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CONTROLLING

To ensure positive result


Why control is important?
 To an individual

To ensure positive
results

To avoid consequences
that you won’t be able
to face
Why control is important?
 To an Organization
provides critical link back to
planning by knowing whether
their goals and plans were on
target and what future actions to
take
provide information and
feedback on employee
performance,
to protect the organization and its
assets, comprehensive controls and
backup plans helps assure only
minimal disruptions of their
ongoing business operations
WHAT IS CONTROLLING?
 processes of making something happen the way it was
planned to happen
 sees to it that the rights things happen in the right way and at
the right time.
 helps ensure that the performance contributions of individuals
and groups are consistent with organizational plans.
 helps ensure that performance accomplishments throughout
an organization are consistent with one another in means-
ends fashion.
 helps ensure that people comply with organizational policies
and procedures
Controlling Process
 Establishing Objective and Standards
 Measuring Actual Performance
 Comparing Results with Objectives and Standards
 Taking Corrective Action
Establishing Objective and Standards
 performance objectives are defined and the standards for
measuring them are set

 • Output standard measures performance results in terms of


quantity, quality, cost, or time..

 • Input standard measures work efforts that go into a


performance task. They are used in situations where outputs are
difficult or expensive to measure..
Measuring Actual Performance
 measure actual performance.
 The goal here is to measure accurately the performance
results (output standards) and/or performance efforts
(input standards)
Comparing Results with Objectives and
Standards
 compare measured performance with the objectives and
standards to establish the need for action

Need for action = Desired performance — Actual Performance

• Historical Comparison — uses past performance as a benchmark for


evaluating current performance.
 
• Relative Comparison — uses the performance achievements of other
persons, work units, or organizations as the evaluation standard.
 
• Engineering Comparison — uses engineered standards set scientifically
through such methods as time and motion studies.
Taking Corrective Action
 taking any action necessary to correct or improve things
 This allows for a judicious use of management by
exception — the practice of giving priority attention to
situations that shows the greatest need for action. Two
types of exceptions may be encountered:
 • Problem situation - actual performance is below the
standard.
 • Opportunity situation — actual performance is above
the standard.
Requirements of Effective Controls
 Controls should serve the need for which they are intended.
 Controls should be economical.
 Controls should be stable yet flexible.
 Controls should indicate changes or deviations.
 Controls should be objective.
 Controls should take into consideration the organization
structure.
 Control must be understood by those who are to use them.
 Controls should be able to indicate future deviation that need
corrective action or further study.
 Effective controls should be able to indicate alternatives to
correct deviation.
Types of Control

Inputs Process Output

Feedforward Control Concurrent Control Feedback Control

Anticipate problems
Ensure the right Control problems after
directions are set and Correct problems as they they occur
the right resource happen Ensure that the final results
inputs are available Ensure the right things are are up to desired standards
being done as part of
work-flow operations
Internal vs. External Control
 Managers have two broad options with respect to control.

 Internal control occurs if managers rely on people to


exercise self- control over their own behavior. It allows
motivated individuals and groups to exercise self-
discipline in fulfilling job expectations.

 External control happens if managers take direct action to


control the behavior of others. It occurs through personal
supervision and the use of formal administrative systems
MANAGEMENT PROCESS CONTROLS
 The day-to-day operations of the management process can
go a long way in helping the control behavior in
organizations.
 In Planning
 Control via strategy and an objective occurs when work
behaviors are initially directed toward the right end results.
 Control via policies and procedures operate in similar ways
as control via strategy and objectives.
 Control via learning occurs when past experiences are
systematically considered and incorporated into future
strategies, objectives, policies, and procedures.
 In Organizing
 Control by selection and training occurs when capable
people are hired and given the ongoing training needed to
perform their jobs at high levels of accomplishment.
 Control via performance appraisal occurs when
individual performance is assessed and evaluated to
ensure high performance results and to identify areas
where training development is needed.
 Control via job design and work structures involves
putting people to in jobs that are designed to best fit the
job holder’s talent.
 In Influencing
 Control through performance modeling means that
leadership sets the example and that workers have good
models to follow in their job activities.
 Control by performance norms occurs when team or groups
members share commitments to high performance standards
and reinforces one another’s efforts to meet them.
 Control via organization structure occurs when an
organization’s leadership helps build strong values for the
organization as a whole.
  
Employee Discipline Systems
 Discipline can be defined as influencing behavior through
reprimand. Ideally, this form of managerial control should
be handled in a fair, consistent, and systematic way

 Progressive discipline
 is the process of tying reprimands to the severity and frequency
of misbehavior.
 penalties vary according to how significant a disruptive
behavior is and how often it occurs.
 Its goal is to achieve compliance with organizational
expectations through the least extreme reprimand possible
Information and Financial Controls
 When the utilization of resources is considered from the
standpoint of managerial control, the use of information in
financial analysis of firm or organizational performance is
critical.
 Managers should be able to understand and assess for
control purposes the following important financial aspects
of organizational performance
Objective Ratio Calculation Meaning

Liquidity Current Tests the


Ratio organization’s ability
to meet short-term
obligations.

