Controlling

E.S. BIO
Source: Management - A Global Perspective by Weihrich and Koontz 11th Edition

Systems Approach to Management (Controlling)

Inputs: Human Capital Managerial Technical Others

External environment
Goal inputs of claimants: Employees Governments Consumers Community Suppliers Others Stockholders

Managerial knowledge, goals of claimants, and use of inputs (Part 1: The basis of global management theory and practice)

Reenergizing the system

External environment

Organizing (Part 3)

Facilitated by communication that also links the organization with the external environment

Planning (Part 2)

Staffing (Part 4)

Leading (Part 5)

Controlling (Part 6)

To produce outputs
Products Services Profits Outputs: Satisfaction Goal Integration Others

External environment

SYSTEMS APPROACH TO MANAGEMENT

External variables and information: Opportunities Constraints Others

Controlling

Controlling process of measuring progress toward planned performance and, if necessary, applying corrective measures to ensure that performance is on the line with managers objectives.

Controlling Process
1.

2.
3. 4.

Setting performance standards Measuring performance Comparing performance with the standard and determining deviations Remedying unfavorable deviation by taking corrective action

Controlling Process
Figure 1
The Controlling Process

Set performance standards

Measure performance

Compare

Determine deviation

Standards

Within limits

Take corrective action

No

Yes

Continue work progess

Establishment of Standards
Standards are simply criteria of performance. They are selected points in an entire planning program at which measures of performance are made so that managers can receive signals about how things are going and thus do not have to watch every step in the execution of plans.

Measurement of Performance

If standards are clearly established and made known to the performer of a job, then measurement of performance becomes easy. The concept of measuring performance would result in what is being accomplished. The most common means of measurement are: personal observations and the use of statistical data and reports, both oral and written.

Correction of Deviations

If performance is measured accordingly, it is easier to correct deviations. Managers may correct deviations by:
1. 2.

3. 4. 5. 6.

Redrawing their plans or modifying their goals; Exercising their organizing function through reassignment or clarification of duties; Additional staffing; Better selection and training of subordinates; Ultimate restaffing measurefiring; Better leadingfuller explanation of the job or more effective leadership techniques.

Types of Critical Point Standards

1.

Physical Standards

Physical standards are nonmonetary measurements and are common at the operating level, where materials are used, labor is employed, services are rendered, and goods are produced. They may reflect quantities, or qualities; such as labor-hours per unit of output and fastness of a color, respectively.

Types of Critical Point Standards

2.

Cost Standards

Cost standards are monetary measurements and, like physical standards, are common at the operating level. They attach monetary values to specific aspects of operations. Illustrative of cost standards are such widely used measure as direct and indirect costs per unit produced and labor cost per unit or per hour.

Types of Critical Point Standards

3.

Capital Standards

There are a variety of capital standards, all arising from the application of monetary measurements to physical items. They have to do with the capital invested in the firm rather than with operating costs and are therefore primarily related to the balance sheet rather than to the income statement.

Types of Critical Point Standards

4.

Revenue Standards

Revenue standards arise from attaching monetary values from sales. They may include such standards as revenue per bus passenger-mile, average sales per customer, and sales per capita in a given market area.

Types of Critical Point Standards

5.

Program Standards

A manager may be assigned to install a variable budget program, a program for formally following the development of new products, or a program improving the quality of a sales force. Although some subjective judgment may have to be applied in appraising program performance, timing and other factors can be used as objective standards.

Types of Control
1.

Preliminary Control (sometimes called feedforward control) takes place before operations begin and includes policies, procedures, and rules designed to ensure that planned activities are carried out properly. Ex. Inspection of raw materials, proper selection and training of employees

Types of Control
2.

3.

Concurrent Control takes place while plans are being carried out. Ex. directing, monitoring Feedback Control focuses on the use of information about results to correct deviations from the acceptable standard after they arise.

Types of Control
4.

Multiple Approaches includes 3 broad strategies for achieving organizational control:

a.

b.

c.

Bureaucratic Control use of rules, regulations, and authority to guide performance. Market Control financial and economic, such as when divisions in a corporation are evaluated based on profit and loss. Clan Control based on the values, trust, and goals shared among group members.

Management Audits

They are means for evaluating the effectiveness and efficiency of various systems within the organization, from social responsibility to accounting control.

Types of Audits
1.

2.

External Audits occurs when one organization evaluates another organization; used in feedback control in the discovery and investigation of the savings and loan scandals. Internal Audits improve the planning process and the organizations internal control systems; essential functions include periodic assessment of a companys own planning, organizing, leading, and controlling.

Budgeting

Budgeting (or budgetary control) the process of finding out whats being done and comparing the results with corresponding budget data to verify accomplishments or to remedy differences.

Nature of Budgeting
1. 2.

Begins with an estimate of sales and expected income. Based on data that are either constant or variable.
Constant data means that the budget standards are for a fixed level; that is, that targets remain constant, and the estimate have a high degree of accuracy. Variable data include several levels of budgeted estimates to recognize variations in sales, production, cash, or other key data.

3.

Budgeting information is supplied to the entire enterprise or to any of its units; it is not confined to financial matters.

Nature of Budgeting
4.

5.

All budgets are prepared for a definite time period, the length of time selected depends on the primary purpose of the budgeting. May apply moving budgeting, which features a yearly forecast; then, when each month ends, another month is added to the period.

Stages of Budgetary Control

1.

2.

3.

Establishing expectancies starts with the broad plan for the company and the estimate of sales, and it ends with budget approval and operation. Budgetary operations deals with finding out what is being accomplished and comparing the results with expectancies. Take corrective actions when necessary.

Types of Budget
1.

Sales Budget
Usually data for the sales budget that are prepared by month, sale area, and product.

2.

Production Budget
Commonly expressed in physical units, required information include types and capacities of machines, economic quantities to produce, and availability of materials.

3.

Cost Production Budget

Information is sometimes included in production budgets, comparing production cost with sales price shows whether or not profit margins are adequate.

Types of Budget
4. Cash Budget
Prepared after all other budget estimates are completed, shows the anticipated receipts and expenditures, the amount of working capital available, the extent to which outside financing may be required, and the periods and amounts of cash available.

5. Master Budget
Includes all major activities of the business, brings together and coordinates all the activities of the other budgets and can be thought of as a budget of budgets.

Comparative Balance Sheets

1. 2. 3.

It shows the financial picture of a company at a given time. Itemizes 3 elements:

Assets values of the various items the corporation owns. Liabilities amounts the corporation owes to various creditors. Stockholders Equity amount accruing to the corporations owners.

Balance Sheet Equation:

Assets = Liabilities + Stockholders Equity

Profit and Loss Statement

An itemized financial statement of the income and expenses of the companys operations during the accounting period.

Characteristics of an Effective Control System

1.

Valid Performance Standards

Standards should be expressed in quantitative terms, should be objective rather than subjective.
Information should be accessible as possible, particularly when people must make decisions quickly and frequently. Control systems should emphasize positive behavior rather than trying to control negative behavior alone.

2.

Adequate Information to Employees

3.

Acceptability to Employees