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Categories of Control
Organizational controls can come in various forms, with various characteristics. Understanding how to classify organizational controls can be very useful. Some common categorizations are as follows:
- Strategic Controls – Strategic goals derive from the company’s strategy. They may certain the company is achieving its higher-level goals and objectives. It can be very useful in tracking how strategy as it is being implemented, identifying errors or issues with implementation and making any necessary adjustments.
- Management Controls (also known as “Operating Controls) – Management goals concerns the execution of the strategic plan. Generally, management controls concern the goals, objectives, and standards established for all business units, projects, products, functions, and tasks. Some common operational goals might include revenue, net profit, total costs, etc.
Strategic and management goals are inextricably intertwined. For example, corrective action resulting from operational controls may have implications for strategic controls.
Levels of Proactivity
Within the strategic and operational levels of control, there are several types of control. The first two types can be mapped across two dimensions: level of proactivity and outcome versus behavioral.
- Proactivity – Proactivity concerns monitoring goals and objective completion to identify problems before they arise. It means projecting any deviations from the standard and addressing them ahead of a negative occurrence. This is known as feedforward control. This might include preventive maintenance on machinery and equipment and due diligence on investments.
- Concurrent Controls – This is the process or monitoring of current operations and financial standards in real time to ensure they meet identified standards. These types of controls address any issues as they arise. This can prevent the issue from becoming serious or leading to additional problems.
- Feedback Controls – Feedback controls require gathering information on completed activity, evaluating the information with regard to current standards, and making the corrections necessary to avoid negative occurrences in the future.
Each control function is a feedback mechanism to assist managers in identifying deviations in standards and making adjustments in the organizational, competitive, or functional strategies necessary.
Outcome and Behavioral Controls
Controls may also be classified based upon what is monitored – outcomes or behaviors.
- Outcome Controls – Outcome controls work best when there are few performance measures, there is little external interference in the outcome, or when there is little coordination between business units.
- Behavioral Controls – Behavioral controls concerns manager and employee behavior (particularly decision making). It ties rewards to performance goals to behavior as it relates to process and procedure – rather than the outcome of the activity. Behavioral controls are most appropriate when managers coordinate resources across business units or when there are external and internal factors that directly affect a manager’s decisions and the resulting organizational performance.
Financial and Nonfinancial Controls
Controls may also be categorized as either financial and nonfinancial.
- Financial Controls – Financial controls are generally an outcome analysis of its financial performance as compared to its short and long-term projections. That is, it involves the management of a firm’s revenues and expenses as budgeted. Managers plan for financial performance through the budgeting process. Financial controls then monitor financial information to determine how the company is performing. For example, the company may monitor profitability, total revenue, resource costs, etc.
- Non-financial Controls – Financial controls track aspects of operations that do not have a direct impact on financial performance. These aspects do, however, have an effect on long-term performance. Examples of non-financial controls might include employee satisfaction or turnover, new product launches, customer satisfaction, utilization capacity, brand awareness, research and development, employee development, etc. Because these controls are not outcome related, it is important that they are directly linked to company strategy, validated with adequate data, and subject to specific, measurable targets.