Management Process

& Practice OUTLINE

• Understanding the concept of Controlling
• Why Controlling is Important?
• Explaining the steps of controlling
Controlling
• Controlling for Organizational Performance
• Types of control
R.Senathiraja Ph.D • Lessons for life
Department od Management and Organization Studies
Faculty of Management and Finance
University of Colombo

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What is Controlling?

• The systematic process of monitoring or

regulating organizational activities to ensure
that they are being accomplished as planned
targets and standard performance and of
correcting any significant deviations.

Dr.R. Senathiraja
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 Controlling in Management Process Three Major Steps

Planning-controlling Link
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Critical Point Standards Measuring Actual Performance

• Physical Standards
• Sources of Information • Control Criteria
• Cost Standards

Personal observation
Employees
• Capital Standards
Statistical reports  Satisfaction
• Revenue Standards
Oral reports  Turnover

• Program Standards
Written reports  Absenteeism

Budgets
• Intangible Standards
 Costs
• Goals as Standards and  Output
• Strategic Plans as Control Points for Strategic  Sales

Control.
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 Sources of Information for Measuring Comparing Actual Performance
Performance against Standard
• 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).
 Thesize (large or small) and direction (over or
under) of the variation from the standard (forecast or
budget).

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Comparing…(Measuring Variation) Taking Remedial Actions

• 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

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 Managerial Decisions Involved in
Remedial Actions (Contd.) Controlling Process
• 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.

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Controlling for Organizational Controlling for Organizational

Performance Performance (Contd.)
• Performance Measures: Organizational Productivity
• What Is Performance?
Productivity: the overall output of goods and/or services

The end result of an activity divided by the inputs needed to generate that output.
• What Is Organizational Performance? Example:
 Output: sales revenues

The accumulated end results of all of the
organization’s work processes and activities  Inputs: costs of resources (materials, labor expense, and
facilities)

Ultimately, a measure of how efficiently employees do
their work.

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 Tools for Controlling Organizational
A Model of Organizational Effectiveness
Performance
• Traditional Controls

Ratio analysis
 Liquidity
 Leverage
 Activity
 Profitability

Budget Analysis
 Quantitative standards
 Deviations

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Trends in quality and Financial Beneficial impact of ISO 9000 certification on building up "a

control quality image,"

• Most important quality assurance programs.

• Open Book management
• Establishing a quality-oriented environment and in certifying
• ISO 9000 organizations' quality levels, while at the same time it represents the first
step toward adopting a total quality management (TQM) philosophy
• Economic Value Addition (EVA) • internally driven reasons include: improvement of customer service;
reduction in costs; improvement of production efficiency; quality
• Market Value Addition (MVA) improvement; improvement of procedures; and increase of quality
awareness .
• Activity Based Costing (ABC) • Consumer perception of quality, satisfaction, and corporate image, and
thus, enables companies to realize marketing benefits.
• Corporate Governance
• Balance Score Card

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 The Coming Business Revolution, John Case The Four Essential Steps to Open-
(1995) recommends four essential steps to Book Management
implementing OBM. • STEP 1 Get the information out there (reduce
information asymmetry).
• It is a way of managing a company demonstrably,
without concealment, that motivates all employees • STEP 2 Teach the basics of financial and performance
to focus on helping the business grow profitably and measures
increasing the return on its human capital. • STEP 3 Empower people to make decisions based on
• Literally, it means opening a company’s financial what they know (allocate decision rights).
statements to all employees and providing the • STEP 4 Make sure everyone shares directly in the firm’s
education that will enable them to understand how success (reduce agency costs).
the company makes money and how their actions
affect its success and bottom line.
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Tools for Controlling Organizational

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.
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.

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 CORPORATE GOVERNANCE
Activity-based costing (ABC)

• is a methodology for more precisely allocating

overhead costs by assigning them to activities.
Once costs are assigned to activities, the costs
can be assigned to the cost objects that use
those activities. The system can be employed
for the targeted reduction of overhead costs

© 2007 Prentice Hall, Inc. All rights reserved. 18–25 14/03/2019 Dr.R. Senathiraja (2013) 26

Controlling Organizational Performance • Reasons for the Need of a Balanced Scorecard

• Balanced Scorecard(Source: Kaplan & Norton, • 1. Focus on traditional financial accounting measures such
as ROA, ROE, EPS gives misleading signals to
1996) executives with regards to quality and innovation. It is

Is a measurement tool that uses goals set by important to look at the means used to achieve outcomes
managers in four areas to measure a company’s such as ROA, not just focus on the outcomes themselves.
performance: • Executive performance needs to be judged on success at
 Financial meeting a mix of both financial and non-financial
 Customer measures to effectively operate a business.
 Internal processes • Some non-financial measures are drivers of
 People/innovation/growth assets financial outcome measures which give managers

