CHAPTER SEVEN

THE CONTROLLING FUNCTION

MEANING
 Controlling is the process through which managers assure that actual activities
conform to planned activities.
 Controlling is the process of regulating organizational activities so that actual
performance conforms to expected organizational standards and goals.
 It is checking current performance against predetermined standards contained
in the plans.

IMPORTANCE OF CONTROLLING
All the good planning efforts and brilliant ideas in the world do little good if a
firm has no system of managing control. Control, therefore, is an essential part
of effective organizational management. Specifically, control helps an
organization adapt to changing conditions, limit magnification of errors and
provide the means to monitor performance.
Adapting to changing conditions: in today’s dynamic and unpredictable business
environment, control plays a crucial role than ever. A properly designed control
system allows managers to effectively anticipate, monitor, and respond to often
constantly changing conditions.
Limiting the magnification of errors: generally, a small error or mistake does not
adversely affect organizational operation. However, a small error/mistake left
uncorrected (perhaps one undetected as a result of a lack of control) may be
magnified with the progress of time, eventually harming the whole organization.
Another purpose of controlling is to determine whether people and the various
parts of an organization are on target, achieving the progress toward their
objectives that they planned to achieve. Planning chooses goals and maps out
the necessary strategy and tactics. Controlling attempts to prevent failure (and
to promote success) by providing the means to monitor the performances of
individuals, departments, divisions, and the entire organization.
The controlling process is closely associated with the other three functions of
management: planning, organizing and leading. It builds most directly on the
planning function by providing the means for monitoring and making adjustment
in performance so that plan can be realized. Still, controlling also supports the
organizing and leading functions by helping ensure those resources are
channeled toward organizational objectives. A combination of well-planned
objectives, strong organization, capable direction and motivation has little
probability of success unless there exists an adequate system of control.
Planning, organizing, staffing and directing must be monitored to maintain their
effectiveness and efficiency.

CHAPTER 6: CONTROLLING 1
 THE CONTROLLING PROCESS
Although control systems must be tailored to specific situations, such systems
generally follow the same basic process. The controlling process has five major
steps.
1. Determine Areas to Control
The first major step in the control process is determining the major areas to
control, i.e. identify critical control points. Critical control points include all the
areas of an organization's operations that directly affect the success of its key
operations, areas where failures can not be tolerated, and costs in time and
money are greatest. Managers must make choices because it is expensive and
virtually impossible to control every aspect of an organization’s activities. In
addition, employees often resent having their every move controlled. Managers
usually base their major controls on the organizational goals and objectives
developed during the planning process.
2. Establishing Standards
Standards are units of measurements established by management to serve as
benchmarks for comparing performance levels. They spell out specific criteria
for evaluating performance and related employee behaviors. The exact nature of
the standards to be used depends on what is being monitored.
Standards, if possible, must be
- Specific and quantitative as much as possible.
- Flexible to adopt the changes that may occur over the future.
- Challenging and should aim for improvement over past
performance.
Generally, standards serve three major purposes related to employee behavior.
For one thing, standards enable employees to understand what is expected and
how their work will be evaluated. This helps employees do an effective job. For
another, standards provide a basis for detecting job difficulties related to
personal limitations of organization members. Such limitation can be based on a
lack of ability, training, or experience or on any other job-related deficiency that
prevents an individual from performing properly on the job. Timely identification
of deficiencies makes it possible to take corrective action before the difficulties
become serious and possibly irresolvable. Finally, standards help reduce the
potential negative effects of goal incongruence. Goal incongruence is a condition
in which there are major incompatibilities between goals of an organization
member and those of the organization. Such incompatibilities can occur for a
variety of reasons, such as lack of support for organizational objectives (e.g. an
employee views the job as temporary and attempts to do the minimum), and
often result in behaviors that are incompatible with reaching organizational
goals. One common manifestation of goal incongruence is employee theft, which
includes wasting an organization's resources, as well as taking equipment,
materials and money.

CHAPTER 6: CONTROLLING 2
 There are three types of standards: performance standards, corollary standards
and standards of conduct.
Performance standards deal with quality, quantity, cost and time.
Corollary standards support a given level of performance. These include
minimum personnel requirements and adequate physical resources, such as
when a company knows it will need at least five hundred workers and well-
equipped factory to produce a certain number of terminals.
Standards of conduct are moral and ethical criteria that shape the behavioral
climate of the work place. They originate from law, custom and religious beliefs.
Examples of standards: Producing 800,000 units per year, increasing market
share by 20%, cutting costs by 15%, answering all customer complaints within
24 hours.
3. Measuring Actual Performance
Once standards are determined, the next step is measuring performance. For a
given standard, a manager must decide both how to1 measure actual
performance and how often2 to do so.
4. Comparing Performance against Standards
This is a step where comparison is made between the “what is” and the “what
should be.” Managers often base their comparisons on information provided in
reports (oral and written) that summarize planned versus actual results, and by
working around work areas and observing conditions, a practice sometimes
referred to as Management by Wondering Around (MBWA). The purpose of
comparing actual performance against intended performance is, of course, to
determine if corrective action is needed.
Consequently, the comparison result may show that the actual performance
exceeds (positive deviation), meets (zero deviation), or falls below (negative
deviation) expectations (standards). Accordingly, if performance fulfills
expectations (meets standards), no control problem exists. However, if
performance exceeds or fails to meet expectations, further investigation is
required to determine the cause. Performance that exceeds expectations may
mean either superior talent or inappropriately set standards. Performance that
fails to meet expectation may likely mean inappropriately set standards, poor
talent or improper use of resources. The key question in both cases will be,
“How much variation from standards is acceptable before action is taken?” The
answer to this question will lead to the development of ranges defining upper
and lower limits. And performance outside of acceptable range servers as a red
flag calling for taking the necessary corrective action.

