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UNIVERSITY OF CENTRAL PUNJAB

CONTROLLING CHAPTER
FINAL PROJECT
DATE: 17-01-2011 TO: PROF. ANIQA REHMAN BY: ZAIN ALI SYED (L1F10MBAM2171) SAMI-UL-HASSAN (L1F10MBAM2169) SHAHRYAR SOHAIL (L1F10MBAM0142) AHAD CHAUDHARY (L1F10MBAM2174) AMMARA GILLANI (L1F10MBAM2165) SECTION: F

Chapter#17

Introduction To Controlling

Controlling
1. What is Control?
Robert J. Mockler has defined control in a way that indicates the essential elements of a control process: Management control is a systematic effort to set performance standards with planning objectives, to design information feedback systems, to compare actual performance with these predetermined standards, to determine whether there are any deviations and to measure their significance, and to take any action required to assure that all corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives. This definition divides control into four basic steps: 1. Establishing standards and methods for measurement of the performance 2. Measurement of the actual performance 3. Comparing performance with standards 4. Taking corrective action (if appropriate)

Meaning of control:
Earl P. Strong and Robert D. Smith have described the controlling this way: There are number of conflicting viewpoints regarding the best manner in which to manage an organization. However, theorists as well as practicing executives agree that good management requires effective control. A combination of well-planned objectives, strong organization, capable direction, and motivation has little probability for success unless there exists an adequate system of control.

The Importance of Control:


It is impossible to imagine any organization completely devoid of control in the broadest sense of the term. If even the smallest organization is to function adequately, someone must be responsible for task initiation and completion. Employees must be controlled in the sense that they must carry out the assignments for which they are getting paid. The need for this level of control we may safely take for granted.

Organizational Factors Creating The Need For Control:


There are many factors that make control a necessity in todays organizations. Some of the most important of these factors include the changing environment of organizations, the increased complexity of organizations, the fact that organization members make mistakes, and the fact that managers need to delegate authority. We will discuss these factors here.

Change:
Suppose the Pinpoint Pencil Company, a supplier to our Top Drawer Office Supply Company, operated in a static market. Every year the company would make and sell the number of pencils to the same customers. Manufacturing and labor costs would never vary, nor would availability and costs of materials. In other words, last years would govern this years production. Planning and controlling for this company would quickly become automatic. In that sense, the active functions of planning and controlling would no longer be necessary. Even in the most stable of industries, however, such a situation does not exist. Change is an integral part of almost any organizations environment. Markets shift; new product emerge; new materials are discovered; new regulations are passed. The control function enables managers to detect changes that are

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affecting their organizations products or services. They can then move to cop with the threats or opportunities that these changes represent.

Complexity:
The one-room schoolhouse and the small family business could be controlled on an informal, comparatively haphazard basis. Todays vast organizations, however, require a much more formal and careful control approach. Diversified product lines need to be watched closely to ensure that quality and profitability are being maintained; sales in different retail outlets need to be recorded accurately and analyzed; the organizations various markets, foreign and domestic, require close monitoring. Adding to the complexity of todays organizations is the development of decentralization. For example, many organizations now have regional sales and marketing offices, widely distributed research facilities, or geographically separated plants. Such decentralization can simply an organizations control efforts, since all the organizations operations no longer have to be control by central head quarters. Paradoxically however, in order to decentralization to be effective, each decentralized units control activities have to be especially precise. Performance against established standards has to be watched closely so that general managers can appraise the effectiveness of the unit for which they are responsible, and so that corporate management can, in turn, appraise the effectiveness of the general managers.

Mistakes:
If they or their subordinates never made mistakes, managers could simply establish performance standards and watch out for significant and unexpected changes in the environment. But organization members do make mistakes wrong parts are ordered, wrong pricing decisions are made, problems are diagnosed incorrectly. A control system allows managers to catch these mistakes before they become critical.

Delegations:
When managers delegate authority to subordinates, their responsibility to their own superiors is not diminished. The only way managers can determine if their subordinates are accomplishing the tasks that have been delegated to them is by implementing a system of control. Without such a system, managers will be unable to check on subordinates progress, and so will be unable to take corrective action until after a failure has occurred.

Link Between Planning And Controlling:


The simplest definition of management control is The process through which managers assure that actual activities conform to planned activities. This definition has the advantage of pointing to the close link between planning and controlling the organizations operations. In the planning process the fundamental goals and objectives of the organization and the methods for attaining them are established. The control process measures progress toward those goals and enables managers to detect deviations from the plan so that they can take what ever remedial action is necessary (including a change in plan. In fact, most good plans have controls (such as budgets) built into them. While the functions of planning and controlling should be kept distinct (so that neither function is slighted), the control process would be meaningless without previously established standards or goals.

