CONTROLLING

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 AGENDA
TOPICS COVERED

IMPORTANCE OF ORGANIZATIONAL
CONTROLLING CONTROL SYSTEMS

STEPS IN THE STRATEGIC

CONTROL PROCESS CONTROL SYSTEMS

TYPES OF CONTROL IDENTIFYING

CONTROL PROBLEMS
CONTROLLING
refers to the “process of
ascertaining whether
organizational objectives have
been achieved; if not, why not; and
determining what activities should
then be taken to achieve
objectives better in the future.”

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CONTROLLING
Objectives and goals that are set
at the planning stage are verified
as to achievement or completion
at any given point in the organizing
and implementing stages

When expectations are not met at

scheduled dates, corrective
measures are usually undertaken
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 It will help the organization achieve
its goal in the most efficient and
IMPORT effective manner possible,
Deviations, mistakes and
ANCE OF shortcomings happen inevitably.
CONTRO Proper control measures minimize
the ill effects of such negative
LLING occurrences.
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It requires standard daily output for
individual workers.
 The control process considers four
steps:
STEPS Establishing performance
IN THE objectives and standards
Measuring actual performance
CONTROL Comparing actual performance to
PROCESS objectives, standards
Taking necessary action based on
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the results of the comparison
EXAMPLES OF SUCH OBJECTIVES
AND STANDARDS ARE:

Sales Target - which are expressed in quantity or monetary terms

Production Targets - which are expressed in quantity or quality
Worker Attendance - which are expressed in terms of rate absences
Safety Record - expressed in number of accidents for given periods
Supplies Used - expressed in quantity or monetary terms for given periods

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 MEASURING ACTUAL
PERFORMANCE

To measure actual performance when

shortcoming occurs, adjustment could be made.
But this depends on the actual findings.

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 COMPARING ACTUAL
PERFORMANCE TO
OBJECTIVES AND
STANDARDS
Once actual performance has been
determined, this will be compared with what
the organization seeks to achieve.
The actual output will be compared with the
target output.

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 TAKING NECESSARY
ACTION

The purpose of comparing actual performance

with the desired result is to provide
management with the opportunity to take
corrective action.

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TYPES OF
CONTROL
TYPES OF CONTROL
FEEDFORWARD CONTROL

CONCURRENT CONTROL

FEEDBACK CONTROL
FEEDFORWARD CONTROL
This is when management anticipates problems
and prevents their occurrence
Provides assurance that the required human and
nonhuman resources are in place before
operations begin.
If these measures are not undertaken, the
likelihood that something will happen is always
present.
FEEDFORWARD CONTROL
EXAMPLE:

Let's say a manufacturing company is preparing to

launch a new product line. The engineering
management team conducts a thorough analysis of the
production process and identifies potential
bottlenecks that could hinder production
efficiency.
FEEDFORWARD CONTROL
EXAMPLE:

Conducting employee training

Investing in additional machinery
Implementing quality control
CONCURRENT CONTROL
The type of control used when operations are
already ongoing and activities to detect
variances and/or deviations from standards are
made
When such deviations occur, adjustments are
made to ensure compliance with requirements.
Information on the adjustments are necessary
inputs in the pre-operation phase.
 CONCURRENT CONTROL
EXAMPLE:

In an electronics manufacturing firm, the

production manager plays a crucial role in ensuring
the quality and efficiency of the production
process. As part of concurrent control, the
production manager regularly inspects the outputs
of the production line, which consist of various
electronic products.
 CONCURRENT CONTROL
EXAMPLE:

Regular inspections
Detecting deviations
Adjustments and corrections
Documentation and reporting
Continuous improvement
FEEDBACK CONTROL
This is when information is gathered about a
completed activity, and in order that
evaluation steps for improvement are derived.
Corrective actions aimed at improving future
activities are features of feedback control.
Feedback control validates objectives and
standards.
 FEEDBACK CONTROL
EXAMPLE:

In a video card manufacturing company, customers

occasionally return malfunctioning products due to
defects or performance issues. Feedback control is
applied in response to these returns:
Customer Return Handling
Root Cause Analysis
Corrective Actions
Product Improvement
 COMPONENTS OF
ORGANIZATIONAL
CONTROL SYSTEMS
COMPONENTS OF ORGANIZATIONAL
CONTROL SYSTEMS
STRATEGIC PLAN
LONG-RANGE FINANCIAL PLAN
OPERATING BUDGET
PERFORMANCE APPRAISALS
STATISTICAL REPORTS
POLICIES AND PROCEDURES
STRATEGIC PLAN
Provides the basic control mechanism
for the organization.
Corrective measures are made possible
with the adoption of strategic plans
 THE LONG-RANGE
FINANCIAL PLAN
Engineering firms require longer term
financial plans. This is because of
the long lead times needed for capital
projects.
The financial plan recommends a
direction for financial activities
THE OPERATING
BUDGET
Indicates the expenditures, revenues,
or profits planned for some future
period regarding operations.
The figures appearing in the budget are
used used as a standard measurements
for performance
PERFORMANCE
APPRAISALS
Measures employee performance.
It provides employees with a guide on
how to do their jobs better in the
future.
It functions as effective checks on new
policies and programs.
STATISTICAL
REPORTS
Pertains to those that contain data on
various developments within the firm.
Among the information which may be
found in a statistical report pertains
to the following:
Labor Efficiency Rates
Quality Control Rejects
Accounts Receivable
Accounts Payable
Sales Reports
Accident Reports
Power Consumption Report
POLICIES AND
PROCEDURES
Policies refers to “The framework within
which the objectives must be pursued.”
Procedure is “A plan that describes the
exact series of actions to be taken in a
given situation.”
Policies and Procedures provide a better
means of controlling activities.
STRATEGIC
CONTROL
SYSTEMS
 STRATEGIC
CONTROL SYSTEMS
To be able to assure the
accomplishment of the
strategic objectives of the
company, strategic control
systems become necessary.
These systems consist of the
following:

A. Financial Analysis
B Financial Ratio Analysis
 FINANCIAL
ANALYSIS
The success of most organizations depends
heavily on its financial performance. It is
just fitting that certain measurements of
financial performance be made so that
whatever deviations from standards are
found out, corrective actions may be
introduced. A review of the financial
statements will reveal important details
about the company’s performance.
 BALANCE SHEET

Contains information about the company's

assets, liabilities, and capital accounts.
Comparing the current balance sheet with
previous ones may reveal important
changes, which, in turn, provide clues to
performance. The following is an example
of a balance sheet.
 INCOME
STATEMENT
Contains information about the company's
gross income, expenses, and profits.
When also compared with previous years'
income statements, changes in figures will
help management determine if it did well.
The following is an example of an income
statement.
FINANCIAL RATIO
ANALYSIS
A more elaborate approach used in
controlling activities
Involves pairing accounts from financial
statements to create ratios
The result is compared with a required
norm, often industry standards or past
company performance
When deviations occur, explanations are
sought in preparation for whatever action
is necessary.
 FINANCIAL RATIOS
MAY BE CATEGORIZED
INTO THE FOLLOWING
TYPES:

1. Liquidity
2. Efficiency
3. Financial leverage
4. Profitability
 LIQUIDITY RATIOS

These ratios assess the ability of a company

to meet its current obligations.

Current ratio
Acid-test ratio
 CURRENT RATIO

This shows the extent to which current assets

of the company can cover its current
liabilities. The formula for computing current
ratio is as follows:

Current ratio = current assets/current

liabilities
 ACID-TEST RATIO

This is a measure of the firm's ability to pay

off short-term obligations with the use of
current assets and without relying on the sale
of inventories. The formula as follows:

Acid-test ratio = current assets —

inventories/current liabilities
EFFICIENCY RATIOS

These ratios show how effectively certain

assets or liabilities are being used in the
production of goods and services.
Inventory turnover ratio
Fixed asset ratio
 INVENTORY
TURNOVER RATIO

This ratio measures the number of times an

inventory is turned over (or sold) each year.
This is computed as follows:

