Running head: CONTROL

Control Audrey Dodson Liberty University August 22, 2013

CONTROL Control The key topic is control. Control is not only important in business; it is important in an individuals personal life. The concept of control is very broad and encompasses an entire organization inclusive of day to day operations. I selected this topic to see if the processes for management control, strategic control, and operational control differ. Key Concept Explanation The essential elements of the process of control are establishing standards, measuring performance, comparison of performance against standards, and corrective action. The steps in the control process are establishing standards, measuring performance, comparison of performance against standards, and corrective action. A control standard is a target of which performance will be compared. The standard should be measurable, in alignment with the organizations goals, and should be able to identify performance indicators. A performance measure must be valid and the performance measurement must be continuous. Comparing

performance against standards allows the organization to see and monitor variances or to see that the organization is on target. After performance has been compared to standard, the organization will take corrective action by correcting errors or potentially changing the standard. If there is not a variance between performance and standard there is no corrective action needed (Veliyath, Hermanson, & Hermanson, 1997). Comparison In comparing the elements of control in the textbook with the elements of control from the research literature; the elements of control are basically the same. The difference is in the performance being measured and the standards that the performance is being compared to. Other

CONTROL differences are in the type of controls that have been established: strategic controls, structural controls, financial controls, and operating controls. Types of Control Controls are established in different areas. Managing control is an enormous responsibility. Areas of control are (1) physical resources, (2) human resources, (3) information resources, and (4) financial resources. Physical resource control includes inventory

management, quality control, and equipment control. Human resource control includes selection and placement, training and development, performance appraisal, and compensation. Information resource control includes sales and marketing forecasting, environmental analysis, public relations, production scheduling, and economic forecasting. Financial resource control includes managing organizational debt, cash flow, accounts receivable, and accounts payable. Controls are also established at various levels within the organization. The levels of control are strategic control, structural control, operations control, and financial control. All managers of an organization are responsible for control (Armesh, Salarzehi, & Kord, 2010). Organizational Control There are three main types of organizational control: strategic control, management control, and operational control. Strategic control refers to the process of evaluating an organizations strategy. This type of control is normally done after the formation of the organizations strategy and after the strategy has been implemented. Management controls focus in on accomplishment of the various departmental strategies or substrategies, when combined these substrategies make up the overall strategy of the organization. Operational control is concerned with both individual and group performance compared with the standards required by the organization. (Flamholtz, 1996) .

CONTROL Article Summary According to the article, Organizational Control Systems: Matching Controls with

Organizational Levels, todays firms face environmental, legal, and financial risks coupled with uncertain risks. Firms face losses from derivatives and lawsuits for employee harassment and discrimination. Because of internal, external, and unknown risks organizations need controls to monitor processes and regulate activities Organizations need controls to help determine if their goals are being met and to take corrective action if necessary. Controls are needed for regulation of organizational activities and help ensure that targeted elements of performance remain in acceptable limits. Managers and employees use manual and systematic controls to prevent or detect risks. These controls are necessary and are implemented so that work proceeds as necessary for continuous operation. For controls to be effective, it is necessary for management to determine the type of controls needed and match them to the appropriate levels in the organization. The process of control involves four steps: setting goals or objectives; implementation programs and policies, measurement and comparison of outcomes against targets, and corrective action. The control process helps to

align individual goals or objectives with those of the organization. There are different types of control within the organization but two common methods of control are preventive and detective (Veliyath, Hermanson, & Hermanson, 1997). Biblical Integration The purpose of control is to let the organization know how well or not so well it is doing by comparing performance to standards. A parable in the New Testament about a steward who is wasting money is an example for the motive of monitoring processes. The owner in Luke 16:2

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says, What is this I heard about you? Draw me up an account of your stewardship. This verse indicates that control is used to monitor performance. One rationale for internal control is that if given the opportunity to steal an employee will give in to temptation and steal. It is important for organizations to have a control system that reduces embezzlement. Micah 7:5-6 states, Put not trust in a neighbor, have no confidence in a friend. These verses can be considered the rationale for the need for internal control. Controls also function as a system of checks and balances to detect and identify errors that could have a negative impact on internal and external stakeholders of the organization. Ecclesiastes 4:1-2 states, These are things you should not be ashamed ofkeeping strict accounts with a traveling companion. The implication of these verses is by monitoring and evaluating processes errors can be identified and corrected which eliminates internal and external conflict. Application Control measures help the organization achieve its goals, adapt to change, reduce errors, minimize cost, and deal with complexity. Essentially, control activities encompass policies and procedures and the daily events that happen within the internal control system. A control system should include both preventive and detective control processes for risk identification, risk elimination or reduction, and corrective action. Corrective action can be done through policies and procedures, employee training, implementing new technology to improve processes, and disciplinary action. Controls help to protect the organization from damages, liabilities, and internal risks (Veliyath, Hermanson, & Hermanson, 1997) .

CONTROL References Armesh, H., Salarzehi, H., & Kord, B. (2010). Management control system. Interdisciplinary Journal of Contemporary Research in Business, 2(6), 193-206. Retrieved from http://search.proquest.com/docview/815405395?accountid=12085

This article was helpful in explaining the nature and function of organizational control relative to employee behavior and motivation. Control is a mechanism for motivation, integration, performance measurement, operational results, and implementation of strategy. Controls help the organization emphasize goals and motivate employees to focus on achieving the goals of the organization. The intent of organizational control is to influence members of the organization. Emphasis of an organization's control system should be on core capabilities, structure, and culture.

Christ, M., Emett, S., Summers, S., & Wood, D. (2012). The effects of preventive and detective controls on employee performance and motivation. Contemporary Accounting Research, 29, 432-452. doi:10.1111/j.1911-3846.2011.01106.x

This article explains the importance of preventive and detective controls within an organization. The design of preventive controls is to prevent workers at all levels from making errors, committing illegal acts, and defrauding the organization. Detective controls are designed to detect errors or fraud after they have taken place. Examples of preventative controls: segregation of duties, proper authorization for transactions, and detective controls: performance reviews and reconciliations on expense, liability, revenue, and bank accounts, were highlighted and explained.

CONTROL Veliyath, R., Hermanson, H., & Hermanson, D. (1997). Organizational control systems;

Matching controls with organizational levels. Review of Business, 18(2), 20-24. Retrieved from http://search.proquest.com/docview/220964413?accountid=12085

This article is helpful in understanding organizational control, the components of organizational control, and why organization control is a fundamental asset for any organization. Control process steps were highlighted and explained, which was helpful for comparison of control in the textbook. The article also explains why it is necessary to match the various controls in the organization to the appropriate organizational level. Explanations and descriptions of the various types of controls within organizations are also highlighted. The rationale for an organization to have controls is that today companies face a number of risks: internal and external, that can have a negative impact.

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