CHAPTER 9

CONTROLLING

1
Controlling
-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.
Control
-the actions made to ensure that activities
performed match the desired activities and
goals that have been set.
Importance of Controlling
When controlling is properly implemented, it
will help organization achieve its goal in the
most efficient and effective manner possible.

Steps in the Control Process
The control process consists of four steps,
namely:
1. Establishing performance objectives
and standards.
2. Measuring actual performance.
3. Comparing actual performance to
objectives and standards, and
4. Taking necessary action based on the
results of the comparisons.
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.

Measuring Actual Performance
There is a 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.
Example: A construction firm entered into a
contract with the government to construct a
100 km road within ten months. It would, then,
reasonable for management to expect at least
10kms to be constructed every month. As such,
this must be verified every month, or if possible,
every week.




CHAPTER 9
CONTROLLING

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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.
Citing the previous example if the management
of the construction firm found out that only
15kms were finished after 2 months, then any of
the following actions may be undertaken:
1. Hire additional personnel;
2. Use more equipment; or
3. Require overtime.

Types of Control
Feed forward Control
When management anticipates potential
problems and prevents their occurrence.
Concurrent Control
Undertaken when operations are
already on going and activities to detect
variances are made.
Feedback Control
Undertaken when information is
gathered about a completed activity in order
that evaluation and steps for improvement are
derived. Corrective actions aimed at improving
future activities are features of feedback
control.
The Long-Range Financial Plan
The planning horizon differs
from company to company. Most firms will be
satisfied with one year. Engineering firms,
however, will require long term financial plans.
This is because of the long lead times needed
for capital projects.
Example: An Engineering firm assigned to
construct the Light Railway Transit (LRT) within
three years. As such the 3-year financial plan
will be very useful.
Components of Organizational control systems
1. Strategic plan
2. The long-range financial plan
3. The operating budget
4. Performance appraisals
5. Statistical reports
6. Policies and procedures.

Strategic Plan
The output of strategic planning which
spells out the decision about long-range
goals and the course of action to achieve
these goals. It provides the basic control
mechanism for the organization.
When there are indications that activities do
not facilitate the accomplishment of
strategic goals, these activities are either
set aside, modified or expanded. These
corrective measures are made possible with
the adoption of strategic plans.
The Operating Budget
Indicates the expenditures, revenues, or
profit planned for some future period
regarding operations.
The figures appearing in the budget are
used as standard measurements for
performance



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Performance Appraisals
Measures employee performance. As
such, it provides employees with a guide on
how to do their jobs better in the future.It
also functions as effective checks on new
policies and programs.
Example: If a new equipment has been
acquired for the use of an employee, it
would be useful to find out if it had a
positive effect on his performance
Performance Appraisals
Measures employee performance. As
such, it provides employees with a guide on
how to do their jobs better in the future.It
also functions as effective checks on new
policies and programs.
Example: If a new equipment has been
acquired for the use of an employee, it
would be useful to find out if it had a
positive effect on his performance
Statistical Reports
Statistical Reports pertain to those that contain
data on various developments within the firm.
1. Labor efficiency rates
2. Quality control rejects
3. Accounts receivable
4. Accounts payable
5. Sales reports
6. Accident reports
7. Power consumption report

Policies and Procedures
Policies -the framework within which the
objectives must be pursued.
Procedure -a plan that describes the exact
series of actions to be taken in a given situation.
It is expected that policies and procedures laid
down by management will be followed. When
they are breached once in a while, management
is provided with a way to directly inquire on the
deviations.
STRATEGIC CONTROL SYSTEMS
To be able to assure the accomplishment of the
strategic objectives of the company, strategic
control systems, become necessary.
1. Financial analysis
2. Financial ration analysis
Financial Analysis
The success of most organization
depends heavily its financial performance. It is
just fitting that certain measurements of
financial performance be made so that
whatever deviations from standards are found
out, corrective action may be introduced.
Financial Ratio Analysis
Financial ratio analysis is a more elaborate
approach used in controlling activities.
Under this method, one account
appearing in the financial statement is paired
with another to constitute a ratio.The result will
be compared with a required norm which is
usually related to what other companies in the
industry have achieved, or what the company
has achieved in the past. When deviations
occur, explanations are sought in preparation
for whatever action is necessary




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Categories of Financial Ratio
1. Liquidity Ratios- assess the ability of a
company to meet its current obligations
2. Efficiency Ratios- show how effectively
certain assets or liabilities are being
used in the production of goods and
services.
3. Financial Leverage Ratios- designed to
assess the balance of financing
obtained through debt and equity
sources.
4. Profitability Ratios- measure how much
operating income or net income a
company is able to generate in relation
to its assets, owners equity, and sales

IDENTIFYING CONTROL PROBLEMS
Recognizing the need for control is one
thing, actually implementing it is another.
When operations become complex, the
engineer manager must consider useful steps in
controlling.
Comprehensive Internal Audit
An internal audit is one undertaken to
determine the efficiency and effectively of the
activities of an organization.
Symptoms of Inadequate Control
If a comprehensive internal audit
cannot be availed of for some reason, the use of
a checklist for symptoms of inadequate control
may be used.




Symptoms of Inadequate Control
(Kreitner)
1. An unexplained decline in revenues and
profits
2. A degradation of service (customer
complaints)
3. Employee dissatisfaction (complaints,
grievances, turnover)
4. Cash shortages caused by bloated
inventories or delinquent accounts
receivable.
5. Idle facilities or personnel.
6. Disorganized operations (workflow
bottlenecks, excessive paperwork).
7. Excessive costs.
8. Evidence of waste and inefficiency
(scrap, rework)