Legal Implications

1. Legal Implications

2. Control • Looking at a business activity, comparing to what is supposed to be happening, and addressing any problems that are found.

3. Control • Controls give a manager ways to uncover and correct problems before they damage the business. • Controls can also provide the information necessary to improve business functions • What activities in your life do you try to control?

4. Why Controls are Needed Prevent Crises Standardize outputs Appraise employee performance Update plans Protect the organizations assets

5. Three Requirements for Control • Setting Standards • Standard – outlines what is expected of the employee or organizational unit. • Monitoring Performance • Correcting Deviations

6. Three Requirements for Control Monitoring Performance – gather data and detect problem areas. Should be monitored often enough that a problem will be caught quickly. Fix the problem

7. Three Requirements for Control • Performance Deviations • Faculty Planning • Insufficient Communication • Need for Training • Lack of Motivation • Unforeseen Forces • Correcting Deviations – Managers should address the cause of the problem rather than simply try to fix the symptoms

8. Assignment • Explain using the three requirements for control to explain how you can control your nine weeks and semester grade in this class • Standard • Monitor Performance • Correct for Deviations

9. Types of Controls • Behavior Control – the monitoring of an employees behaviors through direct surveillance • EX. Office internet use, monitoring of emails • Output Control – Monitoring based on the measurement of something that is produced by the employee or work unit

10. Timing of Control Preliminary Control – designed to prevent problems from occurring Concurrent Control – focused on thing that happen during the work process Post-action control – detect problems after they occur

11. Tools for Control Budgets Financial Controls Direct Observations Written Reports Audits

12. Budgets • A numerical plan for allocating resources to specific activities. • Budgets can be used for a number of different areas or items. • Expense Budget • Profit Budget • Cash Budget • Capital Expenditure Budget • Fixed Budget • Variable Budget • Incremental Budget

13. Types of Budgets Profit Budget – used by separate units of an organization that combines revenue and expense to determine the units profit contribution Cash Budget – forecasts how much cash an organization will have on hand and how much is needed to meet expenses

14. Types of Budgets Expense Budget – lists the primary activities undertaken by a unit and allocates a dollar amount to each Capital Expenditure Budget – forecasts investments in property, buildings, and major equipment

15. Types of Budgets Fixed Budget – Assumes a fixed level of sales or production Variable Budget – Takes into account those costs that vary with volume.

16. Approaches to Budgets Incremental Budget – Allocates funds to departments according to previous period earnings Zero-based Budget – Budget requests start from scratch regardless of previous appropriations

17. Zero-Based Budgeting • Some organizations use the same budget from the previous year, without considering changing circumstances. • Some circumstances to consider: • Situation changes • Cost reduction • Decrease in demand • Past year inefficiencies

18. Zero-Based Budgeting • Requires each Budget request be justified in detail. • Must show why the expense is necessary • Each activity must compete for a share of available resources • Activities: • Equipment upgrades • Training for employees • Employee compensation • Raw materials

19. Zero-Based Budgeting • Advantages: • Cost saving • Elimination of unnecessary functions • Ability to reevaluate projects each year • Disadvantages • Difficulties in planning for multiyear projects • Morale problems with agencies constantly fighting for existence.

20. Budget Misuses • Budgets are an essential Business tool, but can be misused. • Problems to be discussed • Inflexibility • Budget being the primary goal • Misplaced priorities

21. Inflexibility • Progress sometimes requires spending money. • On a budget, making $500 may be frowned upon due to the spending of $5 over budget. • Where in your life have you not spent money but lost the opportunity to make money?

22. Budget as Primary Goal • The budget should not be the primary goal of a business. • Each department should be primarily focused on its part in the organizations mission. • Service to a group of customers or clients • Organizations should not exist only to get their paperwork to balance out at the end of the year.

23. Misplaced Priorities Do not lose site of the main goals and objectives of the company itself. Make the best decision for the success of the company in the long run rather than the numbers on a budget sheet.

24. Tools for Control Budgets Financial Controls Direct Observations Written Reports Audits

25. Financial Controls • Managers use Financial Info for control purposes • Balance Sheets • Income statements • Financial ratios • Financial info is not meaningful out of context. • It must be compared to: • Historical performance figures for a company • Figures of another company • Usually will compare to an industry average

26. Financial Ratios • 4 basic types of financial ratios: • Profitability Ratios • Liquidity Ratios • Debt Ratios • Activity Ratios

27. Financial Ratios Profitability ratio – indicates how efficiently the organization is being managed Liquidity ratio – measures the ability to meet short term obligations. EX. Payroll, accounts payable

28. Financial Ratios Debt ratio – indicates the ability to meet long term obligations Activity ratio – measures how effectively the organization manages its basic operations

29. Tools for Control Budgets Financial Controls Direct Observations Written Reports Audits

30. Direct Observations • The observing of an employee by a manager with their own eyes and own opinions • Observation is necessary to get an accurate picture of an organization • Can be time consuming • Can be misinterpreted due to employees being on their best behavior or the manager bringing a bias to the observation.