2. The Control Process:


The control process is divided into four steps. Following figure will show us the steps of the control process

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Control Process
Establishing Standards Measurement of Performance Compareing of Performance with Standards Taking corrective actions

Control Process:
The following are the steps of the control process. 1. 2. 3. 4. Establishing standards and methods for measurement of the performance. Measurement of the actual performance. Comparing performance with standards. Taking corrective action.

Establishing Standards:
The first step in the control process is to define standards. We compare the performance of the employees with the standards that are set by the organization. Standard for a fast food restaurant like McDonalds corp. might include following: 1. 2. 3. A minimum of 90 % of the customers will be treated in three minutes of their arrival. Precooked hamburgers will not put in the oven in excess of five minutes when serve to the customers. All the table which are not in use after the customers used them are cleaned in just five minutes

Standards should be derived from organization objectives and, like goals, be expressed in considerable terms. The standard one is the time limit of three minutes for customers and their estimated target is 90 % of all customers. Their other standard is, their objective is implied: all precooked hamburgers. Standards require being elastic in order to adapt to altering situation. The standard should stress the attainment of results more than the conventionality to regulations and methods. If they are not so, then people will start giving more meaning to regulations and methods than to final outcome.

For setting the standards, the following points are considered: (a) The standard must be obvious and understandable. (b) Standard should be correct, exact, satisfactory and effective. (c) Standard should be elastic i.e., capable of being vary when the situations need so.

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Measuring Performance:
When standards have been put some system must be devised and installed for each action to verify and determine it with the standard. Monitoring or verifying performance is a crucial part of control because it is not achievable to control an activity if it is not continuously examined or measured. When a manager is concerned with controlling sales, he is concerned with daily, weekly, and monthly sales figure signifying real performance. A production manager might assess performance in term of unit price, feature, or quantity. Manager uses these measures to report actual performance: Personal examination Statistical information verbal reports Written reports

If the standards given are real, it is simple to determine the performance in alike units. If the standards are vague, it is hard to evaluate the performance. The above four points help to assess the actual performance of a business.

Comparing Performance With Standards:


Third step in the control process is to compare defined performance with the standards form in step 1. The performance may be high, less, or same as compared with the defined standards. Suppose that each of three sales managers has a goal of increasing sales 12% during a year. At the end of the year, one manager has increased sales by 10.9%, another by 9%, and the third by 8 %. For the most part, deciding whether each has met the standard is a management result that must be based on many suitable factors, including the currency amounts implicated and any justifying conditions. While none of the three sales managers attained the precise goal of 13%, one was very near. One more may have met surprising completion form a new company. These and other factors must be considered comparisons must be made as frequently as required. For long run and soaring level standards, comparisons may be suitable annually.

Evaluate Performance And Take Action:


Final step of the control process is to assess performance (by means of the comparisons set in step 3) and then takes right action. After assessment, one of the three measures is generally suitable.

Maintain the Status Quo:


Doing nothing, or maintaining the status quo, is usually suitable when performance more or fewer measures up to the standard. If the standard for rate reductions this year is 4% and we have achieved a reduction of 3.90$, we are obviously on the exact track. At sharper figure, new store were doing even better than expected, so no act was deemed essential concerning their performance.

Correct the Deviation:


Likely, some action will be required to correct a variation from the standard. If the cost reduction standard is 4% and we have thus far managed only a 1% reduction, something must be done to get us back on track. We may require inspiring our employees to work harder or provide them with new equipment. In various situations, we may be doing better than expected but still require correcting this difficulty. For example, when ford introduced the Taurus and sable in early 1986, demand was far greater than estimated, and numerous people who wanted to buy one of the new models were not able to do so. Some dealers and

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clients may have been discontented because the new cars were highly advertised but not obtainable in sufficient supplies.

Change Standards:
A final reaction to the result of comparing performance to standard is to vary the standards. The standard may have been too high or too low to start with. This is clear if large numbers of employees surpass the standard by a broad boundary or if no one ever meets the standard. In other circumstances, a standard that was entirely good when it was set may need to be accustomed because circumstances have altered like market situation changes with course of time.

3. Controlling for Performance of an

Organization:
What is performance of an organizational?
Organizational performance is the measure all the accumulated results of the work activities that are done in the organization.

