CHAPTER SEVEN

THE CONTROLLING FUNCTION

Chapter objectives
At the end of this chapter you will be able to
 Define the term controlling function
 Describe controlling process
 Describe the major managerial control type
 Identify controlling techniques
Introduction
Controlling is directly related to planning. The controlling process ensures that plans are being
implemented properly. In the functions of management cycle - planning, organizing, directing, and
controlling - planning moves forward into all the other functions, and controlling reaches back.
Controlling is the final link in the functional chain of management activities and brings the functions of
management cycle full circle.

Control is the process through which standards for performance of people and processes are set,
communicated, and applied. Effective control systems use mechanisms to monitor activities and take
corrective action, if necessary. The supervisor observes what happens and compares that with what was
supposed to happen. He or she must correct below-standard conditions and bring results up to
expectations. Effective control systems allow supervisors to know how well implementation is going.
Control facilitates delegating activities to employees. Since supervisors are ultimately held accountable
for their employees' performance, timely feedback on employee activity is necessary.

7.1 Meaning of controlling

 Controlling is the process in which management evaluates performance using predetermined
standards and in light of the results makes a decision regarding corrective action.

 Controlling; is the process of establishing and implementing mechanisms to ensure that

objectives are achieved.

 Controlling; - is one of the basic managerial functions, which deals with evaluating how well an
organization is achieving its goals and taking action to maintain or improve performances.

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  Controlling is a managerial function, which involves comparing actual performance with
standard, identifying and analyzing deviations, finding causes of deviations, if any, takes
corrective actions to meet the standards in subsequent periods.

7.2 Need for Controlling

-Controlling is important
 In order to confirm the degree to which organization is efficient in using its resources and
 To ensure the degree to which organization is successful in attaining its objectives.
A controlling system contains the measures that allow managers to assess how effectively the
organization is producing goods and services.

7.3 The control process

There are four steps in the control process: establishing performance standards, measuring actual
performance, comparing measured performance against established standards, and taking corrective
action.
There are four steps in the control process:

Fig 6.1 Control Process Steps

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1. Establishing standards of performance

 Standard is any established rule or basis of comparison used to measure capacity, quantity,
content, value, cost, quality, or, performance. Standard is pre-determined amount of desired
performance.
 A standard is any guideline established as the basis for measurement. It is a precise, explicit
statement of expected results from a product, service, machine, individual, or organizational unit.
It is usually expressed numerically and is set for quality, quantity, and time.
 Tolerance is permissible deviation from the standard. What is expected? How much deviation
can be tolerated?
Target areas of controlling
 Time controls relate to deadlines and time constraints.

 Material controls relate to inventory and material-yield controls.

 Equipment controls are built into the machinery, imposed on the operator to protect the
equipment or the process.
 Cost controls help ensure cost standards are met.
 Employee performance controls focus on actions and behaviors of individuals and groups of
employees. Examples include absences, tardiness, accidents, quality and quantity of work.
 Budgets control cost or expense related standards. They identify quantity of materials used and
units to be produced.
 Financial controls facilitate achieving the organization's profit motive. One method of financial
controls is budgets. Budgets allocate resources to important activities and provide supervisors
with quantitative standards against which to compare resource consumption. They become
control tools by pointing out deviations between the standard and actual consumption.
 Operations control methods assess how efficiently and effectively an organization's
transformation processes create goods and services.
o Methods of transformation controls include Total Quality Management (TQM)
statistical process control and the inventory management control.
 Statistical process control is the use of statistical methods and procedures to determine whether
production operations are being performed correctly, to detect any deviations, and to find and
eliminate their causes.

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  A control chart displays the results of measurements over time and provides a visual
means of determining whether a specific process is staying within predefined limits. As
long as the process variables fall within the acceptable range, the system is in control.
Measurements outside the limits are unacceptable or out of control. Improvements in
quality eliminate common causes of variation by adjusting the system or redesigning the
system.

 The just-in-time (JIT) system is the delivery of finished goods just in time to be sold,
subassemblies just in time to be assembled into finished goods, parts just in time to go into
subassemblies, and purchased materials just in time to be transformed into parts.
Communication, coordination, and cooperation are required from supervisors and employees to
deliver the smallest possible quantities at the latest possible date at all stages of the
transformation process in order to minimize inventory costs.
Establishment of performance standards is a prerequisite for the operation of the control
system. Standards provide yardstick (comparison measurement) against which
performance is measured in order to determine variance, if any, between standards and
actual performance.
In standard:
-The basis of standard will be heavily quantitative
E.g., return on investment in one year is compared with that of the previous year.
-At the other time the basis will be more qualitative as when the public’s view of the enterprise is
examined, and management attempts to answer the question-is our performance getting better or
becoming worse?
2. Measuring actual performance
After standards are established, managers must measure actual performance to determine variation from
standards.
In measuring performance emphasis should be placed on its quantitative as well as qualitative aspects.
 Control measurements are generally used for measuring those aspects of performance which can
be expressed in qualitative terms such as employee morale, interpersonal and inter group
relations, work environment, etc, and quantitative terms such as costs, revenues, number of hours
worked, and so forth.

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  Supervisors collect data to measure actual performance to determine variation from standard.
Written data might include time cards, production tallies, inspection reports, and sales tickets.
Personal observation, statistical reports, oral reports and written reports can be used to measure
performance.
Management by walking around, or observation of employees working, provides unfiltered
information, extensive coverage, and the ability to read between the lines. While providing insight, this
method might be misinterpreted by employees as mistrust. Oral reports allow for fast and extensive
feedback.
 Computers give supervisors direct access to real time, unaltered data, and information. On line
systems enable supervisors to identify problems as they occur.