Inventory turnover ratio = cost of goods

sold/inventory
 FIXED ASSET
TURNOVER

This ratio is used to measure utilization of the

company’s investment in its fixed assets, such
as its plant and equipment. The formula used
is as follows:

Fixed asset turnover = net sales/net fixed

assets
 FINANCIAL
LEVERAGE RATIOS

This is a group of ratios designed to assess

the balance of financing obtained through
debt and equity sources.
Debt to total assets ratio
Times interest earned ratio
 DEBT TO TOTAL
ASSETS RATIO

ratio shows how much of the firm's assets are

financed by debt. It may be computed by
using the following formula:

Debt to total assets ratio = total debt/total

assets
 TIMES INTEREST
EARNED RATIO

This ratio measures the number of times that

earnings before interest and taxes cover or
exceed the company's interest expense. It
may be computed by using the following
formula:

Times interest earned ratio = (profit before

tax+interest expense)/interest expense
 PROFITABILITY
RATIOS

These ratios measure how much operating

income or net income a company is able to
generate in relation to its assets, owner's
equity, and sales.
Profit margin ratio
Return on assets ratio
Return on equity ratio
 PROFIT MARGIN
RATIO

This ratio compares the net profit to the level

of sales. The formula used is as follows:

Profit margin ratio = net profit/net sales

RETURN ON ASSETS
RATIO

This ratio shows how much income the

company produces for every peso invested in
assets. The formula used is as follows:

Return on assets ratio = net income/assets

RETURN ON EQUITY
RATIO

This ratio measures the returns on the owner's

investment. It may be arrived at by using the
following formula:

Return on equity ratio = net income/equity

IDENTIFYING
CONTROL
PROBLEMS
Recognizing the need for control is one 1. executive reality check
thing, actually implementing it is 2. comprehensive internal audit
3. general checklist of
another. When operations become symptoms of inadequate
complex, the engineer manager must control
consider useful steps in controlling.
Kreitner mentions three approaches:
 C U TIV E The engineer manager of a construction firm
EXE ECK could, once in a while, perform the work of one
L IT Y CH
REA of his laborers. In doing so, he will be able to
see things that he never sees inside the
confines of his air-conditioned office. Because
Employees at the frontline the said action exposes the engineer manager
often complain that
management imposes
to certain realities, the term "executive reality
certain requirements that check" is very appropriate.
are not realistic.
Comprehensive
Internal Audit
An internal audit is one undertaken to determine the efficiency and
effectivity of the activities of an organization. Among the many
aspects of operations within the organization, a small activity that is
not done right may continue to be unnoticed until it snowballs into a
full blown problem.
Sym ptom s of
Inadequat e Control

If a comprehensive internal audit cannot be availed of

for some reason, the use of a checklist for symptoms of
inadequate control may be used.
KREITNER HAS LISTED SOME OF THE COMMON SYMPTOMS AS FOLLOWS:

1. An unexplained decline in revenues and profits.

2. A degradation of service (customer complaints).
3. Employee dissatisfaction (complaints, grievances, turnover).
4. Cash shortages caused by bloated inventories or delinquent accounts receivable.
5. Idle facilities or personnel.
6. Disorganized operations (workflow bottlenecks, excessive paperwork).
7. Excessive costs.
8. Evidence of waste and inefficiency (scrap, rework).
 SUMMARY

Controlling is one of the main functions of management. It comes after

planning, organizing, and directing. Controlling is aimed at determining
whether objectives were realized or not, and if not, by providing means for
achievement.

Controlling is important because it complements the other management

functions.
 SUMMARY

Controlling is a process consisting of various steps, namely: establishing

performance objectives and standards, measuring actual performance,
comparing actual performance with objectives and standards, and taking
necessary action based on the results of the comparison.

Control/ may be classified either as feedforward, concurrent, or feedback.

 SUMMARY

Organizational control systems consist of the strategic plan, the long-range financial
plan, the operating budget, performance appraisals, statistical reports, policies and
procedures.

Strategic control systems consist of financial analysis, and financial ratio analysis.

There are means to identify control problems. They are the executive reality check, the
comprehensive internal audit, and the general checklist of symptoms of in- adequate
control.
THANK
YOU!