31. Direct Observation • What can a manager do to ensure that his or her visits are interpreted positively? • Make visits a common event • Give notice to employees • Engage employees in discussion of their work to make it seem like the observation is not an inspection

32. Tools for Control Budgets Financial Controls Direct Observations Written Reports Audits

33. Written Reports • Management controls that may be prepared on a periodic or “necessary” basis. • Two basic types of written reports • Informational • Analytical

34. Written Reports Informational Reports – Presents a series of facts Analytical Reports – provides an interpretation of the facts they present.

35. Written Reports • Preparing a report is a multistep process: • Planning what is to be done • Collecting the facts • Organizing the facts • Interpreting the facts • Writing the report • Reports should be prepared for the benefit of the reader, not the writer.

36. Tools for Control Budgets Financial Controls Direct Observations Written Reports Audits

37. Audits • A detailed look at an organizations financial or other practices • They see if accounting methods are: • Fair • Consistent • In accordance with regulations and customary practices

38. Audits Audits can be external or internal External audits are performed by outside accountants who examine a companies financial records Internal audits are performed by members of an organization itself

39. Audits • Management audits look at areas other than finance and accounting • Personnel procedures to ensure equal opportunity laws • Mgt audits may be external or internal • Internal is less expensive but have a greater risk of bias

40. Workers and the Law • In the early twentieth century, companies had tremendous power over employees • Companies could • Pay workers as little as they wanted • Make them work under dangerous conditions • Refuse to hire minorities • Pay women less than men at the same job

41. Workers and the Law In 1930’s, Congress and state legislatures wanted to help the average worker. To protect and provide benefits to employees, and provide a better power balance between companies and workers, Employment Laws were formed.

42. Employment Laws • Regulates the relationship between companies and their workers. • Gives workers significant rights and benefits • Including working in a safe environment • There are strict penalties for companies who violate these laws • Fines • Loss of government contracts

43. Employment Laws • Companies must comply with 5 major employment laws: • Equal Employment Opportunity Laws • Occupational safety and health laws • Wage-hour laws • Benefits laws • Labor relations laws

44. Employment Laws In 1938, the Fair Labors Standards Act initially provided for a minimum wage of $0.25 per hour and a maximum work week of 44 hours. What are the total wages a person would earn in one week if they worked maximum hours? Minimum wage now is $7.25 per hour. How much do you make in minimum work week? Maximum? Do workers work harder now or in the past?

45. Equal Employment Opportunity laws Prohibit companies from discriminating against workers. 1960’s was the height of the Civil Rights Movement Civil Rights leaders spoke out about discrimination against African Americans and other minorities

46. Equal Employment Opportunity laws • Congress listened to civil rights leaders and passed 3 major EEO laws that protect workers from discrimination by companies: • Title VII of the Civil Rights Act of 1964 • Age Discrimination in Employment Act • Americans with Disabilities Act

47. Equal Employment Opportunity laws • Title VII of the Civil Rights Act of 1964 • States companies cannot discriminate against an employee because of race, color, religion, sex or national origin. • To enforce this act, they formed the Equal Employment Opportunity Commission (EEOC) • EEOC can sue a company that discriminates against an employee • The employee may also take the company to court

48. Equal Employment Opportunity Laws • Title VII of the Civil Rights Act of 1964 • In 1999, a California Superior Court awarded a supervisor at a public transit company $5.7 million because the company had discriminated against him on the basis of his national origin. • What examples can you think of where this may take place?

49. Equal Employment Opportunity Laws • Age Discrimination in Employment Act • States companies cannot discriminate against employees because of their age. • Cannot discriminate against workers due to age in: • Hiring • Promotions • Retirement • Workers may sue employers for discrimination based on age

50. Equal Employment Opportunity Laws In 1998, a 61-year old senior manager at Goodyear Tire and Rubber Company successfully sued the company for $2.1 million for age discrimination when it tried to force him to accept an early retirement. In your opinion, Right or Wrong?