Controlling as a Management Function

Controlling
A

process
of
monitoring
performance and taking action
to ensure desired results.
It sees to it that the right
things happen, in the right
ways, and at the right time.
2

Controlling as a Management Function

Controlling
Done

well, it ensures that the

overall directions of individuals
and groups are consistent with
short and long range plans.
It helps ensure that objectives
and
accomplishments
are
consistent with one another
throughout an organization.

Controlling as a Management Function

Controlling
It

helps
maintain
compliance with essential
organizational rules and
policies.

The Control Process

Establish

objectives

and

standards.
Measure
actual
performance.
Compare
results
with
objectives and standards.
Take necessary action.
5

Establish Objectives and Standards

The

control process begins with

planning and the establishment
of performance objectives.
Performance
objectives are
defined and the standards for
measuring them are set.
6

Establish Objectives and Standards

There

are
standards:

Output

two

types

of

Standards
measures
performance results in terms of
quantity, quality, cost, or time.
Input Standards - measures work
efforts that go into a performance
task.
7

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

Taking

any action necessary to

correct or improve things.
Management-by-Exception
focuses managerial attention on
substantial differences between
actual and desired performance.

10

Taking Corrective Action

Management-by Exception can save
the managers time, energy, and
other resources, and concentrates
efforts on areas showing the greatest
need.
There are two types of exceptions:
Problems - below standard

Opportunities - above standard

11

Effective Controls

The Best Controls in

Organizations are
Strategic and results oriented
Understandable
Encourage self-control

12

Effective Controls

The Best Controls in

Organizations are
Timely and exception oriented
Positive in nature
Fair and objective
Flexible
13

Types of Control
Preliminary
Sometimes called the feedforward
controls, they are accomplished
before a work activity begins.
They make sure that proper
directions are set and that the right
resources
are
available
to
accomplish them.
14

Types of Control

Concurrent
Focus on what happens during
the work process.
Sometimes
called steering controls, they
monitor ongoing operations and
activities to make sure that
things are being done correctly.
15

Types of Control

Postaction
Sometimes called feedback
controls, they take place
after an action is completed.
They focus on end results, as
opposed to inputs and
activities.
16

Types of Controls

Managers
have
two
broad
options with respect to control.
They can rely on people to
exercise self-control (internal)
over their own behavior.
Alternatively, managers can take
direct action (external) to control
the behavior of others.
17

Types of Control

Internal

Controls

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.
18

Types of Control

External

Controls

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.

19

Organizational Control Systems

Management

Processes

Strategy and objectives

Policies and procedures
Selection and training
Performance appraisal
Job design and work structures
Performance modeling, norms,

and organization culture

20

What Is Control?
Controlling
The

process of monitoring activities to

ensure
that
they
are
being
accomplished as planned and of
correcting any significant deviations.

The
To

Purpose of Control

ensure that activities are completed

in ways that lead to accomplishment
of organizational goals.

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.

The PlanningControlling Link

The Control Process

1. Describe the three steps in the

control process.
2. Explain why what is measured is
more critical than how its measured.
3. Explain the three courses of action
managers can take in controlling.

The Control Process

The

Process of Control

1. Measuring actual
performance
2. Comparing actual
performance against a
standard
3. Taking action to
correct deviations or
inadequate standards

The Control Process

What is the
control process?
Controlling
The process of measuring performance and

taking action to ensure desired results.

Has a positive and necessary role in the

management process.
Ensures that the right things happen, in the

right way, at the right time.

Organizational learning and after-action review.

27

Study Question 4: What is the

control process?
Steps in the control process:

Step

establish

objectives

and

standards.

Step 2 measure actual performance.

Step 3 compare results with objectives

and standards.

Step

needed.
28

take

corrective

action

as

Four steps in the control process.

29

Study Question 4: What is the

control process?

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.

30

Study Question 4: What is the

control process?
Step

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.

31

Effective control requires measurement.

