Module 02 M&E-BISME503

Module – 02

ORGANIZING

INTRODUCTION:
 Organizing is the second basic function of a manager amongst the five functions identified by Fayol
namely planning, organizing, commanding, coordinating and controlling.
 Organizing is the function of management which involves arranging human and other resources for
the achievement of goals.
 Organization is group of individuals with a common goal, bound together by a set of authority-
responsibility relationships.
 Barnard introduced formal and informal aspects of organization.
 The term “formal” implies, this form of organization is formally created by assigning responsibilities
to individuals along with authority.
 Barnard argues that the term “informal organization” always exists within the formal organization
whereby individuals are associated with each other due to human bonding.
 According to Barnard, “informal organizations are necessary to the operation of formal organizations
as a means of communication, interrelation, protecting the integrity of an individual”.
 After a manager has planned to perform certain tasks, he/she needs to deploy various type of
resources to ensure that the end objectives are met.

Differences Between Formal and Informal Organization:

Module 02 M&E-BISME503
NATURE AND PURPOSE OF ORGANIZATION:

 Organization helps in identifying various tasks to be performed for the achievement of organizational
goals and assigns them to individuals to perform.
 It also establishes reporting responsibilities which means who would report to whom.
 It delegates authority to managers with equal responsibility and accountability for the discharge of
their duties.
 It also facilitates seamless communication between one individual and other and similarly between
any two departments.
 It ensures that any two department coordinate well with each other in the achievement of
organizational goals.
 It aids in optimal utilization of financial, physical (such as land, buildings, machinery and
equipment), material and human resources.
 It also helps in nurturing and growing the special skills of the employees by the virtue of the division
of labour.
 By the virtue of planning superseding organizing, organization helps in the realization of plans by the
managers.
Module 02 M&E-BISME503
PRINCIPLES OF ORGANIZATION:
The four principles of organization are
 Division of labour
 Delegation of authority
 Unity of command
 The scalar principle

1. Division of labor
 Division of labour is also called “principle of specialization”. It was first highlighted by Plato in 350
BC.
 The application of division of labor is found in modern organizations.
 The advantage is increased productivity and disadvantage is monotony on part of workers who feel
bored of doing the same task repeatedly.

2. Delegation of authority
 Authority is defined as rights inherent in a managerial position to give orders and expect the
orders to be obeyed.
 Delegation of authority is the process by which managers allocate the authority downward to
the people who report to them.
 Delegation of authority should go with responsibility and accountability.
 When authority is delegated suitably, it leads to empowerment.
3. Unity of command
 It is another classical management principle which recommends that every individual in the
organization should report to a single boss.
 The situation may get even more complicated if the individual receives instructions from
his/her boss and also from boss’s boss.

4. The scalar principle

Module 02 M&E-BISME503
 The scalar principle states that there should be clear and unbroken chain of command or line of
authority from the top level of hierarchy to the lowest level including all the intermediate levels.

TYPES OF ORGANIZATION DEPARTMENTATION:

Departmentation is the way in which organization groups its various
activities.

1. FUNCTIONAL DEPARTMENTATION

 In this type of departmentation, similar activities or functional areas are grouped together.
 In the figure, the director’s operations, marketing, finance, and the human resources report to
the chief executive officer (CEO).
 The major advantage of this type is principle of specialization (division of labour) is utilized
to bring efficiency in the organization.
Module 02 M&E-BISME503
 A major disadvantage is that complete focus upon functional areas at lower level of the
hierarchy leaves the responsibility of the overall performance of the organization on the
higher level.

2. PRODUCT DEPARTMENTATION
 An organization which is involved in manufacturing many products may find functional
departmentation too slow for responding to market changes for various products, a product
departmentation is more suitable for such organizations.
 A major advantage of this kind is that managers responsible for their products get the opportunity
of managing all the facets and functional area in totality.
 A major disadvantage is that duplication of resources in the various product divisions.
Module 02 M&E-BISME503
3. GEOGRAPHICAL DEPARTMENTATION
 It is the grouping of the organization according to the territorial areas, nationally or
internationally.
 This kind of departmentation is suitable for organizations operating in various markets scattered
geographically.
 The major advantage is that managers can focus upon the unique requirements of their region.
 The challenge is for the top management to coordinate and control the managers in
geographically dispersed regions.

4. CUSTOMER DEPARTMENTATION
 The focus in customer departmentation is upon the customer. Here, managers are assigned
different types of customers to service.
 The biggest advantage of such departmentation is that managers can address their customer’s
needs promptly as per their unique requirements while building long-term relations with them.
 The drawback is that underutilization or duplication of resources for various types of customer
divisions.
Module 02 M&E-BISME503

5. PROCESS OR EQUIPMENT DEPARTMENTATION

 It is found in manufacturing organization in which parts of the production processes are separated
to improve efficiency in the system.
 This departmentation is especially useful for variety of products manufactured in the plant is very
large.
 When the variety of products produced is relatively less and the products can be grouped into
similar processing requirements and sequence, this departmentation is less useful.

