Business Management Dersi 8. Ünite Sorularla Öğrenelim

What is the definition of “controlling”?

Controlling is the systematic process of regulating organizational activities to make them consistent with expectations established in plans, targets, and standards of performance. So, controlling is the process of ensuring that all activities in the organization go according to planned activities.

What is meant by “internal control”?

Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

How is “internal control” defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)?

The internationally accepted COSO model requires internal controls to be built on basic components for the purposes of efficient and effective organizational operations and reliable financial reporting as well as compliance with legislation.

What is the “aim of internal control”?

Internal control consists of a set of rules, procedures and organizational structures which aim to:
• Protect the company’s assets against waste, fraud, and inefficiency.
• Ensure the reliability and integrity of accounting and operating data.
• Promote operational efficiency.
• Ensure that operations comply with all existing rules and regulations. 

What are components that work to support the achievement of an entity’s mission, strategies, and related business objectives in an effective internal control system?

In an “effective” internal control system, the following five components work to support the achievement of an entity’s mission, strategies, and related business objectives: 
1. Control Environment 
2. Risk Assessment 
3. Control Activities 
4. Information and Communication 
5. Monitoring 

Who is responsible for establishing and maintaining internal control?

Management is responsible for establishing and maintaining internal control to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations.

What is the “internal audit”?

Internal auditing is an essential part of internal control. The internal control system designed by companies for the purpose of efficient and effective business processes, reliable financial reporting, and compliance with rules and regulations are assessed through internal audit activities. The internal audit examines the adequacy and effectiveness of internal controls and makes recommendations where control improvements are needed. Internal auditors are company employees who continuously evaluate the effectiveness of a company’s internal control systems. Internal auditors play a significant role in the verification that management has met its responsibility.

What is the definition of “management”?

Management is defined as a process which applies to any formal and informal management environment with a variety of goals: “Management is the achievement of goals by others through Planning, Organizing, Leading, and Controlling activities (P-O-L-C framework)”. Each function contributes to the management process from a different perspective, but they are interconnected and complement each other. Managers are responsible for ensuring the achievement of goals; therefore, planning, organizing, leading, and controlling the company’s operations are key responsibilities for managers.

What is the importance of controlling in the P-O-L-C framework?

In the P-O-L-C framework “controlling” might be seen as the last function of business management. But the controlling function is actually a highly integrated function in the management process. It is a primary function of all management levels. Controlling helps managers monitor how well planning, organizing, and leading have been performed.

What is the relationship between controlling and planning?

Managers check to see that organizational activities and processes are being carried out as planned. Planning and controlling are closely linked to each other. Managers must always seek feedback on how the system is performing and managers want to know whether organizational goals are achieved and if not, the reasons. This feedback process helps the formulation of future plans in the light of the problems that were identified and, thus, helps better planning for the future. Controlling is a function that brings the management cycle back to the planning process.

What is the relationship between controlling and organizing?

The organizing function follows planning. It determines tasks appropriate to goals; grouping tasks by departments; assigning the work force for specific tasks; deciding the authority relationships, and preparing the work environment which includes allocating the resources. The organizational structure that tasks and authority relations are established should enable the controlling function be applied effectively.

What is the relationship between controlling and leading?

Leading is about guiding the organization towards the organizational goals and objectives. Organizing and leading are related. Through these two functions choices are made about the way people work together and are motivated to achieve individual and group goals and objectives. As a final step in the management process, controlling provides the critical link back to planning.

How would you summarize the importance of controlling in the management process?

Controlling helps managers to measure the effectiveness of their planning, organizing and leadership activities. If those prior functions are carried out well, generating positive responses to controls can be much easier. Conversely, if major problems exist in planning, organizing, and leading, controlling function will probably not work very well. In this sense, effective control is a managerial instrument that depends on the other functions that come before it. When these preceding functions work well, control will work well. When they don’t work well, control can become a major issue for a manager. As a result, controlling is the monitoring function of the management process and is critical for the success of other management functions.

What are the “steps of basic control process”?

Steps in the basic control process follow the logic of planning:
• establish standards and methods to measure performance 
• measure performance
• compare the actual performance with the established standards, whether performance matches the standard
• taking corrective action as needed 

How are the standards and methods to measure performance established?

