Learning Objectives

14-1. List the four stages of the systems process and describe the type of control used at each stage.

The first stage of the systems process is inputs. Preliminary control is designed to anticipate and prevent possible input problems. The second stage is the transformation process. Concurrent control is action taken to ensure that standards are met as inputs are transformed into outputs. The third stage is outputs. Rework control is action taken to fix an output. The fourth stage is customer/ stakeholder satisfaction. Damage control is action taken to minimize negative impacts on customers/ stakeholders due to faulty outputs. During the four stages, feedback is used to improve upon the process to continually increase customer satisfaction.

14-2. Identify the four steps in the control systems process, and describe the differences among the three categories of control frequency.

The steps in the control systems process are (1) set objectives and standards, (2) measure performance, (3) compare performance to standards, and (4) correct or reinforce, with a feedback loop for continuous improvement. Controls vary based on the frequency of their use. Constant controls (self-control, clan control, and standing plans) are in continuous use. Periodic controls (regular meetings and reports, budgets, audits) are used on a regular fixed basis, such as once a day or week. Occasional controls (observation, exception principle, special reports, project control) are used on a sporadic basis when needed.

14-3. Discuss the three parts of the master budgeting process, and compare bonds and stock.

The three parts of the master budget are (1) the operating budget, which includes forecasted revenues and expenses for the year; (2) the capital expenditures budget, which includes all planned major asset investments that will generate revenues; and (3) financial budgets and statements, which include the income statement (revenues – expenses = profits), the balance sheet (assets = liabilities + owner equity), and the cash flow statement (money received and paid). The budgeted pro forma statements project the next year’s financial results, whereas the actual statements report past performance for the specified period of time. Bonds and stock are similar in that they are both used to raise money for the business. But they are different because when a company sells bonds, it must pay back the bond holders plus the rate of interest specified. In contrast, if the company sells stock, it never has to pay back the stockholders because they become part-owners of the company. The sale of both results in cash being added to the asset section of the balance sheet, but bonds are part of the liabilities section, whereas stock is part of the owner’s equity section.

14-4. Explain the relationship between coaching, management counseling, and discipline.

Coaching is the process of giving motivational feedback to maintain and improve performance. Management counseling is the process of giving employees feedback so they realize that a problem is affecting their job performance and referring employees with problems to the employee assistance program. Discipline is corrective action to get employees to meet standards and standing plans. The three are related because the manager starts by coaching to fine-tune performance. However, if there are problem employees who are not meeting expectations, counseling or discipline is used. Counseling is commonly used when employees have personal problems, whereas discipline is used when employees will not meet work performance standards or break rules. If employees don’t meet expectations with counseling help, discipline is used. The discipline is based on the severity of the violation, and progressive discipline leading to firing may be used.