Study Question 4: What is the

control process?
Step 3 comparing results with objectives

and standards
Need for action reflects the difference between

desired performance and actual performance

Comparison methods:
Historical comparison
Relative comparison
Engineering comparison

32

Study Question 4: What is the

control process?

Step 4 taking corrective action

Taking action when a discrepancy
exists between desired and actual
performance.
Management by exception
Giving attention to situations showing
the greatest need for action.
Types of exceptions
Problem situation
Opportunity situation

33

Study Question 4: What is the

control process?

Feedforward controls
Employed

before

work

activity

begins.

Ensures that:
Objectives
Proper
Right

34

are clear.

directions are established.

resources are available.

Focuses on quality of resources.

Study Question 4: What is the

control process?

Concurrent controls

Focus on what happens during work

process.

Monitor ongoing operations to make

sure they are being done according to
plan.

Can reduce waste in unacceptable

finished products or services.

35

Study Question 4: What is the

control process?

Feedback controls
Take

place after work is completed.

Focus

on quality of end results.

Provide

useful

information

improving future operations.

36

for

The role of feedforward, concurrent, and

feedback controls in organizations.

37

What is the control process?

Internal and external control

Internal control
Allows

motivated individuals and groups to

exercise

self-discipline

in

fulfilling

job

expectations.

External control
Occurs

through personal supervision and

the use of formal administrative systems.

38

Study Question 5: What are the common

organizational controls?

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.

39

Figure 8.6 Management by objectives as an

integrated planning and control framework.

40

Study Question 5: What are the common

organizational controls?
MBO

involves
specifying

formal

agreement

Workers performance objectives for a specific

time period.

Plans through which performance objectives

will be accomplished.

Standards for measuring accomplishment of

performance objectives .

Procedures for reviewing performance results.

41

Study Question 5: What are the common

organizational controls?
The MBO process:
Supervisor and workers jointly set objectives,
establish standards, and choose actions.
Workers act individually to perform tasks;
supervisors act individually to provide necessary
support.
Supervisor and workers jointly review results,
discuss implications, and renew the MBO cycle.

42

Study Question 5: What are the common

organizational controls?
Types of MBO performance objectives
Improvement
Personal development
Maintenance
Criteria for effective performance

objectives

43

Specific
Time defined
Challenging
Measurable

Study Question 5: What are the common

organizational controls?
Pitfalls to avoid in using MBO

Tying MBO to pay.

Focusing too much attention on easily

quantifiable objectives.

44

Requiring excessive paperwork.

Having managers tell workers their objectives.

Study Question 5: What are the common

organizational controls?
Advantages of MBO
Focuses workers on most important tasks and
objectives.
Focuses supervisors efforts on important areas of
support.
Contributes to relationship building.
Gives workers a structured opportunity to
participate in decision making.

45

Study Question 5: What are the common

organizational controls?
Employee discipline systems
Discipline is the act of influencing behavior

through reprimand.

Discipline that is applied fairly, consistently, and

systematically provides useful control.

46

Study Question 5: What are the common

organizational controls?
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.

47

Study Question 5: What are the common

organizational controls?
Employee discipline systems

Progressive discipline ties reprimands to the

severity and frequency of the employees
infractions.

Progressive discipline seeks to achieve compliance

with the least extreme reprimand possible.

48

Study Question 5: What are the common

organizational controls?
Important

financial aspects of
organizational performance

Liquidity

Leverage

The ability to use resources efficiently and operate at

minimum cost.

Profitability

49

The ability to earn more in returns than the cost of debt.

Asset management

The ability to generate cash to pay bills.

The ability to earn revenues greater than costs.

Study Question 5: What are the common

organizational controls?
Break-even

Determination of the point at which sales

revenues are sufficient to cover costs.
Break-Even Point = Fixed Costs / (Price Variable
Costs)
Used in evaluating:

50

analysis

New products
New program initiatives

Figure 8.7 Graphical approach to breakeven analysis.