6. PROJECT OR MATRIX DEPARTMENTATION

 It is a form of hybrid departmentation in which any of the departmentation are combined to
address a unique requirement.
 For example, can be combined with product departmentation in a manner as shown in figure (in
next slide) where in which workers from different functional areas like mechanical, electrical,
civil engineering etc., are assigned to projects.

 The workers are either assigned to the projects on a full-time or part-time basis depending upon
Module 02 M&E-BISME503
the involvement or requirement in the projects.
 After the completion of the project, such workers are sent back to their respective departments to
perform their routine duties.
 A major advantage of this type departmentation is the combination of people with varied
expertise in the project team to facilitate the cause of the project within the specified time frame.
 The disadvantage is difficulty in control mechanism and performance appraisals due to dual
reporting of such people.

7. TEAM STRUCTURE
 In contemporary organizations, formal and informal teams have become common place.
 Concurrent engineering is a product design approach in which the design team includes workers
from marketing department, engineering department, production department, materials
department and finance department in addition to the design department. Thus, concurrent
engineering involves a team structure.
 The interdepartmental concurrent engineering teams saves a lot of time and effort.

8. NETWORK STRUCTURES
Module 02 M&E-BISME503
 They are relatively new phenomenon in which organizations have started making agreements and
collaborations with their vendors which extend beyond conventional supplier-manufacturer
relationships.
 The trust and confidence shown by the organizations in treating their vendors as close partners
has been the symbol of recent times.
 Outsourcing is one element of this radical phenomenon.

9. BOUNDARYLESS ORGANIZATION
 Leading-edge web-based technologies have brought drastically new organization structures
called virtual or boundary organization.
 A typical example is “Wikipedia”, which has become world’s biggest online encyclopedia within
a short span of time.
 The wiki technology has enabled the updating of the Wikipedia content by anybody across the
globe at any point in time.
 The whole content has been added by volunteers, who also act as regulators and eliminate any
discrepancies on the pages promptly in Wikipedia.

STAFFING
MEANING OF STAFFING:
 A capable and efficient workspace is crucial for the success for an organization.
 Bechet and Walker stress upon the importance of staffing with business strategy and provide staffing
actions crucial in this manner.
 The process of recruiting, retaining, developing and nurturing the workforce is called staffing.

NATURE AND IMPORTANCE OF STAFFING:

 The staffing function in an organization must recruit people with suitable qualifications, knowledge
and skills as per the current recruitment of the organization.
 Training, education and job-related development not only help in retaining the employees but also in
enhancing their capabilities and capacities to work smartly.
 Staffing requires hiring and firing of employees which involves a lot of effort on part of the staffing
personnel.
 It is natural that over a period, some employee’s skills may need upgradation through retaining.
 Module 02 M&E-BISME503

PROCESS OF RECRUITMENT AND SELECTION:

 Recruitment is a set activity namely advertising, establishing preliminary contacts and performing
initial screening to create a qualified pool of job applicants for an organization.
 Selection involves choosing from a pool of applications (created by recruitment process) the person
or persons who offer greatest performance potential.
 It is a quite challenging task to find right person to perform a job in an organization.
 A proper matchmaking is required to ensure that person being recruited for a particular position has
the necessary skills, knowledge, and aptitude to perform the job.

DIFFERENCE BETWEEN RECRUITMENT AND SELECTION

 Module 02 M&E-BISME503

STEPS INVOLVED IN RECRUITMENT AND SELECTION

 Need for permanent or temporary employee
 Perform job analysis and create job description
 Determine recruitment strategy
 Determine selection tools to be used and sequence thereof
 Perform a pre-interview orientation
 Preliminary screening
 Review application forms and resume
 Conduct written test
 Conduct personal interview
 Perform reference checks
 Make the job offer
 Medical examination
 Induction and orientation

1. Need For Permanent or Temporary Employee

 The first step in the selection and recruitment process is to determine if the job should be filled by
employing a temporary or a permanent employee.
Module 02 M&E-BISME503
 When an employee suddenly exits from the organization leaving behind a vacancy to be given
urgently, it is suitable to find a temporary employee to fill that post.

 In a particular scenario, a particular job is seasonal in nature and thus temporary employees would be
more suitable for such a job.

 There are advantages in which temporary employment gives the opportunity to the employee to
demonstrate his capabilities to the employer.

