Organizing for Control

The integration of planning and control

We mentioned in the introduction to Part 5, that control may be related to planning by defining the purpose of control as being to ensure that the organization's activities conform with its plans. Control is itself an activity, therefore, and it should and does affect every aspect of the organization. We may depict the control cycle in the form of a generalized model.

The control cycle illustrated thereon shows that the origin of control is in the objectives of the organization from which plans are developed. These plans, as we saw in our Planning Section, consist of both long-range and annual plans. It is evident from the model depicted on p. 568 that the control cycle integrates both the long-range and the annual plan. Information feedback enables actual performance to be compared with the planned performance required by the annual plan, thus enabling management to control operations and the resources allocated to those operations. At the end of the year, the results may be compared with those envisaged in terms of the long-range plans, thereby providing information feedback for the purposes of reviewing the long-range plan. Finally, the control process allows achievements to be compared with the organization's desired objectives, thereby enabling new goals and new objectives to be formulated.

The control model illustrates the multi-dimensional nature of the control process, and the coincidence of the control process with the planning processes. It is this coincidence which allows the planning and the control process to be integrated into one model which is focused on organizational objectives and the goals derived from those objectives. Overall control is concerned with measuring progress towards the realization of organizational objectives and the strategic goals defined in the strategic plan. This aspect of control is exercised by top management. Using the terminology adopted in this website, management control is a subordinate activity concerned with the efficient use of resources committed to the realization of organizational goals. Finally, operational control is concerned with ensuring that the tasks defined in the operational plan are carried out effectively. Specific performance standards are attached to these tasks, and information feedback allows actual performance to be compared with the required performance.

From the foregoing, it follows that control standards are designed in the planning process. They are used as indices by which the effectiveness and the result of organizational activities are to be assessed, for they provide the basis by which actual and planned performance are to be compared. Moreover, since organizational activities emanate from the planning process, plans themselves also constitute performance standards.

There remains, however, a perceptible distinction between planning and control in the sense in which we consider these terms in this text. A plan reflects the expectations and the means of achieving stipulated goals during a specified period. If such a plan is to be useful for control purposes as well, it should reflect adequately the extent to which those expectations and those means are subject to organizational control. Hence, it should provide the basis for the system of responsibility accounting which requires a clear definition of the controllable elements at every level of responsibility.

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Read on: Short-run Tactical Decisions Summary

In addition to providing information for short-run profit planning purposes, the accountant also often has to provide information for a number of short-run tactical decisions such as dropping a product line or choosing between selling or further processing a semi-manufactured product. As in other areas of accounting, cost information plays an important role in short-run tactical decisions. The costs which are relevant for such decisions are future differential costs.

As in the case of c-v-p, short-run tactical decisions are aimed at making the best use of existing facilities. Particular... see: Short-run Tactical Decisions Summary