The Control System:

Three Components or Types:

1.Feedforward Control 2.Concurrent Control 3.Feedback Control

Feedforward Control

Anticipates Problem

Input

Process

Output

Concurrent Control

Corrects problem as it happens

Feedback Control

Corrects problem after it

occurred

Qualities of Effective Control SystemsEffective control systems are generally linked to strategy, accepted by the members, ACCURATE, FLEXIBLE, TIMELY, EQUIPPED to point out exceptions, within REASONABLE COSTS, and able to PROVIDE CORRECTIVE MEASURES

The Importance of ControlEnsure that activities are according

to plansEnsure that goals are attained,Assist the managers and

supervisors in the delegation of authority, as controls often motivate managers to dispense authority.

Areas of ControlINFORMATIO

N

CONTROL SYSTEM FINANCE

EMPLOYEE BEHAVIOR

OPERATIONS

How does a manager exercise effective control over the organization?

CONTROL METHODS AND SYSTEMS Bureaucratic Control1. Rules and regulations

- Standard operating procedures (SOPs)- Policies that prescribe correct employee behavior

2. Management control systems- Budgeting- Financial Report- Reward System- Operations management- Management by objective

3.Hierarchy of authority- Central authority- Supervision

4.Total Quality Control (TQC)5.Formalized selection and

training6.Information technology

Market, Clan (Internal Control)- includes all the policies and procedures

adopted by the management of an enterprise to assist in achieving management objectives.

a) Orderly and efficient conduct of its business, including adherence to management policies.

b) Safeguard of assetsc) Prevention and detection of fraud and errord) Accuracy and completeness of the accounting recordse) Timely preparation of reliable financial information

Elements in an Internal Control Accounting System or the series of tasks and records of an entity

by which transactions are processed as a means of maintaining financial records

Control Environment - or the overall attitude, awareness, and actions of the BOD and management regarding internal control systems and its importance to the enterprise

Control procedures – or the policies and procedures in addition to the control environment, which management has established to achieve the specific objectives of the enterprise.

Budget as a Control Method or DeviceBudget – is a statement of expected results in numerical terms. It can be financial or non-financial. Are financial plans that comes into and outside the organization.

Financial Budgets – pertain to revenues, costs, and capital

Non-financial budgets- pertain to direct labor hours, materials, sales volume or units of production

Preparation of Financial Budgets

Top Managers – prepare and use budgets for the organization as a whole

Middle Managers – focus on budgets for a department or division

Owner Manager – prepares the budgets in small enterprises and uses them to monitor performance

Kinds of Financial Budgets Revenue Budget – sets revenue targets and lists

them against accrual revenues Cash Budget – estimates receipts and expenditures

of money on a daily basis to ensure an adequate supply of cash for operations.

Expense Budget – incorporates anticipated and actual expenses

Capital Budget – is a list of planned investment in major assets.

Control Across Organizational Functions Financial Ratios – are financial measures of performance culled from

accounting records, as summarized by financial statements

Profit Ratios – managers are able to determine how efficient they are in converting resources to profits

Liquidity Ratios – indicate how well managers protect resources to meet short term obligations

Leverage Ratios - are indicative of how much debt is used to finance operations

Activity Ratios – reflect efficiency with which managers create value from the use of assets

The Balance ScorecardFINANCIAL CUSTOMER INTERNAL

ORGANIZATIONAL LEARNING

Improve gross profit margin

Develop Customer partnerships based on trust, professionalism and shared values

Increase effectiveness of sales force

Build skills and offer portfolio for creative solutions

Reduce manufacturing and purchase costs

Become preferred supplier

Improve delivery performance

Create customer and project-focused teams

Pursue economic value-added opportunities

Outperform other suppliers

Improve responsiveness to opportunities

Build capability to differentiate on service provision

Improve responsiveness and reliability in supply of products and services

Build technological capabilities

Task:Instructions: Complete the following Balance Scorecard as a manager on your “Proposed Business”

FINANCIAL CUSTOMER INTERNAL ORGANIZATIONAL LEARNING

Improve__ Develop partnerships with------based onTrust, professionalism and shared values

Increase personal effectiveness on-----

Build----skills through---

Reduce expenses on------

Become a preferred learner of-----

Improve delivery performance on:

Create customer and project-focused teams with-----

Pursue economicValue-added opportunities, suchAs------

Outperform other learners in--------

Improve responsiveness to opportunitiesThrough-------

Build capability to differentiate on----

  Improve responsiveness and Reliability in supply of------

Build technological capabilities on-----