controllingLecture 10

What is CONTROLLING?Controlling refers to the “process of

ascertaining whether organizational objectives have been achieved; if not, why not; and determining what activities should then be taken to achieve objectives better in the future”.

Controlling compares the events or the accomplishments with the original plans and makes necessary corrections when the events differs from plans. It is the process by which management sees if what happened was what was supposed to happen.

CONTROL could mean:(1) To check or verify;(2) To regulate;(3) To compare with a given standard;(4) To exercise authority over someone or

group; and(5) To curb or restrain.

3 distinct definitions of CONTROL(1) Curbing or restraining(2) Directing or commanding(3) Checking or verifying

According to Fayol: “Control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established. It has for its object to point out weaknesses and errors in order to rectify them and prevent recurrence”.

The control process1. Establishing standards or

targets2. Measuring actual performance3. Comparing performance against

standards4. Taking corrective action

Establishing standardsStandards are units of measurement

established by management to serve as benchmarks for comparing performance levels.

Forms:1. monetary terms2. units of production3. measures of acceptable quality

Types of standards

1. judgment2. statistical or historical data3. observation

Methods for setting standards

1. Performance standards2. Corollary standards3. Standards of conduct

Establish performance objectives and standards

Measure actual performance

Does actual performance

match the standards

Does corrective

actions

Yes

No

Do Nothing

STEPS IN THE CONTROL PROCESS

Measuring actual performancePay close attention to:1. The timeliness of the information2. The appropriateness of the units of

measurement3. The reliability of the information4. The validity of the information5. The channeling of the information to

the proper person

Comparing performance against standardsThe purpose of comparing past performance with a with planned performance is not only to determine

when an error has been made but also to predict future outcomes. A good control system, then, will

provide quick comparisons so the manager can detect possible trouble while the operation is still

under control. Comparisons of actual performance over time often will show trend that might be a danger signal. The manager cannot change the

past, but the knowledge of the past will help him or her make right decisions today that will affect

tomorrow.

The purpose of comparing actual performance against intended

performance is, of course, to determine if corrective action is needed. But a

manager cannot see the total activity and therefore must carefully avoid two types of errors: (1) taking corrective action when no

action is warranted, and (2) failing to take corrective action when I is clearly needed.

Taking corrective action

Types of control3 distinct types:1. Feedforward control2. Concurrent control3. Feedback control

Pre-operation

phase

Actual operations

phase

Post operations

phase

Feedforward Control

Concurrent Control

Feedback Control

Components of organizational control systems1. Strategic plan2. Long-range financial plan3. Operating budget4. Performance appraisals5. Statistical reports6. Policies and procedures

Strategic control systems1. Financial analysis2. Financial-ratio analysis

a. liquidityb. efficiencyc. financial leveraged. profitability

Identifying controls

3 approaches (by Kreitner):1. Executive reality check2. Comprehensive internal audit3. General checklist of symptoms

of inadequate control