CONTROLLING

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MANAGEMENT PROCESS.

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Controlling
Consist of seeing that everything is being
carried out in accordance with the plan
which has been adopted, the orders which
have been given, and the principles which
have been laid down.

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Controlling
It’s object is to point out mistakes in order that they
may be rectified and prevented from recurring.
 The process of measuring performance
and taking action to ensure desired results.
 Organizational learning and after-action
review.

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Controlling
 Control is checking current
performance against predetermined
standards contained in the plans
with a view to ensure adequate
progress and satisfactory
performance.
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Controlling
– Ensures that the right things
happen, in the right way, at the
right time.
– Has a positive and necessary role
in the management process.
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Relationship Between Planning
And Controlling
 Planning and controlling are closely linked to each other.
 Planning is a process of setting organization’s objectives,
goals and standards, whereas controlling is a process of
ensuring that the goals are achieved as per the set plan.
 Planning should be done in such a way that it lays
foundation for the establishment of controlling standards
and keeps controlling in view
 Planning involves what an organization aspires to achieve
in the future, whereas controlling includes what the
organization has achieved in the past.

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What is the control process?

 Steps in the control process:

– Step 1 — establish objectives and standards.

– Step 2 — measure actual performance.
– Step 3 — compare results with objectives and
standards.
– Step 4 — take corrective action as needed.
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Four steps in the control process.

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Four steps in the control process.

 Step 1 — establishing objectives and

standards
– Output standards
• Measure performance results in terms of quantity,
quality, cost, or time.
– Input standards
• Measure effort in terms of amount of work
expended in task performance.
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Examples of Objectives and
Standards:
1. Sales target-expressed in quantity or monetary terms
2. Production targets- expressed in quantity or quality
3. Worker attendance-expresses in terms of rate of
absence
4. Safety record-expressed in number of accidents for
given periods
5. Supplies used-expressed in quantity or monetary
terms for given periods
 Every standard established must be provided with
its own method for measurement.

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Four steps in the control process.

 Step 2 — measuring actual performance

– Goal is accurate measurement of actual performance

results and/or performance efforts.
– Must identify significant differences between actual
results and original plan.
– Effective control requires measurement.

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Four steps in the control process.

 Step 3 — comparing results with objectives

and standards
– Need for action reflects the difference between
desired performance and actual performance
– Comparison methods:
• Historical comparison
• Relative comparison
• Engineering comparison
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Four steps in the control process.
 Step 4 — taking corrective action
– Taking action when a discrepancy exists
between desired and actual performance.
– Management by exception
• Giving attention to situations showing the greatest
need for action.
• Types of exceptions
– Problem situation
– Opportunity situation

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Purpose of Controlling

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Types of Control
 Feedforward controls …
– Employed before a work activity begins.
– Refers to the preliminary or preventive control that attempts to
identify and prevent deviations in the standards before their
occurrence.
– Ensures that:
• Objectives are clear.
• Proper directions are established.
• Right resources are available.
– Focuses on quality of resources.
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Types of Control

 Concurrent controls …
– Focus on what happens during work process.
– Monitor ongoing operations to make sure they
are being done according to plan.
– Can reduce waste in unacceptable finished
products or services.

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Types of Control
 Feedback controls …
– Take place after work is completed.
– Focus on quality of end results.
– It is applied to check whether the actual
information is as per the set standards.
– Provide useful information for improving
future operations.

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The role of feedforward, concurrent, and
feedback controls in organizations.

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Components Of Organizational
Control Systems
1. Strategic plan
-basic control mechanism for the organization
2. Long-Range Financial Plan
-the planning horizon differs from company
to company
3. Operating budget
-indicates the expenditures, revenues, or
profits planned for some future period regarding
operation

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Components Of Organizational
Control Systems
4. Performance appraisals
-measures employee performance
5. Statistical reports
-contain data on various developments
within the firm
6. Policies and Procedures
Policies refer 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.
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Identifying Control Problems

