Chapter Ten

Fundamentals of Controlling
1. Definition
Controlling is the process through which
managers assure that actual activities
conform to planned activities
It sees that the right things happen, in the
right ways, and at the right time.
 2. Purposes of Controlling
Controls make plans effective
 Managers need to measure progress, offer feedback,
and direct their teams if they want to succeed.
Controls make sure that organizational activities are
consistent
 Policies and procedures help ensure that efforts are
integrated.
 Controls make organizations effective
 Controls make organizations efficient
 Efficiency probably depends more on controls than
any other management function.
 Purposes of controlling Cont’d
Controls provide feedback on project status.
 Feedback influences behavior and is an essential
ingredient in the control process.
Controls aid in decision making.
 Controls make managers aware of problems and give
them information that is necessary for decision
making.
Adapting to changing conditions
 A properly designed control system allows managers
to effectively anticipate, monitor, and respond to
often constantly changing conditions.
3. Relationship with other management functions

The controlling process is closely associated with

the other three functions of management:
planning, organizing and leading.
 It builds most directly on the planning function
by providing the means for monitoring and
making adjustment in performance
 Controlling also supports the organizing and
leading functions by helping ensure those
resources are channeled toward organizational
objectives.
4. Characteristics of an Effective Control System
Future–Oriented
 To be effective, control systems need to help regulate
future events, rather than fix blame for past events.
 Multidimensional
 need to be multidimensional in order to capture the major
relevant performance factors, such as, quality, quantity,
overhead, etc.
 Economically Realistic/ Cost Effective
 The cost of implementing a control system should be
less, or at most, equal to the benefits derived from the
control system.
Characteristics Cont’d

Accurate
 Since control systems provide the basis for
future actions, accuracy is vital.
 Acceptable to Organization Members
 Control systems operate best when they
are accepted by the organization members
who are affected by them 
Characteristics Cont’d

Timely
 Control systems must provide relevant
information soon enough to allow corrective
action before there are serious repercussions or
consequences
 Reliability and Validity
 Controls not only must be dependable (reliable),
but also must measure what they intend to
measure (must be valid).
Characteristics Cont’d

Flexible
Control systems need to be flexible
enough to meet new or revised
requirements.
 Easy to Understand
The simpler the control, the easier it
will be to understand and apply.
5.Controlling Process
Establish objectives and standards.
 Measure actual performance.
 Compare results with objectives and
standards.
 Take necessary action.
5.1 Establish Objectives and Standards

• Performance objectives are defined and the

standards for measuring them are set.
• There are two types of standards:
– Output Standards - measures
performance results in terms of quantity,
quality, cost, or time.
– Input Standards - measures work efforts
that go into a performance task.
5.2 Measuring Actual Performance
 Measurements must be accurate enough to
spot deviations or variances between what
really occurs and what is most desired.
 Without measurement, effective control is not
possible.
5.3 Comparing Results with Objectives and Standards
 The comparison of actual performance with
desired performance establishes the need for
action.
 Ways of making such comparisons include:
 Historical / Relative
 Benchmarking
5.4 Taking Corrective Action
 The corrective action to be taken depends up on
the type of deviation that exists
 When performance exactly meets (deviation of
zero) or exceeds (positive deviation) the
standards set - recognizing the positive
performance
 When standards are not meet, managers must
carefully assess the reason why and take
corrective action
6.Types of Controlling
 Control can focus on events before, during, or
after a process. Based on this three types of
control are identified:
 Preliminary
 Concurrent
 Post-action
6.1 Preliminary/Preventive/Steering/Input Control
 accomplished before a work activity begins.
 make sure that proper directions are set and that the
right resources are available to accomplish them.
 attempts to monitor the quality and/or quantity of
resources (human, material, and financial) within the
organization
 aims to prevent problems before they arise
 It is future oriented
6.2 Concurrent/Screening/ Yes-No/Checking Control

monitor ongoing operations and activities to

make sure that things are being done correctly.
 rely on performance standards, rules, and
regulations for guiding employee tasks and
behaviors.
 the purpose is to ensure that work activities
produce the desired results.
 Concurrent Cont’d
the only controls that can cope with
contingencies (unexpected events) that cannot be
anticipated
 When contingencies arise involving activities in
a transformation process, a yes/no decision is
required
decision must be made whether to:
 continue as before or follow an alternative course, or
 take corrective action, or
 stop work altogether.
6.3 Feedback/Post-Action/Output Controls

they take place after an action is completed.

 They focus on end results, as opposed to inputs
and activities.
 its purpose is to:
help prevent mistakes in the future and
also it can be used as a base for reward
7.Designing Effective Control Systems

1. Establish valid performance standards.

2. Provide adequate information to
employees.
3. Ensure acceptability to employees.
4. Maintain open communication.
5. Use multiple approaches.
8.Controlling Techniques
Control techniques provide managers with the
type and amount of information they need to
measure and monitor performance.
 Includes:
 Financial controls
 Budget controls
 Marketing controls
 Human resource controls
 Computers and information controls
8.1 Financial Controls
Financial statements provide management
with information to monitor financial
resources and activities.
 The income statement shows the results of the
organization’s operations over a period of
time, such as revenues, expenses, and profit or
loss.
 Financial controls Cont’d
The balance sheet shows:
 what the organization is worth (assets) at a single
point in time, and
 the extent to which those assets were financed
through debt (liabilities) or owner’s investment.
 Financial audits are regularly conducted to
ensure that financial management practices
follow generally accepted procedures, policies,
laws, and ethical guidelines.
 Financial controls Cont’d
 Financial ratio analysis:
 examines the relationship between specific figures on the
financial statements and
 helps explain the significance of those figures:
 Financial ratios include:
 Liquidity ratios measure an organization’s ability to generate
cash.
 Profitability ratios measure an organization’s ability to
generate profits.
 Debt ratios measure an organization’s ability to pay its debts.
 Activity ratios measure an organization’s efficiency in
operations and use of assets.
8.2 Budget Controls
A budget, in reality, is both:
 a planning tool and
 a control mechanism
 A budget depicts how much an organization:
 expects to spend (expenses) and
 earn (revenues) over a time period.
 Budgets also help managers keep track of their
overall spending
8.3 Marketing Controls
help to monitor progress toward goals for customer
satisfaction with products and services, prices, and delivery.
 Examples of controls used to evaluate an organization’s
marketing functions:
 Market research gathers data to assess customer needs
 Test marketing is small-scale product marketing to
assess customer acceptance
 Marketing statistics measure performance by compiling
data and analyzing results
 8.4 Human Resource Controls
help managers regulate:
 the quality of newly hired personnel,
 as well as monitor current employees’
developments and daily performances.
 Common control types include:
 performance appraisals
 disciplinary programs
 observations, and
 training and development assessments.
8.5 Computers and Information Controls

It is Controlling access to computer databases

The aim is to protect confidential and sensitive
information that an organization don’t want to
become general knowledge
The End!!