Classical Principles of

Organization
• As the first step towards a systematic study of
organizations, the Classical Organizational
Theory is very important.
• It primarily deals with the anatomy of formal
organizations and also views one as a machine
and the employees as parts of the machine.
• Therefore, in order to increase the efficiency
of the organization, each employee working in
it must become efficient.
6 Pillars of Classical
Organizational Theory
Division of Labor – In order to obtain a clear specialization
in order to improve the performance of individual
workers, the organization must divide work.
Departmentalization – The organization must group
various activities and jobs into departments. This allows it
to minimize costs and also facilitate administrative
control.
Coordination – The organization must ensure harmony
among diverse functions. This allows it to arrange the
group effort in an orderly manner which provides unity of
action while pursuing a common purpose.
Scalar and Functional Processes – A scalar chain is the
series of superior-subordinate relationships from the top
to the bottom in an organization. It facilitates the
delegation of authority or command, communication or
feedback, and also remedial action or decision. The
functional process deals with the growth of organisation
horizontally. 
Structure – Structure is the logical relationship of
functions in an organization. Further, these functions are
arranged for effective objective accomplishment.
Span of Control – This is the number of subordinates that
a manager can effectively supervise.
Criticisms of the Classical Organizational Theory

• It takes a rigid as well as a static view of organizations.

• Most classical theorists view an organization as a
closed system with no interaction with its
environment.
• The theory focuses more on the structural and also
the technical aspects of organizations.
• It is based on oversimplified and mechanistic
assumptions.
•In simple terms, the focus of the Classical
Theory is on an organization without
people.
•Therefore, many experts consider it
inadequate in dealing with the
complexities of an organization’s structure
and functioning.
•Also, it offers an incomplete explanation
of human behavior in organizations.
Controlling
Characteristics of Control

1. Control is a Managerial Process

2. Control is forward looking
3. Control exists at each level of Organization
4. Control is a Continuous Process
5. Control is closely linked with Planning
6. Purpose of Controlling is Goal Oriented and
hence Positive
2 Types of Control:
Management Control vs
Operational Control
Operational Control/Task Control

•The process of assuring that specific tasks

are carried out effectively and efficiently.
•Focus is on individual tasks or operations.
•Concerned with activities that can be
programmed.
Management Control

• More consistent with the management-by-objectives approach

in which long-term objectives such as growth and profitability
are determined and performance is periodically measured
against these goals.
• Also has a broader and more strategic objective:
- to evaluate the unit’s overall profitability the performance
of its managers
- to decide whether the unit should be retained or closed
- to motivate the manager to achieve top management’s
goals
Steps Involved in the Process of Control:

1. Establish the Standards

2. Measure Actual Performance
3. Compare Performance with the
Standards
4. Take Corrective Action and
Reinforcement of Successes
Management by Exception
Importance of Control

1. Guides the Management in Achieving Pre-determined

Goals
2. Ensures Effective Use of Scarce and Valuable
Resources
3. Facilitates Coordination
4. Leads to Delegation and Decentralization of Authority
5. Spares Top Management to Concentrate on Policy
Making
The Role of Budgeting in
Planning and Control
• Budgeting plays a crucial role in planning and control.
• Budgets are the quantitative expressions of plans that
identify an organization’s objectives and the actions
needed to achieve them. They form the basis for
operations.
• Control is the process of setting standards, receiving
feedback on actual performance, and taking
corrective action.
• Budgets can be used to compare actual outcomes
with planned outcomes.
Advantages of budgeting include:
1. Budgeting forces management to plan for the future—to develop
an overall direction for the organization, foresee problems, and
develop future policies.
2. Budgeting helps convey significant information about the
resource capabilities of an organization, making better decisions
possible. Example: A cash budget points out potential shortfalls.
3. Budgeting helps set standards that can control the use of a
company’s resources and control and motivate employees.
4. Budgeting improves the communication of the plans of the
organization to each employee. Budgets also encourage
coordination because the various areas and ac-tivities of the
organization must all work together to achieve the stated objectives.
Control Tools and
Techniques
Types of Budget
Master Budget - is a comprehensive financial plan made up of various individual
departmental and activity budgets for the year. A master budget can be divided
into:
I. Operating Budgets - which outline the income-generating activities of a firm
(sales, production, and finished goods inventories).
A. Sales Budget - is the projection approved by the budget committee that
describes expected sales for each product in units and dollars for the coming
period.
B. Production Budget - describes how many units must be produced to meet
sales needs and satisfy ending inventory requirements.
II. Financial Budgets - which outline the inflows and outflows of cash and the
financial position.
A. Cash Budget - is a detailed plan that shows all expected sources and uses of
cash. Much of the information needed to prepare the cash budget comes from
the operating budgets.
Merchandise Claim Counter System
• The merchandise claim counter system assures
management that all sales are recorded in the cash
register at the merchandise claim counter area.
• At the end of each day, cash should equal the
recorded sales.
• The system also protects stocks from shoplifters
because only those stocks claimed at the counter
are wrapped with the invoice attached to the
package.
Office Uniforms

• In department stores or in banks, employees are

commonly required to wear uniforms. This
requirement could be viewed by management as
an employee benefit because the costs are born by
the company.
Stock Cards
• The owner or manager exercises personal control
over the business.
• Allows intimate knowledge of key control variables
such as product sales, salesmen’s performance and
certain individual customer’s orders
• In the production area, the internal control system
should focus on the protection of raw materials,
work in process inventory, finished good inventory,
factory supplies and machine spare parts
Reorder Point

•The unit quantity on hand that triggers

the purchase of a predetermined amount
of replenishment inventory.
•No interruption in production and
fulfillment activities, while minimizing the
total amount of inventory on hand.
Voucher System
• An internal control procedure in accounting to ensure That
every disbursements or payments made by the business are
properly documented with supporting evidence such as
invoices, receipts, and so on;
• That goods and/or services are actually received from valid
suppliers and/or vendors
• that the description or nature of payment is known and clear
• That the cash disbursed is authorized and approved; that the
disbursement is controlled with voucher series number to
ensure completeness
• That any fraud or theft will be eliminated or minimized
Petty Cash Fund System

• Petty cash fund is a small amount of cash kept on

hand to pay for minor expenses, such as office
supplies or reimbursements.
• Established by a check written for a fixed amount.
The check is established and the money is kept by
a custodian in a box or drawer. As cash payments
made, the custodian fills out the petty cash
Thank you.