CONTROLLING

Module 5

Syllabus

Control function in management The basic control process Types of control- feed forward, concurrent and feedback controls Factors in controlling effectiveness

Control function: Meaning

Regulation of organizational activities in such way as to facilitate goal attainment In simple terms, it is the process of monitoring, comparing and correcting work performance In managerial context, controlling function refers to the process of measuring the actual performance against the established standards and then correcting significant deviations Control is used to check that everything is being carried out in accordance with the plan, orders and principles

Supervision and controlling are two different concepts; Supervision is the part of controlling, supervision is monitoring the performance to identify deviations from established standards Controlling activity starts much before supervision and continues after supervision . It establishes standards for performance, plans executes actions to ensure that performance is in accordance with the standards

Definition:

George Terry: controlling is determining what is being accomplished that is evaluating the performance, and if necessary, applying correct measures so that the performance takes place according to plans Koontz & ODonnell, the measurement and correction of the performance of activities of subordinates in order to make sure that enterprise objectives and plans devised to attain them are being accomplished

Purpose of control
Adapt to environmental change Limit the accumulation of error

Control helps the organization

Cope with organizational complexity

Minimize costs

Importance of control function

Bringing focus: through control function, organization will come to know about areas which need more or less focus or concern Brings discipline and order in an organization Provides feedback on performance Effective and efficient utilization of resources Planning and controlling link: manager has to follow up activities to ensure that everything is going on as per the plan. Managing is an ongoing process.

Planning and controlling link Contd..

Controlling provides the critical link back to planning. If manager doesnt control, he cant know whether their plans and goals are on target or on track and what future actions to take

Importance contd..

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

Basic Control Process

Step 1. Establishing standards

Control standard is a target against which subsequent performance will be compared Example of Taco Bell, a fast food restaurant has following service standards; A minimum of 95% of all customers will be greeted within 3 minutes of their arrival Preheated tortilla chips will not sit in the warmer more than 30 minutes before they are served to customers or discarded Empty tables will be cleaned within 5 minutes after being vacated

Contd..
Based on the example we can understand that; Control standards should be measurable in terms It should be consistent with organizational goals. [ Taco Bells organizational goals involves customer service, food quality and restaurant cleanliness] It should identify performance indicators. Standards should provide information about what is being controlled

Step 2: Measuring performance

Performance measurement is a constant and ongoing activity Performance measures must be valid. Daily, weekly and monthly sales numbers measure sales performance Product quality or units produced or unit cost measure production performance Quality or quantity of output measure employees performance

Measuring: How and What We Measure

Sources of Information (How)

Personal

Control Criteria (What)

Employees
Satisfaction Turnover Absenteeism

observation
Statistical Oral

reports

reports reports

Written

Budgets
Costs
Output Sales

Common Sources of Information for Measuring Performance

Step 3: Comparing performance against standards

Measured performance will be compared against established standards Performance may be higher than, lower than or identical [equal] to the standard If performance is lower than expected manager has to decide how much deviation from standard can be allowed before taking remedial action Comparison is mainly based on the importance and complexity of the activity For longer run and higher level standards annual comparison can be done

Step 4: Corrective action

Courses of Action
Doing
Only

nothing maintaining status quo actual (current) performance or

corrective action to correct the problem

if deviation is judged to be insignificant.

Correcting

deviation
Immediate

at once.
Basic

corrective action to locate and to correct the source of the deviation. Actions
Change

Corrective

strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees

Contd..
Revising

or change the standard

Examining

the standard to ascertain whether or not the standard is realistic, fair, and achievable.
Upholding Resetting

the validity of the standard.

goals that were initially set too low or too high

Types of Control

Managers can implement controls before an activity begins, during the activity is going on, and after the activity has been completed

1. Feed forward Control

It prevents anticipated problems since it takes place before the actual activity Taking managerial action before a problem occurs Ex: when McD opened its first branch in Moscow, it sent its quality experts to Moscow, to train farmers and bakers in producing quality potatoes and in baking high quality breads Here, McD anticipated problem with quality food, so to control that, it improved inputs itself

Contd..
Merit of Feed forward Control: It is desirable, because they allow managers to prevent the problem, before the actual damage happens Demerit of Feed forward Control: Requires accurate and timely information which is difficult to get

2. Concurrent Control

Takes place while an activity is in progress Best known form of this type is DIRECT SUPERVISION When managers use management by walking around, where they visit floor and contact employees directly, they are using concurrent control Ex: while typing in a word document, miss spelt words or grammar errors are highlighted in a green or red color Though delay in managerial response to problem is there, it is minimal One can reduce the wastage because of damages, as you are preventing major damages

3. Feedback Control

Control takes place after the activity is done, or problem occurs.

