MANAGEMENT

CHAPTER 9

CONTROLLING
 LEARNING OUTCOMES

After studying this chapter, you should be able to:

 Define the concept of controlling, and explain the

importance of the controlling function.
 Describe the three levels of control.
 Describe the basic control process.
 Describe the types of control used in organization.
 Explain the different perspective of Balanced Scorecard.
 DEFINITION OF CONTROLLING
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 The processes to assure actual activities conform to

planned activities. (Stoner-Management, 1995)

 A process of monitoring performance and taking

action to ensure desired result. (Schermerhorn-
Management, 2005)

 The regulation of organizational activities in such way as to

facilitate goal attainment. (Griffin-Management, 2005)
 IMPORTANCE OF CONTROLLING
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1) Accomplishing organizational goals

The controlling process is implemented to take care of the plans.
With the help of controlling, deviations are immediately detected
and corrective action is taken. Therefore, the difference between
the expected results and the actual results is reduced to the
minimum. In this way, controlling is helpful in achieving the goals
of the organization.

2) Judging accuracy of standards

While performing the function of controlling, a manager compares
the actual work performance with the standards. He tries to find
out whether the laid down standards are not more or less than the
general standards. In case of need, they are redefined.
 IMPORTANCE OF CONTROLLING
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3) Making efficient use of resources

Controlling makes it possible to use human and physical resources
efficiently. Under controlling, it is ensured that no employee
deliberately delays his work performance. In the same way,
wastage in all the physical resources is checked.

4) Improving employee motivation

Through the medium of controlling, an effort is made to motivate
the employees. The implementation of controlling makes all the
employees to work with complete dedication because they know
that their work performance will be evaluated and if the progress
report is satisfactory, they will have their identity established in the
organisation.
 IMPORTANCE OF CONTROLLING
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5) Ensuring order and discipline

Controlling ensures order and discipline. With its implementation,
all the undesirable activities like theft, corruption, delay in work
and uncooperative attitude are checked.

6) Facilitating coordination in action

Coordination among all the departments of the organisation is
necessary in order to achieve the organisational objectives
successfully. All the departments of the organisation are
interdependent. For example, the supply of orders by the sales
department depends on the production of goods by the production
department.
LEVELS OF CONTROL
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 3 LEVELS OF CONTROL
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1) Strategic Control
Made by top level of management. It involves monitoring
critical environmental factors to ensure that strategic plans
are implemented as intended, assessing the effects of
organizational strategic actions and adjusting such plans
when necessary.
Top level of management usually asks themselves such
question like whether their company is moving in the
right direction, or whether their assumptions about major
trends and changes in the company's environment
are correct. This question will help in establishment of the
strategic control.
There are four types of strategic control:
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Example of Strategic Control:
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 LEVELS OF CONTROL
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2) Tactical Control
Made by middle level of management. It is about
assessing the implementation of tactical plans at
department levels, monitoring associated periodic
results and taking corrective action as necessary.
Tactics involve the actual steps needed to achieve that
vision.
For example, a marketing strategy for a motel might be
to develop a business package targeting travel agents
that includes an e-commerce solution. Tactics are
practical steps for implementing strategy.
 EXAMPLES of Tactical Control
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Travel-agent tactical strategy might be:

 ✓ Building a list of local travel agents.
 ✓ Preparing a business incentive scheme.
 ✓ Outlining how they can use the motel website to
make reservations.
 ✓ keep up-to-date.
 ✓ Personally visiting the agents to follow up
 LEVELS OF CONTROL
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3) Operational Control
 Made by lower level of management. It involves
overseeing the implementation of operating
plans, monitoring day-to-day results and
taking corrective action when required.
 Usually concerned with schedules, budgets, rules and
specific output. Provide feedback about what is being
done in the very near term to achieve both short-
term and long-term organizational goals.
Differences between strategic, tactical and
operation control
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 THE CONTROL PROCESS
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 All well-designed control systems involve the use of

feedback to determine whether performance meets
established standards. Managers need feedback and
this will help them to set targets, evaluate
performance, and guide discussion about what
further actions need to be taken.
 There are four key steps involved in control
systems which are (i) establish standards, (ii)
measure performance, (iii) compare
performance to standards, and (iv) make
corrections as necessary.
 THE CONTROL PROCESS
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 Step 1: Determine areas to control

Firstly, managers must decide which major areas are

to be controlled. This is because it is expensive and
virtually impossible to control every aspect of an
organization’s activity.
 THE CONTROL PROCESS
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 Step 2: Establish standards

Standards are the criteria that enable managers to evaluate future,

current, or past actions. They are measured in a variety of ways, including
physical, quantitative, and qualitative terms. Standard is a target against
which subsequent performance will be compared.
Standards may also reflect specific activities or behaviours that are
necessary to achieve organizational goals.
In service industries, standards of performance might include the amount of time
customers have to wait at a bank, the amount of time customers have to wait
before the telephone is answered. In an industrial enterprise, standards and
performance could include sales and production targets, work attendance goals,
and waste products produce. The example of establish standard of performance
are “reducing the reject rate from 15% to 3%”, “increasing the company’s return
on investment to 7%”, or “reducing the number of accidents to one per each
100,000 hours of labours”.
 THE CONTROL PROCESS
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 Step 3: Measure performance

