability for unit outcomes. Managers are typically classified as:
 First-line managers: The lowest level of management and are frequently called
supervisors.
 Middle managers: The middle management level that usually has titles such as
department or agency head, unit chief or division manager.
 Top Mangers: Typically have titles such as vice president, managing director, or
chief executive officer

Slide 14 – Management Functions

Since organizations exist to achieve some purpose, someone has to define that purpose
and the means for its achievement. Management is that someone. There are four specific
management functions that are performed.
 Planning: Defines an organization’s goals, establishing and overall strategy for
achieving those goals, developing a comprehensive hierarchy of plans to integrate
and coordinate activities, and scheduling tasks.
 Organizing: Determines what tasks are to be done, who does them, how the tasks
are grouped, who reports to whom and where in the organization decisions are to
be made.
 Leading: Directing and coordinating people and activities, motivating and
resolving conflicts and selecting effective communication channels.
 Controlling: Monitoring, comparing, and correcting the organization’s
performance.

Slide 15 – Management Roles

The term management roles refers to specific categories of management behavior that are
grouped around three themes.
 Interpersonal roles: As a figurehead it includes duties that are ceremonial and
symbolic in nature. Includes a role as a leader, which involves hiring, training,
motivating and disciplining employees. A third role in the interpersonal group is
the liaison role which involves contacting external sources who provide
information.
 Informational roles: All managers will, to some degree, receive and collect
information from organizations outside their own which is called the monitor
role. They act as a conduit to transmit information to organizational members and
this is the disseminator role. When they represent the organization to outsiders
they perform a spokesman role.
 Decisional roles: Four roles revolve around the making of choices. As
entrepreneurs, managers initiate and oversee new projects that will improve their
organization’s performance. As disturbance handlers, hey take corrective action
 in response to unforeseen problems. As resource allocators, they are responsible
for distributing human, physical, and monetary resources. Last they perform as
negotiators when they discuss and bargain with other groups to gain advantage
for their own units.

Slide 16 – Management Skills

Management skills identify those abilities or behaviors that are crucial to success in a
management position. It begins with the identification of general skills and moves to the
search for specific sills related to managerial effectiveness.
General skills: Effective managers must be proficient in four general skill areas.
 Conceptual skills refer to the mental ability to analyze and diagnose complex
situations.
 Interpersonal skills encompass the ability to work with, understand and motivate
people.
 Technical skills to apply specialized knowledge or expertise.
 Political skills relating to the ability to enhance one’s position and establish the
right connections within the organization.
Specific skills: Six sets of behaviors that explain a manager’s effectiveness include:
 Controlling the organization’s environment and its resources.
 Organizing and coordinating.
 Handling information.
 Providing for growth and development
 Motivating employees and handling conflict
 Strategic problem solving.

Slide 17 – Planning
Formulating an effective organizational strategy is critical to any organization. Planning
as a management function is concerned with ends (what is to be done) as well as the
means (how it is to be done). There are four primary reasons why managers plan.
 Planning establishes coordinated effort. It gives direction to managers and non-
managers alike.
 It reduces the impact of change. By anticipating change, considering its impact
and developing appropriate responses, planning reduces uncertainty. It also
clarifies the consequences of the actions manager might take in response to
change.
 Planning reduces overlapping and wasteful activities.
 Planning establishes objectives or standards that facilitate control. The control
process compares actual performance against objectives, identifies any significant
deviations, and takes the necessary corrective actions.

Slide 18 – Human Resource Planning

The process by which management ensures that it has the right number and kinds of
people in the right places, and at the right times, who are capable of effectively and
efficiently completing those tasks that will help the organization achieve its overall
objectives. Human resource planning translates the organization’s objectives into the
quantity and mix of workers needed to meet those objectives. It can be condensed into
three steps:
 Assessing current human resources,
 Assessing future human resource needs, and
 Developing a program to meet future human resource needs.

Slide 19 – Job Analysis

Job Analysis defines the jobs within the organization and the behaviors and skills
necessary to perform those jobs. Information gathering through job analysis allows
management to create a job description and job specification. The former is a written
statement of what a jobholder does, how it is done, and why it is done. Typically it
portrays job content, environment, and conditions of employment. The job specification
states the minimum acceptable qualification as incumbent must possess to perform a
given job successfully. It identifies the knowledge, skills, and abilities needed to do the
ob effectively.