2. Perform job analysis and create job description

 The main purpose of job analysis of to identify job tasks and responsibilities.
 This can be done by collecting information about position- by interviewing workers, supervisors and
other employers and by observing current employees.
 The result of job analysis is the job description and specifications.

3. Determine recruitment strategy

 This step involves reaching out to the audience about the information that a vacancy exists for a
particular company.
 Here the objective is to have many applicants for the vacancy so that the employer can get a chance
to find the best candidate for the job.
 The positions can be advertised through trade journals, newspapers, employment agencies, company
website.

4. Determine selection tools to be used and sequence thereof

 There are various tools to check abilities, knowledge and skills of the applicants. They include
preliminary screening, written tests, reference checks, letter of recommendation etc.,
 A preliminary telephone interview with persons who are far away eliminates unnecessary travel.

5. Perform a pre-interview orientation

 A pre-interview orientation can help for the potential candidates. This orientation should brief them
about company profile, its activities, outlook.
 Helps in allowing the candidates to clarify doubts about the job and the company.

6. Preliminary screening
 When the number of job applicants are huge, preliminary screening can be performed to eliminate
fewer worthy candidates.
 Group discussions are useful for screening candidates for managerial positions.
 Some organizations prefer written tests for screening candidates.
Module 02 M&E-BISME503
7. Review application forms and resumes
 Well- drafted application forms help in capturing the academic and employment history of
candidates.
 Resumes and curriculum vitae (CV) help in this regard.
 The advantage of standard application form is, it facilitates easy comparison of the profile of two or
more candidates on various parameters like gaps in employment, too short periods with organizations
the past etc., to seek clarification later during personal interview stage.

8. Conduct written test

 Written tests are the next process in the selection process.
 There are various types of tests to measure knowledge, ability, skills, aptitude, attitude, honesty and
personality such as power test, open book exam.
 There are different formats to conduct test like multiple choice questions, short-answer, long-answer
or fill in the blanks.

9. Conduct personal interview

 Candidates after qualifying written test are subjected to personal interview.
 Personal interview provides a perfect opportunity to the selection committee to check the personality,
knowledge, verbal communication skills, dressing sense, and ability to respond to situations
unprepared.

10. Perform reference checks

 It is important to perform reference checks for the candidate, if found worthy during personal
interview stage.
 It provides various insights about the personality, academic and employment history of the
candidate.
 Reference checks can be performed through email or by phone calls.

11. Make the job offer

 If the reference checks result in good feedback about the candidate, an offer letter is sent to the
candidate. Otherwise, it is customary to send a formal rejection letter.
 The offer letter should include joining date after consultation with the candidate. Normally, there is a
notice period varying from 1 to 3 months, which needs to be given by the candidate to his current
employer before exiting.

12. Medical examination

 Module 02 M&E-BISME503
 A post-offer pre-employment medical examination is a must especially when the company has to
cover the candidate and his dependent family members by medical insurance.

13. Induction and orientation

 Formal induction and orientation of the employees help them in understanding the various facets of
the organization.
 Unwritten rules, traditions or informal perks should be discussed with the employees as part of the
orientation period.

The first day in office is always special for everybody. Therefore, proper arrangements must be made
before the joining date of the employee. This includes suitable workstation/room, stationary, computer
hardware/software and a welcome gathering.

“DIRECTING AND CONTROLLING”

1. MEANING AND NATURE OF DIRECTING

• The word “Directing” refers to taking actions to motivate people and help them to see so that
contribution to group objectives is in their own interest.

• The most convincing example of directing is from Bhagavad-Gita, in which Lord Krishna
motivates Arjuna on the battlefield before the start of the Kurukshetra war.

• Direction is that interpersonal aspect of management which deals directly with influencing,
guiding, supervising, motivating sub-ordinate for the achievement of organizational goals.

• It is a continuous managerial process that goes on throughout the life of the organization.

PRINCIPLES OF DIRECTION:

Creation of synergy of individual An effective direction would align individuals

efforts with diverse set of personal objectives towards
organizational objectives so that individuals
behave like coherent team which results in
cooperation of individual efforts.
 Module 02 M&E-BISME503
Unity of command People tend to get confused when they get
directions and orders from more than one superior.
Some of these orders are different from each other
which adds confusion to the subordinates who
follow them. Therefore, unity of command and
direction is a useful principle.

Close interaction with subordinates It is very important for bosses to maintain close
interaction with their subordinates to guide them,
mentor them and empathize with them

Feedback and suggestions Occasional feedback on performance, particularly

improvement positive feedback from superiors to subordinates
are encouraging them.

Negative feedback should be included with

constructive suggestions to minimize the hurt-
feeling
Motivate enthuse and enthrall Motivation lies at the heart of the direction. People
should be motivated in such a way that they should
feel motivated, enthused, enthralled to follow the
directions given to them whole-heartedly.

