Strategic Control

Control is taking measures that synchronize outcomes as closely as possible with plans Traditionally, has been almost completely based on financial performance Hence, top internal accounting officer became the In Charge official for organization control policies and procedures

What do we call the chief accounting officer of an organization?

Answer: The Controller Financial Information was primary source Rewarded Efficiency Encouraged Dysfunctional Behavior Strategic Control Methods

 Integrates Quantitative & Qualitative Measures Uses Financial and Non-financial information Customer (External) focus

Rewards based upon relative contributions to organization success

Encourages desired organizational behavior

Planning Adjusting Control Cycle Implementing Measuring

Four Types of Strategic Controls

Premise Control Implementation Control Strategic Surveillance Special alert control

Premise Control
Premises control is necessary to identify the key assumptions and its implementation. Premises control serves the purpose of continually testing the assumptions to find out whether they are still valid or not. This enables the strategists to take corrective action at the right time rather than continuing with a strategy which is based on erroneous assumptions.

Implementation Control
Implementation control is aimed at evaluating whether the plans, programmes, and projects are actually guiding the organization towards its predetermined objectives or not.

Strategic Surveillance
Strategic surveillance aimed at a more generalized and overarching control designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a firms strategy.

Special Alert Control

Special alert control, which is based on a trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected events

Operational Control
Aimed at the allocation and use of organisational resources Concerned with action or performance

How do Strategic Control and Operational Control Differ Attribute 1. Basic question 2. Aim Strategic Control Are we moving in the right direction? Proactive, continuous questioning of the basic direction of strategy

Operational Operationa

How are we pe

Allocation and organisational

3. Main Concern 4. Focus 5. Time Horizon 6. Main Techniques

Steering the organizations Action control future direction External environment Long- term

Internal organi Short- term

Environmental scanning, Budgets, sched information gathering, MBO questioning and review

Evaluation Techniques for Strategic Control

Techniques for strategic control could be classified into two groups on the basis of the type of environment faced by the organisation. The organisation that operate in a relative stable environment may use strategic momentum control, while those which face a relatively turbulent environment may find strategic leap control more appropriate.

Evaluation Techniques for Operational Control

Operational control is aimed at the allocation and use of organisational resources The evaluation techniques are classified into three parts: Internal analysis Comparative analysis Comprehensive analysis. Strategic Control of Capacity

Must have right amount of capacity to produce to customer demand

If there is excess capacity fixed costs must be spread over fewer units thereby
making the units cost more

If there is insufficient capacity the company must incur additional costs to generate more capacity

A Capacity Management Example

Company A and Company B each manufacture one product that is very similar in nature. Company A recently invested in modern machinery (new technology) that reduces its manufacturing labor cost. Company B continues to be labor intensive using its older machinery. Accordingly, Company A has much more fixed factory overhead annually than Company B ($ 1,500,000 compared to $ 600,000). The respective selling price and variable costs per unit are as follows: Company A Company B Selling Price Direct Mat. Direct Labor Var. Overhead

$20.00 $2.00 $1.00 $1.00

$20.00 $2.00 $6.00 $1.00

Required: Compute the gross margins on the product of each company. Assume an annual

volume of production and sales of 100,000 units; then 200,000 units.

(100,000 Units) Cost: Variable Costs/Unit

Company A CompanyB

$4.00

$9.00

Solution:

Fixed Cost/Unit

15.00 $19.00 $20.00

6.00 $15.00 $20.00 $500,000

Total Cost/Unit Selling Price Total Gross Margin (200,000 Units)

$100,000

The only Change is Fixed costs per unit Total Gross Margin $1,600,000 $7.50 $1,700,000 $3.00

SUBMITTED TO:
MR. NEERAJ NAUTIYAL (LECTURER) A.I.M.C.A

SUBMITTED BY:
PARVINDER SINGH (BBAV-B) A.I.M.C.A