51

Study Question 5: What are the common

organizational controls?
Purchasing

control

A productivity tool

Trends in purchasing control:

52

Leveraging buying power

Committing to a small number of suppliers

Working together in supplier-purchaser partnerships

Study Question 5: What are the common

organizational controls?
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:

53

Economic order quantity

Just-in-time scheduling

Study Question 5: What are the common

organizational controls?
Statistical

quality control

Quality control involves checking processes,

materials, products, and services to ensure that
they meet high standards.

Statistical quality control involves:

54

Taking samples of work.

Measuring quality in the samples.

Determining the acceptability of results.

Sources

Step 1: Measuring
How and What We Measure

of Information
(How)

Personal

observation

Statistical
Oral

reports

reports

Written

reports

Control Criteria (What)

Employees

Satisfaction

Turnover

Absenteeism

Budgets

Costs

Output

Sales

Exhibit 173

Common Sources of
Information for Measuring
Performance

Step 2: Comparing
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).

Exhibit 174
Defining the Acceptable Range of Variation

Exhibit 175
Example of Determining Significant
Variation

Step 3: Taking Managerial Action

Courses

of Action

Doing nothing

Only if deviation is judged to be insignificant.

Correcting actual (current) performance

Immediate corrective action to correct the problem at

once.

Basic corrective action to locate and to correct the

source of the deviation.

Corrective Actions

Change strategy, structure, compensation scheme, or

training programs; redesign jobs; or fire employees

Step 3: Taking Managerial Action (contd)

Courses

of Action (contd)

Revising the standard

Examining the standard to ascertain whether or not

the standard is realistic, fair, and achievable.

Upholding the validity of the standard.

Resetting goals that were initially set too low or too high.

Managerial Decisions in the Control

Process

Controlling for Organizational Performance

What

The end result of an activity.

What

Is Performance?

Is Organizational Performance?

The accumulated end results of all of the organizations

work processes and activities.

Designing strategies, work processes, and work activities

Coordinating the work of employees

Organizational Performance Measures

Organizational

Productivity

Productivity: the overall output of goods and/or

services divided by the inputs needed to generate that
output.

Output: sales revenues

Inputs: costs of resources (materials, labor expense, and

facilities)

Ultimately, productivity is a measure of how

efficiently employees do their work.

Organizational Performance Measures

(contd)
Organizational

Effectiveness

Measuring how appropriate organizational goals are

and how well the organization is achieving its goals.

This is the bottom-line for managers.

It is what guides managerial decisions in designing

strategies and work activities and in coordinating the
work of employees.

Organizational Performance Measures

Industry and Company Rankings

Industry

rankings on:

Profits

Return on revenue

Return on shareholders
equity

Growth in profits

Revenues per employee

Revenues per dollar of

assets

Revenues per dollar of

equity

Corporate

Culture Audits

Compensation

and benefits

surveys
Customer

surveys

satisfaction

Tools for Measuring

Organizational Performance
1. Contrast feedforward, concurrent, and feedback
controls.
2. Explain the types of financial and information
controls managers can use.
3. Describe how balanced scorecards and
benchmarking are used in controlling.

Feedforward, Concurrent, and Feedback

Controls 1
Feedforward

A control that prevents anticipated problems before

actual occurrences of the problem.

Building in quality through design

Requiring suppliers conform to ISO 9002

Concurrent

Control

Control

A control that takes place while the monitored activity is in

progress.

Direct supervision: management by walking around

Feedforward, Concurrent, and Feedback

Controls 2
Feedback

A control that takes place after an activity is done.

Control

Corrective action is after-the-fact, when the problem has

already occurred.

Advantages of feedback controls:

Provide managers with information on the effectiveness of their

planning efforts.

Enhance employee motivation by providing them with

information on how well they are doing.

