ABC identifies the costs incurred by each item in terms of resources consumed. Therefore, with the aid of ABC, organizational managements have the ability to control resource allocation.
Activity-Based Costing reveals yet another significant feature: it has the ability to evaluate the costs of not producing an item. This basically means that with the aid of the ABC, managers are able to know how much they have lost due to machine malfunctioning, product damaging, increased inventory costs or time spent waiting for a machine component to be replaced. "Activity-Based Costing therefore gives not only much better cost control, but increasingly, it also gives result control" (Drucker, 2006).
4. Systems of Control within Organizations
As established by Kaplan and Cooper, organizations can be qualified in terms of their implemented control systems. Vicxo Software currently finds itself at the border of the second and third stages. In other words, it used to implement a control system based on revealing the features of the external environment. More recently however, they have understood the need for an internal control system as well and they are now striving to implement it.
The company discussed hereby activates in the it industry, with focus on developing software applications. Most of their contracts are signed with international partners and they have successfully collaborated with Ford Motors Corp, General Electric or UPC. The organization employs 170 staff members, out of which 120 are developers and testers. The remaining 50 individuals hold administrative positions, such as management, accounting or human resource. The 50 individuals which do not write code, and therefore do not register profitability, can be considered as generators of overhead expenditures.
The control system implemented by Vicxo Software is a strategic one, in the meaning that it focuses on the development of those strategies which will support the organization in reaching its overall goals. "Strategic control focuses on the dual question of whether: (1) the strategy is being implemented as planned; and (2) the results produced by the strategy are those intended. The basic criteria used to answer these questions are derived from: (1) the strategy and action plans developed to implement strategy; and (2) the performance results that strategy is expected to produce. If a deviation occurs, then feedback takes place and the strategic management process recycles" (Schendel and Hofer, 1979).
This type of control system is a more traditional one and it is based on three stages: first of all, the management at Vicxo Software develops the strategy; secondly, they implement it, and thirdly, they evaluate the results. They generically base their conclusions of review and feedback, which is not always the most favourable course of action. To better explain, feedback comes only after the strategy has been implemented and the results retrieved. It may then be too late to readjust the strategy to better meet the organizational demands of Vicxo Software. Also, this type of control considers numerous standards, which are taken for granted (Barnat, 2005). As a result, any deviations which might incur are likely to pose significant threats on the beneficial outcome of the implemented strategy.
5. Objectives of the System of Control
Vicxo Software aims to establish itself as an organizational leader in the field of information technology. They strive to achieve this desiderate by developing and implementing the most suitable strategies. In developing these strategies however, they must place an increased emphasis on the forces that affect the organization from both internal and external environments. This then means that the control system they are striving to implement is the appropriate course of action. Foremost, the strategic control system is dually implemented, in the meaning that it develops both business as well as it strategies which are aimed to support the company in reaching its established desiderates. Consequently, the goals of the control system are divided among the it and the administrative sectors.
The organizational goals that Vicxo Software hopes to meet through the implementation of the strategic control system are met at varying degrees and can be succinctly presented as follows:
IT Objectives of the Control System
Ensuring a better communication between developers and testers - has been achieved with the aid of a controlled corporate culture
Reducing errors in programming - has been limitedly achieved; a better control of the staff members increases their focus and attention, but also causes stress, leading as such to other errors
Increasing operational efficiency - this has yet to be fully achieved. The management has insisted on increasing the amounts of work performed within the same period of time, rather than ensuring that the quality of the tasks performed is increased
Achieving a better internal control over developers and testers - this has been achieved...
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