CONTROLLING AS A
MANAGEMENT FUNCTION
What Is Control?
• Control
Monitoring activities to ensure that they are
being accomplished as planned and
correcting any significant deviations
Ensures that activities are completed in ways
that lead to the attainment of the
organization’s goals.
Why Is Control Important?
Planning
Controls let managers know whether their goals and plans
are on target and what future actions to take.
Empowering employees
Control systems provide managers with information and
feedback on employee performance.
Protecting the workplace
Controls enhance physical security and help minimize
workplace disruptions.
Purpose of Control
Adapt to environmental change Limit the accumulation of error
Control helps the organization
Cope with organizational complexity Minimize costs
.
Organizational Control Process
• Steps in the Control Process
1 2 3 4
Compare Determine need
Establish Measure
performance for corrective
standards performance
against standards action
Maintain the Correct the Change if
status quo deviation necessary
Steps in the Control Process
1. Establish standards
Control standard—a target against which
subsequent performance will be compared
– Control standards should be expressed in
measurable terms.
– Control standards should be consistent with
organizational goals.
– Control standards should be identifiable indicators
of performance
Steps in the Control Process
2. Measuring Actual Performance
measurements should be related to the standards set
in the first step
Personal observation, statistical reports, oral
reports, and written reports
Management by walking around (MBWA)
A phrase used to describe when a manager is out in the
work area interacting with employees
Steps in the Control Process (cont’d)
3. Comparing actual performance against a
standard
Comparison to objective measures: budgets,
standards, goals
Range of variation
The acceptable parameters of variance
between actual performance and the
standard
Steps in the Control Process (cont’d)
4. Taking managerial action to correct deviations
Immediate corrective action
Correcting a problem at once to get performance back on
track
Basic corrective action
Determining how and why performance has deviated and
then correcting the source of deviation
Revising the standard
Adjusting the performance standard to reflect current and
predicted future performance capabilities
Types of Control
• Feed forward / Concurrent Controls
monitor ongoing employee activity to ensure
consistency with quality standards
• Pre – action Controls
attempt to identify and prevent deviations before they
occur
Also called preliminary or preventive controls
• Screening / Rework Controls
Reviewing information to determine whether
performance meets established standards at different
stages
• Feedback / Post – action Controls
Takes place after an action i.e. controls for past
actions
Types of Control
Feedback
Inputs Transformation Outputs
Preliminary control Screening control Postaction control
Focus is on inputs Focus is on how Focus is on outputs
to the organizational inputs are being from the organiza-
system transformed into tional system
outputs
Figure 20.4
Copyright © by Houghton Mifflin Company. All rights reserved. 20–11
Organizational Control Techniques
• Control techniques provide managers
with the type and amount of information
they need to measure and monitor
performance
• The information from various controls
must be tailored to a specific
management level, department, unit, or
operation
Financial Controls
• Financial Control
Control of financial resources (i.e., revenues,
shareholder investment) as they flow into the
organization, are held by the organization (i.e.,
working capital, retained earnings), and flow out of
the organization (i.e., payment of expenses).
.
Financial Controls (cont’d)
• Financial Control
Budgetary Control
Budgets may be established at any organizational
level.
Budgets are typically for one year or less.
Budgets may be expressed in financial terms, units
of output, or other quantifiable factors.
Budgets serve four purposes:
– Help managers coordinate resources and projects.
– Help define the established standards for control.
– Provide guidelines about the organization’s resources and
expectations.
– Enable the organization to evaluate the performance of managers
and organizational units.
. 20–
Financial Controls (cont’d)
• Financial Statements
Financial statement is a profile of some aspect of an
organization’s financial circumstances.
Balance sheet
A listing of assets (current and fixed), liabilities
(short- and long-term), and stockholders’ equity at
a specific point in time (typically, year-ending) that
summarizes the financial condition of the
organization.
Income statement
Summary of financial performance—revenues
less expenses as net income (i.e., profit or loss)—
over a period of time, usually one year.
Financial Controls (cont’d)
• Ratio Analysis
The calculation of one or more financial ratios to assess
some aspect of the organization’s financial health. E.g.
Liquidity ratios measure an organization's ability to
generate cash.
Profitability ratios measure an organization's ability to
generate profits.
Debt ratios measure an organization's ability to pay its
debts.
Activity/ Efficiency ratios measure an organization's
efficiency in operations and use of assets.
Financial Controls (cont’d)
Gearing/ leverage ratios indicate ability of a firm to meet
its long-term obligations. They look at the long-term
financial structure of the business to provide some
indication of the long term solvency of the business.
Investment ratios show how capital markets value the
firms’ financial assets and how does the investment public
regard the performance of the company
Financial Controls (cont’d)
• Financial Audits
Audit—an independent appraisal of an organization’s
accounting, financial, and operational systems.
External audits—financial appraisals conducted by
experts who are not employees of the organization to
verify to external parties that the organization’s financial
and accounting procedures are legal and proper.
Internal audits—appraisals conducted by employees of
the organization to determine the accuracy, efficiency,
and appropriateness of financial and accounting
procedures.
Marketing Controls
• Marketing Controls
help monitor progress toward goals for customer
satisfaction with products and services, prices, and
delivery
Market Research - gathers data to assess customer
needs—information critical to an organization's success.
Test Marketing - is small-scale product marketing to
assess customer acceptance.
Marketing Statistics - measure performance by
compiling data and analyzing results.
Human Resource Controls
• Human Resource Controls
Help managers regulate the quality of newly hired
personnel, as well as monitor current employees'
developments and daily performances.
Common control types include performance
appraisals, disciplinary programs, observations,
and training and development assessments.
Information Controls
• Purposes of Information Controls
As a tool to help managers control other
organizational activities.
Managers need the right information at the
right time and in the right amount.
As an organizational area that managers
need to control.
Managers must have comprehensive and
secure controls in place to protect the
organization’s important information.
Information Controls
• Management Information Systems (MIS)
A system used to provide management
with needed information on a regular
basis and protect its confidential
information.
Inventory Controls
• Inventory Controls
Control the amount of stock in the organization
i.e. raw materials, semi finished and finished
goods
Just In Time System - only the needed
raw materials in a given period of time are
ordered for and only ordered products are
produced.
QN:
Using an organization of your choice;
explain at least 10 examples of control
systems used by people to ensure
quality of their business operations.
Thank you