Medina Chapter 9

These flashcards cover key concepts and terminology related to controlling in management, including definitions, processes, types of control, and the importance of effective control systems.

What is Controlling?

The process of ascertaining whether organizational objectives have been achieved, and determining necessary actions to improve future performance.

Importance of Controlling

Helps organizations achieve goals efficiently and effectively, minimizes the ill effects of mistakes and shortcomings.

Steps in the Control Process

1. Establishing performance objectives and standards, 2. Measuring actual performance, 3. Comparing actual performance to objectives, 4. Taking necessary action.

Feedforward Control

Management anticipates problems and prevents their occurrence before operations begin.

Concurrent Control

Management monitors ongoing operations to detect variances and make adjustments.

Feedback Control

Gathering information about completed activities to evaluate and improve future performance.

Components of Organizational Control Systems

1. Strategic plan, 2. Long-range financial plan, 3. Operating budget, 4. Performance appraisals, 5. Statistical reports, 6. Policies and procedures.

Strategic Plan

Provides the basic control mechanism for the organization.

Operating Budget

Indicates expenditures, revenues, or profits planned for future operations.

Performance Appraisals

Measures employee performance to provide feedback for improvement.

Statistical Reports

Contain data on various developments within the firm, such as labor efficiency and sales reports.

Policies

Framework within which organizational objectives must be pursued.

Procedures

Exact series of actions to be taken in a given situation.

Current Ratio

A liquidity ratio that measures the company's ability to cover current liabilities with current assets.

Acid-Test Ratio

Measures a firm's liquidity, showing its ability to pay off short-term obligations without relying on inventory sales.

Inventory Turnover Ratio

Measures how many times inventory is sold or turned over in a year.

Debt to Total Assets Ratio

Shows how much of the firm's assets are financed by debt.

Times Interest Earned Ratio

Measures how many times earnings before interest and taxes cover the company's interest expense.

Profit Margin Ratio

Compares net profit to sales to evaluate profitability.

Return on Assets Ratio

Shows income produced for every peso invested in assets.

Return on Equity Ratio

Measures the return on the owner's investment in the company.

Executive Reality Check

A practice where executives engage in frontline work to understand operational realities.

Comprehensive Internal Audit

An internal evaluation of the efficiency and effectiveness of an organization's activities.

Symptoms of Inadequate Control

Indicators such as unexplained revenue decline, employee dissatisfaction, and excessive costs.

What are the steps in the control process?

1. Establish performance objectives and standards, 2. Measure actual performance, 3. Compare performance to standards, 4. Take corrective action.

What is the significance of performance objectives?

They provide a target for the organization to measure actual performance against.

What does the term 'managerial control' imply?

The process of ensuring that the organization's goals are met effectively and efficiently.

What is a corrective action?

Steps taken to address deviations from performance standards.

How does financial analysis relate to controlling?

It helps determine financial performance and identify discrepancies from established standards.

Why are statistical reports important?

They provide valuable data that helps monitor various aspects of the organization's performance.

What is meant by policies in control systems?

Guidelines that dictate how objectives are pursued.

Why is it important to measure actual performance?

To identify shortcomings and enable corrective actions.

How do financial ratios assist in control?

They provide insights into financial health and performance relative to industry norms.

What is the role of policies and procedures?

They provide a framework and detailed actions necessary for organizational control.

What should be done if performance does not meet standards?

Corrective measures should be undertaken to address the discrepancies.

What is a strategic control system?

Framework for assessing performance related to accomplishing strategic objectives.

Why is it crucial to prevent unwanted occurrences within a company?

To safeguard against financial loss and ensure operational continuity.

What does the term 'organizational control systems' encompass?

Framework that includes strategic planning, financial management, and performance evaluation.

How can management identify operational problems?

Through executive reality checks and comprehensive internal audits.

What is an operating budget?

A financial plan that outlines necessary expenditures and expected revenues over a certain period.

How do corrective actions help organizations?

They enable organizations to realign with goals, reduce inefficiencies, and enhance productivity.

What is a comparison in the control process?

The act of evaluating actual performance against set objectives.

What is meant by organizational objectives?

Defined goals that the organization seeks to achieve through its operations.

What is a liquidity ratio?

A financial metric that indicates a company's ability to meet its short-term obligations.

What is feedback in management control?

Information gained after a completed activity to improve future actions.

What is necessary for effective measurement of performance?

Appropriate tools and metrics tailored to the organization's objectives.

What is the significance of having performance standards?

They serve as benchmarks against which actual performance can be evaluated.

What is the purpose of gathering feedback after operations?

To evaluate performance and identify areas for improvement.

How do concurrent controls maintain operations?

By monitoring ongoing processes and making immediate adjustments as needed.

What types of insights can financial ratio analysis provide?

It compares company performance indicators with standards or industry averages.

What can an internal audit help prevent?

It helps identify inefficiencies and prevent small problems from escalating.

What does establishing performance objectives involve?

Defining what needs to be achieved to guide operational activities.

What role do procedures play in an organization?

They outline the specific steps necessary to carry out policies and achieve objectives.

What are financial leverage ratios used for?

They assess how a company utilizes debt in financing its assets.

What does it mean to compare actual performance to objectives?

It is determining if the measured outcome aligns with the expected standards.

Why is deviation analysis important?

It identifies areas needing improvement and helps take corrective action.

How do operational symptoms indicate a control problem?

They reveal inefficiencies that may affect overall organizational performance.

What constitutes effective organizational control?

A combination of planning, monitoring, and adjusting to ensure objectives are met.