CHAPTER – 6

CONTROLLING AS A
MANAGEMENT
FUNCTION

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OBJECTIVES
After studying this chapter, you should be able to:

1. Meaning and need for control

2. Why and how do managers exercise
control?
3. What are the steps in the control
LEARNING

process?
4. Designing Effective control system
5. Types and Techniques of control
6. What are the common organizational
controls?
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 Introduction and Overview of Controlling

 Regardless of the thoroughness of the planning done, a

program or decision still may be poorly or improperly
implemented without a satisfactory control system in place.
Controlling is that process of regulating organizational
activities so that actual performance conforms to expected
organizational goals and standards.
 Controls serve other important roles including helping
managers cope with uncertainty, detecting irregularities,
identifying opportunities, handling complex situations, and
decentralizing authority.
 To beeffective, control systems should be future-oriented,
multidimensional, cost-effective, accurate, realistic, timely
monitor able, acceptable to organization members, and
flexible.
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 What Is Control?
 Controlling is that process of regulating organizational
activities so that actual performance conforms to
expected organizational goals and standards.
 It sees to it that the right things happen, in the right
ways, and at the right time.
 Controlling
 The process of monitoring activities to ensure that they
are being accomplished as planned and of correcting
any significant deviations.
 Control is the process of taking the necessary
preventive or corrective actions to ensure that the
organization’s mission and objectives are
accomplished as effectively and efficiently as possible.

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 The Purpose/ Importance of Controlling

 The Purpose of Control

To ensure that activities are completed in ways that lead
to accomplishment of organizational goals.
 Importance of Controlling
– Controls make plans effective.
– Controls make sure that organizational activities are
consistent.
– Controls make organizations effective.
– Controls make organizations efficient.
– Controls provide feedback on project status.
– Controls aid in decision making.

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 Why Is Control Important?
 As the final link in management functions:
– Planning
• Controls let managers know whether their goals
and plans are on target and what future actions
to take.
– Empowering employees
• Control systems provide managers with
information and feedback on employee
performance.
– Protecting the workplace
• Controls enhance physical security and help
minimize workplace disruptions.
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The role of controlling in the
management process
The Planning–Controlling Link

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 The Control Process

The Process of Control

 Step 1 — establish objectives
and standards.
 Step 2 — measure actual
performance.
 Step 3 — compare results with
objectives and standards.
 Step 4 — take corrective
action as needed.

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steps in the control process
 Cont’d

 Step 1 — establishing objectives and

standards
– Output standards
• Measure performance results in terms of
quantity, quality, cost, or time.
– Input standards
• Measure effort in terms of amount of work
expended in task performance.

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 Cont’d

 Step 2 — measuring actual performance

– Goal is accurate measurement of actual
performance results and/or performance efforts.
– Must identify significant differences between
actual results and original plan.
– Effective control requires measurement.

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 Measuring: How and What We Measure

 Sources of  Control Criteria (What)

Information (How)
– Employees
– Personal
observation • Satisfaction
• Turnover
– Statistical reports
• Absenteeism
– Oral reports
– Written reports – Budgets
• Costs
• Output
• Sales

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Common Sources of Information for Measuring Performance

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 Cont’d
 Step 3 — comparing results with objectives and
standards
– Need for action reflects the difference between
desired performance and actual performance
 Determining the degree of variation between actual
performance and the standard.
– Significance of variation is determined by:
 The acceptable range of variation from the standard
(forecast or budget).
 The size (large or small) and direction (over or under)
of the variation from the standard (forecast or budget).
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Defining the Acceptable Range of Variation

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 Cont’d

 Step 4 — taking corrective action

– Taking action when a discrepancy exists
between desired and actual performance.
– Variances from goals and standards require that
managers take corrective action.
– When actual performance easily exceeds a goal,
corrective action might include raising the goal.
– When actual performance falls short of a goal,
depending on what further investigation reveals,
managers might change strategy, operations, or
personnel.