Slide 20 – Recruitment Process

Recruitment is the process of locating, identifying, and attracting capable applicants.
Major sources of potential job candidates include:
 Current Employees,
 Employee referrals,
 Former employees,
 Advertisements, and
 Employment agencies

Slide 21- Selection Process

How managers choose the best qualified candidate is a prediction exercise. The selection
process seeks to predict which applicants will be successful if hired. Successful in this
case means performing will on the criteria management uses to evaluate personnel. Any
selection device that a manager uses – such as tests or interviews – must demonstrate
validity. There must be a proven relationship between the selection device and some
relevant criterion. In addition to being valid, a selection device must also demonstrate
reliability, which indicates whether the device measures the same thing consistently.

Slide 22 – Selection Devices

Managers can use a number of selection devices to choose a candidate. Some of the
more common devices are:
 The application form. Almost all organizations require job candidates to fill out
an application. Such forms may vary from the simplest which require a prospect
to give his or her name, address and phone number, to those requesting more
comprehensive personal history, detailing education, job experience, skills, and
accomplishments.
 Paper and pencil tests. Typically these include tests of intelligence, personality,
aptitude, ability, interest, and integrity.
  Performance-simulation tests. These tests are based on job analysis data and
therefore should more easily meet the requirement of job relatedness than do
written tests.
 Work sampling. Creates a miniature replica of a job. Applicants demonstrate
that they possess the necessary talents be actually doing the tasks
 Assessment centers. Designed to evaluate candidates managerial potential,
exercises simulate real problems that they would confront on the job.

Slide 23 – Interviews
Not only is the interview widely used, it also carries a great deal of weight in the
selection process. The unstructured interview – short in duration, casual, and made up of
random questions – has proven to be an ineffective selection device. The data gathered
from such interviews are typically biased and often unrelated to future job performance.
Having interviewers use a standardized set of questions, providing interviewers with a
uniform method of recording information, and standardizing the rating of the applicant’s
qualifications reduce the variability in results among applicants and enhance validities
comparable to applications, paper and pencil ability tests, or assessment centers.
Interviews are particularly valuable for assessing an applicant’s intelligence, level of
motivation, and interpersonal skills.

Slide 24 – Training
Ensuring employee skills are current can have a big return on an organization’s ability to
be successful and profitable. Intensified competition, technological changes and the
search for improved productivity are increasing skill demands on employees. Signals
that suggest an employee is in need of training include:
New equipment or processes are introduced that may affect an employee’s job.
A change is made in the employee’s job responsibilities.
There I a drop in an employee’s productivity of in the quality of his or her output.
There is an increase in safety violations or accidents.
The number of questions employees ask their supervisor increases.
Complaints by customers or co-workers increases.

Slide 25 – Types of Training

Training can include everything from teaching employees basic reading skills to
advanced courses in executive leadership. The following summarizes four general skill
categories where most training is focused.
 Basic literary skills. Include both reading and math skills
 Technical skills. Most is directed at upgrading and improving an employee’s
ability to handle mew technologies and improved methods.
 Interpersonal skills. Almost all employees belong to a work unit. To some
degree their work performance depends on their ability to effectively interact with
their co-workers and their boss. This includes learning how to be a better listener,
how to communicate more clearly, and how to be a more effective team player.
 Problem-solving. Includes activities to sharpen logic, reasoning, and problem-
defining skills, as well as the ability to assess causation, develop alternatives,
analyze alternatives, and select solutions.
Slide 26 – Performance Appraisal
One of a manager’s most important responsibilities is appraising his or her employees’
performance. Appraisals service several critical purposes.
 They are used to make key personnel decisions such as promotions, transfers, and
terminations.
 They identify training needs.
 They provide feedback to employees on how the organization views their
performance.
 They often are the basis for pay adjustments.

Slide 27 - Interpersonal Skills

Good communication skills are increasingly important to a manager’s success.
Communication involves the transfer of meaning from one person to another. It involves
a sender’s transmitting a message and a receiver’s understanding it. Communication is
not limited to merely speaking words. Interpersonal communications is
communication between two people, either one-to-one or in face-to-face or group
settings, in which the parties are treated as individuals rather than as objects.
Organizational communications encompasses communications among several
individuals or groups.

