CONTROLLING IN MANAGEMENT

Prepared by: Carlo Sarmiento RN.

Louijhem Manzo RN.
DIFFERENT DEFINITIONS:

• According to HENRY FAYOL:

control of an undertaking consist of
seeing that everything is being carried
out in accordance with the plan which
has been adopted, the orders which have
been given, and the principles which
have been laid down. Its object is to point
out mistakes in order that they may be
rectified and prevented from recurring.
• According to EFL BREACH:
control is checking current performance
against pre-determined standards
contained in the plans, with a view to
ensure adequate progress and
satisfactory performance.
• According to HAROLD KOONTZ:
controlling is the measurement and
correction of performance in order to
make sure that enterprise objectives and
the plans devised to attain them are
accomplished.
CONTROLLING

CONTROLLING
is a management function that involves
comparing actual performance with
planned performance and taking
corrective action if needed, to ensure the
objectives are achieved.
THREE PHASES OF CONTROLLING:

1.Anticipating the things that could go

wrong and taking preventive measures to
see that they don’t.
2.Monitoring or measuring performance in
some way in order to compare what is
actually happening with what is supposed
to be happening.
3.Correcting performance problems that
occur. This is the therapeutic aspect of
control.
CONTROL’S CLOSE LINK TO PLANNING

Planning sets the ship’s course and

controlling keeps it on course. When
the ship begins to veer off the course,
the navigator notices it and
recommends a new heading designed
to return the ship to its proper course.
Essentially, management control works
the same way. Management set goals
and seek information on whether they
are being reached as planned. If not,
management make adjustments.
IMPORTANCE OF CONTROLS

Control is important in view of the many

variables that can put things off track.
Because anything involving human is
imperfect, management must use control to
monitor progress and to make intelligent
adjustments as required.
EXAMPLES OF CONTROLS

- Delegation (Accountability)

- Evaluation (Performance)

- Financial Statement (Budget Management)

- Performance Management (Observation and Feedback)

- Policies and Procedures (Behaviors in Workplace)

- Quality Control and Operations Management

- Risk, Safety and Liabilities

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEM

1. Controls need to focus on appropriate

activities – Effective controls must focus on
critical factors that affect both the individual’s
and the organization’s abilities to achieve
objectives.

2. Controls should be timely – Information

needed for comparisons and control purposes
needs to be in the management’s hands in
order to make effective corrective action.
Delays in generating, gathering or
disseminating information can prolong the
occurrence and extent of deviation.
3. Controls must be cost effective – The benefit of
using appropriate controls should be worth their
cost of installation and operation. Too much
control can be worse than too little. The key is
to provide appropriate for the situation and
provide savings greater that the costs involved.

4. Controls should be accurate and concise –

Controls must provide information about
operations and people in sufficient quality and
quantity to enable managers to make meaningful
comparisons to operations standards. As with
control, too much information can be as bad as
too little.
5.Controls should be accepted by the
people they affect – Controls and their
applicability to specific situations should
be communicated clearly to those
responsible for implementing them and
to those who will be governed by them.
TYPES OF CONTROL SYSTEMS

1. Feed forward controls – are preventive

controls that try to anticipate problems
and take corrective action before they
occur.
2. Concurrent controls – (sometimes called
screening controls) occur while an activity is
taking place.
3. Feedback controls – measure activities that
have already been completed. Thus
corrections can take place after performance
is over.
TYPES OF CONTROL

Input Processes Output

Feed forward Concurrent Feedback

Control Control Control
Anticipates Corrects problems Corrects problems
problems as they happen after they occur
STEPS IN THE CONTROL PROCESS

1. Establishing Performance Standards – A

standard is a unit of measurement that can
serve as a reference point for evaluating
results. Management should set its sights
on something it wants to accomplish.
Managers should exercise control by
comparing performance to some standards
or goals.
TYPES OF STANDARDS

A. Tangible – clear, concrete specific and

generally measurable.

1. Numerical Standards – expressed in

numbers - items produced, absences,
percentage of sales, etc.

2. Monetary Standards – measured in

terms of money – profit margins,
costs, etc.
3. Physical Standards – quality, durability,
size, weight and other factors
related to physical composition.

4. Time Standards – refer to the speed with

which the job is to be done – project
completion dates.
B. Intangible Standards – relate to human
characteristics which are not expressed in
terms of numbers, money, physical qualities
or time – desirable attitude, high morale, ethics
and cooperation.
STEPS IN THE CONTROL PROCESS

2. Measuring Performance – After setting the

standards, managers must monitor performance
to ensure that it complies with the established
standards.