Lead by example Followers understand the directions of their leader

better, when the leader follows himself/herself
what he/she preaches.

2. LEADERSHIP STYLES
• Leadership is defined as influence, that is, the art or process of influencing people so that they
will strive willingly and enthusiastically towards achievement of group goals.

• There are various leadership styles.

• There are several instances in which each of these styles has proved to be effective.
 Module 02 M&E-BISME503

AUTOCRATIC LEADERSHIP

• In Autocratic leadership, the leader takes the decision on his own without consulting the
subordinates. He expects the subordinates to simply follow the commands given by him.

• There is no scope for decision making and results in loss of creativity and loss of freedom on the
part of followers.
• The style is effective when the leader enjoys considerable authority and power in the form of
discretion to reward and punish the subordinates for compliance or non-compliance of orders.

• This style is also effective when the leader commands a lot of respect due to past achievements.

DEMOCRATIC/PARTICIPATIVE LEADERSHIP

• Democratic/participative leader involves subordinates, peers, superiors and stakeholders in the

decision-making process rather than taking the decision on his own.

• This style is very helpful in winning the confidence of the people who would later be involved
into the implementation of the decision.

• The people involved in decision making have the freedom to express their opinions freely to
influence the leader.

• The negative impact is that this style involves many people which is time consuming and
requires maturity and skills on part of the leader to ensure that the discussion don’t go out of the
track and meeting time is utilized efficiently to arrive good decisions.

LAISSEZ-FAIRE OR FREE-REIN LEADERSHIP

• The French phrase LAISSEZ-FAIRE means “leave it be” and is used to describe a leader who
leaves his colleagues to get on with their work.

• Intentionally, little control is exercised by the free-rein leader over his subordinates to allow
them a high degree of freedom.
 Module 02 M&E-BISME503
• This style is helpful when the leader is fully confident about his subordinates setting their own
goals and achieving it. However, the leader communicates regularly with his subordinates to
provide them advice and resources as and when required.

• JRD’s Decentralization and Rathan’s centralization for the Tata Empire vividly depicted the free-
rein leadership style of J R D Tata, who provided freedom to his chieftains like Darbari Seth
(Tata chemicals), Russy Mody (Tata Stell) and Ajit kerkar (Taj Group of Hotels)

BUREAUCRATIC LEADERSHIP

• Bureaucratic leaders work “by the book” and expect their subordinates to follow the procedures strictly.

• This type of leadership is present in public sector units (PSUs) in which there are rules and regulations
prescribed by the governmental regulators like Controller and Auditor General (CAG) and the Central
Vigilance Commission (CVC).

• This leadership is laced with heavy controls leading to demotivation of the employees.

• It helps in standardization of processes and reducing corruption.

• This leadership was successfully demonstrated in Indian scenarios like [Link].

CHARISMATIC LEADERSHIP

• These leaders have the charisma and the charm to induce their followers to follow them whole-
heartedly.

• According to Musser, charismatic leaders seek to instill both commitment to ideological goals
and also devotion to themselves.

• Conger and Kanungo describes five behavioral attributes of charismatic leaders

 Vision and articulation

 Sensitivity to the environment

 Sensitivity to member needs

 Personal risk taking

 Performing unconventional behavior

• They become synonymous with the organization and often corporate identities and brands are
built around them.

• For the followers, success is tied up with the presence of a charismatic leader.

• Charismatic leaders carry a lot of responsibility for the future of the organization, as their
untimely exit from the organization may risk its very existence.

SERVANT LEADERSHIP

• Robert Greenleaf is considered as the father of servant leadership.

• Unlike other leadership styles with a top-down hierarchical approach, servant leadership
emphasizes collaboration, trust, empathy, and ethical use of power.
 Module 02 M&E-BISME503
• The objective is to enhance the growth of individuals in the organization and increase teamwork
and personal involvement.

• Sri N R Narayana Murthy is a leader of this style.

QUIET LEADERSHIP

• The approach of quiet leaders is the antithesis of the charismatic leaders in that they base their
success not on ego and force of character but on their thoughts and actions.

• They don’t have publicity and spotlight on them. They think of themselves modestly, they
don’t think of themselves as leaders.

• They are not the top of the organizations. They won’t make high staking decisions.

• They are acting quietly, efficiently with political smartness to make things somewhat better.

TRANSACTIONAL LEADERSHIP

• Their focus is to get the “transactions” done smoothly and efficiently. The transaction refers to
the job assigned to the subordinates which may be a project.

• The subordinates have to obey the leader’s orders about the achievement of the task.

• If the task is accomplished successfully, the leader rewards the concerned subordinates with
incentives and if the performance is below expectations, an unannounced punishment is given.

• The leader tends to follow the management by exception approach.