Slide 28 – Key Communication Skills

Two of the most important skill elements for effective oral communication are the ability
to be an active listener and the ability to provide feedback. Each of these skills is
associated with a set of specific behaviors.

Slide 29 – Active Listening

Effective listening is active rather than passive. In passive listening you absorb the
information given. Active listening, in contrast, requires you to understand the
communication from the sender’s point of view. Eight behaviors are associated with
active listening skills:
 Make eye contact
 Exhibit affirmative head nods and appropriate facial expressions
 Avoid distracting actions or gestures
 Ask questions
 Paraphrase
 Avoid interrupting the speaker
 Don’t overtalk
 Make smooth transitions between the roles of speaker and listener

Slide 30 – Providing Feedback

Six specific suggestions help a manager be more effective in providing feedback to
employees on performance issues in work situations.
 Focus on specific behaviors
 Keep feedback impersonal
 Keep feedback goal-oriented
 Make feedback well timed
  Ensure understanding
 Direct negative feedback toward behavior that the recipient can control

Slide 31 – Conflict Management

The term conflict management is often used synonymously with conflict resolution. But
they are not the same. If all conflicts were dysfunctional, then the manager’s job would
be solely to eliminate or resolve conflicts. However conflict can have a positive side. It
keeps work groups viable, self-critical, and creative. Conflict management entails
maintaining the optimum level of conflict in a group. Too little conflict creates
stagnation. Too much creates disruption and infighting. The ability to manage conflict is
one of the most important skills manager needs to posses.

Slide 32 – The Source of Conflict

Conflicts have causes. A manager’s approach to resolving a conflict is likely to be
determined largely by its causes, as such determining the source of the conflict is very
critical. Sources of conflict can generally be separated into three categories.
 Communication differences. Disagreements arising from misunderstandings.
 Structural differences. Disagreements over goals, responsibilities, decision
alternatives, performance criteria, and resource allocations.
 Personal differences. Conflicts evolving out of individual idiosyncrasies.

Slide 33 – Conflict Resolution

There are several resolution tools or techniques a manager can use to reduce conflict
when it rises to an unacceptable or disruptive level in an organization.
 Avoidance: Not every conflict requires an assertive action. Sometimes
withdrawing from or suppressing the conflict is the best solution especially when
the conflict it trivial in nature.
 Accommodation: The goal is to maintain harmonious relationships by placing
another’s needs and concerns above your own.
 Force: Technique when you attempt to satisfy your own needs at the expense of
the other party. Within an organization the use of formal authority is used to
resolve dispute.
 Compromise: Requires each party to give up something of value.
 Collaboration: The ultimate win-win situation. All parties to the conflict seek to
satisfy their interests.

Slide 34 – Delegation
There are limits to any manger’s time and knowledge. Effective managers rely on others
to help them achieve their unit’s objectives. Delegation is the assignment of authority to
another person to carry out specific activities. It allows a subordinate to make decisions –
that is, it is shift of decision-making authority from on organizational level to another,
lower one. The following are the primary steps of delegation:
 Clarify the assignment
 Specify the subordinate’s range of discretion
 Allow the subordinate to participate
 Inform others that delegation has occurred
  When problems surface, insist on recommendations form the subordinate
 Establish feedback controls

Slide 35 – Counseling
Counseling is discussion of a problem with an employee in order to resolve the problem
or, at a minimum, to help the employee to cope with it better. There are three basic types
of counseling.
 Directive: Managers listen to employee problems, decide what should be done,
and then tell the employee what to do. In directive counseling the manager is in
control.
 Nondirective: Based on the belief that people can solve their own problems with
the aid of a sympathetic listener. Manager avoids passing judgment.
 Participative: Middle ground between directive and nondirective. Manager
plays a more assertive role by offering insights and advice.

