Effective Business Management: Structure, Control, Decisions

Organizational Structure: Foundations of Business

The formal organization of a company must be well-structured, clearly defining the division of labor. An effective structure assigns workers to roles where they are most capable, often leading to the formation of specialized departments.

Types of Organizational Division

• Division by Function: Workers are organized according to their specialization and capacity, depending on the specific tasks they perform.
• Division by Geographical Area: Employees are organized based on their knowledge of the area to which a product or service is intended.
• Division by Product: Used in companies that manufacture more than one product, this refers to grouping workers based on the final product obtained.
• Division by Departments and Processes: Organization is structured according to the distinct phases that constitute the production chain.

Effective Control: Monitoring Business Performance

Implementing effective control involves several key stages:

1. Set Standards: Establish measurable benchmarks or criteria that are considered normal or acceptable performance levels.
2. Measure Activities: Systematically track and analyze what was actually achieved, considering each step of the activity. This stage involves comparing actual performance against established standards to identify any deviations.
3. Correct Deviations: Once deviations are detected, analyze and determine their underlying reasons. Utilize the information obtained from the control process to implement corrective actions and adjust the approach as needed.

Key Control Techniques

Different techniques can be employed for effective control:

• Audit Control: Involves planning and reviewing accounts, making recommendations for improvement. There are two main types:
  • Internal Audit: Conducted within the company as an internal control mechanism.
  • External Audit: Performed by independent professionals from outside the business.
  Audits can include:
  • Accounts Audit: Examination of the company's financial statements.
  • Operational Audit: Analysis of the company's global structure concerning objectives, policies, or plans.
  • Environmental Audit: Controlling the environmental impact of company operations.
• Budgetary Control: Ensures that financial planning, transaction costs, and sales revenue align with numerical targets.
• Statistical Analysis: Utilizes historical data of a problem to identify trends, draw conclusions, and make future predictions.

Strategic Decision Making in Business

Decision making is the process of converting information into action, representing a set of choices made at a particular time. These decisions can be based on intuition, experience from previous situations, or a structured approach.

Stages of Decision Making

1. Define the Objective: Clearly articulate the goal to be achieved.
2. Gather Information: Collect all data deemed important and relevant to achieving the objective.
3. Establish Hypotheses: Formulate assumptions about the behavior of relevant variables.
4. Design Alternatives: Describe all possible paths or courses of action to reach the goal.
5. Evaluate Alternatives: Assess each alternative path to determine its potential outcomes and alignment with objectives.
6. Select the Optimal Alternative: Choose the best course of action from the available options.
7. Implement Actions: Execute the actions foreseen in the chosen path.
8. Establish Control: Set up control mechanisms to monitor outcomes and verify forecasts.

Decision Criteria

Decisions are often made under different conditions:

• Certainty: A situation where the state of nature that will occur is known with certainty.
• Risk: Various states of nature exist, and the probabilities of each occurring are known.
• Uncertainty: A situation where the probabilities for each possible state of nature are unknown.