Controlling
Control and Controlling
Control: Reeves and Woodword
Control refers to the task of ensuring that activities are
producing the desired results. Control in this sense is
limited to monitoring the outcome of activities, reviewing
feedback information about this outcome, and if necessary,
taking corrective actions.
Controlling: Terry and Franklin
Controlling is determining what is being accomplished –
that is, evaluating performance and, if necessary, applying
corrective measures so that the performance takes place
according to plans.
Features of Control
1. Control is forward looking because one can
control future happenings and not the past.
2. Control is both an executive process and a result.
3. Control is a continuous process.
4. A control system is a coordinated – integrated
system.
Controlling and other functions
1. Planning as the Basis
2. Action as the Essence
3. Delegation as the Key
4. Information as the Guide
Importance of Control
1. Adjustments in operations
2. Policy verification
3. Managerial responsibility
4. Psychological pressure
5. Coordination in action
Steps in Controlling
Analysis of
Desired Implementation Corrective action
causes of
performance of correction plan
deviation
Comparison of
Actual Measurement of Identification of
actual and
performance performance deviation
standard
Measuring: How and What We Measure
• Sources of Information • Control Criteria (What)
(How) – Employees
– Personal observation • Satisfaction
– Statistical reports • Turnover
– Oral reports • Absenteeism
– Written reports – Budgets
• Costs
• Output
• Sales
Common Sources of Information for Measuring Performance
Comparing
• 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).
Defining the Acceptable Range of Variation
Taking Managerial Action
• Courses of 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
Taking Managerial Action (cont’d)
• Courses of Action (cont’d)
– 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.
Managerial Decisions in the Control Process
Controlling for Organizational Performance
• 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.
Organizational Performance Measures
• Organizational Productivity
– Productivity: the overall output of goods and/or services
divided by the inputs needed to generate that output.
• Output: sales revenues
• Inputs: costs of resources (materials, labor expense, and
facilities)
– Ultimately, productivity is a measure of how efficiently
employees do their work.
Organizational Performance Measures
• Organizational Effectiveness
– Measuring how appropriate organizational goals are and
how well the organization is achieving its goals.
• Systems resource model
– The ability of the organization to exploit its
environment in acquiring scarce and valued
resources.
• The process model
– The efficiency of an organization’s transformation
process in converting inputs to outputs.
• The multiple constituencies model
– The effectiveness of the organization in meeting
each constituencies’ needs.
Tools for Controlling Organizational Performance
Concepts
• Feedforward Control
– A control that prevents anticipated problems before actual
occurrences of the problem.
• Building in quality through design.
• Requiring suppliers conform to ISO standards.
• Concurrent Control
– A control that takes place while the monitored activity is
in progress.
• Direct supervision: management by walking around.
• Feedback Control
– A control that takes place after an activity is done.
• Corrective action is after-the-fact, when the problem
has already occurred.
– Advantages of feedback controls:
• Provide managers with information on the
effectiveness of their planning efforts.
• Enhance employee motivation by providing them with
information on how well they are doing.
Types of Control
Input Processes Output
Feedforward control Concurrent Control Feedback control
Anticipate Problems Corrects problems as they Corrects problems after they
occur occur
Such control takes place
before a work activity is Such control takes place Such control takes place after a
done. while work is in progress. work activity is done.
Focus: Prevent deviations in Monitors ongoing operations Focus on the end results.
the quantity and quality of to ensure that objectives are Focus of corrective action is
resources used. pursued. on results
Focus of corrective action is 1. Financial statement
on resources: Focus of corrective action is analysis
1. Employee selection on activities. 2. Quality control procedures
2. Material inspection 3. Employee performance
3. Capital budgeting Supervision and direction. evaluation
Tools for Controlling Organizational Performance:
1. Financial Controls
• Traditional Controls • Other Measures
– Ratio analysis – Economic Value Added
• Liquidity (EVA)
• Leverage – Market Value Added
(MVA)
• Activity
• Profitability
– Budget Analysis
• Quantitative standards
• Deviations
Popular Financial Ratios
Popular Financial Ratios (cont’d)
Tools for Controlling Organizational Performance: Financial
Controls (cont’d)
• Other Measures
– Economic Value Added (EVA)
• How much value is created by what a company does
with its assets, less any capital investments in those
assets: the rate of return earned over and above the
cost of capital.
– The choice is to use less capital or invest in high-
return projects.
Tools for Controlling Organizational Performance: Financial
Controls (cont’d)
• Other Measures (cont’d)
– Market Value Added (MVA)
• The value that the stock market places on a firm’s past
and expected capital investment projects
• If the firm’s market value (its stock and debt) exceeds
the value of its invest capital (its equity and retained
earnings), then managers have created wealth.
• The Practice of Managing Earnings
Controlling Organizational Performance
• 2. Balanced Scorecard
– Is a measurement tool that uses goals set by managers in
four areas to measure a company’s performance:
• Financial
• Customer
• 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.
3. 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.
• Data: an unorganized collection of raw, unanalyzed
facts (e.g., unsorted list of customer names).
• Information: data that has been analyzed and organized
such that it has value and relevance to managers.
4. Benchmarking of Best Practices
• Benchmark
– The standard of excellence against which to measure and
compare.
• Benchmarking
– Is the search for the best practices among competitors or
noncompetitors that lead to their superior performance.
– Is a control tool for identifying and measuring specific
performance gaps and areas for improvement.
Contemporary Issues in Control
• Cross-Cultural Issues
– The use of technology to increase direct corporate control
of local operations
– Legal constraints on corrective actions in foreign countries
– Difficulty with the comparability of data collected from
operations in different countries
Contemporary Issues in Control (cont’d)
• Workplace Concerns
– Workplace privacy versus workplace monitoring:
• E-mail, telephone, computer, and Internet usage
• Productivity, harassment, security, confidentiality,
intellectual property protection
– Employee theft
• The unauthorized taking of company property by
employees for their personal use.
– Workplace violence
• Anger, rage, and violence in the workplace is affecting
employee productivity.
Contemporary Issues in Control (cont’d)
• Customer Interactions
– Service profit chain
• Is the service sequence from employees to customers to
profit.
– Service capability affects service value which impacts on
customer satisfaction that, in turn, leads to customer loyalty
in the form of repeat business (profit).
The Service Profit Chain
Contemporary Issues in Control (cont’d)
• Corporate Governance
– The system used to govern a corporation so that the
interests of the corporate owners are protected.
• Changes in the role of boards of directors
• Increased scrutiny of financial reporting (Sarbanes-
Oxley Act of 2002)
– More disclosure and transparency of corporate
financial information
– Certification of financial results by senior
management
Management by Exception
Management by Exception is a system of identification and
communication that signals to the manager when his
attention is needed.
It has 6 basic ingredients:
1. Measurement
2. Projection
3. Selection
4. Observation
5. Comparison
6. Decision making
Benefits of Management by Exception
• Saves executives’ time
• Facilitates better delegation of authority, increases span of
management and consequently provides better
opportunities for self motivated personnel in the
organisation.
• Makes better use of knowledge of trends, history, and
available business data.
• Alerts management to appraise opportunities and
difficulties.
• Enhances the degree of communication between different
segments of an organisation.
Essentials of effective Control system
1. Reflecting organisational needs
2. Forward looking
3. Promptness in reporting deviations
4. Pointing out Exceptions at critical points
5. Objective
6. Flexible
7. Economical
8. Simple
9. Motivating
Causes of resistance to control
1. Curb on freedom
2. Curb on creativity and innovation
3. Rigid control standards
4. Faulty evaluation system
5. Fear od discrimination
6. Against self-control
