CHAPTER 5

CONTROLLING
DPB10023 PRINCIPLES OF MANAGEMENT

Iman binti Mohamad Fawzi

Jabatan Perdagangan
[email protected] / 013-6342833
LEARNING OUTCOMES
After studying this chapter, students will be able to:

1 Define controlling in organization

2 Explain the importance of controlling

3 Execute the controlling process

4 Compare the actual performance with the standard

5 Explain the principles of effective controlling in organization

6 Classify the types of controlling in organization

 The Definition of Controlling
Chapter 5 : Controlling

According to Stoner, Freeman and Gilbert (1995)

Control is a process to ensure that actual activities
are conducted according to the planned activities.

According to Robbins and Coulter (1996)

Control is a process to ensure activities are
implemented as planned and activities that are
considered to be incorrect are corrected.

Hence, Controlling is the process of

monitoring actual organizational activities to
see that they conform to planned activities and
correcting flaws and deviations.
The Concept of Controlling
Chapter 5 : Controlling

Controlling is a systematic process by which managers compare

whether actual performance has deviated from predetermined
standards and take corrective action so that deviation from
standards are minimized and stated goals of the organization are
achieved in a desired manner.

Managers must emphasize the following aspects of control in

order to ensure a high level of employee performance and the
achievement of organizational goals:

Output control/performance control

This control measures the actual performance or results of
employees. Three aspects that took into account are efficiency,
quality and feedback.

Behavioral control
This control ensures that employees demonstrate those behaviors
that are desired by the organization.
 Importance of Controlling
Chapter 5 : Controlling

OPTION 01
By comparing actual results with the planned results, corrective action can be taken if
Accomplishes Organizational Goals there are deviations.

OPTION 01
Controlling involves checking employees’ work at every stage of the operations. Hence,
Ensures Efficient Use Of Resources employees can be helped to do their jobs better, and wastage and spoilage can be
minimized.

Ensures Standards Are Realistic

OPTION 01
When managers regularly monitor the work of employees, they will know whether the
And Fair standards set by management are too low or too high, and adjust the standards so that
they are achievable and fair.

OPTION 01
Employees know the standards against which their performance will be judged and how
Improves Motivation much effort they will need to put in to the rewards they desire.

OPTION 01
Controlling ensures a close check on employees’ activities. Hence, it helps in reducing
Improves Employee Behavior dishonest/undesired behaviors amongst employees and in creating order and discipline in
an organization.
Reasons Controlling are Needed in An
Organization
Chapter 5 : Controlling

Internal and
External Changes
in an Organization

Organization’s Size
and Mistake
Decentralization

Delegation of
Power and
Responsibilities
Relationship between Controlling and Planning
Chapter 5 : Controlling

Managers who do not perform control will not know whether

the organizational goals and plans have been achieved or
whether corrective action needs to be taken in the future.

Every planning must have control. If there is no planning, a control

system would not be needed in the organization. Planning without
control hinders the achievement of organizational goals.

Control measures the progress of goals which are achieved and

enables managers to detect the level of quality and weaknesses in
planning in order to take corrective action before it is too late.

Managers must understand the roles of control and

planning in order for both functions to work
effectively.
Relationship between Controlling and Planning
Chapter 5 : Controlling
 The Controlling Process
Chapter 5 : Controlling

01

02

03
Set the standards

Measure The Actual

04
Performance

Compare The Actual

Performance With
The Standard
Take Corrective
Action
 The Controlling Process
Chapter 5 : Controlling

01 Set the standards

 This step involves the formation of standards for each management

activity such as sales and production target, attendance of employees,
and safety records.
 Standards are the benchmark for an aspect that requires control.
Managers must know the standards which have been established.
 The Controlling Process
Chapter 5 : Controlling

02 Measure The Actual Performance

 Just like control, the measurement of performance is a repetitive process.

 For example, managers must measure their employees’ performance
continuously in order to ensure that no mistakes occur while activities are
being implemented.

How and What we measure

Sources of Information (How) Control Criteria (What)

• Personal observation • Employee satisfaction, turnover,
• Statistical reports absenteeism
• Oral reports • Budgets (costs, output, sales)
• Written reports
 The Controlling Process
Chapter 5 : Controlling

02
 The Controlling Process
Chapter 5 : Controlling

03 Compare The Actual Performance With The Standard

 Determining the degree of variation between actual performance and the standard.
 Significance of variation is determined by:
 The acceptable range of variation from the standard (forecast or budget).
 The size (large or small) and direction (over or under) of the variation from the standard
(forecast or budget).
 After the actual performance is evaluated, managers need to compare the actual performance
with the established standards to identify whether the actual performance has met the
standards.
 If the standards are met, the activities were conducted as planned. On the other hand, if the
standards are not met, mistakes might have occurred and corrective action must be taken.
 The Controlling Process
Chapter 5 : Controlling

03
 The Controlling Process
Chapter 5 : Controlling

03
 The Controlling Process
Chapter 5 : Controlling

04 Take Corrective Action

 If the standards are not met, managers must identify the cause of the
situation.
 Managers can overcome this problem either be re-evaluating the
standards (high standards will be difficult to achieve) or taking corrective
action, for example repairing faulty machines or providing training for
unskilled employees.
 The Controlling Process
Chapter 5 : Controlling

04 Take Corrective Action

 “Doing nothing”
 Only if deviation is judged to be insignificant.