Recognizing the need for control is one

thing, actually implementing it is another.
1.Executive Reality Check
- employees at the frontline often
complain that management imposes certain
requirements that are not realistic
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2. Comprehensive Internal Audit
-aims to detect the dysfunction in
the organization before they bring bigger
troubles to management
3. General Checklist of Symptoms Of
Inadequate Control
-behind every symptom is a problem
waiting to be solved 24
Common Symptoms
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 and personnel
6. Disorganized operations (work flow bottlenecks,
excessive paper work
7. Excessive costs.
8. Evidence of waste and inefficiency ( scrap, rework)
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Types of Control Systems

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STRATEGIC CONTROL SYSTEM
 To be able to assure the accomplishment of the
strategic objectives of the company, strategic control
systems become necessary.
1. Financial Analysis
The success of most organizations depends heavily on
its financial performance.
-balance sheets : assets, liabilities and capital accounts
-income statement : gross income, expenses and
profits

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2. Financial Ratio Analysis
-a more elaborate approach used in
controlling activities
-one account appearing in the financial
statement is paired with another to
constitute a ratio
- The result will be compared with a
required norm.
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Managers have two broad
options with respect to control:
They can rely on people to exercise self-
control (internal) over their own
behavior.
Alternatively, managers can take direct
action (external) to control the behavior
of others.
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Internal and External Control

– Internal control
• Allows motivated individuals and groups to
exercise self-discipline in fulfilling job
expectations.
• The potential for self-control is enhanced
when capable people have clear performance
objectives and proper resource support.
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– External control
• Occurs through personal supervision and the
use of formal administrative systems.
– Performance appraisal systems,
compensation and benefit systems,
employee discipline systems, and
management-by-objectives.
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External control
 Compensation and Benefits
– Attract talented people and retain
them.
– Motivate people to exert maximum
effort in their work.
– Recognize the value of their
performance contributions.

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External control

 Employee discipline systems

– Discipline is the act of influencing behavior

through reprimand.

– Discipline that is applied fairly, consistently,

and systematically provides useful control.

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What are the common organizational
controls?

 To be effective, reprimands should …

– Be immediate.
– Be directed toward actions, not personality.
– Be consistently applied.
– Be informative.
– Occur in a supportive setting.
– Support realistic rules.
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What are the common organizational
controls?

 Employee discipline systems

– Progressive discipline ties reprimands to the severity
and frequency of the employee’s infractions.
– Progressive discipline seeks to achieve compliance
with the least extreme reprimand possible.
– Positive Discipline tries to involve people more
positively and directly in making decisions to improve
their behavior.
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External control
 Management by Objectives (MBO)

– A structured process of regular communication.

– Supervisor/team leader and workers jointly set
performance objectives.
– Supervisor/team leader and workers jointly
review results.
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Financial Control
 Important financial aspects of organizational
performance …
– Liquidity
• The ability to generate cash to pay bills.
– Leverage
• The ability to earn more in returns than the cost of debt.
– Asset management
• The ability to use resources efficiently and operate at
minimum cost.
– Profitability
• The ability to earn revenues greater than costs.
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Financial Control
 Break-even analysis …
– Determination of the point at which sales
revenues are sufficient to cover costs.
– Break-Even Point = Fixed Costs / (Price –
Variable Costs)
– Used in evaluating:
• New products
• New program initiatives

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Graphical approach to break-even analysis.

Management - Chapter 8 39
Purchasing control

– A productivity tool
– Trends in purchasing control:
• Leveraging buying power
• Committing to a small number of suppliers
• Working together in supplier-purchaser partnerships

Management - Chapter 8 40
Inventory control
– Goal is to ensure that inventory is just the right
size to meet performance needs, thus
minimizing the cost.
– Methods of inventory control:
• Economic order quantity
• Just-in-time scheduling

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Statistical Quality Control
– Quality control involves checking processes,
materials, products, and services to ensure that
they meet the standards.
– Statistical quality control involves:
• Taking samples of work.
• Measuring quality in the samples.
• Determining the acceptability of results.

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Three Tools For Quality Control

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CONTROLLING

The managerial function of controlling should not be confused with

control in the behavioral or manipulative sense. This function does not
imply that managers should attempt to control or to manipulate the
personalities, values, attitudes, or emotions of their subordinates.

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CONTROLLING

Instead, this function of management concerns the manager’s role in

taking necessary actions to ensure that the work-related activities of
subordinates are consistent with and contributing toward the
accomplishment of organizational and departmental objectives.

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