Internal Control – Lecture 1
Syllabus J.A. Emanuels - Chapter 1
The definition of an organisation
Organisation: companies, enterprises, firms, entities, businesses and institutions
• Some features of these different representations are compatible, some are very incompatible
• The purpose of this syllabus is to discuss how all these different representations of
organisations make use of information and how this impacts the quality of information
More fundamental definition of organisation
= an organisation is a group of people intentionally cooperating to achieve one or more
common goals
Important features of an organisation
1. It always involves people
- A single person running a business is not considered an organisation, as there is no
cooperation to achieve one or more common goals
2. Focus on one or more common goals
- Emphasis on common is important in order to distinguish organisation from groups of
people that cooperate for reasons other than the benefit of the group as a whole
- Do note that sometimes the borderline between individual and joint purposes is
rather vague
à people in larger organisations sometimes seem to behave as if the
organisation does not have a common goal and only seem to strive for their
personal goals
3. Organisations usually have the power to define specific roles or responsibilities for
their members, allowing them to clearly align individual contributions with the
organisation’s overall goals
Organisational goals
Highest overall goal of an organisation: mission
= reflects the overall ‘raison d’être’, (the reason for being) of an organisation
- Missions are usually stated in balance and inspiring phrases
- The mission is seen as an organisation’s main reason of existence
o Also viewed as the ultimate assignment of the management of the
organisation in order to satisfy the owners and/ or stakeholders
- Missions are however not suitable as operational guidance, as it lacks an
outside-in analysis
o The outside-in analysis will provide a vision
= how to organisation will work towards its mission in the years
ahead
o The vision will then be translated into objectives linked to business activities
and timelines
= strategic goals
• Strategic goals in general, provide direction to activities and provide
a framework for evaluation and control management
• To measure whether strategic goals are achieved on the process
level, critical success factors (CSFs) are used
Overview of different levels of goals and information
,Profits versus non-for-profit organisations
Profit organisation
• Profit organisations can have a mission that refers to a higher social or environmental goal,
but at the end of the day this organisation must show some profit to secure continuity
Non-for-profit organisation
• Here the basic driver is to serve the community it operates in, or a subset
• This organisation must be able to prove that how it works and what it does actually
corresponds with its mission
à for both there are basically no limitations to the activities it can undertake, provided they
contribute to the mission
à difference is that for-profit organisations will have basically no limitations with respect to
profitable investments, however not-for-profit organisations find important limitations in the
financial resources available
New phenomenon for-profit organisations
à limiting their entrepreneurial drive through sustainable development initiatives, like the SDGs
• Basically, sustainability initiatives support the notion that for-profit organisations in the long
run must contribute to the wellbeing of society as a whole, just as not-for-profit organisations
do
Organisations aimed at continuity vs temporary organisations
Operating on basis of continuity: time to end is not predetermined
Temporary organisation: represents an organisation that intentionally aims at limiting its own
existence
• Reasons:
i) Mission itself only has a limited scope
o Organisation ceases to exit after the goals have been realised
o Example: organising Olympics, making a movie etc.
o Organisations of this type, that are evoked by existing organisations are
called programs
à They have structures, stakeholders, processes, reporting
procedures and feedback loops just as normal organisations
ii) The mission to be accomplished is not core to an existing organisation, and
requires (limited) complex and/ or non-routine tasks
o Temporarily focusing on this mission in a separately managed and monitored
organisation could prove more effective and less risky
à overarching characteristic is that the mission is not temporary, but the organisation itself is
• At the end of the program, a handover or transition of operations takes place to the mandating
organisation (the one that evoked the program), that then adopts and integrates it in its own
mission
The organisational system
An organisation is a system
à system: set of interdependent elements that together accomplish specific objectives
- An organisation is a special class of system: a social system
- The relationships referred to in the definition are social relationships
It is convenient to think of organisations as generic systems
• A system receives input that is processed to generate output
- An organisation does so as well, whereby all outputs should contribute to overall goal/
mission
• Entities in the organisation are individual people (=organisational members), but they
can also be functions, departments or legal entities
- Every entity is a sub-system that can be further analysed as a separate system with
its own purpose and its own set of relationships to other entities
,Example of schematic overview of organisational system
Closed systems
= have no relationships with the outside world
• The output they generate is used as input over and over again
• Ex. Earth atmosphere (furthermore hardly any examples)
Open systems
= systems that depend on getting input from and delivering output to outside entities
• The outside world influences and changes the organisation and its entities
- Any organisation is receptive to changes in cultural, social, demographical, political,
economical and legal factors
Critical success factors and business processes
à the primary instrument for the organisation to achieve the strategic goals are the business
processes
= essential chain of interrelated business activities in an organisation resulting in a specific
output that contributes to the organisational goals
- Only if business activities are put in an order that represents a logical chain of
activities, it becomes clear how these contribute to the organisational goal
à business cycle is another frequently used expression
= ‘cycle’ refers to a business process being repeated in the organisation, for transactions
initiated in the same way
- Business cycles typically involve exchange of values between the organisation and
outside parties/ organisational members
à therefore also: transaction cycles
Implementing, preserving, monitoring and turning policy in revenue business process are