 Correcting actual (current) performance

 Immediate corrective action to correct the problem at once.
 Basic corrective action to locate and to correct the source of the deviation.
 Corrective Actions - Change strategy, structure, compensation scheme, or training
programs; redesign jobs; or fire employees

 Revising the standard

 Examining the standard to ascertain whether or not the standard is realistic, fair, and
achievable.
 Upholding the validity of the standard.
 Resetting goals that were initially set too low or too high
 The Controlling Process
Chapter 5 : Controlling

04
 CLASS ACTIVITY!

Watch the video and answer these questions:

1. Explain each of the controlling process that Sam goes through.

2. What are the source of information that Sam used in the controlling process? Explain how
he collect the information.
3. In your opinion, why is it important for Sam to implement “control” in his TQM auto repair
shop?
 Principles of Effective Control
Chapter 5 : Controlling

Attainment of Objective Critical Points

Contribute to the achievement of goals by quickly and accurately All operations have certain areas that are more prone to errors or
detecting actual and potential deviations from plans to permit that would costly for the organization should errors occur.
corrective action to be taken in a timely manner.

Reflection of Plans Individuality of Control

Coordinated with organization’s plan. If the plans are clear, Controls are more effective when they meet the individual
then controls can be better designed to support the plans. requirements of managers.

Control Responsibility Review

Primary responsibility for exercise of control rests with the The control system should be reviewed periodically and adjusted
manager charged with the execution of a particular plan. as necessary.

Efficiency of Controls Action

The control system should detect and highlight the causes of If there is any deviations, action must be taken. Otherwise, there
deviation efficiently with minimum time, effort and costs. is no use for a control system.
 Characteristics of Effective Control
Chapter 5 : Controlling

Accurate Timely

Objective and Easy

Realistic
to Understand

Focused Flexible Economical

Prescriptive Acceptance
 Controlling for Organizational Performance
Chapter 5 : Controlling

What Is Performance?
 The end result of an activity

What Is Organizational Performance?

 The accumulated end results of all of the
organization’s work processes and
activities
 Designing strategies, work processes,
and work activities.
 Coordinating the work of employees.
 Finding the Right Degree of Control
Chapter 5 : Controlling

RIGID CONTROL SYSTEM FLEXIBLE CONTROL SYSTEM

Employees become rebellious and Employees perform their tasks half-

dissatisfied with their jobs. heartedly.

Employees feel pressured, Employee discipline declines and

unmotivated and creativity inhibited. misbehavior increases.

Low Productivity. Low Productivity.

Negative effect on employee-manager

Wastage of resources due to
relationship due to limited
communication failure.
communication.

Job Performance deteriorates. Job Performance deteriorates.

Type of Controlling
Chapter 5 : Controlling

Filtering or
Feedforward Concurrent Feedback
‘Yes/No’
Control Control Control
Control
Type of Controlling
Chapter 5 : Controlling
 Feedforward Control
Type of Controlling

Feedforward control is performed BEFORE an activity. It allows

management to prevent problems rather than having to rectify
them later.

This control is usually policies, procedures and rules that serve

to curtail undesired behaviors.
Examples
Are also known as preliminary control, pre-control and
preventive control.  Pre-employment
psychological
testing

It focuses on human, material and financial resources that flows
into the organization. Inspect the quality
of raw materials
Its purposes is to ensure that input quality is high enough to
prevent problems before the organization performs a particular
 Select qualified job
task. applicants
 Concurrent Control
Type of Controlling

Concurrent or steering control takes place while a job or activity

is IN PROGRESS.

It is designed to ensure that employee work activities produce

the correct results.
Examples
Since concurrent control involves regulating ongoing tasks, it
 Total quality requires a thorough understanding of the specific tasks and their
relationship to the desired end product.
management
 Employee It is usually more widely used than other types of control since it
provide a means for taking corrective action while a task is still
performance
 Organizational viable.

resources.
 Filtering or ‘Yes/No’ Control
Type of Controlling

Filtering controls are used to ‘DOUBLE-CHECK’ a task is being

done right.

