CONTROLLING ● Deploy more heavy equipment.
● Require overtime work from existing staff.
What is Controlling? Types of Control
Controlling is the process of ascertaining whether Feedforward
organizational objectives have been achieved, and if not, - Anticipates problems and prevents them. Ensures
determining why and what actions must be taken. resources are in place before operations begin.
It essentially completes the cycle of management functions, Concurrent
verifying that the goals set during the planning stage are met. - Undertaken while operations are ongoing. Detects
variances in real-time to allow immediate
Key Focus: Ensuring that actual activities match the desired adjustments.
activities and goals. Feedback
- Evaluates a completed activity. Corrective actions are
Importance of Controlling derived to improve future activities.
● EFFICIENCY - Helps the organization achieve its
goals in the most efficient and effective manner Control Systems Components
possible. A comprehensive organizational control system consists of
● PREVENTION - Minimizes the ill effects of negative several key components:
occurrences such as deviations, mistakes, and ● Strategic Plan: Long-term direction.
shortcomings. ● Long-range Financial Plan: Funding stability.
● COST CONTROL - Proper control measures prevent ● Operating Budget: Resource allocation.
unnecessary expenditures and losses, such as ● Performance Appraisals: Personnel evaluation.
inventory shrinkage. ● Statistical Reports: Data-driven insights.
● Policies: Framework for objectives.
The Control Process
The control process consists of four distinct steps: Identifying Control Problems
Management must be vigilant for symptoms of inadequate
Step 1: Establishing performance objectives and standards. control:
What has to be achieved must first be determined. Common ● Unexplained decline in revenues or profits.
engineering management standards include: ● Degradation of service (customer complaints).
- Sales Targets: Expressed in quantity or monetary ● Employee dissatisfaction (high turnover).
terms. ● Cash shortages (bloated inventories).
- Production Targets: Defined by quantity (units) or ● Idle facilities or personnel.
quality grades. ● Evidence of waste and inefficiency.
- Worker Attendance: Measured by absentee rates.
- Safety Record: Number of accidents per period. Strategic Control Systems
Strategic control ensures that the organization's strategies are
Step 2: Measuring actual performance. implemented effectively and objectives are met in a changing
Why Measure? environment.
Measurement is crucial so that when shortcomings occur, ● Premise Control: Checks if initial assumptions
adjustments can be made. The nature of the adjustments (economic, political) are still valid.
depends entirely on the actual findings. ● Implementation Control: Monitors incremental steps
Tools Vary and milestones.
Measuring tools differ by organization. Some may use annual ● Strategic Surveillance: General monitoring of the
growth rates, while others focus on market share or specific business environment.
industry positions. ● Special Alert Control: Rapid response to unexpected
crisis events.
Step 3: Comparing actual performance to objectives and
standards. Financial Analysis
The Standard Balance Sheet
A construction firm contracts to build a 100 km road in 10 A snapshot of the firm's financial condition at a specific point in
months. time. It balances assets against liabilities and equity.
Expectation: At least 10 km must be constructed every month.
Income Statement
The Comparison A report of financial performance over a specific period,
Management verifies progress monthly (or weekly). showing profitability.
Actual vs. Standard: If Month 1 output is 8 km, a deviation of -2
km is identified immediately. Financial Ratio Analysis
Ratios allow for the comparison of financial data across
Step 4: Taking necessary action based on the results. different periods or against industry standards. They are
If the comparison reveals a shortfall (e.g., only 15 km finished categorized into four main types:
after 2 months instead of 20 km), corrective action is 1. Liquidity - Ability to pay short-term obligations
mandatory. 2. Leverage - Use of debt to finance assets
Corrective Options: 3. Activity - Efficiency of asset utilization
● Hire additional personnel. 4. Profitability - Ability to generate earnings
Liquidity & Leverage Ratios
Chapter Summary
Liquidity Ratios The Control Process
Current Ratio: Measures ability to pay short-term obligations. ● Definition: A systematic function that ensures
organizational goals are met through validation and
correction.
● Cycle: Operates on a 4-step loop: Setting Standards,
Measuring, Comparing. and Taking Action.
● Types: Utilizes Feedforward (prevention), Concurrent
Quick Ratio (Acid Test): Excludes inventory to test immediate (real-time monitoring), and Feedback (historical
liquidity. analysis) mechanisms.
Financial Tools
● Strategic Control: Essential for adapting strategies to
shifting environments.
● Ratio Analysis: The primary method for assessing
financial health via Liquidity. Leverage, Activity, and
Leverage Ratios
Profitability metrics.
Debt-to-Equity Ratio: Indicates the proportion of equity and
debt used to finance the company's assets.
A high ratio generally indicates higher financial risk due to
heavy reliance on debt.
Activity Ratios
Inventory Turnover: Shows how many times a company's
inventory is sold and replaced over a period.
Profitability Ratios
Profit Margin: Measures how much out of every dollar of sales
a company actually keeps in earnings.
Return on Investment (ROl): Evaluates the efficiency of an
investment.