Slide 36 – Effective Counseling Skills

Twelve guidelines for effective counseling.
 Create a non-threatening and supportive atmosphere for discussion
 Emphasize confidentiality
 Listen patiently
 Avoid offering hasty advice
 Use active listening skills
 Provide supportive responses
 Focus on job performance expectations
 Help the employee identify and articulate the problem
 Help the employee to look at several alternatives for solving the problem
 Don’t solve the problem for the employee
 Encourage the employee to articulate an action plan
 Refer problems that are beyond your expertise

Slide 37 - What is Accounting

Although an assets protection professional works daily with one type of accounting
record or another, the question of what an accounting process actually is may not ever be
addressed. Accounting can be described as the method by which transactions and
activities expressed in monetary terms are recorded, classified, summarized and
reported. Accounting is the term generically applied to a number of different but related
activities. General accounting is the overall method of recording transactions or events
and classifying or systematically organizing them into categories. The process of general
accounting produces a balance sheet and operating statement or statement of profit and
loss—two very familiar accounting reports. A basic or preliminary step in general
accounting is bookkeeping, the clerical task of actually making necessary record entries.
Specialized accounting tasks whose purpose is other than making a summary report of
transactions and their net impact on an enterprise are typified by cost and tax accounting.
The former is a method for isolating all the elements of cost required to generate a unit of
production or provide an amount of service. Cost accounting uses much of the same
transaction data as does general accounting, except that it processes, analyzes and reports
it differently. Tax accounting is a specialized form of accounting intended to conform
general accounting processes and records of an enterprise to the requirements of tax laws.

Slide 38 Basic Concept – The Equation

The most basic idea in general accounting is that things of value owned by an enterprise
(its assets) and all of its obligations (its liabilities) when netted (when liabilities are
subtracted from assets), will produce a quantity or amount reflecting the owner’s equity.
This idea is represented in the following basic equation:

ASSETS = LIABILITIES + OWNERSHIP (EQUITY)

At any time, the status of a business enterprise can be calculated by first totaling the
assets and liabilities and then subtracting one from the other. The substance of the basic
equation is a statement about the relationship between assets, liabilities and ownership.
The form of the equation is that assets are equal to liabilities plus ownership. Following
the simple mathematical rules for equations, the statement ASSETS = LIABILITIES +
OWNERSHIP can also be stated as OWNERSHIP = ASSETS - LIABILITIES, or
LIABILITIES = ASSETS - OWNERSHIP. Any representation of the three elements,
assets, liabilities and ownership, in the proper form, must result in an equation. This
equation, or balance, is precisely the relationship portrayed on the balance sheet, which is
a periodic statement of condition.

Slide 39 - Individual Accounts

Another fundamental concept of accounting is that each type of transaction or each aspect
of condition must be separately identified and described. Such a description is called an
account. There are separate accounts for various assets and liabilities, as well as for
various income and expense transactions. There is also at least one account reflecting the
ownership or equity in a business. Each account consists of a series of entries, which
either add to or subtract from the total amount in that account.

Slide 40 - Asset Accounts

Asset accounts are maintained for all things of value owned by an enterprise. There may
be few or many kinds of assets, depending on the nature and complexity of an enterprise.
Some typical assets of an enterprise include:
 Cash
 Accounts receivable
 Inventory (for enterprises that deal in the sale of tangible goods)
 Prepaid expenses
 On-hand supplies
 Land
 Buildings
 Furniture and fixtures
The first five asset accounts are termed current assets because they consist of cash or
items that can be converted to cash or consumed within a year. The last three are called
fixed assets because they are not normally consumed or converted to cash within a year.
Instead, they are items that are acquired for a long-term purpose and remain in active use
in the enterprise over a substantial period of time.

Slide 41 - Liability Accounts

Liability accounts are used to record the obligations of an enterprise. As with assets,
liability accounts are generally divided into at least three major classes: short-term or
current (i.e., those due to be liquidated or satisfied within a year) and those of longer
term. Typical of short-term or current liabilities in almost any organization are:
 Accrued wages and salaries payable to employees;
 Accrued taxes payable; and
 Accounts payable (e.g., to suppliers of materials and services who make credit
sales to the enterprise).

Slide 42 - Income Accounts

Income accounts describe the various kinds of income earned by an enterprise. Income
generally falls into two principal divisions:
 operating income; and
 non-operating income.
The former is income or revenue generated from primary activities of a business. Thus,
when the owner of the alarm business starts making some sales, the income from these
sales is operating income. At the same time, the business might temporarily deposit some
of its excess cash in a savings account or in some other income-yielding security. This
income would be investment income, a form of non-operating income.