• This leadership is popular in my industries but has its limitations in the knowledge based or
creative organizations.

TRANSFORMATIONAL LEADERSHIP

• These leaders have the capability to “transform” or radically change organizations and
individuals for their betterment.

• They are the visionaries who inspire others and successfully tell their vision to the followers,
thus requiring communication skills.

• Their enthusiasm is contagious, and they create shared vision for the future.

• Transformational leaders may not lead from front and tend to delegate responsibility to the teams
of their followers.

• One of the traps in this is that the passion and confidence of such a leader may be taken as
equivalent to the truth and reality, which may not always be the case.

SITUATIONAL LEADERSHIP

• This theory is based on the premise that no single leadership style suits every possible
situation. The leader has to adapt his style to best suit the requirements of the situation on hand.

• A leader may prefer bureaucratic style to train a group of new workers for operating on a machine.
 Module 02 M&E-BISME503
• While the same leader may follow democratic/participative style to seek improvement ideas for
a process from a group of workers having past experience with that process.

• Tannenbaum and Schmidt identified three forces which lead to leader’s action

• The forces of the situation

• The forces in the follower

• The forces in the leader

• Maier noted that leaders not only consider the probability of a follower accepting the situation
but also the overall importance of getting things done.

• In critical situations, a leader is more likely to be autocratic in nature because of the

implications of failure.

3. MOTIVATION THEORIES
• Robbins defined motivation as “willingness to exert high levels of effort towards organizational
goals, conditioned by the effort’s ability to satisfy some individual need”.

• Some of the theories of motivation include

• Maslow’s need hierarchy theory

• McClelland’s need theory

• Theory X and Theory Y

• Motivation-hygiene theory

• Equity theory

• Expectancy theory

MASLOW’S NEED HIERARCHY THEORY

 Module 02 M&E-BISME503
• Abraham Maslow, an American psychologist is noted for his concept of five-tiered hierarchy of
human needs and is called as father of humanistic psychology.

• Needs are defined as internal states which makes certain outcomes appear attractive.

• According to Maslow, the genesis of motivation takes place through needs. Motivation is defined
as willingness to exert high levels of effort to achieve goals. Maslow saw human beings needs
arranged like a ladder.

 Basic needs at the bottom = physical (Biological and Physiological)- air, water, food,
sleep

 Safety needs = security, stability

 Psychological or social needs = belonging, love, acceptance

 Esteem needs = achievement, reputation, status, responsibility

 Self-actuating needs at the top = needs to fulfill oneself –includes personal growth and
fulfillment, creativity, problem-solving, morality ethics, lack of prejudice

• Maslow recommended that lower-level physiological needs should be fulfilled for individuals
to get motivated for self-actualization.

• As shown in figure (slide 21), organizations can pragmatically use Maslow’s hierarchy of needs
pyramid to motivate their employees and ultimately reach the highest level of self-actualization.

McClelland’s NEED THEORY

• David McClelland was an American psychological theorist, who argued that all types of needs
may not be uniformly applicable to all individuals.

• As some needs are acquired through interaction with environment are learned or socially
acquired. These are the need for achievement, need for power, need for affiliation.

• The need for achievement was defined as the drive to excel, to achieve in relation to a set of
standards, to strive to succeed.

• The need for power was defined as the need to make others behave in a way that they would not
have behaved otherwise.

• The need for affiliation was defined as the desire for friendly and close interpersonal
relationships.

THEORY X AND THEORY Y

• Douglas McGregor believed that managers use either of the two theories namely Theory X and
Theory Y to motivate their employers.

• Theory X has a negative approach in the sense that, it is based on traditional approach of
direction and control in which managers place orders on their subordinates and place control
mechanisms to keep an eye on the progress made by them.

• On the other hand, Theory Y has a modern behavioral approach which treats employees as
 Module 02 M&E-BISME503
capable, responsible and mature.

• The work should be more enjoyable for the employees who would willingly commit themselves
to sharing more responsibility for the achievement of organizational goals.

4. SLT: MEANING AND IMPORTANCE OF COMMUNICATION

 Communication is defined as transfer of information from sender to receiver, with the information
being understood by the receiver.

 The importance of communication in management has been stressed by Chester Barnard in his
classic “The functions of the executive”, in which he states that “the first executive function is.
Coordination of activities Communication is very important method in coordination of
activities between various departments.
Communication is imperative in improvement of response
time and in reducing the lead time of activities required for
inters departmental coordination.

Expanding customer base Organizations always strive hard to increase their client and
customer base by aggressive brand communication and
sales effort.
Communication is required even to win more business for
the existing clients or customers.

Resolving industrial conflicts Communication plays a important role in avoiding industrial

conflicts in the first place.
It is important for the managers with trade union leaders to
bring harmony and mutually settle the areas of dispute.