How Often to Measure Performance –

Determining how often to measure
performance is an important decision. A
strategic control point is a performance
measurement point located sufficiently early
in an activity to allow any necessary
corrective actions to be taken to accomplish the
objective.
How to Measure – This can be done through
the following:
1. Personal observation.
2. Written or oral reports by or about
employees.
3. Automatic methods.
4. Inspections, test or samples.
STEPS IN THE CONTROL PROCESS

3. Comparing Performance with Standards and

Analyzing Deviations. – Information receive regarding
a serious departure from standards should be
investigated in order to determine what caused the
deviation. Jumping into conclusion without
analyzing the problem might produce ineffective
corrective action.

It is also important to check results that are

substantially above standards in order to determine
why they varied from standards. Operating
procedures should be check to determine if these are
being followed correctly or if there is an improvement
in operations that should be included in the new
standards.
STEPS IN THE CONTROL PROCESS

4. Taking Corrective Action if Necessary – This is the final

step in the control process. Adjustments, fine-tuning, and
perhaps drastic action may be necessary to pull off
important tasks or to maintain standards.
Examples of Corrective Actions
-Making a decision to retrain a new employee whose
performance has not progressed as expected.
-Shifting several employees from their normal jobs to help
meet a deadline on another job.
-Counseling an employee whose performance has recently
been below standard.
-Reprimanding an employee for failure to adhere to safety
rules.
-Shutting down a piece of equipment for maintenance after
defective output is traced to it.
MANAGEMENT BY EXCEPTION

Even under the best of circumstances, deviations

from performance standards are bound to occur.
Given the broad range of areas over which
control is being exerted, it is essential to
distinguish between critical and less-critical
deviations.

Under management by exception, a manager

focuses on critical control needs and allows
employees to handle most routine deviations
from standards. The attention should be focused
on exceptional rather than routine problems.
CONTROL TECHNIQUES

• Besides budgets, there are other accounting

and financial concepts and techniques
which are used as control devices.
• This include responsibility accounting, cost
accounting, standard cost approach, direct
costing, and ratio analysis.
• This position of the financial study gauges
the projects profitability, liquidity, cash
solvency, and growth overtime.
TEST OF LIQUIDITY

• These measures are used to determine a firm’s ability to meet short-term

obligations, and to remain solvent in the event of adversities.

Current assets
a. Current ratio = Current Liabilities

Current assets-inventories
b. Quick or acid-test ratio = Current liabilities

Cost of sales
c. Liquidity of inventories = Average Inventory

Cash + marketable securities + receivables

d. Defensive Position = Projected operating expenditure/ No. of day
TEST OF THE DEBT SERVICE

• These test are employed to present the project’s ability

to meet long-term obligations.
Total liabilities
a. Debt to network ratio = Total Equities

Long term liabilities

b. Total Capitalization = Long term liabilities & equities
TEST OF PROFITABILITY

• These show the operational performance and efficiency of the project.

Net income after Tax

a. Net Profit Margin = Sales

Profit before interest and taxes

b. Operating profit margin = Sale

Gross profit
c. Gross profit margin = Sales

Net Income + interest

d. Return on financier’s investment = Stock equity & long term liability
 Net income
e. Return on owner’s investment = Stock Equity

Profit before interest & taxes

f. Return on net operating profit = Total tangible assets

Sales
g. Asset turnover = Total Tangible assets

Net Income
h. Return on assets, earning power= Total Tangible Assets
INTERNAL CONTROL

Internal control encompasses the policies and

procedures than an organization establishes to
ensure that it operates in accordance with
management’s intention and that
accountability is maintained for all
transactions. This includes the methods
adopted by the organization to safeguard its
assets, to check the accuracy and reliability of
its accounting data, to promote operational
efficiency and to encourage adherence to
prescribed policies and procedures.
INTERNAL CONTROL

Two Aspects of Internal Control

1. Administrative (Operational) Controls – are

generally aimed at improving operating
efficiencies or otherwise controlling the activities
of the organization.

2. Internal Accounting Controls – primarily directed

at reliable financial reporting (ensuring the
accuracy and reliability of financial data and
safeguarding of assets).
PURPOSE OF INTERNAL CONTROL

Internal Controls are put into place to allow management

to monitor operations, identify business risks and
generate pertinent financial and non-financial information.
These controls are designed and implemented so that
management can run the organization. Internal controls
also ensure that responsibilities are met.

Generally speaking, internal controls are established to

provide reasonable assurance that:

1. Transactions are executed in accordance with

management’s authorization.
PURPOSE OF INTERNAL CONTROL

2. Transactions are recorded as necessary to

permit the preparation of accurate financial
statements and to maintain accountability for the
organization’s assets.

3. Access to assets is restricted to instances

authorized by the management.

4. Assets are periodically compared with the

accounting records, both to determine the
accuracy of records and to account for the
assets.
ENDE
FIN
THE END
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