CONTROLLING

Controlling is the process

of measuring and correcting
activities of an organization.

Controlling should never

be considered negative.
 NATURE OF PLANNING
• There can only be effective controlling if
there are the other four fundamental
functions of management.
• Planning is related to controlling,
planning identifies to do for future
accomplishement. The failure of
controlling would mean failure of
planning, and succes of planning would
mean success of controlling.
THE CONTROL PROCESS
1. Establishing standards - Standards are desired
levels of performance and constitute the foundation
of the control process. It is difficult to set specific
standards to measure the performance of an
executive.
 Quantity, quality, time and cost.
 It is not always possible to achive or maintain the
established standards.
2. Measuring performance against
the established standards
• Quantitative measures and those
aspects that are difficult.
• This is significant because it provides
the real documented information
which is subsequently compared with
the established standards.
 Determine Performance
Standards

Measurement of Actual
1. Monitoring Stage Performances

Comparison of
2. Reviewing Stage Actual and Planned
Performances

Take Corrective
3.Correcting Stage
Action

Follow-Through
4. Follow-up Stage
Actions
• Quality - Performance from each group or
departnment.
• Quantity - Finding out the amount or number of
the output of the group or department.
• Time - Formulaating a timetable for achieving
certain goals at certain dates.
• Cost - The object tools as a guide to actual
production efforts & keep them within desired and
expected limit.
3. Comparison of Actual
Performance - This is the core of
control process. Managers must
constantly seek to answer “How well
we are doing?”.
• Checking return on investment is a
comparison place of control.
4. Taking corrective action when and
where deviation from the standrads
occur - When a significant discrepancy
occurs between the actual output or
performance and the planned or pre
determined performance standard.
Specific action must be taken to correct
the situation.
5. Follow Through - Often the control
process is innefective or fails because the
corrective actions recommended in not
followed through. The responsibility for that
corrective action is not over just by making
recommendation. The supperior must follow
through his recommendation to see whether
the individual participates and makes
progress in the training.
Characteristics of Control - The function of
control is to keep work moving on schedule as
planned towards the established objectives and
goals. To achieve this, control should meet
certain characteristics:

• Attuned to the Activity- control should

reflect the needs of people using them.
• Deviations must be identified quickly
• Control must be forward-looking
• Control must be strategically oriented-
Care should be exercised in selecting these
crucial points.
• Control should be flexible- should permit
for unexpected changes or situations
• Control should be economical- should not
exceed.
• Control should be easy to understand-
they become useless.
• Control should indicate corrective
action[-
who or what is causing deviations and what
should be done about it is the important
aspect of control.
TYPES OF CONTROL
1. Controls used to standardize performance- his
helps to increase efficiency and decrease costs.
motion and time studies, inspection, written
procedures and production schedules.
2. Control used to safeguard company assets- the
assets of a company must be protected from theft,
vandalism, wastage and misuse.
3. Control used to standardize quality- these helps
to maintain the specified quality level of products.
4. Controls designed to set limits within which
delegated authority can be exercised without
further top management approval.
5. Controls used to measure job
performance- special reports, output data,
performance appraisals, and internal audits
are typical examples.
6. Controls used for planning and
programming operations.
7. Controls necessary to allow top
management to keep the firm’s various
plans and programs in balance.
8. Controls designed to motivate
individuals.
CONTROL METHODS AND SYSTEMS
There are two kinds of control methods:

Behavior Control (or personal) control- is

based on direct, personal surveillance. The first-
line supervisor who maintains a close personal
watch over subordinates is using behavior
control.

Output (impersonal) control- is based on the

measurements of outputs. Tracking, production
records or sales are examples of output
controls.
Fexible Budget- Budgets are designed to
vary with the volume of sales or some other
measure of output.
Zero-Base Budgeting- One approach to
budgeting that has recieved attention over
the several years. To justify on entire budget
request in detail.
Direct Observation- A store manager's
daily tour of the facility; a company
president's annual visit to all branches.
Visits and direct observations can have
positive effects.
Written Reports - on a periodic or “as
neccessary”. There are two basic types;
analytic and informational. Analytic
reports interpret the facts they present;
informational reports only present the
facts.
The steps are:
1. Planning the attack ofn the problem.
2. Collecting the facts
3. Organizing the facts.
4. interpreting the facts
5. Writing the report
Audits - internal or external
personnel.
• External audits- outside accounts
and are limited to financial matters.
• Internal audits- performed by the
organization's own personnel.
-A break even chart, revenue and/or
cost are running as planned.
Time Related Charts and
Techniques
Gantts charts, the critical path
method (CPM), and the program
evaluation review technique (PERT)
are tools used to plan and schedule.
By tracking actual progress
compared to planned progress,
activities that fall behind schedule
can quickly be spotted.
Management by Objectives - is an
effective means for setting objectives.
It also can be used for control
purposes.
Management Information System -
is a formal system for providing
information to managers. Managerial
control by giving managers better
information on a timely basis.
Accounting Concepts and Techniques
as Control Devices

Cost accounting
– Helps to provide information and control costs.
– Uses standard costs as a measure in its approach.
Standard costs – are estimated for each product prior to
production and after production they are compared
against actual costs.

