CHAPTER SEVEN

THE CONTROLLING FUNCTIONS

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 Meaning and need for control
• 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.
• It is the process of establishing and implementing
mechanisms to ensure that objectives are
achieved.
• It is evaluating how well an organization is
achieving its goals and taking action to maintain
or improve performances.
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 Meaning of controlling(cont’d)
• It 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.

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 Need for Controlling
• It 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.

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 The control process
• The control process is a process, which
includes different steps in establishing
controlling.
• There are four steps in the control process
1. Establishing standards of performance
2. Measuring actual performance
3. Comparing actual performance with the set
(established) standards
4. Taking corrective action
5. Feedback mechanisms

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 The control process(cont’d)
[Link] 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.
• Establishment of performance standards is a
prerequisite for the operation of the control
system.
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 The control process(cont’d)
• It provides yardstick (comparison
measurement) against which performance is
measured in order to determine variance, if
any, between standards and actual
performance.
• The basis of standard will be heavily
quantitative.

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 The control process(cont’d)

• 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.
• quantitative terms it includes costs,
revenues, number of hours worked, and so
forth. 8
 The control process(cont’d)
• Control measurements in qualitative terms
includes:- employee morale, interpersonal and
inter group relations, work environment, etc
3. Comparing actual performance with the set
(established) standards.
• 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
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 The control process(cont’d
• every deviation from the plan doesn’t require
corrective action. Some results can be
considered good enough.
• For example when there is a desired profit of
1 million Birr and actual profit of 988,000 Birr
the deviation is insignificant.

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 The control process(cont’d
[Link] corrective action
• When significant deviation from a standard is found
corrective action must taken 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 11
 The control process(cont’d
• All the above steps in control process
considered as interdependent parts of the
control system.

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 Types of control
• 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.

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 Types of control(cont’d)
Feed for ward controls (input or preventive controls)
• Are controls that focus on the prevention of defects
and deviations from the standards.
• This type of control anticipates potential problems
before they occur. It focuses on inputs to ensure that
the right resources are being used to achieve desired
outcomes.
• Application: Feed forward control involves setting
performance standards and conducting training
programs to prepare employees for their tasks
effectively.

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 Types of control(cont’d)
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.
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 Types of control(cont’d)
• B). Concurrent controls
• are controls that give 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.
• 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.
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 Types of control(cont’d)
• Application: This type of control can include
real-time feedback mechanisms, such as
performance dashboards or direct supervision,
allowing managers to make immediate
adjustments as needed.

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 Types of control(cont’d)

• C). Feedback /output /controls

• are controls that focus on the results of
operations.
• It assesses the final outcomes against the
established standards.
• 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.
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 Types of control(cont’d)
• 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.
• Application: This type of control involves
analyzing performance reports, customer
feedback, and financial statements to evaluate
whether goals have been met and to identify
areas for improvement.

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 Types of control(cont’d)

Output
Input Conversion
stage stage
stage
Feed forward control Feedback control
Concurrent controls
(anticipate problems (manage problems
(manage problems as
before they occur) after they occur)
they occur)

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 Control techniques

• A number of techniques are used for

controlling. Some of them are like:
• return on investment
• ratio analysis, to measurement of overall performance

• financial statement, etc

• Other techniques like the break even point
analysis, budgets, etc, are designed to measure
specific aspects of performance such as
production costs, Sales and so on.
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 Control techniques
• Control techniques in management are essential for ensuring that
organizational goals are met efficiently and effectively.
• These techniques help managers monitor performance, identify
deviations from plans, and implement corrective actions.
• Here are some key control techniques used in management:
– Budgetary Control
– Standard Operating Procedures (SOPs)
– Performance Appraisal
– Key Performance Indicators (KPIs)
– Quality Control
– Management Information Systems (MIS)
– Feedback Mechanisms
– Balanced Scorecard

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

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 Effective Control systems
• 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.
• Timely:-the information being feedback must
be provided on time to allow managers to
obtain full benefits from the data.
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 Effective Control systems
• 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.
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 Effective Control systems
• Acceptability:-people must agree that
controls are necessary and the controls will
not have negative impacts on individuals or
their efforts to achieve personal goals.

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End of the Class!!!
Thank U!