Slide 43 - Expense Accounts

Expense accounts classify and record expenditures made in the production of income.
Expenses are costs that have expired or been fully paid (sometimes termed ‘‘sunk
costs’’). There are a number of expense categories that are typical of most businesses and
others that are quite unique. Among the general expenses are:
 salary and wages;
 taxes paid;
 telephone and communications; and
 supplies.
Expenses for a service business include items necessary to make possible the rendition of
services (e.g., subscriptions to professional publications and rentals of service vehicles).
In a merchandising or distribution business, a large expense is acquiring the merchandise
that is to be sold. This item is referred to as the cost of goods sold and is the acquisition
price of the merchandise. In merchandising, the gross income consists of the difference
between the amount received for the goods sold (called sales) and the cost to acquire
these goods (cost of sales or cost of goods sold).

Slide 44 – The Accounting Cycle

The following events occur in a logical sequence and are recorded in a standard way to
reflect their net impact upon an enterprise:
 The enterprise is begun by an investment of assets, usually cash but often other
assets.
  Obligations are incurred as a new business starts operations.
 Income is received from customers or clients as goods are sold or services are
rendered.
 Obligations incurred are paid and these payments are termed expenses.
 At stated times, the net balance of income and expense is transferred to an
ownership account to reflect either a profit (income over expense) or a loss
(expense over income).
The value of the entire enterprise is then stated by summarizing the balances in all asset,
liability and ownership accounts. The equation ASSETS = LIABILITIES +
OWNERSHIP can then be produced. This equation is shown in the balance sheet. The
report of income and expense transactions that produced the balance sheet are shown on
the operating statement.

Slide 45 – Financial Analysis and the Assets Protection Professional

A security professional should understand financial analysis for several reasons. For the
assets protection professional, financial analysis helps to:
 identify specific facts—such as earned income, the size of accounts receivable
 indicate relationships among the various elements of the statements—such as the
ratio of current assets to current liabilities; and
 indicate trends if the same item is compared on a number of consecutive financial
statements.
By understanding a firm’s financial condition, the assets protection professional can:
 recognize signs of asset loss or diversion appearing in financial reports;
 discuss implications of the financial reports with management associates in the
firm; and
 assess the impact of changes in firm operations (including security changes) on its
economic health.

Slide 46 – Capital and Expense Costs

As a plan or estimate, the budget is usually the tool of a manager in the business
enterprise who is responsible for effective management of a particular activity or center
over some period of time. Typically, the budget time frame is a fiscal or calendar year,
but there is often a provision for review and amendment at quarterly or other intervals.
When used for planning, a budget is usually prepared in two major sections: one dealing
with capital costs, the other with expense costs. Capital costs are those that result in the
acquisition of a lasting or permanent asset. Expense costs, on the other hand, are costs
that are consumed in the activity of day-to-day business operations with a useful life of
less than one year—such as office supplies, fuel, salaries, wages or costs of services
procured from contractors or non-employees. The distinction between capital and
expense costs is significant. In measuring the return on investment (ROI), or return on
assets, capital assets are included in the investment or asset base. Therefore, the larger the
base, the greater the net income must be to show an increase in such a return.
Slide 47 – Project Justification
The first step in developing a capital investment budget is determining the items for
acquisition. From management’s perspective, businesses generally recognize the
following as the reasons for justification of an acquisition of a capital asset:
 Necessity. The asset is required by law—such as pollution control equipment—or
by contract and must be procured if the enterprise is to continue in business.
 Maintain current operations. The replacement of worn out or damaged capital
assets—such as manufacturing equipment. Failure to maintain the assets would
involve a loss of earnings and some aspect of the business would be forced to halt
or discontinue.
 Product growth and expansion. The construction of a new plant or the addition
of more equipment to permit added or expanded product manufacturing. The
underlying idea is that the new or added capacity would enhance income
immediately, or at some future time.
 Cost reduction or avoidance. Those projects or assets whose acquisition permits
the elimination or reduction of a current expense cost, or the avoidance of a future
expense cost. It is in the area of cost reduction that capital investments
requested by security and assets protection operations are most often justified.