Means to motivate people Communication serves as an effective means to motivate

people. If there are personal issues faced by the worker, the
supervisor would need to provide necessary advice and
support to raise the morale of the worker.

Connect geographically Information technology has opened new and different set of
dispersed employees communication channels to geographically dispersed
employees of an organization.
The internet, Emails, Wiki, Blogs, mobile telephony, video
conferencing etc., have become a part of our routine lives.

Effective feedback and control Communication is important for effective feedback and
control of various processes in the organization. In the
absence of communication, the gap between expected and
actual performance will never be known.
 Module 02 M&E-BISME503
Maintaining good PR Communication is imperative for maintaining good public
relations (PR). The PR department of the organization has to
communicate continuously with the media on various issues
relating to the organization. This is done by using press
release, press conferences and open houses.

Improves planning and decision Communication improves planning and decision making.
making Even after the plan or decision is finalized, it has to be
communicated to all the stakeholders and implementers for
its successful execution.

5. SLT: MEANING AND IMPORTANCE OF COORDINATION

• Coordination is defined as the integration of different parts of the organization to achieve
common goals.
• The different parts are departments, groups, individuals and other resources within the
organization.
• Coordination is the heart of any organization for creating cooperation of individual efforts
combined in a composed manner.
• In modern organizations, the role of coordination stretches beyond the boundaries of the
organization to vendors, customers, clients and other stake holders.
 Module 02 M&E-BISME503

• Coordination is a useful mechanism to foster teamwork and companionship in organizations.

Activities requiring involvement of many individuals from different departments provide an
opportunity for them to mingle with each other.

• The division of labor (specialization of labor) results into departmentalization and coordination
serves as common thread to link to all these different departments by integration of departments
for the achievement of organizational goals.

• Coordination optimizes the use of various resources, while reducing their wastage.

• Coordination helps in reducing the time duration for accomplishment of the tasks.

• By virtue of interfacing with other individuals or departments, coordination helps the employees
in having a more holistic view of the organization and understanding the value addition done by
them and their departments in the overall transformation process of inputs into desired outputs
and end products.

• Coordination helps in resolving conflicts while improving human relations within the
organization.

6. MEANING OF CONTROLLING
• Controlling is defined as measuring and correcting activities of people to ensure that plans are
being realized.

• There is a clear-cut relationship between planning and controlling.

• Planning process sets out the objectives and standards to be achieved.

• Controlling process involves feedback mechanism whereby the actual performance of a process
is compared with the expected performance to identify any gap therein.

• Efforts are then made to minimize the gap by making corrections in the inputs or the variables of
the process.
 Module 02 M&E-BISME503
7. STEPS IN CONTROLLING
• We know that there is a strong relationship between planning and controlling.

• The steps in controlling are preceded by two important steps of planning.

• Setting of objectives for managers, units and departments are important to provide them clarity
on the expectations from them.

• Based on objectives, standards or benchmarks are identified during the planning process.

• These standards are specific objectives against which progress can be measured for various
parameters.

• Having established the standards, we proceed with the steps in controlling

Select suitable measuring instruments Measuring instruments has to be selected keeping in

for various parameters view the characteristic of a parameter in the standard
to be measured.

Measure actual performance for a Using the measuring instrument selected earlier,
parameter measurement of the parameter is done. Care is taken
to ensure such that every time the measurement is
done with accuracy for authenticity of the
measurement data.
 Module 02 M&E-BISME503
Compare actual performance with the In this step, the data relating to the measurements of
benchmark actual performance of a parameter is compared with
the desired levels of performance specified in the
standard or benchmarks established earlier.

Is there a gap between actual and This step is a decision point where it is determined
desired? whether a gap exists between the actual and desired
performance of the parameter in the process. If no gap
exists, the process is continued as it is.

Is the variation within acceptable If a gap or variation does not exist between actual or
limits? desired performance, it is determined if this gap is
within acceptable limits of variation. This is because
some variation is natural due to inherit characteristics
of the process.

Is the standard valid and acceptable? Before taking any action on the variation detected, it
is important to verify if standard established earlier is
still valid and acceptable or not. This is because,
expectations from the process increases as time moves
and top management like to set higher performance
standards.

Rectify the cause of variation Once the assignable causes of variation have been
identified, corrective action is taken to bring the
process back in control.

8. ESSENTIALS OF A SOUND CONTROL SYSTEM

Module 02 M&E-BISME503

Understandable A sound control system should be easily understandable

by one and all. If it is complicated to understand in the
first place, its implementation would be obviously
imperfect.

Accurate A control system needs to have acceptable levels of

accuracy. It should accurately determine the gap or
variation existing between the desired and actual
performance of a parameter.