During the planning process goals and objectives will be determined and they will eventually become the foundations for different control processes. Goals and objectives will become performance standards. When the plans and goals are developed, controls must be established to monitor the progress toward these goals. Managers determine all important areas of organizational performance and establish corresponding standards in each area. Managers can establish different kinds of standards related to operative goals. Some examples include the following:
• Profitability standards
• Market position standards
• Productivity standards
• Product leadership standards
• Employee development standards
• Social responsibility standards

What is the definition of a “standard”?

A standard is a unit of measurement used to evaluate results and the criteria of performance. A standard can be the price, cost, or quantity which is expected under regular conditions.

What are “performance standards”?

Performance standards are the specific goals created during the planning process.

How is the actual performance measured?

The second step in the basic control process is the measurement of performance. Managers must measure actual performance to determine any deviations from the standards. Approaches used by managers to measure and report actual performance are: personal observations; statistical reports; oral reports; and written reports. Managers might use a combination of these approaches. Performance should be measured in an objective and reliable manner. Standards must be defined clearly and also performance measurements must be made appropriately.

How is actual performance compared to standards?

The third step in the control process is comparing actual performance to performance standards. There will be a comparison between the “what is” and the “what should be.” Measured results are compared with the standards which are already set. Comparing actual performance to standards includes measuring the deviation.

What does “deviation” refer to?

Deviation is the difference between “what is” and “what should be”.

How is the corrective action taken?

The fourth and final step in the controlling process is evaluating results and taking action. Managers can choose among three possible courses of action: do nothing; solve the problem (correct the actual situation); or revise the standards.

What is meant by “immediate corrective action”?

Immediate corrective action corrects problems at once to get performance back on track.

What is meant by “basic corrective action”?

Basic corrective action looks at how and why performance deviated before correcting the source of deviation.

What are the types of managerial control?

The types of the managerial control are:
• feedforward control
• concurrent control
• feedback control 

What is the reason for “feedforward control”?

Feedforward controls or pre controls are future directed. Feedforward controls are designed to detect and anticipate deviations from standards at various points before relevant work is performed. Feedforward controls prevent problems before the operation takes place.

Why are “concurrent controls” used?

Concurrent controls apply to business operations as they happen. Concurrent controlling is the process of monitoring and adjusting ongoing activities and processes. It involves real-time assessment of the quality of the transformation process, that is, evaluation of the conversion of inputs to outputs while it is happening.

What are “feedback controls”?

Feedback controls are the most popular and most used type of controls. Feedback controls are postperformance controls because the control takes place after the activity have been completed. By the time a manager has the information, the problems have already occurred and they might be leading to waste or damage.

What is meant by the “scope of control”?

The basic of the control process are similar wherever they occur in organizations, but the scope of what is being controlled can vary widely. Managers should control both the overall organization as well as departments, teams, and individuals. Some control strategies apply to the whole organization or major divisions. Control is also an issue at the lower and operational level, where department managers and supervisors focus on the performance of teams and individual employees.

What are the categories of scope of control?

Three major categories of scope of control are strategic, operational, and tactical.

What is done in “strategic control”?

Strategic control is a specialized form of management control. Strategic control systems are designed to determine how well those types of objectives and goals are being met. Strategic control is concerned with tracking the strategy as it is being implemented, detecting any problems areas or potential problem areas, and making any necessary adjustments.

What is done in “tactical control”?

Tactical control is the assessment and regulation of the day-to-day functions of the organization and its major units during the implementation of its strategies. Most common types of tactical control systems are financial controls, budgets, the supervisory structure, and human resource policies and procedures.

What does “operational control” involve?

Operational control regulates the activities or methods an organization uses to produce the goods and services it supplies to its customers. Operational control regulates the day-to-day output relative to schedules, specifications, and costs because the term operational generally indicates short-term goals. The major components of operations control are just-in-time inventory control, maintenance control, cost control, budgetary control, ratio analysis, and materials control.

What does the “focus of control” refer to?

The focus of control refers not only to what is to be controlled but also to where control should be located in the organizational structure.

What does “the balanced scorecard” mean in the organization level control?

The Balanced Scorecard is a management control system that enables organizations to clarify their vision and strategy and translate them into action. The balanced scorecard was originally introduced to integrate financial and non-financial controls in order to provide a balanced view of a firm’s performance. For controlling purposes, the balanced scorecard is defined as a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.

What does “the financial perspective” refer to in the balanced scorecard system?

