Introduction to Management

Chapter Summary

Managers use a series of control methods and systems to deal with the various problems of their organizations. The major control systems that assist a manager in exercising control are financial control, budgetary control, quality control, inventory control, operations management and computer-based information systems.

In this chapter, financial and budgetary control systems were discussed. Control systems are classified into feedforward, concurrent and feedback control systems based on the management level at which they are used, as well as on the nature of their timing. Financial control systems are feedback control systems.

Under financial control, we discussed financial statements and ratio analysis. Financial statements include balance sheets, income statements and cash flow statements, which contain information that helps maintain financial control in organizations. Ratio analysis is the study of the ratios of various items in a financial statement. Various ratios such as liquidity, asset management, debt management, and profitability ratios help managers compare the current performance of an organization with its past performance or with the performance of its competitors, and enable them to take appropriate measures in case of any large deviations (eg. high debt-equity ratio).

While financial controls are a major tool of top management, budgetary controls are used by middle managers. Budgets are a widely used means for planning and control at every level of the organization. Budgeting is the formulation and quantification of future plans for the organization. Organizations divide their units into responsibility centers to facilitate budgeting.

The responsibility centers are classified as standard cost centers, discretionary expense centers, revenue centers, profit centers and investment centers, depending on the degree to which they have control on inputs and outputs and their contribution to the organization. Quality control and inventory control help organizations reduce costs considerably by preventing products and services of inferior quality from leaving the organization, and excess raw material from entering the organization (or accumulation of excess products in the warehouse).

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