Controlling

Refers to the process of ascertaining whether organizational objectives have been

achieved; if not, why not; and determining what activities should then be taken to
achieve objectives better in the future.

Objectives and goals that are set to the planning stage are verified as to
achievement or completion at any given point in the organizing and
implementing stages.

When expectations are not met at scheduled dates, corrective measure are usually
undertaken.
 Importance of Controlling
Help the organization achieve its goal in the most efficient and effective manner
possible.
Deviations, mistakes and shortcomings happen inevitably. When they occur in the
daily operations, they contribute to unnecessary expenditures which increase the
cost of producing goods and services.
Proper control measures minimize the ill effects of such negative occurrences. An
effective inventory control system, for instance, minimize, if not totally eliminates
losses in inventory.
 Steps in the Control
Process
•Establishingperformances objectives and standards
•Measuring actual performances
•Comparing actual performances to objectives and standards
•Taking necessary action based on the results of the comparisons
Steps in the Control Process:
 Establishing Performance
Objectives and Standards
1. Sales targets – which are expressed in quantity or monetary terms
2. Production targets – which are expressed in quantity or quality
3. Worker attendance – which are expressed in terms of rate of absences
4. Safety record – which is expressed in number of accidents for given periods
5. Supplies used – which are expressed in quantity or monetary terms for given
periods
Once objectives and standards are established, the measurement of performance will
be facilitated. Standards differ among various organizations.
In construction firms, project completion dates are useful standards. In chemical
manufacturing firms, certain pollution measures form the basis of standard
requirements.
After the performance objectives and standards are established, the methods for
measuring performance must be designed. Every standard established must be
provided with its own method for measurement.
Measuring Actual Performance

There is need to measure actual performance so that when shortcomings occur,

adjustments could be made. The adjustments will depend on the actual findings.
The measuring tools will differ from organization to organization, as each have their
own unique objectives. Some firms, for instance, will use annual growth rate as
standard basis, while other firms will use some other tools like the market share
approach and position in the industry.
Comparing Actual Performance to Objectives and
Standards

Once actual performance has been determined, this will be compared with what the
organization seeks to achieve. Actual production output, for instance, will be
compared with the target output. This may be illustrated as follows:
A construction firm entered into a contract with the government to construct a 100
kilometer road within ten months. It would be, then, reasonable for management to
expect at least 10 kms to be constructed every month. As such, this must be verified
every month, or possible, every week.

Taking Necessary Action

The purpose of comparing actual performance with the desired result is to provide
management with the opportunity to take corrective action when necessary.
If in the illustration cited above, the management of the construction firm found out
that only 15 kms were finished after 2 months, then, any of the actions may be
undertaken:

1. Hire additional personnel

2. Use more equipment
3. Require overtime

Types of Control

1. Feed forward control – when management anticipates problems and prevent

their occurrence, this is undertaken. This type of control provides the assurance
that the required human and non-human resources are in place before operations
begin.
2. Concurrent Control – when operations are already ongoing and activates to
detect variance are made, this is undertaken. It is always possible that deviations
from standards will happen in the production process.

3. Feedback Control – when information is gathered about a completed activity,

and in order that evaluation and steps for improvement are derived, it is
undertaken. Corrective actions aimed at improving future activities are features of
feedback control. It also validates objectives and standards.

Types of Control and their Relation to Operations

Components of Organizational Control Systems

1. Strategic Plan – provides the basic control mechanism for the organization.
2. The Long-Range financial plan - recommends a direction for financial
activities.
3. The Operating Budget – indicates the expenditures, revenues, or profits
planned for some future period regarding operations.
4. Performance Appraisals - measures employee performance
5. Statistical Reports - pertain to those that contain data on various
developments to find out if it had a positive effect on his performance
Information which may be found in a statistical report:
Labor efficiency rates
Quality control rejects
Accounts receivable
Accounts payable
Sales reports
Accident reports
Power Consumption report

6. Policies and Procedures - refer to the “framework within which the objectives must be
pursued.” A procedure is a “plan that describes the exact series of actions to be taken in a given
situation. “
Strategic Control Systems
1. Financial Analysis - the success of most organizations depends on heavily on
its financial performance. A review of financial statements will reveal important
details about the company’s performance.
2. Financial Ratio Analysis - is a more elaborate approach used in controlling
activities. One account appearing in the financial statement is paired with another to
constitute ratio.
• Liquidity Ratios – ratios that assess the ability of a company to meet its current obligations.
a.) Current ratio - this shows the extent to which current assets of the company can cover its
liabilities.
b.) Acid-test ration – measure of the firms ability to pay off short-term obligations with the use of
current assets without relying on the sale of inventories.
• Efficiency Ratios – ratios show how effectively certain assets/liabilities are being used in the pro-
duction of goods and services.
a.) Inventory turnover ratio - ratio that measures the number of times an inventory is turned
over each year.
b.) Fixed asset turnover – ratio is used to measure utilization of the company’s investment in its
fixed assets, such as its plant equipment.
• Financial Leverage Ratios - group of ratios designed to asses
the balance of financing obtained through debt and equity sources.
a.) Debt to total assets ratio – shows how much of the firm’s assets are financed
by debt.
b. ) Times interest earned to ratio – measures the number of times that earnings
before interest and taxes are cover or exceed the company’s interest expense.
• Profitability Ratios – measures how much operating income/
net income a company is able to generate in relation to its assets, owners equity
and sales.
a.) Profit margin ratio – compares the net profit to the level of sales.
b.) Return on assets ratio – shows how much income in the company produce
for every peso invested in assets.
c.) Return on equity ratio – measures the returns on the owner’s investment.
Identifying Control Problems
When operations become complex, the engineer manager must consider
useful steps in controlling. Kreitner mentions 3 approaches
1. Executive Reality Check
2. Comprehensive Internal Audit
3. General checklist of symptoms of inadequate control
-Unexplained decline in revenues and profits
-A degradation of service ( customer complaints )
-Employee dissatisfaction ( complaints, grievances, turnover )
-Cash shortages caused by bloated inventories or delinquent accounts receivable
-Idle facilities or personnel
-Disorganized operations ( work flow bottlenecks, excessive paperwork )
-Excessive costs
-Evidence of waste and efficiency (scrap, rework)
CHAPTER 9
Controlling

Submitted to: Engr. Jelyn M. Rodriguez

Submitted by: Intud, Janine Hildreth T.

Bagan, Chenson P.
Lunar, Nico T.