Acid Test Test liquidity more


accurately when
inventories turn over
slowly or are difficult
to sell.
Leverage Debt to The higher the
Assets ratio, the more
leveraged the
organization.

Time Measures how


Interest many times the
Earned organization is
able to meet its
interest expenses
Activity Inventory The higher the ratio,
Turnover the more efficiently
inventory assets are
being used

Total Assets The fewer assets


Turnover used to achieve a
given level of sales,
the more efficiently
management is
using the
organization’s total
assets
Profitabi Profit Identifies the
lity Margin on profits that were
Sales generated by
various products or
service.

Return on Measures the


Investmen efficiency of assets
t to generate profits.
Sample: Financial Statement
Balance Sheet Statement
Dell Computer Corporation
Income Statement
Dell Computer Corporation
Operation Management and Control
 PURCHASING CONTROL
 Among the approaches now being tried to control the costs of purchases
are:

 Leverage buying power — organizations are centralizing purchasing to


allow buying in volume.

 Small number of suppliers — organizations are committing only to


suppliers with whom they can negotiate special contracts, gain quality
assurances, and get preferred services.

 Supplier-Purchaser Partnership — organizations find ways to work


together in a partnership so they can operate in ways that allow each
partner to contain its costs.
Continuation…..
 INVENTORY CONTROL
 The basic principle of inventory control is to make sure that it
is just the right size for the task at hand. Among the
approaches in inventory controls are:
  
 Economic Order Quantity (EOQ) - is a method of inventory
control that involves ordering a fixed number of items every
time an inventory level falls to a predetermined point.
  
 Just-in-Time (JIT) Scheduling - schedules materials to
arrive at a workstation of facility “just in time” to be used.
Continuation…
 PROJECT MANAGEMENT AND CONTROL
 Project management makes sure that all activities in a
project are completed on time, in the order specified, and
with high quality. Among the techniques used to facilitate
project management is the PERT/CPM, which identifies
and controls the many separate events in complex projects
Continuation….
 QUALITY CONTROL
 Quality control involves checking processes, materials,
products, or services to ensure that they meet high
standards. One useful technique to quality control is the
statistical quality control, which is the application of
statistical techniques to assist in quality control. It usually
uses control charts which display work results on a graph
that shows upper and lower control limits (UCL and LCL)
Potential Barriers to Successful
Controlling
 LONG-TERM vs. SHORT-TERM PRODUCTION
 A manager, in striving to meet planned weekly production
quotas, might be tempted to “push” machines in a
particular area so hard they cannot be serviced properly.
This kind of management behavior would ensure that
planned performance and actual performance are
equivalent in the short term, but it might well cause the
machines to deteriorate to the point where it is impossible
to meet long-term production quotas
Continuation…
 EMPLOYEE FRUSTRATION AND MORALE
 Worker morale tends to be low when management exerts
too much control.
 Employees become frustrated when they perceive
management is too rigid in its thinking and will not allow
them the freedom they need in order to do a good job.
 Overcontrol may also make employees suspect that
control activities are merely a tactic to pressure them to
work harder to increase production
Continuation….
 FILING OF REPORTS
 Employees may perceive that management is basing
corrective actions solely on department records with no
regard for extenuating circumstances. If this is the case,
they may feel pressured to falsify reports so that corrective
action pertaining to their organizational unit will not be
too drastic
Continuation….
 PERSPECTIVE OF ORGANIZATION MEMBERS
 Although controls can be designed to focus on relatively
narrow aspects of an organization, managers must
remember to consider any prospective corrective action
not only in relation to the specific activity being
controlled but also in relation to all other organizational
unit
Continuation…
 MEANS VS. ENDS
 Control activities are not the goals of the control process;
they are merely the means to eliminating problems.
 Managers must keep in mind throughout the control
process that the information gathering and report
generating done to facilitate taking corrective action are
activities that can be justified only if they yield some
organizational benefit that exceeds the cost of performing
them
Making Control Successful
 SPECIFIC ORGANIZATIONAL ACTIVITIES
BEING FOCUSED ON
 Managers should make sure the various facets of the
control process are appropriate to the control activity
under consideration
 DIFFERENT KINDS OF ORGANIZATIONAL
GOALS
 Managers should remember that the control process can
be applied to many different facets of organizational life,
and that, if the organization is to receive maximum benefit
from controlling, each of these facets must be emphasized
Continuation…
 TIMELY CORRECTIVE ACTION
 Managers should take the corrective action as promptly as possible to
ensure that the situation depicted by the information gathered has not
changed. Unless corrective actions are timely, the organizational
advantage of taking them may not materialize.
 COMMUNICATION OF THE MECHANICS OF THE CONTROL
PROCESS
 Managers should take steps to ensure that people know exactly what
information is required for a particular control process, how the
information is to be gathered and used to compile various reports, what
the purposes of the various reports are, and what corrective actions are
appropriate given those reports.
 For control to be successful, all individuals involved in controlling must
have a working knowledge of how the control process operates