 Database programs allow supervisors to query, spend less time gathering facts, and be less
dependent on other people. Supervisors have access to information at their fingertips.
 Employees can supply progress reports through the use of networks and electronic mail.
Statistical reports are easy to visualize and effective at demonstrating relationships. Written
reports provide comprehensive feedback that can be easily filed and referenced.
 Computers are important tools for measuring performance. In fact, many operating processes
depend on automatic or computer-driven control systems. Impersonal measurements can count,
time, and record employee performance.
3. Comparing actual performance with the set (established) standards
The other step in the control process is to compare actual performance to the standards set for that
performance. Comparison of actual performance with the set standards leads to identification of
deviations needing attention.
 If there is significant deviation, managers should analyze the real causes of deviations to take
actions. Nevertheless, every deviation from the plan doesn’t require corrective action. Some
results can be considered good enough, as when there is a desired profit of 1 million Birr and
actual profit of 988,000 Birr where the deviation is insignificant. Some variation can be expected
in all activities and the range of variation - the acceptable variance - has to be established.
 Management by exception lets operations continue as long as they fall within the prescribed
control limits. Deviations or differences that exceed this range would alert the supervisor to a
problem.
4. Taking corrective action

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Once the underlying causes of deviations have been identified, the next step in control process is to take
corrective actions. When an employee determines the cause or causes of significant deviation from a
standard, he or she must take corrective action to avoid repetition of the problem or defect. Policies and
procedures may prescribe the actions.
 The corrective action may involve changing certain conditions like replacement of machines,
better service to customers, training, transfers, revision of objectives, strategies, etc.
All the above steps in control process: establishment of standards, measurement of performance, and
comparison of actual performance to the standards set, and taking corrective actions should be
considered as interdependent parts of the control system. Changes in any one of these parts involve
changes in all the other parts. For example, corrective actions may involve revision of standards which
will affect all the other parts of the system.

7.4 Types of control

Controls are most effective when they are applied at key places. Supervisors can implement controls
before the process begins (feed forward), during the process (concurrent), or after it ceases (feedback).
Based on the time of controlling, controls can be classified in to three: feed forward controls, concurrent
controls, and feedback controls. Each focuses on a different point of a process.
A) Feed forward controls (input or preventive controls)
 are controls that focus on the prevention of defects and deviations from the standards.
 They focus on operation before it begins
 are controls that allow managers to anticipate problems before they arise
Example
-Screening job applicants and using several effective interviews, managers can lessen (minimize) the
chance of hiring people who lack necessary skills or experience to perform effectively.
-When manufacturer works closely with its suppliers to ensure that the suppliers deliver goods and
services that meet standards, the manufacturer is implementing forward control.
-Scheduled maintenance on automobiles and machinery. Regular maintenance feeds forward to prevent
problems. Other examples include safety systems, training programs, and budgets.
B). Concurrent controls
 Are controls that focus on ongoing process.

 It gives managers immediate feedback on how effectively inputs are being transformed into
outputs so that managers can correct problems as they arise.
 Are controls that apply to process as the processes are happening.
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  Are actions taken as inputs are transformed into outputs to ensure that Standards are met and
enables taking of corrective action while activities are being performed.
Concurrent controls enacted while work is being performed include any type of steering or guiding
mechanism such as direct supervision, automated systems (such as computers programmed to inform the
user when they have issued the wrong command), and organizational quality programs.
 It is usually more economical to reject faulty input parts than to wait and find out that they
finished outputs does not properly. Examples of concurrent controls include monitoring
employees during the process and total quality management.
C). Feedback /output /controls
 are controls that focus on the results of operations. They are after the fact or post performance
controls.
 are controls that give managers information about customers’ reaction to goods and services so
that corrective actions can be taken if necessary.
 In a feedback control, managers measure actual performance against the standard and take
corrective actions if there is any unfavorable variation. The actions have no use for present or
already done activities rather for future activities. Examples of feedback controls include timely
(weekly, monthly, quarterly, annual) reports so that almost instantaneous adjustments can be
made.

Fig 6.2 Types of Control

7.5 Control techniques

A number of techniques are used for controlling. Some of them like return on investment, ratio analysis,
financial statement, etc, are used for the measurement of overall performance of the enterprise.

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  Other techniques like the breakeven point analysis, budgets, etc, are designed to measure specific
aspects of performance such as production costs, Sales and so on.
 The basic purpose of all these techniques is, however, the same to measure actual performance
and determine deviations from desired performance so that corrective actions may be taken.

7.6 Effective Control systems

Control systems are formal target setting, monitoring, evaluation and feedback systems that provide
managers with information about how well the organizations strategy and structure are working.

Fig 7.3 Organizational Control System

Characteristics of effective control systems include:
Accuracy- information that is received from control system should be accurate or real. If the
information is not correct, the resulting decisions are likely to make things worse rather than solving
problems.

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Timely- the information being feedback must be provided on time to allow managers to obtain full
benefits from the data.

Economical- the cost of control system must be weighed against its benefits. If the resources expended
on the control don’t return equal or greater value, the control is better left un implemented.
Focus on critical points- a manager does not have time to control every aspect of operations. As a
result, a control system should single out specific areas that provide overall comprehensive control.

Acceptability- people must agree that controls are necessary and the controls will not have negative
impacts on individuals or their efforts to achieve personal goal.