Timely The control system should be implemented in a timely

manner. For example, all organizations are required to
conduct an external financial audit at the end of the
financial year. The government tells the time deadlines
for the submission of audited results of the financial
year. If the deadlines are not met, severe penalties are
imposed. Therefore, it is compulsory for the organization
to conduct the financial audits within the prescribed time
deadlines.

Cost effective The process of control involves a lot of cost and effort. It
is very important that that it yields benefits which
exceed the costs involved.

Flexible Organizations today operate in a high dynamic

environment which keeps changing. This permits the
control mechanisms to be flexible so that they can be
easily modified to accommodate changes in the business
environment.

Reasonable and acceptable The control mechanisms should not set standards which
are too difficult to achieve. People feel difficult and
indulge in illegal or unethical means to justify the
achievement of stiff standards. They also feel
demotivated and disheartened if standards remain
intangible to them. Thus, control systems should push
employees to achieve targets and still keep motivated
and interested.

Focus on strategic parameters Good control systems should not try to measure every
possible parameter related to a process. It is always good
ideas to be selective in approach and focus only upon those
parameters which are most important.
 Module 02 M&E -BISME503

Difficult to manipulate A sound control system should be designed in such a

way that it becomes almost impossible for anybody to
play around with it. Appropriate check points should be
incorporated in the control system to verify any
wrongdoings on part of any person in the process being
monitored.

Use of multiple criteria If a single criterion is used to measure the performance

of a single process or person, then the people concern
would attempt to “look good” on that criterion.
However, if more than one criterion is used to assess the
performance, it is more likely that the assessment would
be more objective and difficult to manipulate.

Emphasize on exception A lot of effort and cost in controlling can be saved if the
control systems are based upon the approach of
Management by Exception (MBE). The emphasis is to
bring only exceptions to the notice of the manager in
which performance is exceedingly above or below the
desired level.

Register deviations quickly Control systems should register deviations in the actual
performance of a process or person quickly. This will
allow for prompt action to correct the cause of deviation.
A significant delay in registering the deviation by a
control system will obviously lead to unnecessary costs
of wastages.

Indicate corrective action A sound control system should not only capture the
deviations but also provide guidance to corrective action
to eliminate such deviations. The guidelines can be in the
form of if-then format.

9. METHODS OF ESTABLISHING CONTROL

• The methods of establishing control can be categorized based on functional areas. They are

 Financial control

 Marketing control

 Operations control

 Human resources control

 Module 02 M&E -BISME503

FINANCIAL CONTROLS

 BREAK-EVEN ANALYSIS

• It helps in establishing the controls by comparing the total cost with total revenues associated
with an organization and by determining the volume of production (called break-even volume)
which would result in total revenues completely equalizing the total costs incurred.

• Break-even volume is the number of units of a product to be produced such that revenue
generated recovers all the investment made.

• A graph shown (next slide) is made to find the break-even point where the total revenue crosses
the total cost curve.
 Module 02 M&E -BISME503

 FINANCIAL RATIOS

• They are the popular means of establishing the controls in organization. Business enterprises
have to be controlled to ensure that they are maximizing the wealth of the shareholders.

• Some commonly used financial ratios are

net profit after taxes

Return on investment = total assets

Total debt
Debit to equity ratio =
net worth

 FINANCIAL AUDITS

• As per the government regulations, all organizations have to get their financial accounts audited
through an external auditor within a prescribed time frame.

• These financial audits serve as useful control mechanisms to ensure that all financial transactions
are done by the firm in a legal and ethical manner.

• In India, there is a need to further strengthen the control mechanisms on this front to encourage
and ensure fair accounting practices.

 BUDEGETARY CONTROL

• Budgets are the plans for a given period. The same financial plans also serve as a control
mechanism during the later stages.

• During the planning stages, amounts of money to be spent as expenses by departments or

individuals are allocated as budgets.

• During the controlling phase, it is determined if any departments or individuals has exceeded the
budgets allocated earlier for the designated time.

MARKETING CONTROLS

 SALES REVENUE TARGETS

• It is customary to assign sales revenue targets for a given period to all the sales executives in an
organization.

• These targets become efficient control mechanisms in gauging their performance in the given
period.

• At any point in time during the given period, an assessment can be made if the sales revenue
achieved by the salesperson till that time is in line with the target for the period or not.

 BRAND RECALL SURVEYS

• Many companies spend staggering amounts of money year after year in promoting their brand by
way of advertising through various media and other means.
 Module 02 M&E -BISME503

• In order to gauge the effectiveness of these advertising campaigns, brand recall surveys are
conducted.

• These surveys are excellent control tools, which ask respondents by way of questions in the
survey instrument if they remember the company’s brand.

• The data collected is utilized to realign the branding strategy of the company in future.

