Chapter Six

Controlling Functions

By
Mesfin A. (PhD Scholar)

Target Groups: For 1st Year MBA Students

 Definition

 Controlling is the process through which

managers assure that actual activities conform to
planned activities

 It sees to it that the right things happen, in the

right ways, and at the right time.
 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 and
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.
 Relationship with other management functions

 The controlling process is closely associated with

the other 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.
 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.
 Controlling Process
 Establish objectives and standards.
 Measure actual performance.
 Compare results with objectives and
standards.
 Take necessary action.
 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.
 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.
 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 / Engineering
 Benchmarking
 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
 Types of Controlling
 Control can focus on events before, during, or
after a process.
 Based on these three types of control are
identified:
 Preliminary
 Concurrent
 Post-action
 Pre-action/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.
 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.
 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.
 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
 Controlling 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
 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
 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 (equity).
 Financial audits are regularly conducted to ensure
that financial management practices follow
generally accepted procedures, policies, laws, and
ethical guidelines.
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.
 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.
 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
 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.
 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.