critical success factors (CSFs) to the company
= the limited number of areas in which results, if they are satisfactory, will ensure successful
competitive performance for the organisation
- Help to identify key areas where control is required for the organisation to achieve the
strategic goals
Classifying and analysing business processes
Classification of business processes
1. Primary processes
- The essential processes for the delivery of products/ services to customers
- Chain of primary processes = value cycle
2. Supporting processes
- The ‘lubricants’ of the primary processes, often because they organise the
information- and financial flows
- Important feature: can be organised in the same way throughout a company or unit,
often even at a central location (shared service centres)
- Specific group: management processes
, = purpose is to effectively run and control all other processes
à e.g., strategic planning and risk management
Another way to classify business processes is to look at the scope they cover in representing
the activities performed in the organisation
• A specific feature of business processes is that they consist of several layers of underlying
processes
- Scope decreases within every subsequent layer, but the level of detail of the activities
increases
Example of layers of processes in the insurance company example
à remember here that all business processes together represent the value chain and the supporting
processes that the organisation needs in order to realise its strategy
à the primary process level is the highest level of representation
Structuring of processes
At each distinctive level of process representation we can distinguish between:
1. Input
- Necessary to trigger and perform the process
- Can be tangible or intangible
2. Process activities
- Most important criteria are the Key Performance Indicators (KPIs)
3. Process output
- Should meet specific performance criteria in terms of quantity, quality, revenues and
costs
à together called IPO (Input, Process, Output)
Designing and embedding processes in tasks and functions
Through decomposition of processes in sub processes and so, we ultimately end up at activities to be
performed tasks
à these tasks need to be assigned to organisational members
- This is most effectively done by clustering tasks into jobs or functions using several
rational criteria
Function: logical cluster of tasks that can be assigned to an existing or future organisational
member or department
à most common criteria for clustering tasks in functions:
1. Combining different tasks that require a comparable skill set
2. Combining different tasks relating to the same business process
3. Combining different tasks that are performed at the same physical location
4. Combining different tasks that involve interaction with the same internal or external entities
Do note that:
• There are also tasks that are assigned to computer software – automated routines
• Functions are not unique
• Organisational members can have more than one function at the same time
Syllabus J.A. Emanuels - Chapter 1
The definition of an organisation
Organisation: companies, enterprises, firms, entities, businesses and institutions
• Some features of these different representations are compatible, some are very incompatible
• The purpose of this syllabus is to discuss how all these different representations of
organisations make use of information and how this impacts the quality of information
More fundamental definition of organisation
= an organisation is a group of people intentionally cooperating to achieve one or more
common goals
Important features of an organisation
1. It always involves people
- A single person running a business is not considered an organisation, as there is no
cooperation to achieve one or more common goals
2. Focus on one or more common goals
- Emphasis on common is important in order to distinguish organisation from groups of
people that cooperate for reasons other than the benefit of the group as a whole
- Do note that sometimes the borderline between individual and joint purposes is
rather vague
à people in larger organisations sometimes seem to behave as if the
organisation does not have a common goal and only seem to strive for their
personal goals
3. Organisations usually have the power to define specific roles or responsibilities for
their members, allowing them to clearly align individual contributions with the
organisation’s overall goals
Organisational goals
Highest overall goal of an organisation: mission
= reflects the overall ‘raison d’être’, (the reason for being) of an organisation
- Missions are usually stated in balance and inspiring phrases
- The mission is seen as an organisation’s main reason of existence
o Also viewed as the ultimate assignment of the management of the
organisation in order to satisfy the owners and/ or stakeholders
- Missions are however not suitable as operational guidance, as it lacks an
outside-in analysis
o The outside-in analysis will provide a vision
= how to organisation will work towards its mission in the years
ahead
o The vision will then be translated into objectives linked to business activities
and timelines
= strategic goals
• Strategic goals in general, provide direction to activities and provide
a framework for evaluation and control management
• To measure whether strategic goals are achieved on the process
level, critical success factors (CSFs) are used
Overview of different levels of goals and information
,Profits versus non-for-profit organisations
Profit organisation
• Profit organisations can have a mission that refers to a higher social or environmental goal,
but at the end of the day this organisation must show some profit to secure continuity
Non-for-profit organisation
• Here the basic driver is to serve the community it operates in, or a subset
• This organisation must be able to prove that how it works and what it does actually
corresponds with its mission
à for both there are basically no limitations to the activities it can undertake, provided they
contribute to the mission
à difference is that for-profit organisations will have basically no limitations with respect to
profitable investments, however not-for-profit organisations find important limitations in the
financial resources available
New phenomenon for-profit organisations
à limiting their entrepreneurial drive through sustainable development initiatives, like the SDGs
• Basically, sustainability initiatives support the notion that for-profit organisations in the long
run must contribute to the wellbeing of society as a whole, just as not-for-profit organisations
do
Organisations aimed at continuity vs temporary organisations
Operating on basis of continuity: time to end is not predetermined
Temporary organisation: represents an organisation that intentionally aims at limiting its own
existence
• Reasons:
i) Mission itself only has a limited scope
o Organisation ceases to exit after the goals have been realised
o Example: organising Olympics, making a movie etc.