Exhibit 178

Types of Control

Financial Controls

Exhibit 179
Objective

Ratio

Popular Financial Ratios

Calculation

Meaning

Exhibit 179
(contd)
Objective

7-73

Ratio

Copyright 2011

Popular Financial Ratios

Calculation

Meaning

Financial Controls (contd)

Managing Earnings
Timing

income and expenses to enhance current

financial results, which gives an unrealistic picture
of the organizations financial performance.
New laws and regulations require companies to
clarify their financial information.

Balanced Scorecard

Information Controls
Purposes

of Information Controls

As

a tool to help managers control other

organizational activities.

Managers need the right information at the right time and in the right
amount.

As

an organizational area that managers need to

control.

Managers must have comprehensive and secure controls in place to

protect the organizations important information.

Information Controls (contd)

Management

Information Systems (MIS)

system used to provide management with needed

information on a regular basis.

Data: an unorganized collection of raw, unanalyzed

facts (e.g., unsorted list of customer names).

Information: data that has been analyzed and

organized such that it has value and relevance to
managers.

Benchmarking of Best Practices

Benchmark

The standard of excellence against which to measure

and compare.

Benchmarking

Is the search for the best practices among competitors

or noncompetitors that lead to their superior
performance.
Is a control tool for identifying and measuring specific
performance gaps and areas for improvement.

Exhibit 17-10
Suggestions for Internal Benchmarking

Contemporary Issues in Control

1. Describe how managers may have to adjust controls for
cross-cultural differences.
2. Discuss the types of workplace concerns managers
face and how they can address those concerns.
3. Explain why control is important to customer
interactions.
4. Define corporate governance.

Cross-Cultural Issues

The use of technology to increase direct corporate

control of local operations.
Legal constraints on corrective actions in foreign
countries.
Difficulty with the comparability of data collected
from operations in different countries.

Workplace Concerns

Workplace privacy versus workplace

monitoring

E-mail, telephone, computer, and Internet usage

Productivity, harassment, security, confidentiality,

intellectual property protection

Employee theft

The unauthorized taking of company property by

employees for their personal use.

Workplace violence

Anger, rage, and violence in the workplace is affecting

employee productivity.

Exhibit 1711 Controlling Employee Theft

Sources: Based on A.H. Bell and D.M. Smith. Protecting the Company Against Theft and Fraud, Workforce Online (www.workforce.com)
December 3, 2000; J.D. Hansen. To Catch a Thief, Journal of Accountancy, March 2000, pp. 4346; and J. Greenberg, The Cognitive
Geometry of Employee Theft, in Dysfunctional Behavior in Organizations: Nonviolent and Deviant Behavior, eds. S.B. Bacharach, A. OLearyKelly, J.M. Collins, and R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 14793.

Exhibit 1712 Workplace Violence

Witnessed yelling or other verbal abuse
42%
Yelled at co-workers themselves
29%
Cried over work-related issues
23%
Seen someone purposely damage
machines or furniture
14%
Seen physical violence in the workplace
10%
Struck
a co-worker
Source: Integra Realty Resources, OctoberNovember Survey of Adults 18 and Over, in Desk
Rage. BusinessWeek, November 20, 2000, p. 12.
2%

Exhibit 1713 Controlling Workplace

Violence

Sources: Based on M. Gorkin, Five Strategies and

Structures for Reducing Workplace Violence,
Workforce Online (www.workforce.com).
December 3, 2000; Investigating Workplace
Violence: Where Do You Start? Workforce Online
(www.forceforce.com), December 3, 2000; Ten
Tips on Recognizing and Minimizing Violence,
Workforce Online (www.workforce.com),
December 3, 2000; and Points to Cover in a
Workplace Violence Policy, Workforce Online
(www.workforce.com), December 3, 2000.

Customer Interactions
Service profit chain

Is the service sequence from employees to customers to

profit.

Service capability affects service value which

impacts on customer satisfaction that, in turn,
leads to customer loyalty in the form of repeat
business (profit).

Corporate Governance