Is intended to emphasize that all of these areas are
more control to take corrective actions quickly.
important to an organization’s success and that there (Example: controls in jet cockpit for pilot)
should be a balance among them.
18–27 © 2007 Prentice Hall, Inc. All rights reserved. 18–28
 Feedback Control
• Feedback refers to the process of adjusting future
actions on the basis of information about the past
performance.
• managers should realise that they should not only
measure actual performance, compare such
measurements against standards, identify and
analyse deviations, if any, but also develop a
programme for corrective action and implement
such a programme for securing the desired
performance.
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• latest technical developments collect and

supply real-time data on many operations and
thereby keep the management abreast of
latest developments in the organisational set-
up.
• Koontz and O’ Donneli remark, The sooner
the managers know that activities for which
they are responsible are not proceeding in
accordance with plan, the faster they can take
action to make corrections

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 Feed Forward Control/Preventive
A control that prevents anticipated problems before
actual occurrences of the problem.
The time-lag in the management-control process
necessitates future-directed control.
Managers take actions to make the forecasts more
promising.
(i) careful and repeated forecasts based on the latest
available information
(ii) comparing what is desired with the forecast and
then (iii) taking the necessary action to introduce the
necessary changes in the programme.
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Examples • Careful planning of the availability of cash to

meet requirements of future-directed control.
(i) employment of the Preventive Maintenance Programme • Various techniques are adapted
to prevent a breakdown of machinery
the technique of network planning,
(ii) Formulation of policies for preventing the possible
occurrence of critical problems. communicating to new Programme Evaluation and Review Technique
employees its policy on absenteeism, prevent potential problems (PERT) networks, etc.,
created by absenteeism.
A sales forecast made by an enterprise may indicate that sales will be
at a lower level than desirable. The managers may on such occasions
develop new plans for advertising, sales promotion or introduction of
new products with an idea of improving the sales forecast

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Concurrent Control Benchmarking of Best Practices
A control that takes place while the monitored activity is
• Benchmark
in progress.
Direct supervision: management by walking around.
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.

14/03/2019 Dr.R. Senathiraja (2013) 37 © 2007 Prentice Hall, Inc. All rights reserved. 18–38

Changing philosophy of Control

Systems used in Organizations
• Bureaucratic Control

Control based on organizational authority and relies on
rules, regulations, procedures, and policies.
• Clan Control

Control regulating human behavior by shared values,
norms, traditions, rituals, and beliefs of the firm’s culture.
• Market Control

Use of external market mechanisms to establish the
standards used in the control system.
 External measures: price competition and relative market
share

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 Total Quality Management
• Bench Marking
• Six Sigma
• Cycle Time
• Continuous Improvement
• Quality Circle

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Contemporary Issues in Control Contemporary Issues in Control (cont’d)

• Cross-Cultural Issues • Workplace Concerns

The use of technology to increase direct corporate
Workplace privacy versus workplace monitoring:
control of local operations  E-mail, telephone, computer, and Internet usage

Legal constraints on corrective actions in foreign  Productivity, harassment, security, confidentiality,

countries intellectual property protection

Employee theft

Difficulty with the comparability of data collected from
operations in different countries  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.

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 Contemporary Issues in Control (cont’d) Exhibit 18–16 The Service Profit Chain

• 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).

Source: Adapted and reprinted by permission of Harvard Business Review. An exhibit from “Putting the Service Profit Chain to Work,” by J. L. Heskett,
T. O. Jones, G. W. Loveman, W. E. Sasser, Jr., and L. A. Schlesinger. March–April 1994: 166. Copyright (c) by the President and Fellows of Harvard
College. All rights reserved. See also J. L. Heskett, W. E. Sasser, and L. A. Schlesinger, The Service Profit Chain (New York: Free Press, 1997).
© 2007 Prentice Hall, Inc. All rights reserved. 18–45 © 2007 Prentice Hall, Inc. All rights reserved. 18–46

Lessons for Life Lessons for Life (Contd.)

• Self-control
- Goals / objectives of life • Social-control of human behavior
- Norms, standard behavior, value systems etc.
- Frequent monitoring of progress
- Desired order & discipline
- Observed deviations & remedial actions • Social responsibility on self
- Overcoming possible barriers (psychological - Shared understanding of social controls
- Help others understand their deviations / abnormal
stressors / physiological weaknesses /
behaviors
environmental threats etc.) - Help create a conducive environment for everybody to
live together

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 Effective control system?
• Integration with planning
• Flexibility
• Accuracy
• Timeliness
• objectivity

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