The financial perspective reflects a concern that the organization’s activities contribute to improving short and long-term financial performance. It includes traditional measures such as net income, gross profit margin, and return on investment.

What does “the customer perspective” refer to in the balanced scorecard system?

The customer perspective helps managers evaluate the question, “How do customers see us?” Customer satisfaction is critical to achieving the company’s financial goals outlined in the financial perspective of the balanced scorecard.

What does “the internal business process perspective” refer to in the balanced scorecard system?

The internal business processes perspective helps managers address the question, “At what business processes must we excel to satisfy customer and financial objectives?” The answer to this question incorporates three factors: innovation, operation, and post-sales service. All three factors critically affect customer satisfaction, which will affect the company’s financial success.

What does “the organization’s potential for learning and growth perspective” refer to in the balanced scorecard system?

This perspective helps managers assess the question, “How can we continue to improve and create value?” The learning and growth perspective focuses on three factors: “employee capabilities”, “information system capabilities”, and “the company’s climate for action.” Measurements include such things as employee satisfaction and retention, the amount of training people receive, business process improvements, and the introduction of new products.

What does “behavior versus outcome control” mean in the department level control?

There are two different approaches to evaluating and controlling a team or individual performance and allocating rewards. One approach focuses primarily on how people do their jobs, whereas the other focuses primarily on the outcomes that people produce.

What do “behavioral control” involve?

Behavioral controls involve the direct evaluation of managerial and employee decision making, not the results of managerial decisions. Behavior control is based on manager observation of employee actions to see whether the individual follows desired procedures and performs tasks as structured.

What is “outcome control” based on?

Outcome control is based on monitoring and rewarding results, and managers might pay little attention to how results are obtained. With outcome control, managers don’t supervise employees in the traditional sense. People have a great deal of autonomy in terms of how they do their jobs as long as they produce desired outcomes. Rather than monitoring how many hours an employee works, for example, managers focus on how much work the employee accomplishes.

What are some of the common tools and techniques for controlling?

Managers use a large number of tools and techniques for effective controlling - some of which are budgetary control, financial control, break-even analysis, activity-based costing, just-in-time inventory control, and total quality management.

What does “budgetary control” involve?

A budgetary control is the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.

What is the definition of “budget”?

A budget is the quantitative expression of a proposed plan of action by management for a specified period and an aid to coordinate what needs to be done to implement that plan. Budgets are used both as planning tools and controlling tools.

What are the types of budgets?

Budgets can be classified as strategic and operational budgets under a time basis. Budgets can also be classified as static and flexible budgets.

What are “strategic budgets”?

Strategic budgets are long-term financial plans to coordinate the activities needed to achieve long-term goals of a company.

What are “operational budgets”?

Operational budgets are short-term financial plans to coordinate activities needed to achieve the shortterm goals of a company.

What is the difference between “static budgets” and “flexible budgets”?

Static budgets are prepared for only one level of sales volume; flexible budgets are prepared for various levels of sales volume.

What is the “master budget”?

The master budget is a set of budgeted financial statements and supporting schedules for an entire organization. The master budget includes three separate but interdependent budgets that formally present the company’s sales, production, and financial goals: the operating budget; the capital expenditures budget; and the financial budget.

What is the “operating budget”?

The operating budget is a set of budgets that forecast revenues and expenses such as sales revenue, cost of goods sold, and operating expenses.

What is the “capital expenditures budget”?

This budget presents a company’s plan for projects and long-term assets such as purchases of property, plant equipment, and other long-term assets.

What is the “financial budget”?

The financial budget lays out how an organization will acquire its cash and how it intends to use the cash. The financial budget includes the cash budget which helps a company in planning and controlling regarding its cash inflows and outflows and the budgeted financial statements which help to see the company’s overall financial position.

How would you define “budgetary control”?

Budgetary control is the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.

What is the function of a “responsibility center”?

A budget is created for every division or department within an organization and the manager of each unit has budget responsibility. The fundamental unit of analysis for a budget control system is called a responsibility center. A responsibility center is defined as any organizational department or unit under the supervision of a manager who has decision-making authority and accountability for the results of those decisions.

What do “financial control” involve?

Financial controls tell whether the organization is successful financially and they can be also useful indicators of other kinds of performance problems. For example, if company’s sales are declining, the reason might be related to product quality, customer service performance, or sales force effectiveness.

What are “financial statements”?