Slide 48 – Comparative Analysis Methods

There a number of methods used for comparative analysis of capital investments. Two of
the most common methods are payback and return on investment. Each of these methods
has advantages and disadvantages, or limitations; therefore, businesses use more than one
method to evaluate a capital investment.
 Payback. The calendar time it takes for the project to pay back the total funds
invested. The payback method is typically expressed in years. It focuses on short-
term results, It does not require managers to predict cash flows far out into the
future. This method does not consider profitability or impact on profitability.
Most firms have some rule of thumb that the capital investment must be paid back
over a two to four-year period. Payback is calculated as follows:

Payback Period = Amount of initial investment

Annual net cash flows

 Return on Investment (ROI). Measures the incremental operating income that

is generated per dollar of investment. Those capital investments that have a high
ROI are preferable to those with a low ROI. Most businesses have a policy, which
states that a minimum rate of return must be achieved by any project to be
considered. Even though ROI is easy to use, it is not used by itself as a method to
determine the viability of a capital investment. This is because the ROI does not
take into account the time value of money—that money changes over a period of
time. Furthermore, operating income fluctuates from year to year, making it
difficult to compute the ROI accurately. ROI is calculated as follows:

ROI = Annual operating income X 100

Initial investment
Slide 49 – Internal Control
The fundamental objective of all accounting controls is to safeguard assets and ensure an
accurate and timely accounting of all transactions affecting them. It is essential that an
organization’s various elements—general management, accounting, internal audit, loss
control and security—work together to achieve an effective level of control. While
internal controls are commonly spoken of in the context of accounting systems, the
underlying objective is the protection of assets.
Slide 50 – Components of Internal Control
There are five interrelated components of internal control:
 The control environment, which includes the integrity, ethical values and
competence of an organization’s people.
 Risk assessment.
 Control activities.
 Information and communication, which encompasses the methods for identifying,
capturing and communicating pertinent information in a time frame that enables
people to carry out their responsibilities.
 Monitoring.
All five of the components must exist to have effective internal control. Derived from
these components are three premises:
 That people in an organization, who face the realities of trying to work efficiently
and effectively to achieve the goals and objectives set out for them, are in the best
position to provide insights in the strengths and weaknesses or their processes.
 Internal auditors should work in a collegial spirit to identify control problems and
develop solutions for improving and strengthening controls. This will engender
better solutions and belief in the process in all but the most difficult situations.
 The use of focus groups and affinity processes affords one of the most efficient
and effective means of gathering substantial amounts of relevant and useful data.

Slide 51 – Maintenance of Proper Control

Once you have successfully mapped out your plan for internal control, it must be
maintained. There are five cardinal precepts for the maintenance of proper control:
 There must be clear assignment of responsibility.
 There must be separation of duties.
 No gaps in accountability should exist.
 The proper operation of controls must be verified regularly by people familiar
with the controls but who are not accountable for the assets being controlled.
 Every organization should be organized and operated so that opportunities to
divert assets are minimized.
Slide 52 – What is Auditing
Auditing is a meticulous examination of financial statements or business practices to
verify their accuracy and consistency. Most audits involve the examination of balance
sheets, cash flow statements or operating records. Some involve the examination of non-
financial matters, including a business’s efficiency and effectiveness or a business’s
compliance with applicable laws and regulations. An auditor performs the audit and
expresses an opinion on a company’s financial statements. The opinion is summarized in
a report that states whether financial statements meet with accepted accounting
principles. If not, the auditor identifies those circumstances in which such principles have
not been practiced.

Slide 53 – Relationship Between Audit and Security

The relationship between the internal (i.e. employee) or external (i.e. public) auditor and
the security staff is an important one. A productive audit-security relationship is based on
the following criteria:
 Security, when conducting its routine investigative or inspection activities,
advises audit to follow policy when there are substantial failures in the
organization units.
 Security provides audit with copies of investigative reports when asset loss or
diversion involves records manipulation, failure to follow established policy or a
lack of necessary preventative control.
 Audit provides security with copies of audit reports that indicate unaccountable
assets or significant lapses of internal control.
 Audit, when developing audit tests, stops when external contacts appear to exceed
those customarily made by auditors, or when internal inquiries require extensive
and adversary interviews with enterprise employees. At that point the audit is
shared with security and a formal security investigation either parallels or
supplants the audit, or some investigatory activity is conducted to resume the
audit. This is a major area of joint planning for the audit and security managers.
 Audit advises security when it changes the established audit frequency for any
unit because of suspicious events or repeated unfavorable audits with exceptions
reports.
 If audit prepares memoranda on internal control, or if the external auditor
prepared such memoranda in connection with the external audit, copies are
provided to security.
 Security, when conducting inquires or investigations, advises audit immediately
when it appears that there are or may be accounting irregularities, records
manipulations, or when enterprise assets are or appear to have been diverted.
Audit and security functions should maintain regular contact and be permanent
members of the vulnerability assessment threat team.