1
1 The means of measuring performance will depend on the standards that have been set.
2 The period of measurement generally depends upon the importance of the goal to the
organization, how quickly the situation is likely to change, and the difficulty and
expense of rectifying a problem if one were to occur.

CHAPTER 6: CONTROLLING 3
 The managerial principle of exception states that control is enhanced by
concentrating on exceptions, or significant deviations from the expected result
or standard. Therefore, in comparing performance with standards managers
need to direct attention to the exception, and by doing so, managers can save
time and effort.

5. Taking Corrective Action (on time)

The corrective action to be taken depends up on the type of deviation that
exists. When performance exactly meets (deviation of zero) or exceeds (positive
deviation) the standards set, usually no corrective action is necessary. However,
managers do need to consider recognizing the positive performance. The type of
recognition given can vary from a verbal “well done” for a routine achievement
to more substantial rewards, such as bonuses, training opportunities, or pay
raises, for major achievements or consistently good work. Yet, favorable
deviations should be examined to understand such success. When standards are
not meet, managers must carefully assess the reason why and take corrective
action. During this evaluation, managers often personally check the standards
and the related performance measures to determine whether these are still
realistic. Sometimes, managers may conclude that the standards are, in fact,
inappropriate-usually because of changing conditions-and that corrective action
to meet standards is therefore not desirable. More often, though, corrective
actions are needed to reach standards. The standards may have been based on
historical data which may be inappropriate to current conditions. In such
instances, the past is a poor basis on which to predict the future. Similarly, the
use of comparative standards may prove to be problematic since no two
organizations are alike.
In taking corrective actions, managers must carefully avoid two types of errors:
taking corrective action when no action is warranted and failing to take
corrective action when it is clearly needed.

TYPES OF CONTROLLING
In addition to determining the areas they want to control, managers need to
consider the types of controls that they wish to use. Based on the time period in
which control is applied in relation to the operation being performed, or the
stage of productive cycle in which controlling is carried out, there are three basic
types of controls: preventive, concurrent, and feedback. Thus, an organization’s
performance can be monitored and controlled at three points: before, during, or
after an activity is completed.
1. Preventive/Steering/ Preliminary / Input Control
Preventive control focuses on the regulation of inputs to ensure that they meet
the standards necessary for the transformation process. It attempts to monitor
the quality and/or quantity of resources (financial, physical, human and
information) before they become part of the system. Preventive control is future
oriented and takes place before the operation begins. It focuses on prevention in
order to preclude later serious difficulties in the production process - its aim is to

CHAPTER 6: CONTROLLING 4
 prevent problems before they arise. Nevertheless, since preventive control can’t
cover every possible contingency, other type of controls may also be needed.
E.g. Entrance exams for colleges and universities, policies, rules, procedures, proper
selection and training of employees, inspecting raw materials, the
implementation of induction and orientation programs-save trial and error cost,
frustration of employee. Preventive control comes from an old saying “A gram of
prevention is worth a kg of cure.”
2. Concurrent/Screening/ Yes-No/Checking Control
Concurrent control involves the regulation of ongoing activities that are part of
the transformational process to ensure that they conform to organizational
standards. It is designed to detect and anticipate deviations from standards at
various points throughout the processes, i.e. the controlling is carried out during
the actual transformation process. The emphasis here is on identifying
difficulties in the productive process that could result in faulty outputs.
Because concurrent controls involve the monitoring of ongoing activities, they
are the only controls that can cope with contingencies (unexpected events) that
cannot be anticipated. When contingencies arise involving activities in a
transformation process, a yes/no decision is required. That is, decision must be
made whether to continue as before or follow an alternative course, or take
corrective action, or stop work altogether. In this way, concurrent controls allow
adjustments to be made while work is being done.
E.g. On the job training, on the spot observation, exams, tests, quizzes
3. Feedback/Post-Action/ Output Control
As the name indicates post action control focuses on the end results of the
process. It is regulation exercised after the product (goods or services) has been
completed in order to ensure that the final output meets organizational goals
and standards. The information derived is not used for corrective action on a
project because it has been completed.
The feedback control provides information for a manager to examine and apply
to future activities that are similar to the present one. That is why it is called
“historical results guide future actions.” The purpose of feedback control is to
help prevent mistakes in the future and also it can be used as a base for reward;
and in cases where other (preliminary & concurrent) controls are too costly.
E.g. Performance evaluation, financial statement analysis, final exams
Fig 6.2 Major Control Types by Timing