Financial statements provide basic information used for the financial control of an organization. Managers rely on a variety of financial and non-financial reports. Financial statements provide management with information to monitor financial resources and activities. The balance sheet and the income statement are basic financial statements.

What does the “balance sheet” show?

The balance sheet shows a firm’s financial position with respect to assets and liabilities at a specific point in time.

What are “assets”?

Assets are what the company owns and they include current assets (those that can be converted into cash and will be used in a short time period such as cash, accounts receivable, or inventory) and non-current assets (such as buildings and equipment that are long term in nature).

What are “liabilities”?

Liabilities are the existing debts of a company including both current liabilities (obligations that will be paid by the company in one year such as accounts payable, salaries payable) and long-term liabilities (obligations payable over a long period such as bonds payables).

What is the “owners’ equity”?

Owners’ equity is the difference between total assets and liabilities and it is the company’s net worth.

What does an “income statement” mean?

The income statement, sometimes called a profit and loss statement (P&L), summarizes the company’s financial performance for a specific time period, such as a one-quarter or one-year period. The statement shows the results of the organization’s operations, such as revenues, expenses, and profit or loss.

What do managers do while “interpreting the numbers and ratios”?

The most common financial analysis focuses on ratios. Ratio analysis expresses the relationship among selected items of financial statement data by calculating the ratios. The relationship is expressed in terms of either a percentage, a rate, or a simple proportion. The important point regarding financial ratios is not the detailed steps that need to be taken to calculate them. Rather, the ratios can be used to compare one organization to another. The comparative nature of the ratios provides information to the managers who will need to take action during the control process.

What are the ratios available to managers for controlling organizations?

The ratios available to managers for controlling organizations can be divided into four categories:
• Liquidity ratios
• Activity ratios
• Profitability ratios
• Leverage ratios (Solvency ratios) 

What do “liquidity ratios” measure?

These ratios measure an organization’s ability to meet its current debt obligations.

What do “activity ratios” measure?

Activity ratios measure internal performance with respect to key activities defined by management. Activity ratios use turnover measures to show how efficiently a company operates and uses its assets.

What do “profitability ratios” measure?

Profitability ratios measure the income or operating success of a company for a given period of time.

What do “leverage (solvency) ratios” refer to?

Leverage refers to funding activities with borrowed money. A company can use leverage to make its assets produce more than they could on their own. However, too much borrowing can increase the risk such that it will be unable to keep up with repayment of its debt.

What does “cost-volume-profit (CVP) analysis” involve?

Cost-Volume-Profit (CVP) analysis is a planning tool that shows the relationship between costs, volume and profits. Companies use CVP analysis to estimate how changes in sales prices, variable costs, fixed costs and volume will affect profits and losses.

What is the role of the “breakeven point (BEP)”?

The breakeven point (BEP) can be used to determine a target profit. The breakeven point (BEP) determines probable profit and losses at different levels of activity. The breakeven point (BEP) is that quantity of output sold at which total revenues equal to total costs.

What does “activity-based costing (ABC)” refer to?

Companies with various products, can get better costing information by using Activity Based Costing (ABC) and Activity Based Management (ABM). ABM focuses on the primary activities of a company, determines the cost of activities, and then uses the cost information to make decisions that will lead to improved customer satisfaction and the greater profitability. Activity-based costing (ABC) focuses on activities as the fundamental cost objects. The total production process will be divided into activities and cost of the activities will be determined. Then costs will be assigned to products based on how much the production uses those activities to make the product. The costs of those activities become building blocks for allocating the indirect costs of products, services, and customers.

How would you define a “just-in-time inventory control”?

A Just-in-Time (JIT) system is an inventory management and control system that ensures timely delivery of a product or service and related inputs. The objective is to produce a product or service only as needed with only the necessary materials, equipment, and employee time that will add value to the product or service. JIT emphasizes maintaining organizational operations by using only the resources that are absolutely necessary to meet customer demand.

How would you explain the “total quality management (TQM)” approach?

Total Quality Management (TQM) is an organization-wide effort to integrate quality into every activity in a company through continuous improvement of products and processes. The implementation of total quality management involves the use of many techniques such as quality circles, benchmarking, Six Sigma principles, reduced cycle time, and continuous improvement.

What does controlling mean?

Controlling is the systematic process of regulating organizational activities to
make them consistent with expectations established in plans, targets, and standards of performance.

What is internal control?

Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

what are the five components of an effective internal control?

