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7 Controlling

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Gabriel Aidan Madlangbayan
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5 views10 pages

7 Controlling

Uploaded by

Gabriel Aidan Madlangbayan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 7: Controlling

1
Learning Objectives
At the end of the chapter, you are all expected to understand
the following:

✓ Definition of Controlling
✓ The Nature of Controlling
✓ The Control Process
✓ Characteristics of Control
✓ Types of Control
✓ Control Methods and Systems
✓ Accounting Concepts and Techniques as Control Devices

2
What is Controlling?
✓The process of measuring and correcting
activities (plans, organization, personnel etc.) of
an organization.

✓Controlling determines what is being tackled by


evaluating the performance and if there is a
deviation, by applying corrective measures so that
the activities take place according to plans.

✓ Can be considered as the activity for knowing


and correcting important changes in the activities
that are planned.
3
Nature of Controlling
✓ Where other fundamental functions of management are performed perfectly,
controlling is still inevitable , for it is used to further effect some improvements.
✓ Controlling means big savings of money in operation
✓ Planning is related to controlling. The failure of planning would mean failure in
controlling and the success of planning means success of controlling.
✓ Controlling alerts the manager to potentially critical problems
• Top Management – when goals are not met
• Middle and Lower Management – when the objectives are not met
✓ Managers can use the following:
• Prevent crises
• Standardized outputs
• Appraise employees performance
• Update plans
• Protect an organization’s asset

4
The Control Process
Controlling involves the following:

1. Establishing Standards – standards are desired levels of performance and constitute


the foundation of the process. These serve as the criteria against which the performance
is evaluated.
2. Measuring Performance Against the Established Standards – should be both
quantity and quality:
• Quality – Quality of output. What is produced compared to what should be
produced. Parallel to effectiveness
• Quantity - Finding out the amount or number of output. Parallel to efficiency.
• Time – Formulating the timetable for achieving certain goals at certain dates.
• Cost - Went over of the budget or not.
3. Comparison of Actual Performance – The core of the controlling process.
Checking the actual meets the predetermined or planned performance.
4. Taking corrective action when and where deviation from the standards
occur. – corrections and fine tuning may be necessary to improve results.
5. Follow-Through – Recommendations should have a follow up.
5
Characteristics of Control
The function of control is to keep work moving on schedule as planned towards the
established objectives and goals. Control should meet the certain characteristics:

• Attuned to the activity – control should reflect needs of people using them.
• Deviation must be identified quickly – what is the use of checking the
process or parts after they breakdown?
• Must be forward-looking – avoid historical, use of forecast and other
forward looking devices.
• Must be strategically oriented – selecting the crucial points at which control
is applied.
• Should be flexible – permits unexpected changes or situations.
• Should be economical – cost of controlling should not exceed the benefits of
it.
•Should easy to be understood – people should understand its purpose
• Should indicate corrective action – who or what is causing the deviation
and what should be done.
6
Types of Control
There are many different types of control to be used for different purpose:

1. Control used to standardize performance – helps to increase efficiency and


decrease costs
2. Control used to safeguard company assets – company assets must be
protected from theft, vandalism, wastage and misuse.
3. Control used to standardize quality – for specific quality level of the product.
4. Controls designed to set limits within which delegated authority can
be exercised without further top management approval – manuals,
procedures etc.
5. Control used to measure job performance – special reports, output data etc.
6. Control used for planning and programming instructions – sales and
production costs
7. Control necessary to allow top management to keep firm’s various
plans and program in balance – master budgets, use of outside consultants etc.
8. Controls designed to motivate individuals – promotions, awards etc.
7
Control Methods and Systems
Two Kinds of Control Methods:
1. Behavior (or Personal) Control – based on direct and personal surveillance.
2. Output (or Impersonal) Control – based on measurement of output. Tracking
production records and sales as example of control output.

Flexible Budgets – are designed to vary with the volume of sales or some other measure
of output.
Zero-Based Budgeting – to justify an entire budget request in detail, from scratch.
Direct Observation – daily tour of the facility, annual visit to all branches
Written Reports – can be prepared on a periodic or “as necessary” basis
• Analytical – interpret the facts
• Informational – presents the facts
Audits – may be conducted by internal or external personnel
Time Related Charts and Techniques – though the use of Gantt charts, PERT, CPM
Management By Objectives (MBO) – once implements, could also be used in
controlling
Management Information Systems – providing information in a systematic and
8 integrated manner in timely manner.
Accounting Concepts and Techniques as
Control Devices
1. Tests of Liquidity – used to determine a firm’s ability to meet
short-term obligations and to remain solvent in the event of
adversities.
2. Tests of Debt Service – are employed to present the project’s
ability to meet long-term obligations.
3. Tests of Probability – shows the operational performance and
efficiency of the project.
4. Test of Total Debt Coverage
5. Funds Flow Analysis – employed to determine the major uses
and sources of funds.
6. Tests of Operating Leverage – indicate how the projects
employ assets for which it pays a fixed cost.
7. Test of Financial Leverage – present how a project employs
funds which pay a fixed return.
8. Tests of Capital Investment – evaluate the justification for
investing in the project.
9
Accounting Concepts and Techniques as
Control Devices
Quality Control - deals with setting up of quality
standards in advance in such areas and comparing these
with actual standards.
Production Control – aim is to produce the right
product in the proper quantity and quality, at the right
time and by the best and least cost methods.
Inventory Control – excess and not maintaining
adequate inventory should be balanced.
Economic Order Quantity (EOQ) – determines the
most economic level of inventory
Maintenance of Inventory – alphabetical, mnemonics,
numerical, sign, combination
Control Report – for feedback of information.
10

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