Tools to Measure an Organizational Performance:


Employees should compare their performance with the standards that are set by the organization. The tools to measure the organizational performance are organizational productivity and organizational effectiveness. These tools are explained below

Organizational Productivity:
Productivity is the amount of goods or services that are produced divided by the inputs that are needed to generate the outputs. To exemplify, consider the example of automobile manufactures. It has been anticipated that Japanese automobile manufacturers have been able to make a car for around $2000 less than GM, ford, or Chrysler. Hence the Japanese are extra productive; they are producing a comparable product (output) for a lesser amount of money (a resource). Generally, most people think of the work of individual workers when they talk about production. Though, goods and services can also be generated through other organizational resources such as dollars invested, capital equipment and information. When an organization does not have high level of productivity, it tends to be less competent and less attractive to the investors. Reasonable levels of production are required for the organization to continue its resources and to carry on operating smoothly. Lastly, productivity has an impact not only on income but also on survival of an organization. Actions for the productivity can be used to compare people with one another, to evaluate organization, or to track organization over time. Forms of productivity: There are different forms of productivity. Total factor productivity is defined as: Productivity = outputs /inputs

Total productivity shows us how an organization uses all of its assets, such as labor, equipments, and power to create all of its products and services.

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Organizational Effectiveness:
Over the years, managements theorists have delivered the concept of organizational effectiveness. The reasons for this concern stem form the value of effectiveness and the sense that an overall understanding of effectiveness could help managers, investors, and researchers, and other organizations.

Figure 1

MODEL OF ORGANIZATION EFFECTIVENESS: Table (1)

1. System resource approach: An effective organization is one that can attain the resources it wants 2. Goal approach: An effective organization is one want to get its goals.

3. Internal functioning approach: An organization is one that operates easily and efficiently, without strain. 4. Strategic constituencies approach: An effective organization is one that satisfies the demands and expectations of the groups that contain a well-built interest in the organization.

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4. Tools for Measuring Organizational

Performance
Operational Controls:
We now turn our concentration to the three levels of control practiced by most organization. Operation control can take one of three forms; preliminary (feed forward control), screening (concurrent control), and postaction. The three forms vary primarily in term of where they happen in relation to the transformation processes used by a organization.

feedback
inputs
Focus is on inputs to the organizational system

transformation

Focus on how inputs are being transformed into outputs

outputs

Focus is on outputs from the organizational system

Preliminary control:
Preliminary control (also called steering control or feed forward control) is the type of control that is used to avoid the problems that takes place before the actual work activities. The key to preliminary control is that it helps to take the managerial actions before a problem take place. This type of control requires accurate and timely information and data that is not always easy to get. Thus, managers usually rely on other two types of control.

Screening control:
Screening control (also called yes/no control or, concurrent control) occurs while work activities are in progress. Screening control relies heavily on feedback processes. Suppose that, a manager of a manufacturing plant establishes a number of checkpoints along the assembly line. As the product moves along the line, it is periodically checked to make sure that all of the parts assembled so far working correctly. This is screening control because product is being controlled during the work activities are in process. All managers can get advantage from using this type of control because it will help them to correct their problems before they become too expensive and costly.

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Followings are the important points of screening control:


Checkpoints are in place to find out whether to carry on the current process, take corrective action at right time, or stop worked altogether. Concurrent control have other names like screening and yes-no control. This type of control is not suitable for work that requires creativity or innovation

Postaction control:
Postaction control takes place after the work activities are being done and completed. Cornings old system was postaction control a final judgment was made only after everything was done. Even though corning abandoned postaction control, it is helpful and effective in some conditions, such as when a product or service is fairly simple and routine, like routine and regular work. If a product can be manufactured only in two or three steps, postaction control may be the more effective type of method. It can be effective in two ways. It gives the information to management for future planning and objectives of an organization. Postaction also provides a basis for rewarding employees.

Feedback control serves a number of functions:


To serve as a final means to confirm for deviations not detected in advance To provide information that will help the planning process To provide information concerning with employee performance

Financial control:
Financial control is used by the business to earn profits. To achieve the goals and objectives of the company managers need financial control. They calculate the financial ratios to ensure that enough cash is available to pay the ongoing expenses, and to make sure that company assets are being used productively.

Ratio Analysis:
Ratio analysis seeks to extract information from a financial statement in a way that will allow an organizations financial performance or condition to be evaluated. It involves selecting two significant figures from a financial statement and expressing their relationship in terms of a percentage and a ratio. That ratio can then be compared with a similarly formed ratio from another financial statement; in this way, the performance of the organization can be more meaningfully assessed. Some of the most popular financial ratios are Liquidity Leverage Activity Profitability

Manager should calculate the ratios all together, this strategy ensures that they develop and execute a control strategy suitable for the organization as a whole rather than one that suits only one stage or sector of the organization.

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Manager must compare calculated value for ratios in a specific organization with the value of industry averages for those ratios can be obtained from Dun & Bradstreet; Robert Morris Associates, national associates of bank loan officers; the federal trade commission; and the Securities and Exchange Commission. Manager expand the chances of formulating and implementing proper control strategy when they evaluate their financial conditions to that of competitor in this way Manager use of ratios should include trend analysis manager must remember that any set of ratio value is actually only a determination of relationships that existed in a particular time.