Once standards are determined, the next step is measuring actual

performance. Manager must decide how to measure actual
performance and how often to do so.
Most organizations prepare formal reports of quantitative
performance measurements that managers review daily,
weekly, or monthly.
These measurements should be related to the standards set in the first
step.
Helpful measures of strategic performance include: sales (total, and by
division, product category, and region), sales growth, net
profits, return on sales, assets, equity, and investment cost of
sales, cash flow, market share, product quality, valued added, and
employees productivity.
 THE CONTROL PROCESS
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 Step 4: Compare performance against

standards

Consists of comparing the performance measured in step 3 with the

standards establish in step 2.
For example, managers often base their comparisons on
information provided in reports that summarize planned
versus actual results. The other ways that manager often makes
comparisons of performance and standards is by walking around work
areas and observing conditions.
When performance meets or exceeds the standards set, managers
should recognize the positive performance. Recognition can be
varieties. For example, spoken well done, give bonuses, training
opportunities or pay raises.
 THE CONTROL PROCESS
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 Step 5A: Recognize positive performance

When performance meets or exceeds the standards set,

managers should recognize the positive performance.
Recognition can be varieties. For example, spoken well done,
give bonuses, training opportunities or pay raises.
 THE CONTROL PROCESS
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 Step 5B: Take corrective action as necessary

When standards not met, managers must carefully assess the

reasons why and take corrective action. During this
evaluation, they often personally check the standards and the
related performance measures to determine whether they are
still realistic. Manager may decide whether to revise the
standards, revise objective, revise strategies, revise the
structure, system or support or revise organizational activity.
 THE CONTROL PROCESS
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 Step 6: Adjust standards and measures as

necessary

Managers need to check standards periodically to ensure that

the standards and the associated performance measures are
still relevant for the future.
THE CONTROL PROCESS
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 3 TYPES OF CONTROL
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 There are three major types of control that are

feedforward control, concurrent control and
feedback control.
 TYPES OF CONTROL
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1) Feedforward control
✓ Sometimes known as preliminary control, pre-control,
preventative control or steering control.
✓ Focus on regulation of inputs to ensure that they meet the
standards required for the transformation process.
✓ Inputs that can be subject to feed forward control include
materials, people, finances, time and other resources used by
an organization.
✓ At this stage, managers need to identify problems that
might be occurs during transformation process. For example,
blackout, machine breakdown etc.
 TYPES OF CONTROL
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2) Concurrent control

✓ Involves the regulation of ongoing activities that are part of

the transformation process to ensure that they conform to
organizational standards.
✓ Concurrent control is designed to ensure that employee
work activities produce the correct results.
 TYPES OF CONTROL
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3) Feedback control
✓ Sometimes known as post-action control or output control.
✓ Regulates products or services after completion to ensure
final output meets organizational standards and goals.
✓ Feedback control provides managers with meaningful
information on how effective its planning effort was. If
feedback indicates little variance between standard and actual
performance, this is evidence that planning was generally on
target.
If the deviation is great, a manager can use this information
when formulating new plans to make them more effective.
Besides, feedback control can enhance employees motivation.
 THE BALANCED SCORECARD
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 One of the techniques applied by organizations

in measuring the performance is balanced
scorecard. Balanced Scorecard was originated by Dr
Robert Kaplan (Harvard Business School) and David
Norton as a performance measurement framework
that added strategic non-financial performance
measures to traditional financial metrics to give
managers and executives a more balanced view of
organizational performance.
 THE BALANCED SCORECARD
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 The balanced scorecard is a management system

(not only a measurement system) that enables
organizations to clarify their vision and
strategy and translate them into action.

 Balanced scorecard suggests viewing an organization

from four perspectives which are learning and
growth perspective, business process perspective,
customer perspective and financial perspective.
 THE BALANCED SCORECARD
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1) The learning and growth perspective

This perspective explain what the company has to
learn in order to:
✓ Satisfy customer’s needs.
✓ Improve business processes.
✓ Achieve financial goals
Focuses on the intangible assets of an organization,
mainly on the internal skills and capabilities of the
employees that are required to support the
value creating internal processes.
 THE BALANCED SCORECARD
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1) The learning and growth perspective

This perspective includes employee training and
corporate cultural attitudes related to both individual
and corporate self-improvement.
This perspective measure company’s performance
through employee job satisfaction, skill, turnover and
etc. For example if employees’ turnover is low, the
company’s performance is good because it shows that
employees satisfied with the company.
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2) The business process perspective

This perspective refers to internal business processes.

Metrics based on this perspective allow the managers
to know how well their business is running, and
whether its products and services conform to customer
requirements (the mission).
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3) The customer perspective

Measure company’s performance through customer’s
satisfaction. Recent management philosophy has shown an
increasing realization of the importance of customer focus
and customer satisfaction in any business.
These are leading indicators: if customers are not satisfied,
they will eventually find other suppliers that will meet their
needs.
Poor performance from this perspective is thus a leading
indicator of future decline, even though the current financial
picture may look good.
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3) The customer perspective

Customer concerns in four categories:
✓ Time-measures time required for company to meet
customers’ needs.
✓ Quality-defect level as sent to customers.
✓ Performance-how company’s products/services contribute
to creating value for its customers.
✓ Cost-not just price of goods/services, but what does it
“cost” the customer when he finally uses it.
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4) The financial perspective

Measures that indicate whether the company’s strategy,
implementation, and execution are contributing to bottom
line improvement.
Usually the performance will be measure through cash flow,
sales growth, market share and Returns on Equity (ROE).
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