Controls Controls Control

INPUTS TRANSFORMATION OUTPUTS

Controls Controls Controls

CHAPTER 6: CONTROLLING 5
 Preventive Control Concurrent Feedback Control
Cybernetic and Non-cybernetic Controls
A basic control process can be either cybernetic or non-cybernetic, depending
on the degree to which human discretion is part of the system. A cybernetic
control system is a self-regulating control system that, once it is put into
operation, can automatically monitor the situation and take corrective action
when necessary. E.g. computerized inventory system, a heating system
controlled by a thermostat
A non-cybernetic control system is a control system that relies on human
discretion as a basic part of its process.

CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM

Controls may have many different characteristics, but some of the most
important are:
Future–Oriented
To be effective, control systems need to help regulate future events, rather than
fix blame for past events. A well designed control system focuses on letting
managers know how work is progressing toward unit objectives, pinpointing
unforeseen opportunities that might be developed – all aids to future action
Multidimensional
In most cases, control systems need to be multidimensional in order to capture
the major relevant performance factors, such as, quality, quantity, overhead,
etc.
Economically Realistic/ Cost Effective
The cost of implementing a control system should be less, or at most, equal to
the benefits derived from the control system. The benefits received from
controls should off-set their expenses.
Accurate
Since control systems provide the basis for future actions, accuracy is vital.
Control data that are inaccurate may be worse than no control at all, since
managers may make poor decisions on the basis of faulty data they believe to
be accurate. An inaccurate data from a control system can cause the
organization to take action that will either fail to correct a problem or create a
problem when none existent. Evaluating the accuracy of the information they
receive is one of the most important control tasks that managers face.
Acceptable to Organization Members
Control systems operate best when they are accepted by the organization
members who are affected by them. Otherwise, members may take actions to
override and undermine controls; i.e. controls will not work unless people want
them to. Too many, arbitrary, too few and too rigid controls often cause the
satisfaction and motivation of employees to decline.

CHAPTER 6: CONTROLLING 6
 Timely
Control systems are designed to provide data on the state of a given production
cycle or process as of a specific time. In order for managers and employees to
respond promptly to irregularities, control systems must provide relevant
information soon enough to allow corrective action before there are serious
repercussions or consequences.

Reliability and Validity

Controls not only must be dependable (reliable), but also must measure what
they intend to measure (must be valid). When controls can’t be relied on and are
invalid, they are unlikely to be trusted and can lead to very bad consequences.

Monitor able
Another desirable characteristic of control system is that they can be monitored
to ensure that they are performing as expected. One way of checking a control
system is to deliberately insert an imperfection, such as a defective part, and
then observe how long it takes the system to detect and report it to the correct
individual.
Organizationally Realistic
The control system has to be compatible with organizational realities. All
standards for performance must be realistic. Status differences between
individuals have to be recognized. Individuals have to be able to see a
relationship between performance levels they are asked to achieve and rewards
that will follow.
Flexible
Just as organizations must be flexible to respond rapidly to changing
environments, control systems need to be flexible enough to meet new or
revised requirements. Accordingly, they should be designed so that they can be
changed quickly to measure and report new information and track new
endeavors.
Focus on Critical Control Points
Critical control points include all the areas of an organization’s operations that
directly affect the success of its key operations. The focus should be on those
areas where failures cannot be tolerated and where that costs in time and
money are the greatest.
Easy to Understand
Complexity often means lack of understanding. The simpler the control, the
easier it will be to understand and apply. Controls often become complex
because more than one person is responsible for creating, implementing or
interpreting them.
Emphasis on Exception
A good system of control should work on the exception principle, so that only
important deviations are brought to the attention of management. In other

CHAPTER 6: CONTROLLING 7
words management does not have to bother with activities that are running
smoothly. This will ensure that managerial attention is directed towards error
and not towards conformity. This would eliminate unnecessary and uneconomic
supervision, marginally beneficial reporting and waste of managerial time.

Overcontrol versus Undercontrol

Since excessive amount of control can make the occurrence of dysfunctional
aspects of control systems more likely, managers need to avoid over control.
Overcontrol is the limiting of individual job autonomy to such a point that it
seriously inhibits effective job performance. At the same time, managers need to
avoid going too far in the other direction, which results in a situation of
undercontrol. Undercontrol is the granting of autonomy to an employee to such
a point that the organization loses its ability to direct the individual's efforts
toward achieving organizational goals.
Determining the appropriate amount of control that should exist in organizations
is a significant management decision. With the appropriate amount of control, a
manager can be reasonably certain that no major unpleasant surprises will occur
and that employees will achieve organizational goals.

CHAPTER 6: CONTROLLING 8