CHAPTER 14: CONTROL SYSTEMS AND MANAGING

FINANCES AND PEOPLE

CH 14© 2015 SAGE Publications

Organizational Systems Control• An important part of determining performance is

measuring and controlling it• Preliminary Control (Inputs): designed to anticipate and

prevent possible problems• Concurrent Control (Transformation Process): action taken to

ensure that standards are met as inputs are transformed into outputs

• Rework Control (Outputs): action taken to fix an output• Damage Control (Customer/Stakeholder Satisfaction): action

taken to minimize negative impacts on customers/ stakeholders due to faulty outputs

Feedback in Organizational Systems • Feedback (continuous improvement):

• Feedback loop: An important part of the systems process, particularly from the customer and other stakeholders

Functional Department Control Systems• Firms are commonly organized into four major

functional departments: operations, marketing, human resources, and finance

• Information is a fifth major functional area that may be a stand-alone department or may fall under the finance functional area

• In most organizations the operations department is the only functional area that actually transforms the inputs into the outputs of goods and services (products) that are sold to customers

The Feedback Process Between Functional Areas/Departments

Establishing Control Systems1. Set objectives and standards2. Measure performance3. Compare performance to standards4. Correct or reinforce

Control Frequency And Methods• Controls are needed to accomplish organizational

objectives• Constant• Periodic• Occasional

Control Frequency• Constant Controls are in continuous use

• Self-control• Clan control• Standing plans

Control Frequency• Periodic Controls are used on a regular, fixed basis

• Regular meetings and reports• Budgets• Audits

Control Frequency• Occasional Controls are used on a sporadic basis when

needed• Observation• The exception principle• Special reports• Project controls

Financial Controls and Budget Setting• Accounting is referred to as the language of business

and profit is the primary measure of business success.• A budget is a planned quantitative allocation of

resources for specific activities. • Revenue and expenditure operating budgets• Capital expenditures budget• Financial budgeted cash flow, income statement, and balance

sheet

Revenue & Expenditure Operating Budgets• An operating budgets include the revenue and

expense budgets• A revenue budget is a forecast of total income for the

year• An expense budget is a forecast of total operating

spending for the year. It is common for each functional area/department manager to have an expenditure budget

Capital Expenditures Budget• Includes all planned major asset investments• The major assets owned by an organization are those

that last and are paid for over several years and enable the firm to make a profit

Financial Budgets And Statements• Actual statements report past results while the budget,

or pro forma statement, projects future results• Income statement• Balance sheet• Cash flow statement

Primary Financial Statements• Income Statement:

• Presents revenue and expenses and the profit or loss for the stated time period.

• Balance Sheet:• Presents the assets and liabilities and owners’ equity.

• Cash Flow Statement:• Presents the cash receipts and payments for the stated time

period.

Coaching• The process of giving motivational feedback to

maintain and improve performance• performance = ability × motivation × resources

Coaching Model1. Describe current performance 2. Describe desired performance3. Get a commitment to the change4. Follow up

Walking Around1. Listening2. Teaching3. Facilitating

Counseling• Process of giving employees feedback so they realize

that a problem is affecting their job performance and referring employees with problems to the EAP

• The employee assistance program (EAP) has a staff of people who help employees get professional assistance in solving their problems

Problem Employees• Employees who do not have the ability to meet the job

performance standards • Employees who do not have the motivation to meet job

performance standards • Employees who intentionally violate standing plans• Employees with problems

Discipline• Discipline is corrective action to get employees to meet

standards and standing plans• To adequately discipline, a manager must:

• Let employees know that action will be taken when standing plans or performance requirements are not met

• Maintain authority when challenged