Unit-6 Controlling

Program

: MBA

Semester

: 1st Semester

Subject Code

: MB0038

Subject Name

: Management Process and Organisational

Behaviour

Unit number

:6

Unit Title

: Controlling

Lecture Number

:6

Lecture Title

: Controlling

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Unit-6 Controlling

Controlling

Objectives
The objectives of this lecture are to:

explain control and describe its importance

identify critical control points
analyse control as a feedback system
describe prerequisites of effective control
elucidate various control techniques
explain IT enabled 'controls' and its challenges

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Unit-6 Controlling

Lecture Outline

Introduction

Definition, Importance and Process of Controlling

Critical Control Points

Control as a Feedback System

Prerequisites of Effective Control

Control Techniques

IT Enabled Controls and its Challenges

Summary

Check Your Learning

Activity

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Unit-6 Controlling

Introduction

Control is the last in the management process and is perhaps the most
important.

Control is the rudder of business because it ensures that a process is

going in the right direction by making continuous corrections.

Without control, the business will perhaps go to where it should never

go and do what it should never do.

A business will be able to expand in product portfolio and geography

and delegate and outsource only because controls are possible and in
fact real time control can be exercised through IT.

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Unit-6 Controlling

Definition, Importance and Process of

Controlling
Controlling

Defined as measuring and correcting of performance to achieve the

organisational goals.

Planning and controlling are integral parts of an organisation as both

are important for smooth running of an enterprise

Planning and Controlling relationship

Planning precedes controlling and controlling succeeds planning.

Planning and controlling are inseparable functions of management.

Activities are put on rails by planning and they are kept at a right place
through controlling.

The process of planning and controlling works on systems approach,

which is as follows:
Planning --> Results --> Corrective Action (through control)
(Contd)
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Unit-6 Controlling

Definition, Importance and Process of

Controlling
Control is important because of the following reasons

Creates the basis for the future

Guides to keep goals on track

Prevents repetition of mistakes

Enables future planning and follow up action

Enables decentralisation

Enable management by exception

Assists co-ordination

Enables HR functions and motivation

(Contd)
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Unit-6 Controlling

Definition, Importance and Process of

Controlling
Steps in Controlling:

Establishment of standards: Standards can be defined as selected

points that are critical in execution of a plan measurement, which identifies

the efficiency of execution of the plan. It has two types:

o

Tangible standards: These standards can be measured, such as

profit, return on investment, rejection rate, customer complaints, etc

Intangibles standards: These include attitude of workers, job

satisfaction, managerial effectiveness, etc.

Measurement of performance: Measurement is necessary for finding out

deviations and is perhaps the most difficult step in controlling.

Comparison of actual and standard performance: Deviation can be

defined as the gap between actual performance and the planned targets.

Taking remedial actions: Once the causes and extent of deviations are
known, the manager has to detect those errors and take remedial

measures.
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Unit-6 Controlling

Critical Control Points

The managers have to exercise control by exception.

They have to find out those deviations. which are critical and important
for business.

If a manager controls everything, he / she ends up controlling nothing.

Broad classification of critical control points are as follows

Physical standards
Cost standards
Capital standards
Revenue standards
Programme standards
Intangible standards

Goals as standards
Strategic plans and control points
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Unit-6 Controlling

Control as a Feedback System

Management control is a feedback mechanism much like a thermostat

in a refrigerator.

Real time information and control

Real time information at a given time can be gathered in many cases.

It is due to information technology.
Control requires analysis of the cause of deviation, which cannot take
place in real time.

From Feedback to feed-forward

The system is focused on the input, which can create a variation in the
output and rectified in time.

(Contd)
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Unit-6 Controlling

Control as a Feedback System

Feedback Loop of Management Control

Desired
Performance

Actual
Performance

Measure Actual
Performance

Compare
Actual vs.
Desired
Performance

Implementation
of
Correction

Programme of
Corrective
Action

Analysis of the
Cause of
Deviation

Identification
of Deviation

(Contd)
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Unit-6 Controlling

Control as a Feedback System

It is not about criticizing but of proactive action.

Most management systems fall short of it primarily because we tend to use

the financial data for management control.

We need to use feed-forward since it enables one to prevent mistakes.

Requirements for feed-forward control

In order to create a feed-forward system some of the following will be
required:

Identify important input variables.

Develop a model for the system.
Review regularly to see whether the input variables are identified and the
inter-relationships continue to represent realities.

Assess the actual input data regularly from planned-for inputs and evaluate
the impact on the expected end results.
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Unit-6 Controlling

Prerequisites of Effective Control

All managers like to have controls because without them their plans
would go awry.

Prerequisites for an effective control system is mentioned

Tailoring controls to plans and positions

Tailoring controls to individual manager

Designing 'point to the exceptions at critical point

Objectivity of controls

Flexibility

Fitting to the organisational culture

Economy of controls

Ability to lead to corrective action

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Unit-6 Controlling

Control Techniques
Overall Performance Control

It is important to control the overall performance and not confine to some

processes.

Many overall controls in business are financial in nature. The reasons for
overall control are:
o

Since overall planning is applied to the enterprise as a whole, control

should also be applied to the entire organisation.

Planning without controlling is not an effective method as we saw in

earlier sections.

Decentralisation of authority is required in product and territorial

divisions and in semi independent units, which makes controlling

important.
o

Overall control permits the measurement of an integrated area

(Contd)
manger's total effort rather than parts.
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Unit-6 Controlling

Control Techniques
Overall Performance Control Techniques
Some of the control measures are as follows:

Profit and loss control

Control through Return on Investment (ROI)

Management audits and accounting

Bureaucratic and clan control

Balanced scorecard

One of the problems with the overall performance control is that the
measures are all financial.

