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request approval for expenditures over a budgeted amount, then the financial control
also provides a behavioral control mechanism as well.
Increasing numbers of organizations have been measuring customer loyalty,
referrals, employee satisfaction, and other such performance areas that are not

financial. In contrast to financial controls, nonfinancial controls track aspects of the
organization that aren’t immediately financial in nature but are expected to lead to
positive performance outcomes. The theory behind such nonfinancial controls is that
they should provide managers with a glimpse of the organization’s progress well
[6]
before financial outcomes can be measured. And this theory does have some
practical support. For instance, GE has found that highly satisfied customers are the
best predictor of future sales in many of its businesses, so it regularly tracks customer
satisfaction.
KEY TAKEAWAY
Organizational controls can take many forms. Strategic controls help
managers know whether a chosen strategy is working, while operating controls
contribute to successful execution of the current strategy. Within these types of
strategy, controls can vary in terms of proactivity, where feedback controls
were the least proactive. Outcome controls are judged by the result of the
organization’s activities, while behavioral controls involve monitoring how the
organization’s members behave on a daily basis. Financial controls are
executed by monitoring costs and expenditure in relation to the organization’s
budget, and nonfinancial controls complement financial controls by monitoring
intangibles like customer satisfaction and employee morale.
EXERCISES
1. What is the difference between strategic and operating controls?
What level of management would be most concerned with operating controls?
2. If feedforward controls are the most proactive, then why do
organizations need or use feedback controls?
3. What is the difference between behavioral and outcome controls?
4. What is the difference between nonfinancial and financial controls? Is
a financial control a behavioral or an outcome control?

6.3 Financial Controls
LEARNING OBJECTIVES
1. Understand the nature of financial controls.
2. Know how a balance sheet works.
3. Know how an income profit and loss statement works.
4. See the sources of cash flow.
As we discussed in the previous section, financial controls are a key element of
organizational success and survival. There are three basic financial reports that all
managers need to understand and interpret to manage their businesses successfully:
(1) the balance sheet, (2) the income/profit and loss (P&L) statement, and (3) the cash
flow statement. These three reports are often referred to collectively as “the
financials.” Banks often require a projection of these statements to obtain financing.

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