Type Profitability

Example Return on investment

Calculation Net Profit after taxes Total assets Current assets Current liability

Interpretation Productivity of assets

Liquidity

Current ratio

Short-term solvency

Activity

Inventory turnover

Sales Inventory

Efficiency management

of

inventory

Leverage

Debit ratio

Total debt Total assets

How a Company financial

Balanced Scorecard Approach:


The balance scorecard approach is used by the managers as a measurement tool that looks at more than just the financial perspective. A balance scorecard usually looks at four dimensions that contribute to a companys performance i.e., finances, customers, internal processes, and people/innovation. By using this approach managers develop objectives and goals in each of the four areas and then measure whether the goals are met or not. Managers tend to focus on areas that will help them in the organizations success and they use scorecards that reflect the strategies.

Balance scorecard

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Financial Internal business

Customer

Vision & strategy

Learning & growth

Information control:
Before the widespread use of electronic computers, large amounts of valuable information about an organizations activities could not be used effectively by managers. The information either reached managers too late for them to take action on it, or it was simply too expensive to gather the information in a usable form. Todays managers have at their command a wide range of data processing and information tools. In place of a few financial controls, managers can draw on a number of computer and other type of information systems to control activities in every area of their organization. On any number of performance measures, the information provided by these systems help managers compare standards with actual results, detect deviations and take corrective actions before it is too late. Managers deal with information controls in two ways: 1. 2. Information control is used as a tool to help managers to control other organizational activities. Information control helps managers to manage organizational areas they wanted to control.

How is information used in controlling?


To measure organizational activities and performance, managers need the correct information at the right time and in the right amount to monitor them. In measuring the actual performance of the organization, managers need information about their concerning areas to compare actual performance with the standards established by the organization. They rely on information to form appropriate courses of action. The

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information tools used by the managers come from organizations management information system. Management information system (MIS) is a system that is used to provide management with needed information on a regular basis. The term system in MIS implies order, arrangement, and purpose. It provides managers with information (processed and analyzed data), not merely data. Types of workplace violence There are four types of Workplace violence: Criminal violence

Workplace violence is the violence who works within the organization and which threat the manager and other employee. In this way the employee protect against enforce radiances against specific number of staff. Service user violence

This often begins through trouble with examine relief or some other by-product of the organizations core business activities. Workeron-worker violence

Violence perpetrated by one working within the organization either the managers or employee of the organization. In this way the employee protests against imposed redundancies. Domestic violence

Domestic violence is that violence that has a strong connection with an employee. This is incurred within the only because the offender knows where a given person is during the way of a working day.

Controlling Customer Interaction


The major activity in controlling is analysis the planning. Whereby management evaluate the product and business that make up the company. The company will want to put strong relationship between customers to earn profit. In customer interaction the first step is to analysis the customer, according to this the marketer will try to provide all information. The buyer will try to increase the sale and provide services that customer satisfied and earn profit. In business organizations are continually looking for ways to update the organization processes and to earn profitable growth. Many organizations are also faced with much more serious planning & strategic to drive growth. The manager will control all the activities and interaction with customer that customer will satisfied your performance.

Services

Analysi ssssss
Customer interaction

Sale
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Corporate Governance:
Corporate governance is importance for business performance as well as the relationship to the other member usually management and shareholder and other members are include workers, clients and suppliers. In corporate governance the organization are depends upon the official, institutional and principled environment of the group of people both terms address control of corporations but governance has always required an assessment of primary purpose.

Role of board of director:


The main function of board of directors was to have a group, free from management, looking out for the benefits of shareholders, who were not involved in administration of the organization. The duty of board of directors is to assist in corporate governance by supervising management and making decisions on behalf of the organization. Shareholders select the individual directors, who are then supposed to act to protect shareholder benefits.

Duties of directors:
Certain general duties attach to the usual board. Directors must handle management performance and compensation, act to make sure that the corporation complies with all official requirements, make continuing decisions in the best welfare of the corporation and use corporate resources intelligently.

Laws for corporate governance:


These laws have been changed, as per the necessities to bring more liability in the provision of corporate governance and give a frame work for facilitating faster financial growth.

Financial Reporting Audit Committee:


Federal law now requires the boards of publicly traded companies to create an audit committee composed of external directors. This committee has the responsibility to ensure that all corporate accounting actions present a reasonable and correct picture of the organization's financials. The audit committee requirement resulted from several important incidents in which corporate financials presented incorrect portraits of shareholder cost. Therefore, corporate governance now requires the board to oversee the organization's accountants as well.

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