Measure other factors, which create the cohesion in the first place and
then create financial results.

Four key components of a balanced scorecard are financial, customer,

Internal processes and learning and growth.
(Contd)
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Unit-6 Controlling

Control Techniques
Budget as a Control

A budget is a plan for a given period in numerical terms. They are

statements of anticipated results.

Budgeting is done by making incremental changes to the existing budget.

Some of the popular budgeting methods are discussed below:
o

Capital budgeting

Zero based budgeting

Non-budgetary control

An inspection visit, managing by walking around, use of statistical data,

benchmarking, operational audit, HR audit, etc. are the non-budgetary
controls.

(Contd)
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Unit-6 Controlling

Control Techniques
Benchmarking

Benchmarking is the process of comparing one's business processes and

performance with industry bests and/or best practices from other finms or
industries.

Management identifies the best firms in their industry, or in another

industry where similar processes exist and compare the results and
processes of those studied (the "targets") with one's own results and
processes.

Costing
There are two types of costing:

Activity based costing

Target costing
(Contd)
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Unit-6 Controlling

Control Techniques
Quality tools/ Logistic Control
Total / Quality Management (TQM)

Quality control should be measurable and therefore creates a measure

and then goes on to make the improvement continuous.

It makes quality a long term investment and thus brings an effective

control on the product lines, processes and also overall performance.

Kaizen

It is a philosophy based on team work, personal discipline, improved

morale, quality circle and suggestion for improvement.

It has three foundations namely elimination of waste and inefficiency (also

called muda in Japanese).

Its 5 S framework means tidiness (seiri), orderliness (seiton), cleanliness

(seiso), standardised clean up (seiketsu) and discipline (shitsuke).
(Contd)
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Unit-6 Controlling

Control Techniques
Quality tools/ Logistic Control
Just in Time (JIT)

JIT is a plan to ensure that the inventory is reduced to almost nil and it is
a plan that Toyota tried out successfully.

JIT differs from inventory control in its philosophy to keep the required
parts manufacturer and the outlet which sells well integrated into the
main plant to include the quality of the supplies.

JIT controls by eliminating the following:

o

Waste from overproduction

Waste of waiting time

Transportation waste

Processing waste
(Contd)

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Unit-6 Controlling

Control Techniques
Six Sigma

It stands for six standard deviations from the mean.

This methodologies provide the techniques and tools to improve the

capability and reduce the defects in any process.

It was started in Motorola, in its manufacturing division, where millions of

parts were made using the same process repeatedly.

It uses a methodology known as DMAIC (Define opportunities, measure

performance, analyse opportunity, improve performance, control
performance).

Six sigma strives for perfection and allows for only three to four defects
per million opportunities for each product or service transaction.

(Contd)
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Unit-6 Controlling

Control Techniques
Through Time Event Network Analysis
Gantt Charts

A Gantt chart is a type of bar chart, developed by Henry Gantt, which

illustrates a project schedule.

Gantt charts illustrate the start and finish dates of elements of a project.

Program Evaluation and Review Technique (PERT) and Critical Path

Method (CPM)

A PERT chart is a graphic representation of a projects schedule.

A PERT chart can document an entire project or a key phase of a project.

The chart allows a team to avoid unrealistic timetables and schedule

expectations, to help identify and shorten tasks that are bottlenecks and

to focus attention on most critical tasks.

(Contd)
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Control Techniques
Steps in creating a PERT chart are as follows

Identify the specific activities and milestones

Determine the proper sequence of activities

Construct a network diagram

Advantages of PERT

It forces the managers to plan since they have to make a time event
chart.

Forces planning all the way down the line because each subordinate
manager must plan the event for which he/she is responsible.

Disadvantages of PERT

When a programme is new or ambiguous and no reasonable estimate of

time can be made, PERT is difficult to implement.

It emphasises only on time and not cost.

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Unit-6 Controlling

IT Enabled Controls and its Challenges

Most real time controls are microprocessor or IT enabled.

IT enabled controls create their own unique challenges to business.

Some of the far reaching IT enabled processes, which have facilitated control
are as follows:

Enterprise resource planning system

Speech recognition software

Telecommuting

Computer networks

Internet, intranet and extranet

Groupware

E-commerce and M-commerce

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Unit-6 Controlling

Summary
The following Points summarises the concepts of this unit.

Controlling is important as it creates basis for the future,

ensures goals are on track, prevents repetition of

mistakes, enables future planning, enables
decentralisation, assist co-ordination, enables motivation
and management by exception.

Effective control must be tailored to plans and positions,

individual manager, objective, flexible, fitting to the
organisational culture, economical and must lead to
corrective action

A balanced scorecard was created by Kaplan and Nortan

to measure the overall performance of a firm.

Some of the quality tools of control are TQM, Kaizen, JIT,

Six Sigma, Gantt Charts, PERT and CPM.

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Unit-6 Controlling

Check Your Learning

1.

Define Six Sigma?

Ans: Six sigma stands for six standard deviations from the
mean. This methodologies provide the techniques and

tools to improve the capability and reduce the

defects in any process. It uses a methodology known
as DMAIC (Define opportunities, measure
performance, analyse opportunity, improve
performance, control performance).
2.

List any three quality control tools implemented in an organisation.

Ans: The three quality tools are:

Kaizen

Just in Time (JIT)

Total Quality Management (TQM)

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Unit-6 Controlling

Activity

Activity 1
Visit an organisation and find out what are the pre-requisites
a manager follows in to have an effective control system.

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