 CUSTOMER SATISFACTION SURVEYS

• Keeping an eye over the pulse of the customer is a key to the success of an organization in
today’s competitive world.

• Customer satisfaction surveys help companies knowing the ever-changing needs and preferences
of the customers.

• The data so collected is analyzed to bring about the necessary changes in the features of the
company’s products or surveys.

OPERATIONAL CONTROLS

 INVENTORY CONTROL

• Inventory is the stock of idle resources in a form for some future use.

• In some organizations, inventories are of different types

• For manufacturing industries, there are inventories for raw materials, components, sub-
assemblies, tools and equipment, semi-finished goods, finished goods.
• For service organizations like bank, financial institution, hospitals, the inventory consists of
various items to be used in various service operations.
• In hospitals, there are inventories of medical equipment like syringes, glucose bottles and other
accessories like bandages, cotton, spirit along with various types of medicines.
• In banks, there are inventories of various types of forms (for various banking operations),
brochures and pamphlets (for details of various banking instruments) and also inventory of
currency notes and coins.
• Low level of inventory may result in shortages or stock-outs. High level of inventory has its own
disadvantages. High level of inventory involves more capital tied up, for which interest has to be
paid to the bank.
• Various control mechanisms are employed by organizations for inventory control like periodic
checks, the economic order quality (EOQ) model, Just-in-time (JIT) replenishment etc.,
 STATISTICAL QUALITY CONTROL

• The aim of an organization is to deliver quality products or services to its customers. To achieve
this, quality must be monitored at every stage from input to output as shown in figure (next
slide).
Module 02 M&E -BISME503

• Acceptance sampling is the procedure of ensuring that the inputs such as raw materials,
components, labor skills are all of the desired levels of quality.

• It is also used for outgoing inspection of the finished goods before distribution to the customers.

• Acceptance sampling is applied at the output stage of the transformation process.

• If there is a defect during the production of a batch all the items will be rejected which results in
loss of the company.

• This process of ensuring the quality during the transformation process is called statistical
process control (SPC).

• Quality control mechanisms like SPC, acceptance sampling and many more techniques using
statistics to monitor and improve quality are jointly termed as statistical quality control (SQC).

 INTERNAL / EXTERNAL QUALITY AUDIT

• According to ISO 10011, “audit is defined as a systematic and independent examination to

determine whether quality activities and related results comply with planned arrangements and
whether these arrangements are implemented effectively and are suitable to achieve objectives”.

• The objective of the audit is to check whether the quality system in the organization is in
accordance with the documented standard. More importantly, whether the operation of the
system is following the documented procedures.

• The organization is required to establish the Quality Management System (QMS) which looks
after quality management.

• Internal quality audits have to be conducted in the organization from time to time to make
sure that the quality system is maintained in the future.
 Module 02 M&E -BISME503

• The internal quality audits can be performed by the trained employees of the organization who
have received formal training in conducting quality audit.

• If trained employees for internal quality audit are not there, the organization can hire external
audit. Thus, internal or external audits are useful to control quality in an organization.

 PROJECT TRACKING AND CONTROL

 A project is considered as the achievement of specific objective which involves a series of
activities and tasks which consume resources.
• The projects in which time duration of various activities can be determined with the help of a
technique called critical path method (CPM) and Project evaluation and review technique
(PERT). This is best suitable for research and development projects
• CPM and PERT serve as planning tools during the planning phase of a project and later used as
tools for tracking the progress of a project and for controlling them.
• Microsoft Project and Primavera are popular software used for project planning, tracking and
controlling.
HUMAN RESOURCES CONTROLS

 EMPLOYEE TURNOVER

• It is the ratio of the number of workers that had to be replaced in a given time period to the
average number of workers.
• This simple ratio is a good control indicator about working environment of the organization and
its employee retention capability.
• No organization desires to have a high employee turnover ratio.
 EMPLOYEE PERFORMANCE APPRAISAL

• Performance appraisal of employees is used to control their performance via the annual
objectives assigned to them.
• The performance appraisal should be conducted at regular intervals to ascertain if the employees
are on the right track to achieve their objectives or not.
• During the middle of the year, a review is done by the reporting manager to track the progress
made by the employee.
• The final appraisal results in the determination of the incentives, bonus, increments etc., on the
basis of whether the objectives are met or not or exceeded by the employee.
 EMPLOYEE SATISFACTION SURVEYS

• Good organizations conduct employee satisfaction surveys regularly to check whether the
employees have any grievances and to know if they are happy with the work, culture and career
prospects within the organization.

• This control mechanism helps in providing the better work life to the employees for their
retention and suitable career development in the organization.
Module 02 M&E -BISME503
Module 02 M&E -BISME503
Module 02 M&E -BISME503