Merit : 1]feedback provides managers with meaningful information on how effective their planning efforts were. Feedback can be little variance between standards and actual performance or significant variance between standards and actual performance 2] It can enhance employee motivation. Employee can get information or feedback on how well they have performed

Contd

Demerit: After the activity, manager is going to control it, where it is of no use as problem or damage already happened, wastages already occurred

Factors in control effectiveness/ guidelines to create effective control system

Make control system objective or planning oriented: control should be linked to planning. Once the goals are set during planning process, develop standards that will reflect how well the plan is realized Make control process simple and achievable Accuracy: Be accurate in measuring the performance and have reliable information sources Flexibility: control system should be flexible to adapt any environmental changes

Contd
Corrective action should not be delayed Standards should be measurable Consider human element Over and under control are not good Timeliness: control system should provide information or feedback whenever it is necessary

Techniques or tools of controlling

Levels of control: Managers use control at several levels. The most basic levels of control in organizations are strategic, structural, operating and financial control. Each level must be managed properly if control is to be most effective

1. Operations control

Focuses on the processes the organization uses to transform resources into products or services 3 forms of operations control: preliminary control screening control post action control

1. Operations control contd.. Preliminary control

Concentrates on the resources [human, financial, material, information] organization brings in from the environment Attempts to monitor the inputs before they become part of the organization system. Ex: hiring qualified man power, acquiring advanced machineries, good quality raw materials, required amount of funds and information.

Contd.. Screening control;

Focuses on meeting standards of quality and quantity of products or services during actual transformation process Focus is on how input are being transformed into outputs It relies heavily on feedback processes Periodic quality checks provide feedback to employees, so that they can take corrective actions if required This promotes employee participation and catches problems early in the overall transformation process

Contd.. Post action control

Monitors outputs or results after the transformation process is complete If product can be produced only in one or two steps or services are simple and routine, this technique can be effective Provides meaningful information about future planning

Forms of operational control

2. Financial control
Technique concerned with controlling financial resources, as they Flow into organization [revenues, shareholders investments] Held by organization [working capital, retained earnings] Flow out of the organization [expenses, payments] Financial resources should be managed in such way that revenues are sufficient to cover costs and still return a profit to organizations owner

Various financial control tools

1. Budgets / budgetary control: It is a plan expressed in numerical terms. What is the time frame for a budget?

Usually a year, but sometimes broken down into quarters and months.

Budgets are quantitative in nature and provide yardsticks for measuring performance and facilitating comparisons. Organizations establish budgets for work groups, departments, divisions and for the whole organization

Developing budgets

Contd.. Other tools of financial control

Financial Statement: A profile of an organizations financial circumstances. 2 Basic statements are Balance sheet And income statement Income Statement: A summary of financial performance over a period of time, usually one year.
Balance Sheet: List of assets and liabilities of an organization at a specific point in time, usually the last day of the fiscal year. Reflects snapshot of organizations financial position

Ratio Analysis: assess organizations financial health. Uses information from financial statements

Audit: An independent appraisal of an organizations accounting, financial, and operational system. Can be conducted by internal or external experts

Contd..

Ratio analysis tells How many liquid assets are available in organization? Organizations ability to meet long term financial obligations Ability to cover interest expenses for borrowed loans etc..

3. Structural control

Organizations design may result in different approaches to control. Two major forms of structural control are Bureaucratic control: characterized by formal structural arrangements Decentralized Control: characterized by informal structural arrangements These two control tools adopt 6 dimensions or perspectives

4. Strategic Control
No doubt that organizations strategy plays a very important role in its success. It is also important to assess the effectiveness of these strategies to ensure that strategies are helping organization to meet its goals Control aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic

Contd..
It generally focuses on 5 aspects of organization: Structure Leadership Technology Human resources Information and operating systems Ex: moving from functional structure to divisional structure

Sample questions

What do you mean by Control Function? [3 marks] List steps in control process. [3 Marks] Explain control process. [7 and 10 marks] Explain the types of Controls. [7 and 10 marks] Explain the various factors in control effectiveness. [7 and 10 marks] Explain various tools to control or Explain various techniques of control.[7 and 10 marks]