Slide 54 – Types of Audits

There are three types of audits:
 Financial audits. The audit of financial statements such as balance sheets, related
statements of income, retained earnings and cash flows. These audits determine if
the statements have been prepared in accordance with generally accepted
accounting principles.
 Compliance audits. An audit of a company, state or local government entity or
nonprofit organization that depends upon criteria or standards established by an
authoritative body. These audits determine whether the financial assistance
complies with applicable laws and regulations.
  Operational audits. A review of the non-financial activities of a company. These
audits measure a company’s performance and determine whether a company’s
operation is consistent and meets requirements. It measures efficiency and
effectiveness and tends to require more subjective judgment than financial and
compliance audits. Operational audits do not aim to examine or highlight financial
performance, but operations do have financial implications; failure to perform a
required function properly may involve cost penalties or lost income
opportunities.

END OF SLIDES

Practice Questions

1. The term “knowledge worker” is used to describe those workers:

a. Whose primary task is to use information to produce value.
b. Who have a detailed knowledge of the physical tasks that they perform.
c. With a PhD.
d. Whose education has progressed to at least a Masters Degree.

Answer: a

2. Among the new management sciences is dissipative structures

which holds that:
a. Disturbances and disorder are signs of trouble.
b. Personal habits that dissipate resources are indicative of a psychiatric disorder.
c. Disorder, or non-equilibrium, can help living systems regenerate to their environment and
organize themselves into new and higher forms of order.
d. Certain buildings or structures have an aura that dissipates human energy.

Answer: c

3. The management science known as the chaos theory shows that:

a. Chaotic systems function within larger parameters that are well-ordered and predictable.
b. Chaos will ensue if the command and control management system is not used.
c. A state of chaos in any part of an organization must be identified and eliminated as soon as
possible.
d. Senior management persons with a chaotic mentality make the best managers.

Answer: a

4. Stewardship means:
a. The function of serving passengers on a cruise ship.
b. Serving as the head of the wine cellar in a quality restaurant.
c. To hold something in trust for another.
d. To serve on the board of directors in an enterprise.

Answer: c
5. In this new and highly competitive economy, competitive advantage
comes more from:
a. Ideas and information.
b. Inexpensive labor
c. Expanded availability of funding.
d. Command and control management.

Answer: a

6. Effective collaboration while working in work teams or clusters

requires:
a. Increased time spent on abstract planning.
b. Sophisticated communication, negotiation and conflict resolution skills.
c. Strong command and control management techniques.
d. Groups of persons with very similar experience and personality.

Answer: b

7. Modern management models include interplay or dynamic tension

between apparent opposites which:
a. Encourages people to bring to the surface unquestioned assumptions about “the way things
work”.
b. Usually requires a substantial change in the composition of the group.
c. Increases the time spent on abstract planning.
d. Reduces the need for negotiation and conflict resolution skills.

Answer: a

8. In working in a work group or cluster the challenge is:

a. Insuring that the command and control management concept is maintained.
b. Finding out how to ensure that the group received the maximum benefit of all the diverse
skills.
c. Determining the amount of time to be spent on abstract planning.
d. Gathering only the number of new ideas commensurate with the time allotted to consider
them.

Answer: b

9. Administrative management does not:

a. Expressly state the objectives of the security organization.
b. Indicate organizational relationships, responsibilities and authority.
c. Identify the regular and extraordinary methods of communication.
d. Provide required financial resources.

Answer: d
10. It is commonplace that significant actions be made a matter of
retrievable record, available for as long as the action remains
significant. The key element is the determination of:
a. Where the record is maintained.
b. How the record is retrieved.
c. What is significant.
d. Who will have access to the record.

Answer: c

11. Any plan that no longer serves a useful purpose should be:
a. Revised.
b. Abandoned.
c. Reviewed.
d. Filed for historical reference.

