Chapter 8

Introduction to Controlling
Topic::
Topic

Concept – The Control Process – Types o h el

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of Control – Levels of
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Control – Control Techniques – Operations d
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Control – Structural
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Control – Strategic Control - Financial
ah sor, Control – Requirements for
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Effective Control ne
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h a ate
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 Controlling
• Controlling
– Is the process monitoring activities to ensure that they are
being accomplished as planned and of correcting any
significant deviations
– It is process of ensuring that actual h el activities conform to
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planned activities. m
d
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ah sor,
– Helps managers monitorazthe M s effectiveness of their planning,
of
e
w r
organizing, and leadinga ne activities.
te
P
h ia
S oc
A ss
 Importance of Controlling
Coping with Changes Creating Better Quality
Controlling helps detect &
Controlling allows managers to
correct defects in the process of
adjust organizational activities
executing
l a plan, & improve
with environmental changes e
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quality
d
So , C of performance & results
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ah sor,
Creating Faster Cycles waz M ofes Minimizing Waste
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Control helps in speed upSthea
h ia
s oc When practiced effectively,
cycles involved in creatingAs&
control can help reduce cost &
delivering new products &
boost output
services to customers

Protecting Organization’s Assets

Control protects organization’s asset from
Inefficiency, waste & pilferage
 The Control Process
Basic Steps in the Control Process

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Establish oh U Take
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d , CDoes
Standard & oo HRM No Corrective
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Measure ah sor, Performance
Methods for z M s
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Actions&
Performance w Match the
Measuring n e
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S oci Standard?
Performance s Standard
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Yes

Do Nothing
 The Control Process
• Establishing standard and methods for measuring
performances
– A Control standard is a target against which the subsequent
performance will be compared. l
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– For example, employees atod S the M
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restaurant work toward theahfollowing
m r, H
o
standard:
z M ss
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• A minimum of 90% of e w aallrofcustomers
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will be greeted within 3
n
a ate
minutes of the arrival.
h
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ss
• Empty tables will Abe cleaned within 5 minutes after being
vacated.
– Standards established for the control purposes should be
expressed in measurable terms and consistent with
organizational goal.
 The Control Process
• Measuring the performance
– Performance measurement is a constant, ongoing process for
most organizations.
– For control to be effective, performance l
measure must be
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valid. d
So , C
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• For example, daily, weekly, ah sor, and monthly sales figures
m
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measure sales performance,
e w
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a rofe and production performance
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may be expressedShain cia terms of unit cost, product quality
so
etc. A s
 The Control Process
• Determining whether performance matches the standard
– Performance may be higher than, lower than, or identical to
the standard.
– If performance matches the standard, h el managers may assume
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that “everything is under control”. So , C In such a case, the
o d M
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managers do not have toMahintervene
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so in the organization’s
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operations. a
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• Taking corrective actions
– If performance falls short of standards, then managers need
to take corrective actions to improve the performance.
– The corrective action could involve a change in one or more
activities of the organization’s operations.
 The Control Process
Managerial Decisions in the Control Process

Standard Yes
Compare Do Nothing
Attained?
Performance l
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to Standard oh U
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No S
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Objectives Variance Yes
z M s Do Nothing
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Acceptable?
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Measure Sh ocia No
s
Standard Performance As Identify
Standard Yes
Acceptable? Causes

No
Correct
Revise
Standard Performance
 Types of Control

Control of Physical Resources Control of Human Resources

( inventory (selection, training,
management, quality control, development,
el performance
h
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equipments control) Sappraisal,
d M, compensation etc)
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m
ah sor,
z M s
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Areas
Sh ocia of Control
a
s
As

Control of Information
Control of Financial Resources
Resources
(managing the organization’s
(sales & marketing forecasting,
debt so that it does not become
environmental analysis,
excessive)
Production scheduling etc)
 Types of Control

Operations Control Financial Control

( Focuses on the processes the (concerned with the
organization uses to transform organization’s
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resources into product or services) So , C resources)
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ah sor,
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a nLevels
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s s Control
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Strategic Control
Structural Control
(focuses on the how effectively
(concerned with how the elements
The organization’s strategies are
of the organization’s structure are
succeeding in helping to meet its
serving their intended purpose)
goals & objectives)
 Operations Control
• Operations Control
– Processes used by the organization. focuses on the processes
the organization uses to transform resources into products
or services. h el
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– Example: quality control hm r, H o
a so
M
z fes control are:
– The three forms of operations
a o
n ew Pr
a ate
• Preliminary/Feedforward,
h
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• Screening/Concurrent, and
• Postaction/Feedback
 Operations Control
Feedback

