Topic 12 – The Control Process Essentials of Management

Essentials of Management
Topic 12:
The Control Process © NCC Education Limited

The Control Process Topic 12 – 12.2

Scope and Coverage

This topic will cover:

• The importance of effective controls in ensuring
organisational goals are met
• The control process
• Different approaches to controlling organisational
performance
• Feedforward, concurrent and feedback controls
• Commonly used financial controls
• The role of the balanced scorecard

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The Control Process Topic 12 – 12.3

Learning Outcomes

By the end of this topic students will be able to:

• Explain the importance of effective control in
ensuring that organisational goals are achieved
• Discuss and explain the key steps of the control
process
• Evaluate the respective merits of the tools that can
be used for controlling organisational performance

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What is Control?

• The process of monitoring

activities to ensure that they
are being accomplished as
planned and of correcting
any significant deviations

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The Control Process Topic 12 – 12.5

Three Approaches to Control

Systems
Types of Characteristics
Control

• Uses external market mechanisms to establish standards

Market • Used by organisations whose products or services are clearly
specified and who face considerable competition

• Emphasises organisational authority

Bureaucratic • Relies on mechanisms such as rules and regulations to
ensure standards and appropriate behaviour are met

• Regulates employee behaviour by shared values and norms

Clan • Used by organisations in which teams are common and
technology is changing rapidly

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The Control Process Topic 12 – 12.6

The Importance of Control

• Enables managers and staff to keep to plans

• Ensures that managers know if objectives are
being met
• Provides information and feedback on employee
and organisational performance
• Protects the organisation and aids survival and
prosperity

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The Planning-Controlling Link

Planning
• Goals
• Objectives
• Strategies
• Plans
Controlling Organising
• Standards • Structure
• Measurements • Human
• Comparison Resource
• Actions Leading Management
• Motivation
• Leadership
• Communication
• Plans
• Behaviour

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The Control Process Topic 12 – 12.8

The Control Process

1. Establish
performance
objectives and
standards

4. Take The 2. Measure

necessary control actual
action process performance

3. Compare
actual
performance

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The Control Process Topic 12 – 12.9

Common Sources of Information for

Measuring Performance
Advantages Drawbacks

Personal • Get first hand knowledge • Subject to personal biases

Observations • Information isn’t filtered • Time consuming
• Intensive coverage of work • Obtrusive

Statistical • Easy to visualise • Provide limited information

Reports • Effective for showing relationships • Ignore subjective factors

Oral • Fast way to get information • Information is filtered

Reports • Allow for verbal and non-verbal • Information can’t be documented
feedback

Written • Comprehensive • Take more time to prepare

Reports • Formal
• Easy to file and retrieve

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Comparing

• Determines the degree of variation between actual

performance and the standard or forecasted
• An acceptable range of variation should be
identified
• Deviations that exceed this range are significant
and require attention

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Taking Managerial Action

Three possible courses of action:

• Do nothing
• Correct the actual performance
– Change strategy or structure
– Change compensation packages
– Redesign jobs or training programmes
– Make employees redundant
• Revise the standard or forecast

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The Control Process Topic 12 – 12.12

Summary of Managerial Decisions in the

Control Process
Objectives are set against a set standard.
Performance is then compared against that
standard:
• Is the standard being attained? If ‘yes’, do nothing
• Is the variance acceptable? If ‘yes’, do nothing, if
‘no’, revise the standard
• Is the standard acceptable? If ‘yes’, identify the
cause of the variation and correct the performance.
Once compared, the actual performance can be
measured.
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Managing and Controlling

Organisational Performance

• Performance – the end result of an activity

• Organisational performance – the accumulated end
results of all the organisation’s work process and
activities
• Managers need to ensure their units or groups
achieve high levels of performance

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The Control Process Topic 12 – 12.14

Measures of Organisational
Performance
• Organisation productivity – overall output of
goods or services produced divided by inputs
needed to generate that output
• Organisational effectiveness – measure of
appropriateness of goals and how well they are
being achieved
• Industry rankings – different types of industry and
company rankings, based on financial results,
customer satisfaction, etc.