Answer: b

12. The first planning step should be to:

a. Determine overall goals and objectives.
b. Determine the size of the enterprise.
c. Obtain the authorization of senior management.
d. Provide sufficient funds for the planning process.

Answer: a

13. Delegation of authority and responsibility from the operating head of

the enterprise to the protection organization should be implemented
through:
a. Meetings with all employee groups.
b. Verbal instructions to the head of the protection organization.
c. The issuance of policy.
d. Informal email messages to senior management employees.

Answer: c

14. No change should be made in the scope of responsibilities of a

position without:
a. Consultation with senior management.
b. A definite understanding to that effect on the part of all persons concerned.
c. The authorization of the head of the human resources department.
d. Concurrence by all management personnel in the protection organization.

Answer: b

15. Which of the following techniques would not contribute directly to

cost effective management?
a. Doing things in the least expensive way.
 b. Maintaining the lowest costs consistent with required results.
c. Maintaining a high level of personnel training.
d. Assuring that amounts spent generate high returns.

Answer: c

16. The one common language at all levels and in all departments of an
enterprise is:
a. English.
b. Cobal.
c. Fortran.
d. Financial numbers.

Answer: d

17. From the behavioral sciences perspective it is

axiomatic that a protection program will not
succeed unless it:
a. Meets the personal needs of the vast majority of the workforce.
b. Cultivates the willing cooperation of those affected by it.
c. Incorporates sufficient disciplinary sanctions to convince the workforce to follow prescribed
procedures.
d. Provides for termination of employment in the case of repeated violations of mandatory
procedures.

Answer: b

18. The complete area of the study of human behavior that includes both
psychology and social services is commonly referred to as:
a. Physical science.
b. Biological science.
c. Behavioral science.
d. Human science.

Answer: c

19. Conflict is viewed as a natural result of the interaction of people and

groups. The behavioral science theory holds that conflict should be:
a. Avoided or smoothed over.
b. Resolved by the supervisor.
c. Dealt with by the use of disciplinary measures.
d. Approached as a problem-solving issue between the parties in disagreement.

Answer: d

20. A fundamental assumption of noted behavioral scientists is that each

of us has an individual and unchanging inner nature. Which of the
following would not be a further assumption?
 a. Denial of this nature produces illness, at times evident and sometimes deeply buried or
disguised.
b. This unchanging inner nature is entirely unique to the individual.
c. It is possible to study this nature and make useful discoveries about it.
d. This nature is not primarily evil.

Answer: b

21. One of the cardinal principles of behavioral science, participitative

management, holds that a manager:
a. Who has decided on a course of action should the opinion of subordinates in order to give them
a sense of participation.
b. Contemplating a course of action should ask the opinion of the employees and be willing to be
influenced by their suggestions and ideas.
c. Will receive greater participation if the matter under discussion relates to actions that directly
affect the employees personally, such as company recreational activities.
d. Contemplating a course of action should require the participation of subordinates in the decision
making process.

Answer: b

22. An authoritarian protection program will generate a:

a. Sense of well-being in the workforce.
b. General climate of distrust and suspicion.
c. Service attitude and an understanding of human needs in the protection force.
d. Sense of tranquillity within the work force and the protection force.

Answer: b

23. Peter Drucker described a “knowledge worker”, who

now dominates the work force as:
a. More skilled, better educated and more receptive to automation and new technology.
b. Highly receptive to an authoritarian assets protection program.
c. Generally more productive under the spur of fear.
d. More receptive to automation and new technology but more willing to function without
question under a system of rules and regulations.

Answer: a

24. Which of the following statements is not

characteristic of the “now generation” or
“generation X” workers. They:
a. Are unwilling to accept incomplete answers to questions.
b. Tend to question restraints.
c. Readily accept certain protection requirements.
d. Do not readily accept requirements that appear to be arbitrary.

Answer: c

25. Protection staff employees are in a unique position

to create the proper assets protection atmosphere
in a facility. To that end the protection staff must be
trained to provide:
a. An authoritarian protection program in a manufacturing facility.
b. A program that includes courtesy, service attitude and an understanding of human needs in an
office environment.
c. A program that includes courtesy, service attitude and an understanding of human needs in
every type of facility.
d. An authoritarian protection program in every type of facility in order to properly protect the
assets of the enterprise.

Answer: b