Control techniques provide managers with the type and amount of information they need to measure and monitor performance. The information from various controls must be tailored to a specific management level, department, unit, or operation. To ensure complete and consistent information, organizations often use standardized documents such as financial, status, and project reports. Each area within an organization, however, uses its own specific control techniques, described in the following sections.
Financial controls After the organization has strategies in place to reach its goals, funds are set aside for the necessary resources and labor. As money is spent, statements are updated to reflect how much was spent, how it was spent, and what it obtained. Managers use these financial statements, such as an income statement or balance sheet, to monitor the progress of programs and plans. Financial statements provide management with information to monitor financial resources and activities.
The income statement shows the results of the organization’s operations over a period of time, such as revenues, expenses, and profit or loss. The balance sheet shows what the organization is worth (assets) at a single point in time, and the extent to which those assets were financed through debt (liabilities) or owner’s investment (equity). Financial audits, or formal investigations, are regularly conducted to ensure that financial management practices follow generally accepted procedures, policies, laws, and ethical guidelines. Audits may be conducted internally or externally.
Financial ratio analysis examines the relationship between specific figures on the financial statements and helps explain the significance of those figures: •Liquidity ratios measure an organization’s ability to generate cash. •Profitability ratios measure an organization’s ability to generate profits. •Debt ratios measure an organization’s ability to pay its debts. •Activity ratios measure an organization’s efficiency in operations and use of assets. In addition, financial responsibility centers require managers to account for a unit’s progress toward financial goals within the scope of their influences.
A manager’s goals and responsibilities may focus on unit profits, costs, revenues, or investments. Budget controls A budget depicts how much an organization expects to spend (expenses) and earn (revenues) over a time period. Amounts are categorized according to the type of business activity or account, such as telephone costs or sales of catalogs. Budgets not only help managers plan their finances, but also help them keep track of their overall spending. A budget, in reality, is both a planning tool and a control mechanism.
Budget development processes vary among organizations according to who does the budgeting and how the financial resources are allocated. Some budget development methods are as follows: •Top-down budgeting. Managers prepare the budget and send it to subordinates. •Bottom-up budgeting. Figures come from the lower levels and are adjusted and coordinated as they move up the hierarchy. •Zero-based budgeting. Managers develop each new budget by justifying the projected allocation against its contribution to departmental or organizational goals. •Flexible budgeting.
Any budget exercise can incorporate flexible budgets, which set “meet or beat” standards that can be compared to expenditures. Marketing controls Marketing controls help monitor progress toward goals for customer satisfaction with products and services, prices, and delivery. The following are examples of controls used to evaluate an organization’s marketing functions: •Market research gathers data to assess customer needs—information critical to an organization’s success. Ongoing market research reflects how well an organization is meeting customers’ expectations and helps anticipate customer needs.
It also helps identify competitors. •Test marketing is small-scale product marketing to assess customer acceptance. Using surveys and focus groups, test marketing goes beyond identifying general requirements and looks at what (or who) actually influences buying decisions. •Marketing statistics measure performance by compiling data and analyzing results. In most cases, competency with a computer spreadsheet program is all a manager needs. Managers look at marketing ratios, which measure profitability, activity, and market shares, as well as sales quotas, which measure progress toward sales goals and assist with inventory controls.
Unfortunately, scheduling a regular evaluation of an organization’s marketing program is easier to recommend than to execute. Usually, only a crisis, such as increased competition or a sales drop, forces a company to take a closer look at its marketing program. However, more regular evaluations help minimize the number of marketing problems. Human resource controls Human resource controls help managers regulate the quality of newly hired personnel, as well as monitor current employees’ developments and daily performances. On a daily basis, managers can go a long way in helping to control workers’ behaviors in organizations.
They can help direct workers’ performances toward goals by making sure that goals are clearly set and understood. Managers can also institute policies and procedures to help guide workers’ actions. Finally, they can consider past experiences when developing future strategies, objectives, policies, and procedures. Common control types include performance appraisals, disciplinary programs, observations, and training and development assessments. Because the quality of a firm’s personnel, to a large degree, determines the firm’s overall effectiveness, controlling this area is very crucial. Computers and information controls
Almost all organizations have confidential and sensitive information that they don’t want to become general knowledge. Controlling access to computer databases is the key to this area. Increasingly, computers are being used to collect and store information for control purposes. Many organizations privately monitor each employee’s computer usage to measure employee performance, among other things. Some people question the appropriateness of computer monitoring. Managers must carefully weigh the benefits against the costs—both human and financial—before investing in and implementing computerized control techniques.
Although computers and information systems provide enormous benefits, such as improved productivity and information management, organizations should remember the following limitations of the use of information technology: •Performance limitations. Although management information systems have the potential to increase overall performance, replacing long-time organizational employees with information systems technology may result in the loss of expert knowledge that these individuals hold. Additionally, computerized information systems are expensive and difficult to develop.
After the system has been purchased, coordinating it—possibly with existing equipment—may be more difficult than expected. Consequently, a company may cut corners or install the system carelessly to the detriment of the system’s performance and utility. And like other sophisticated electronic equipment, information systems do not work all the time, resulting in costly downtime. •Behavioral limitations. Information technology allows managers to access more information than ever before. But too much information can overwhelm employees, cause stress, and even slow decision making.
Thus, managing the quality and amount of information available to avoid information overload is important. •Health risks. Potentially serious health-related issues associated with the use of computers and other information technology have been raised in recent years. An example is carpal tunnel syndrome, a painful disorder in the hands and wrists caused by repetitive movements (such as those made on a keyboard). Regardless of the control processes used, an effective system determines whether employees and various parts of an organization are on target in achieving organizational objectives.