Input Transformation
l Output
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d
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ah sor,
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Preliminary Control Screening
w a rofe Control
z Post-action Control
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Focus
As
s is on how Focus is on outputs
Focus is on inputs
inputs are being from the
to the organizational
transformed into organizational
systems
outputs system
Corrects problems Corrects problems
Anticipates Problems
as they happen after they occur
 Operations Control
• Preliminary/Feedforward Control attempts to monitor the quality
or quantity of financial, material, human, and information
resources before they actually become part of the system.
– The key to Feedforward control is taking managerial action
before a problem occurs. h el
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So , C
• Screening/Concurrent Control focuses oo HRM on meeting standards for
d
m ,
products/ service quality Mor ah sorquantity
s
during the actual
z
a rofe
transformation process itself. w
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a
– The key to Concurrent Sh occontrol
ia
is taking managerial action to
s s
A
correct problems as they happen.
• Post-action/Feedback control focuses on the outputs or results of
the organization after the transformation process is complete. This
type of control takes place after the activity is done.
– The key to Feedback control is taking managerial action to
correct problems after they occur.
 Financial Control
• Financial Control
– Is the control of financial resources as they flow into the
organization (i.e., revenues, shareholder investment), are
held by the organization (i.e., eworking l capital, retained
oh CU
earnings), and flow out ofod the S
M
, organization (i.e., pay
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m r, H
expenses). M
h
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Sh ocia
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 Financial Control
• Budgetary control
– A budget is a plan expressed in numerical terms.
Organizations establish budgets for work groups,
departments, divisions, and the whole o h el
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organization.
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d
– The usual time period for amoobudget H RM is one year, although
ah sor,
breakdowns of budgets zby M sthe
e
quarter or month are also
f
wa Pro
common. e
an ate
h
S oci
– Because of their quantitative
As
s nature, budgets provide
yardsticks for measuring performance and facilitate
comparisons across departments, between levels in the
organization, and from one time period to another.
 Financial Control
• Budgetary control (cont’d)
• A financial budget indicates where the organization expects
to get its cash for the coming time period and how its plans
to use it. el
h U
So , C
• Cash budget, Capital budget d etc.
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hm or,
• An operating budget is concerned
z
a
M ss with planned operations
f e
within the organization. e wa Pro
h an ate
S oci
• Sales or Revenue budget,
s Expense budget, Profit budget
As
etc.
• A nonmonetary budget is simply a budget expressed in
nonfinancial terms, such as units of output, hours of direct
labor, machine hours, or square-foot allocations.
 Financial Control
• Other techniques of financial control (cont’d)
– A financial statement is a profile of some aspect of an
organization’s financial circumstances. Financial statements are
prepared and presented in commonly accepted and required
ways. el
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– A balance sheet lists the organization’s So , C assets and liabilities at
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a specific point of time,ahm susually or
, the last day of an
M
z fes
organization’s fiscal year. a
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o
n
a ate
– An income statement S is
h
o ci a summary of financial performance
ss
over a period of time, Ausually one year.
– Ratio analysis is the calculation of one or more financial ratios
to assess some aspect of the financial health of an organization.
For example, liquidity ratio, acid test ratio, debt to assets,
inventory turnover, Return on investment etc.
– Audits are independent appraisals of an organization’s
accounting, financial, and operational systems.
 Structural Control
• Structural Control
– Is concerned with how the elements of organization’s
structure are serving their proposed purposes.
– Two major forms of structural control:
h el
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• Bureaucratic control So , C
d
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m
• Clan control. ah sor,
M s
z
a rofe
– Bureaucratic control: a ne tean
w P approach to control that
Sh ocia
emphasizes organizational authority and relies on rules,
s s
A
regulations, procedures, and policies.
• The goal of bureaucratic control is employee compliance.
– Clan control: an approach to control in which employee
behavior is regulated by shared values, norms, traditions,
beliefs, and other aspects of organization’s culture.
• The goal of clan control is employee commitment.
 Strategic Control
• Strategic control
– Focuses on the extent to which implemented strategy achieves
the organization’s strategic goals.
– Generally focuses on five aspects of organizations:
1. Structure h el
U
So , C
d
2. Leadership m
oo HRM
ah sor,
3. Technology z M s
a rofe
w
4. Human resources a ne te P
Sh ocia
ss
5. Information andAoperational control system

– The firm might need to alter its structure, replace essentials

leaders, adopt new technology, modify its human resources, or
change its information and operational control systems, if the
implementation of any one of these, inhibit the attainment of
strategic goals.
 Characteristics of Effective
Control/Requirements for Effective Control
• Matching controls to plans: Control should be linked with
planning. The more explicit and precise this linkage, the more
effective the control system. The best way to integrate planning
and control is to develop standard for control while setting
el
goals in planning process. h
So , C
U
od RM
• Ensuring flexibility to control: m The
o
ah sor,
H control system itself must
M s
be flexible enough to accommodate
w
z
a rofe change.
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• Ensuring accuracy of control
Sh ocia system: Control system must also
a
s
be accurate. Because managerial
As decisions based on inaccurate
information may prove costly and harmful.
• Seeking objectivity of control system: As far as possible, the
information provided by the control system should be
objective. Because if the controls are subjective, a manager’s
personality may influence judgments of performance and make
them less accurate.
 Characteristics of Effective
Control/Requirements for Effective Control
• Achieving economy of controls: A limiting factors of control
system is their cost. So in order to be effective, controls must be
worth their cost.
• Pointing up exceptions: One of the best l
ways to make control
e
effective is to make sure that ditSoh is , C designed to point up
U

exceptions. oo HRM
m
ah sor,
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• Fitting the system of control w
z
of the organizational culture: An
a rto e
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effective control system Sh ociamust fits in with organizational
a
s
culture. For example, in As an organization where people have
been allowed participation and freedom, tight control system
may fail to produce positive results.
• Ensuring corrective action through control: An effective
control system will disclose where failures are occurring and
who are responsible for them, and it will ensure that some
corrective action is taken.