These are;

1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring

What is an internal audit?

The internal audit examines the adequacy and effectiveness of internal controls and makes recommendations where control improvements are needed.

What is the relation between planning and controlling?

Managers check to see that organizational activities and processes are being carried out as planned. Planning and controlling are closely linked to each other. Managers must always seek feedback on how the system is performing and managers want to know whether organizational goals are achieved and if not, the reasons. This feedback process helps the formulation of future plans in the light of the problems that were identified and, thus, helps better planning for the
future. Controlling is a function that brings the management cycle back to the planning process.

What are the features of performance standards?

Performance standards are the specific goals created during the planning process. Performance standards should be realistic and acceptable to the people involved, otherwise controlling might become difficult and subjective. Standards should be defined clearly and precisely, so employees know what they need to do, and determine whether their activities are on target.

What are the steps of controll process?

Steps in the basic control process follow the logic of planning: (1) establish standards and methods to measure performance, (2) measure performance, (3) compare the actual performance with the established standards, whether
performance matches the standard and then (4) taking corrective action as needed

What re different kinds of standards related to operative goals?

Managers can establish different kinds of standards related to operative goals. Some examples include the following:
• Profitability standards
• Market position standards
• Productivity standards
• Product leadership standards
• Employee development standards
• Social responsibility standards

What are possible courses of action that managers can choose?

Managers can choose among three possible courses of action: do nothing; solve the problem (correct the actual situation); or revise the standards. This step becomes essential especially if actual performance is different than standards and the analysis indicates that corrective action is required.

How do corrective actions differ depending on the problem type?

The correction of problems in critical areas will have priority over non-critical areas. One decision that a manager must make is whether to take immediate corrective action, which corrects problems at once to get performance back
on track, or to use basic corrective action, which looks at how and why performance deviated before correcting the source of deviation.

Which types of managerial control are future based?

Feedforward controls or pre controls are designed to detect and anticipate deviations from standards at various points before relevant work is performed.

What is a concurrent control?

Concurrent controlling is the process of monitoring and adjusting ongoing activities and processes. It involves real-time assessment of the quality of
the transformation process, that is, evaluation of the conversion of inputs to outputs while it is happening.

What are the advantages of feedback control?

Feedback controls have two advantages: First, feedback gives managers meaningful information on the effectiveness of their planning efforts. Feedback that shows little variance between standard and actual performance indicates that the planning was generally on target. If the deviation is significant, a manager can use that information to formulate new plans. Second, feedback can enhance motivation. People want to know how well they are doing and feedback gives this information.

Which type of budget includes three diffrent types of budget?

The master budget includes three separate but interdependent budgets that formally present the company’s sales, production, and financial goals: the operating budget; the capital expenditures budget; and the financial budget.

What are financial statement used for financial control of an organization?

The balance sheet shows a firm’s financial position with respect to assets and liabilities at a specific point in time.
Assets are what the company owns and they include current assets and non-current assets.
Liabilities are the existing debts of a company including both current liabilities
and long-term liabilities.
Owners’ equity is the difference between total assets and liabilities and it is the
company’s net worth.
The income statement, sometimes called aprofit and loss statement (P&L), summarizes the company’s financial performance for a specific time period, such as a one-quarter or one-year period.

How should managers use ratio analysis to control an organization?

Managers should evaluate all ratios simultaneously.

Managers should compare computed values for ratios in a specific organization with the values of industry averages for those ratios.

Managers’ use of ratios should incorporate trend analysis.

What are the available ratios for managers to control an organization?

The ratios available to managers for controlling
organizations can be divided into four categories:
1. Liquidity ratios
2. Activity ratios
3. Profitability ratios
4. Leverage ratios (Solvency ratios)

What are some tools and systems of planning and controlling used for organizations?

These are Cost-Volume-Profit (CVP) analysis, Activity-Baed Costing, Just-in-time Inventory Control and Total Quality Management.

What does ISO 9000 Standards include?

The ISO 9000 standards addresses various aspects of quality management and provides guidance and tools for companies and organizations who want to ensure that their products and services consistently meet customer requirements, and that quality is consistently improved. A lot of organizations have been certifed for ISO 9000 standards to demonstrate their commitment to quality. The International Organization for Standardization (ISO) certification has become the recognized standard for evaluating and comparing companies on a global basis, and more Turkish companies are feeling the pressure to participate to remain competitive in international markets.