CONTROLLING

Control is the process that attempt to assure that the actual activities performed match the
standard activities or goals that had been set. [Standards are the goals, objectives, targets].
Control assures that deviations from the goals are corrected. The control process involves
measuring actual performance and comparing it to the standards and taking corrective action
when necessary. Control helps an organization to effectively achieve the desired performance
and thus improves its reputation.

Since there are many different organizational activities, control techniques are numerous and
varied. E.g. in an organization we can have;

- Check in / check out

- Budgets

In a college we have

- Meal cards, Class register, Lesson register, leave out sheets,

Sometimes firms utilize too many control techniques, and too much control, causing
dysfunctional side effects. [E.g. using bureaucratic red tapes.] At times the control systems are
not tight enough allowing undesirable actions. Therefore, the organization should learn to strike
a balance when designing control techniques.

Control is effective when;

- Standards can be established for the variables that are to be controlled.

- When information is available to measure the established standards.

- When managers can take corrective actions whenever the variables deviate from the
desired or set standards.

Standards

For the standards to be effective, they must be stated clearly and related to the objectives/targets.
Standards are the criteria against which future, current or past actions are compared. They are
measured in a variety of ways such as Monetary, physical, quantitative, or qualitative terms.

Information

Information must be provided that reports actual performance and permits appraisal of the
performance against standards, e.g. in production the end products can be measured.

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Managerial Action

Managerial actions to correct deviations are stimulated by the discovery of the need for action
and from the ability to implement the desired action. The managers should be given the
necessary authority so that they feel responsible to take corrective actions.

Importance of Control

1. Improves the organization’s reputation

Through effective control an organization is able to accomplish its goals. Control helps the
organization to focus its energy in the desired direction so as to achieve its goals.

2. It helps an organization to improve its overall performance.

Well thought out and thoroughly designed control systems helps to see that the planned activities
are actually being carried out, this leads to excellent activities.

3. It directs behavior

Control systems direct behavior towards important goals, they monitor reward and reinforce the
behavior and activities that management desires [MBO systems]

4. It helps in coordination

Control systems coordinate the activities of all members of the organization, control ensures that
efforts of all members of the organization will be coordinated through standards, rules, norms,
budgets and reporting systems, thus providing a mechanism for providing order to the diverse
activities of a firm.

5. It helps to manage uncertainties

Control systems limit options in decision making by setting rules and regulations to handle
repetitive situations, this limits individualistic behavior and provide standards for future events.

6. It helps to create uniformity

Without control, members of an organization might act in diverse ways, control system helps the
organization to maintain uniformity. E.g. in price, dress code, product design, etc

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Principles of Control

The effectiveness of a control system is defined by how well the organization achieves its goals.
Each firm because of its unique characteristics in terms of culture, work and human resources
will have a control system that is unique. The type of the organization, the control method it uses
and the impact of that control method, determines the effectiveness of the control system.

The type of the organization helps to determine the appropriate control technique to be used. The
control systems directly and indirectly affect human behavior in the organization. Although each
firm has its own unique control systems there are certain elements that are common to all
systems, these are;

1. The monitoring systems- measure and assess ongoing activities to determine the
actual performance.

2. Evaluation systems - compares the actual performance to standard performance.

3. Feedback - The management must be given information after evaluation.

4. Corrective action – the management determines if corrective actions are

necessary.

5. Standards [rules or regulations] – they must be set because they serve to set
guidelines for activities and decisions.

6. Goals – they communicate what performance is expected.

7. Control techniques – the management utilizes techniques to control behavior.

8. Rewards – they help to make control systems effective by rewarding the desired
behavior.

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5 Steps In Control Process

Five main steps in the control process with diagram are discussed below :-

1. Fixing the Control Standards / Objectives / Targets

A standard is a criterion (base) which is used to measure the performance of the subordinates.
Standards may be of two types, i.e. Quantitative Standards and Qualitative Standards.

Quantitative Standard can be easily defined and measured. For e.g. number of products,
number of customers, cost, net profit, time limits, etc.

Qualitative Standard cannot be easily defined and measured. For e.g. measurement of morale,
measurement of job satisfaction, measurement of effect of a training programme, advertisement
programme, etc. It is better to have quantitative standards because they are measurable.
However, today there are many new techniques for measuring qualitative standards.

The standards should be as clear as possible. It should be easily understood by both superiors and
subordinates. The responsibility of each individual should also be clearly defined i.e. everyone
should be responsible for achieving a particular goal, objective, target, etc. For e.g. The
marketing department fixes a standard - "We will sell 2,000 units of product X in one month". So
here the standard is 2,000 units.
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 2. Measuring the Actual Performances

After establishing the standards, the subordinates should be provided with all the resources for
performing the job. They should be properly directed and motivated to perform the job.
Similarly, they should be properly supervised. If the subordinated come under Theory X they
require maximum supervision. However, if they come, under Theory Y then they require
minimum supervision. After they complete the job their performance should be carefully
measured. There are many traditional and modern techniques for measuring the performances of
subordinates.

For e.g. After one month, the marketing department sold only 10,000 units of product X. So,
their actual performance is only 10,000 units.

