Fundamentals of Management, 8th ed

Chapter 14: Basic Elements of Control

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Areas of Control

Control can focus on any area of an organization. Most organiza-

tions define areas of control in terms of the four basic types of resources they use: physi-

cal, human, information, and financial.

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Control of physical resources includes inventory

management (stocking neither too few nor too many units in inventory), quality control

(maintaining appropriate levels of output quality), and equipment control (supplying the

necessary facilities and machinery). Control of human resources includes selection and

placement, training and development, performance appraisal, and compensation. Relat-

edly, organizations also attempt to control the behavior of their employees—directing

them toward higher performance, for example, and away from unethical behaviors.

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Control of information resources includes sales and marketing forecasting, environmen-

tal analysis, public relations, production scheduling, and economic forecasting.

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Financial

control involves managing the organization’s financial obligations so that they do not

become excessive, ensuring that the firm always has enough cash on hand to meet its

obligations but does not have excess cash sitting idly in a checking account, and ensuring

that receivables are collected and bills are paid on a timely basis.

In many ways, the control of financial resources is the most important area, because

financial resources are related to the control of all the other resources in an organiza-

tion. Too much inventory leads to storage costs; poor selection of personnel leads to

termination and rehiring expenses; inaccurate sales forecasts lead to disruptions in

cash flows and other financial effects. Financial issues tend to pervade most control-

related activities.

The crisis in the U.S. airline industry precipitated by the terrorist attacks on September

11, 2001, the economic recession of 2009 that reduced business travel, and rising fuel

costs can be fundamentally traced to financial issues. Essentially, airline revenues have

dropped, while their costs have increased. Because of high labor costs and other expenses,

the airlines faced major problems in making appropriate adjustments. Major long-haul

U.S. airlines such as United spend nearly half of their revenues on labor; in contrast,

JetBlue spends only about 25 percent of its revenues on labor.