Direct Costing - takes only labor and material cost as variable

costs.
1. Tests 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.

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

c. Liquidity of inventories =
Cost of sales
Average Inventory

d. Defensive position =
Cash + marketable securities + receivables
Projected operating expenditure/No. of days
2. Tests of debt service – These tests are
employed to present the project’s ability to meet
long-term obligations.

Total Liabilities
a. Debt-to-networth ratio =
Total Equities

Long-term liabilities
a. Total capitalization =
Long-term liabilities & equities
3. Tests of profitability

a. Net profit margin = Net income after tax

Sales
b. Operating profit margin = Profit before interest and taxes
Sales
c. Gross profit margin = Gross profit
Sales
d. Return on financer's investment = Net income + interest
Stock equity & long term liability
e. Return on owner's investment = Net income
Stock equity
f. Return on net operating profit = Profit before interest & taxes
Total tangible assets
g. Asset turn over = Sales
Total tangible assets

h. Return on assets, or earning power = Net income

Total tangible asset

4.Test of debt total coverage= Profit before interest and taxes

(interest + principal payments)
(1/1 - imcome tax rate)
5. Funds-flow analysis- This technique is
employed to determine the major uses and
sources by funds.

6. Cash flow analysis:

1. Sources of funds
a) Net decreases in any asset other than cash
b) Net increases in any liability
c) Proceeds from the sales of stocks
d) Funds provided by operation
2. Uses of funds
1. Net increases in any asset other
than cash and fixed asset
2. Gross increase in fixed asset
3. Net decreases in any liabilty
4. A retirement of stock
5. Cash divedends

b. Working capital flow analysis:

1) Sources of funds
a) Net decrease in any asset other than current
assets
b) Net increases in long-term liabilities
c) Proceeds from the sale of stock
d) Funds provided by operation

2. Uses of funds
a) Net increase in other assets
b) Fixed increase on fixed assets
c) Net decrease in long-term liabilities
d) Retirement of stock
e) Cash dividends
 Fixed costs
Selling price – variable cost/unit
Production Control-
Inventory Control
 PERT DIAGRAM

Parts for 2 days 4 days Entire

Sub
Cover Cover
Assembly
Ordered Assembled
4 days

Finished
Products

Parts of 2 days 5 days Entire 8 days

Sub
Engine Engine
Ordered Assembly Assembled
By comparing inventory cost with cost of sales, inventory,
turn over rate can be computed.

Inventory turnover = Cost of good sold

cost of average inventory
• Control, minimum and maximum inventory levels
must be maintained.

Economic Order Quantity

-Is issued to determine the most economic level of
inventory.
-Carrying cost (cost of maintaining the inventory) and
Ordering cost (cost involved in placing orders.)
 2 𝑆𝑐
𝐸𝑂𝑄 =
𝑉𝑖

2 𝑥 6000 𝑥 20
=
15 𝑥 0.10

240000
=
1.5

= 160,000
= 400 unit every time the order must be
placed for 400 units to arrive at an economic
level.
Maintenance of Inventory
When the inventory is received, people in the receiving
department check the number and quality of the inventory and
compare it with orders. The inventory is sent to the stockroom.
Proper arrangement of inventory in stockrooms save cost and
delay. When inventories are large, proper identification such
as the following are used:

• Alphabetical: based on the same predetermined scheme,

a letter on group of letters are used.
• Mnemonic: the use of letter in some combination such that
suggest the classification name of the particular item.
• Numerical: the use of number to identify the item.
• Sign: the use of symbols or sign to identify the item.
• Combination: the use of any two of the above methods.
Control by Reports

A manager, supervisor or a foreman cannot

be everywhere to check everything at all times. He
has to defend any report’s for feedback of
information. Report constitute the backbone of
control. As part of training, managers learn to write
reports of various sort and interpret them. Failure
to handle the report would affect their decision
making ability because feedback