3. Comparision

The actual performances of the subordinates are compared with established standards, and then
the deviations are found out. The deviations which are found out may be positive or negative.

a) Positive Deviation means that the actual performances are better than the established
standards. Positive deviations should be appreciated.
b) Negative Deviation means that the actual performance is less than the established
standards. The management should pay special attention to the negative deviation. They
should find out the causes of negative deviations.

Generally, minor (small) deviations are ignored. However, major deviations should be
immediately addressed and reported to the top management. Program Evaluation and Review
Technique (PERT eg use of critical path, flow charts etc), Budgetary Control, Observation,
Inspection, Reports, etc. are some of the methods used for comparison.

For e.g. 10,000 units (Standard) - 9,000 units (Actual Performance) = 1,000 units (Negative
Deviation).

4. Corrective Action

After finding out the negative deviations and their causes, the managers should take steps to
correct these deviations. Corrective actions should be taken promptly. Corrective action may
include;

(i) Changing the standards

(ii) Providing better motivation
(iii) Giving better training
(iv) Using better machines, etc.

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The management should take essential steps to prevent these deviations in the future. For e.g. if
the cause of the negative deviation was less advertising and untrained salesmen, the company
must spend reasonable money on advertising and training.

5. Follow-up

After taking corrective action, the management must do a follow-up. Follow-up is done
to find out whether the corrective actions are taken properly. It also finds out whether the
deviations and their causes are removed. If follow-up is done properly, then the actual
performance will be equal to or better than the established standards.

Areas of Control

 Finance
 Human resources
 Materials and stock production
 Capital

Types of Control Systems

Budgetary control is the process of developing a spending plan and periodically comparing
actual expenditures against that plan to determine if it or the spending patterns need adjustment
to stay on track. This process is necessary to control spending and meet various financial goals.
Governments rely heavily on budgetary control to manage their spending activities, and this
technique is also used by companies as well as private individuals, such as heads of household
who want to make sure they live within their means.

The first step in budgetary control involves defining the scope of the project or program and
developing detailed cost estimates. A government might need to budget to build a new bridge,
while something like a household budget covers household expenses for an indefinite period of
time. This results in the creation of a budget, a document detailing how much money can be
dedicated to different aspects of the project, based on projected expenses and income. The
budget is a financial road map.

Using the budget as a baseline, work can begin. Periodically, accountants compare the budget
with actual expenditures, and take note of any discrepancies. In bridge construction, materials
costs might rise beyond the inflation accounted for in the original budget, creating a cost
overrun. Conversely, a company might be able to save money on part of a project because it
costs less than originally expected. All variations are noted and discussed. If they become
extreme, budgetary control measures may come into play.

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a) Budget:

 A formal statement of the financial resources set aside for carrying out specific activities in a
given period of time.

 It helps to co-ordinate the activities of the organisation.

An example would be an advertising budget or sales force budget.

b) Budgetary control:

 A control technique whereby actual results are compared with budgets.

 Any differences (variances) are made the responsibility of key individuals who can either
exercise control action or revise the original budgets.

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

 Compels management to think about the future.

Forces management to look ahead, to set out detailed plans for achieving the targets for each
department, operation and (ideally) each manager, to anticipate and give the organisation
purpose and direction.

 Promotes coordination and communication.

 Clearly defines areas of responsibility.

Requires managers of budget centres to be made responsible for the achievement of budget
targets for the operations under their personal control.

 Provides a basis for performance appraisal (variance analysis).

A budget is basically a yardstick against which actual performance is measured and assessed.
Control is provided by comparisons of actual results against budget plan. Departures from budget
can then be investigated and the reasons for the differences can be divided into controllable and
non-controllable factors.

 Enables remedial action to be taken as variances emerge.

 Motivates employees by participating in the setting of budgets.

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 Improves the allocation of scarce resources.

 Economizes management time by using the management by exception principle.

Problems in budgeting

Whilst budgets may be an essential part of any marketing activity they do have a number of
disadvantages, particularly in perception terms.

 Budgets can be seen as pressure devices imposed by management, thus resulting in:
a) Bad labour relations
b) Inaccurate record-keeping.

 Departmental conflict arises due to:

a) Disputes over resource allocation

b) Departments blaming each other if targets are not attained.

 It is difficult to reconcile personal/individual and corporate goals.

 Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is
often coupled with "empire building" in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the influence of more than one
person, e.g. power costs.

 Managers may overestimate costs so that they will not be blamed in the future should they
overspend.

Characteristics of a budget

A good budget is characterized by the following:

 Participation: involve as many people as possible in drawing up a budget.

 Comprehensiveness: embrace the whole organisation.
 Standards: base it on established standards of performance.
 Flexibility: allow for changing circumstances.
 Feedback: constantly monitor performance.
 Analysis of costs and revenues: this can be done on the basis of product lines, departments or
cost centres.

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Non -Budgetary Control

Examples of non budgetary controls are;

 Personal observation - inspection

 Reports

 Audit programmes

 Human resource accounting

 Ratio analysis

 Break even analysis

 Time event network analysis

 Management by objectives [MBO]

 Management by walking around [MBWA]

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