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The Control Process Topic 12 – 12.15

Feedforward / Concurrent /
Feedback Controls
Processes
Input Output
(conversion)

Feedforward Concurrent Feedback

Control Control Control
Anticipates Corrects problems Corrects problems
problems as they happen after they occur

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Popular Financial Ratios

Objective Ratio Meaning

Liquidity • Current ratio Ability to meet short term debts

• Acid test (above ratio less Used when inventory turns over slowly
stock)
Leverage • Debt to assets Higher the ratio, the more leveraged the
(level of company
gearing) •Times interest earned How far profits can decline before interest
expenses cannot be met
Activity • Inventory turnover Higher the ratio, more efficiently the
inventory is being used
• Total asset turnover Measures assets required for sales
Profitability • Profit margin on sales Profits that products are generating

• Return on investment Efficiency of assets to generate profits

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The Control Process Topic 12 – 12.17

Other Financial Measures

• Economic value added (EVA) – financial tool

for measuring corporate and divisional
performance
• Market value added (MVA) – financial tool that
measures the stock market’s estimate of the
value of firm’s past and expected investment
projects

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The Control Process Topic 12 – 12.18

Balanced Scorecard

• Performance measurement tool that looks at

four areas:
– Financial
– Customer
– Internal processes
– People/innovation/growth assets
• Considers how they contribute to company
performance

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Balanced Scorecard Example

BSC Area Objectives Measures Targets Initiative
Finance Profitability Net Margin 10% Targeted
Growth ROCE marketing
campaign
Customer Improve Positive 95% Mystery
customer online satisfaction shopper
satisfaction reviews
Internal Improved Less defects 1% Training
efficiency
People/innov Increase the Every 95% Designated
ation/growth skills of the employee time to
assets workforce has a complete and
development review
plan

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The Control Process Topic 12 – 12.20

Information Controls
• Information is critical to monitoring and measuring
an organisation’s performance
• Management information systems are commonly
used
• Collect data (raw facts) and turn this into
information (processed and analysed data) and
then into intelligence to make effective decisions
• Provide information to managers in order to
monitor performance and control activities

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The Control Process Topic 12 – 12.21

Benchmarking of Best Practices

• Benchmark is a standard of excellence against

which to measure and compare. It can business
wide, industry focused or across an organisation
• Benchmarking is the search for best practices that
lead to superior performance
– Learning from others
– Help to identify specific performance gaps
– Highlight potential areas of improvement

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Controlling Customer Interactions

• Managers need to control the interactions between the goal

and the outcome in relation to customers
• Achieve this through the service profit chain
– Service sequence from employees to customers to profit
– Level of employee service productivity and service quality influences
customer perceptions of service value
– When service value is high, it increases customer satisfaction
– This in turn improves revenue growth and profitability
– A combination of the right product and service mix
to gain competitive advantage is termed servitisation

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The Control Process Topic 12 – 12.23

Corporate Governance

• System used to govern the corporation so that the

interests of corporate owners are protected
• Corporate scandals involving Lehman Brothers, BP
and Carillion have brought this to the forefront
• Board of directors now have a greater role to play
• Legislation now requires greater disclosure and
transparency of corporate financial information
• Ethics and Corporate Social Responsibility are also
dealt with in terms of good business practices

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The Control Process Topic 12 – 12.24

Summary

• Controls play a vital role in ensuring organisational

goals are met
• There is a link between planning and controlling
• The control process measures and compares
performance and takes managerial action if needed
• A variety of approaches can be adopted to control
organisational performance
• Managers need appropriate tools for monitoring
and measuring organisational performance

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References

• Slide 12.7: Management eighth edition by Robbins, S.P. and

Coulter, M. (Pearson/Prentice-Hall) IBN: 978-0131439948 pp
460
• Slide 12.12: Management eighth edition by Robbins, S.P. and
Coulter, M. (Pearson/Prentice-Hall) IBN: 978-0131439948 pp
464
• Slide 12.15: https://www.slideshare.net/ujjmishra1/control-
28840392
• Slide 12.18: www.bing.com
• Slide 12.19: www.bing.com

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The Control Process Topic 12 - 12.26

Topic 12 – The Control Process

Any Questions?

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