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 Designing Control Systems
 A control system is a set of mechanisms that are designed to
increase the probability of meeting organizational standards
and goals.
 There are three different approaches to designing
organizational control systems.
 Market Control
– Emphasizes the use of external market mechanisms to establish
the standards used in the control system.
• External measures: price competition and relative market share
 Bureaucratic Control
– Emphasizes organizational authority and relies on rules,
regulations, procedures, and policies.
 Clan/Fraternity Control
– Regulates behavior by shared values, norms, traditions, rituals,
and beliefs of the firm’s culture.
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Characteristics of Three Approaches to Control Systems
Type of Control Characteristics

Market Uses external market mechanisms, such as price

competition and relative market share, to establish
standards used in system. Typically used by organizations
whose products or services are clearly specified and
distinct and that face considerable marketplace
competition.
Bureaucratic Emphasizes organizational authority. Relies on
administrative and hierarchical mechanisms, such as
rules, regulations, procedures, policies, standardization of
activities, well-defined job descriptions, and budgets to
ensure that employees exhibit appropriate behaviors and
meet performance standards.

Clan/Fraternity Regulates employee behavior by the shared values,

norms, traditions, rituals, beliefs, and other aspects of the
organization’s culture. Often used by organizations in
which teams are common and technology is changing
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reserved. 18–19
 Types of controls
 Controls can be classified according to their timing or place in
the productive cycle.
 Feedforward controls
 Employed before a work activity begins
 Ensures that: Objectives are clear ,Proper directions are established
and Right resources are available
 Goal is to solve problems before they occur
 Concurrent controls
 Focus on what happens during work process
 Monitor ongoing operations to make sure they are being done according
to plan
 Goal is to solve problems as they occur
 Feedback controls
 Take place after work is completed
 Focus on quality of end results
 Goal is to solve problems after they occur and prevent future ones
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The role of feedforward, concurrent, and feedback
controls in organizations.

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 Types of controls(Cont’d)
 Managers have two broad options with respect to control.
1. They can rely on people to exercise self-control (internal)
over their own behavior.
 Allows motivated individuals to exercise self-control in
fulfilling job expectations.
 The potential for self-control is enhanced when capable
people have clear performance objectives and proper
resource support.
2. Alternatively, managers can take direct action (external) to
control the behavior of others.
 It occurs through personal supervision and the use of formal
administrative systems.
 Performance appraisal systems, compensation and benefit
systems, employee discipline systems, and management-by-
objectives.
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 What are the common organizational controls?

1. Management by Objectives (MBO)

2. Employee discipline systems
3. Break-even analysis …
4. Inventory control
5. Financial Controls.
6. Statistical quality control

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 Cont’d

 Management by Objectives (MBO)

– A structured process of regular communication.
– Supervisor/team leader and workers jointly set
performance objectives.
– Supervisor/team leader and workers jointly
review results.

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 Cont’d
 Employee discipline systems
 Discipline is the act of influencing behavior through reprimand.
 Discipline that is applied fairly, consistently, and systematically
provides useful control.
 To be effective, reprimands should …
– Be immediate.
– Be directed toward actions, not personality.
– Be consistently applied.
– Be informative.
– Occur in a supportive setting.
– Support realistic rules.
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 Cont’d
 Break-even analysis …
– Determination of the point at which sales revenues are
sufficient to cover costs.
– Break-Even Point = Fixed Costs / (Price – Variable Costs)
– Used in evaluating:
• New products and New program initiatives

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 Cont’d

 Inventory control
– Goal is to ensure that inventory is just the
right size to meet performance needs, thus
minimizing the cost.
– Methods of inventory control:
• Economic order quantity
• Just-in-time scheduling

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 Cont’d
 Financial Controls.
 Understand the implication of key financial measures of
(ratios) organizational performance
 Important financial aspects of organizational performance
…
– Liquidity
• The ability to generate cash to pay bills.
– Leverage
• The ability to earn more in returns than the cost of debt.
– Asset management
• The ability to use resources efficiently and operate at
minimum cost.
– Profitability
• The ability to earn revenues greater than costs.
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 Cont’d
 Statistical quality control
– Based on the establishment of upper and lower control
limits, that can be graphically and statistically monitored
to ensure that products meet standards.
– Quality control involves checking processes, materials,
products, and services to ensure that they meet high
standards.
– Statistical quality control involves:
• Taking samples of work.
• Measuring quality in the samples.
• Determining the acceptability of results.

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 Summary
 Controlling is a four-step process of establishing
performance standards based on the firm's objectives,
measuring and reporting actual performance, comparing
the two, and taking corrective or preventive action as
necessary.
 Control is an indispensable function of management
process. Without the control function, management
process is incomplete.
 The control system helps in improving organizational
efficiency. Various control devices act as motivators to
managers.
 The performance of every person is regularly monitored
and any deficiency if present is corrected at the earliest.
Controls put psychological pressure on persons in the
organization.
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