Examples
It is designed to check a specific checkpoints whether an activity
should be allowed to proceed further.
 A student can’t pass
a grade until he or
This control can be time-consuming and costly or may even be
she passes an exam.

considered redundant.
A car will not allow to
be ride on a road
unless it passes an
inspection.
 Feedback Control
Type of Controlling

Feedback control measures the results of a COMPLETED

ACTIVITY. Sometimes called post-action or outpost control.
Examples

 Analyze sales It focuses on the organization’s output – in particular, the quality

 Final quality of an end-product or service.

inspection of
products and Many of this controls focus on financial measurements because
organizations need to be profitable in order to survive.
services
 Survey customers
satisfaction
 Control Methods
Chapter 5 : Controlling

Financial
Controls
Traditional
Non-financial
Control
Modern
Non-financial
Control
$
$
 Financial Controls
Control Methods

Financial Audits
Audit is an objective examination and
Budgets evaluation of the organization’s financial Financial Statements
statements to ensure that the records are
A budget is a formal quantitative accurate and fair representation of the Financial statements are used to
statement, in monetary terms, of the transactions which they represent. calculate the financial value of an
resources set aside for carrying out Audits can be conducted internally by organization’s internal and external
planned activities over a given time employees or by external auditors. products and services.
frame.
Unit managers regularly submit weekly or The statements are usually used to
The budget period depends on the monthly reports and these reports are measure liquidity position, long tem
requirements of the users and its audited by those individuals with control liability, equity position and profitability
prepared before the start of a financial responsibility. position.
period.
Financial statements include:
Each unit or department will prepare
their own budget separately according  Break-even Analysis
to the unit’s plan and goals.  Cash Flow Statement
Budget may be prepared in a fixed or  Ratio Analysis
flexible format.
 Balance Sheet
Budget are also used as a control tool
through the preparation of the budget
performance report.
 Financial Controls
Control Methods

Financial statements are used to calculate the financial value of an

organization’s internal and external products and services.
The statements are usually used to measure liquidity position, long tem
liability, equity position and profitability position.
Financial statements include:
 Break-even Analysis
 Cash Flow Statement
Financial Statements
 Balance Sheet
 Ratio Analysis
 Financial Controls
Control Methods

Financial Statements
(Ratio Analysis)
 Financial Controls
Control Methods

Financial Statements
(Ratio Analysis)
 Traditional Non-financial Controls
Control Methods

Statistical Statistical Internal Control

Data Reports Operation Self-
And Audit Assessment
Analysis
Data usually exists in the An overall analysis of reports A systematic review of the Managers and work teams
form of facts, numerical and data that is in the form of effectiveness, efficiency and directly involved in the task
values and events. averages, percentages, economy of operations. participate in assessing the
ratios correlation, etc. organization’s control
In order to determine actual It is performed by internal
processes.
performance, managers They can provide useful auditors who are employees
must obtain information on information to managers in the organization. The CSA begins by
the results that have been concerning the performance documenting the organization’s
achieved. of the organization in various control processes, then suitable
areas. ways are identified to measure
or test each control.
 Modern Non-financial Controls
Control Methods

Gantt Chart Milestone Budgeting PERT/CPM Balanced Scorecard Benchmarking

 Modern Non-financial Controls
Control Methods

Gantt Chart
A graphical method of
planning and control that
allows a manager to view
the starting and ending
dates for various tasks.

The schedule of the entire

project is created by setting
the starting time and the
completion time for each
activity in the project.
 Modern Non-financial Controls
Control Methods

Milestone Budgeting
A project is broken down
into identifiable and
controllable pieces or
milestones.
Milestones indicate the
accomplishment of certain
activities or events towards
the attainment of the final
goal or objective.
Provide additional
information to the Gantt
chart.
 Modern Non-financial Controls
Control Methods

PERT/CPM
The Critical Path Method
(CPM) and Programme
Evaluation Review
Technique (PERT) that can
be used to manage more
complicated projects.
A network or diagram of
arrows will be built
specifically for each type of
project to show the
relationships and the
sequences of activities in
each project.
 Modern Non-financial Controls
Control Methods

Is a measurement tool that uses goals set by managers in four areas to measure
a company’s performance:
 Financial
 Customer
Balanced Scorecard  Internal processes
 People/innovation/growth assets
 Is intended to emphasize that all of these areas are important to an
organization’s success and that there should be a balance among them.
 Modern Non-financial Controls
Control Methods

Balanced Scorecard
 Balanced Scorecard
Modern Non-financial Controls

Balanced Scorecard
 Modern Non-financial Controls
Control Methods

Benchmark
 The standard of excellence against which to measure and compare.

Benchmarking
 Is the search for the best practices among competitors or non-competitors
that lead to their superior performance.
 Is a control tool for identifying and measuring specific performance gaps and
areas for improvement.
Benchmarking

An organization measures its practices, products or services against its biggest

competitor or the leading companies in the industry.
Internal processes are measured against as external standard to identify
weaknesses and performance gaps within the organization and turn them into
opportunities for improvement.
 Modern Non-financial Controls
Control Methods

Benchmarking
CHAPTER 5
END

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