o Organisations of this type, that are evoked by existing organisations are
called programs
à They have structures, stakeholders, processes, reporting
procedures and feedback loops just as normal organisations
ii) The mission to be accomplished is not core to an existing organisation, and
requires (limited) complex and/ or non-routine tasks
o Temporarily focusing on this mission in a separately managed and monitored
organisation could prove more effective and less risky
à overarching characteristic is that the mission is not temporary, but the organisation itself is
• At the end of the program, a handover or transition of operations takes place to the mandating
organisation (the one that evoked the program), that then adopts and integrates it in its own
mission
The organisational system
An organisation is a system
à system: set of interdependent elements that together accomplish specific objectives
- An organisation is a special class of system: a social system
- The relationships referred to in the definition are social relationships
It is convenient to think of organisations as generic systems
• A system receives input that is processed to generate output
- An organisation does so as well, whereby all outputs should contribute to overall goal/
mission
• Entities in the organisation are individual people (=organisational members), but they
can also be functions, departments or legal entities
- Every entity is a sub-system that can be further analysed as a separate system with
its own purpose and its own set of relationships to other entities
,Example of schematic overview of organisational system
Closed systems
= have no relationships with the outside world
• The output they generate is used as input over and over again
• Ex. Earth atmosphere (furthermore hardly any examples)
Open systems
= systems that depend on getting input from and delivering output to outside entities
• The outside world influences and changes the organisation and its entities
- Any organisation is receptive to changes in cultural, social, demographical, political,
economical and legal factors
Critical success factors and business processes
à the primary instrument for the organisation to achieve the strategic goals are the business
processes
= essential chain of interrelated business activities in an organisation resulting in a specific
output that contributes to the organisational goals
- Only if business activities are put in an order that represents a logical chain of
activities, it becomes clear how these contribute to the organisational goal
à business cycle is another frequently used expression
= ‘cycle’ refers to a business process being repeated in the organisation, for transactions
initiated in the same way
- Business cycles typically involve exchange of values between the organisation and
outside parties/ organisational members
à therefore also: transaction cycles
Implementing, preserving, monitoring and turning policy in revenue business process are
critical success factors (CSFs) to the company
= the limited number of areas in which results, if they are satisfactory, will ensure successful
competitive performance for the organisation
- Help to identify key areas where control is required for the organisation to achieve the
strategic goals
Classifying and analysing business processes
Classification of business processes
1. Primary processes
- The essential processes for the delivery of products/ services to customers
- Chain of primary processes = value cycle
2. Supporting processes
- The ‘lubricants’ of the primary processes, often because they organise the
information- and financial flows
- Important feature: can be organised in the same way throughout a company or unit,
often even at a central location (shared service centres)
- Specific group: management processes
, = purpose is to effectively run and control all other processes
à e.g., strategic planning and risk management
Another way to classify business processes is to look at the scope they cover in representing
the activities performed in the organisation
• A specific feature of business processes is that they consist of several layers of underlying
processes
- Scope decreases within every subsequent layer, but the level of detail of the activities
increases
Example of layers of processes in the insurance company example
à remember here that all business processes together represent the value chain and the supporting
processes that the organisation needs in order to realise its strategy
à the primary process level is the highest level of representation
Structuring of processes
At each distinctive level of process representation we can distinguish between:
1. Input
- Necessary to trigger and perform the process
- Can be tangible or intangible
2. Process activities
- Most important criteria are the Key Performance Indicators (KPIs)
3. Process output
- Should meet specific performance criteria in terms of quantity, quality, revenues and
costs
à together called IPO (Input, Process, Output)
Designing and embedding processes in tasks and functions
Through decomposition of processes in sub processes and so, we ultimately end up at activities to be
performed tasks
à these tasks need to be assigned to organisational members
- This is most effectively done by clustering tasks into jobs or functions using several
rational criteria
Function: logical cluster of tasks that can be assigned to an existing or future organisational
member or department
à most common criteria for clustering tasks in functions:
1. Combining different tasks that require a comparable skill set
2. Combining different tasks relating to the same business process
3. Combining different tasks that are performed at the same physical location
4. Combining different tasks that involve interaction with the same internal or external entities
Do note that:
• There are also tasks that are assigned to computer software – automated routines
• Functions are not unique
• Organisational members can have more than one function at the same time
