Controlling

Measurement and correction of performance in order to make sure that

enterprise objectives and the plans devised to attain them are being
accomplished

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Controlling
▪ Same techniques and systems – for controlling cash, office
procedures, morale, product quality, and anything else
▪ Basic control process – three steps

1. Establishing standards

2. Measuring performance against these standards

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3. Correcting variations from standards and plans
Establishing Standards
▪ Actual org/individual performance are compared against standards
▪ Standards
1. Must be clear, concrete, and measurable
2. Must be consistent with goals and objectives of org
▪ Goals formulated by managers during planning → standards
▪ Must be clearly stated in definite terms → criteria to evaluate past,
present, and future actions of people

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Establishing Standards
▪ Orgs decide on type of standards – what is to be measured,
managerial levels responsible
▪ Generated within the organisation, but can also be from outside
▪ Eg: FSSAI standards
▪ Once what is measured is decided – decide how to measure
▪ Key performance areas or Key Result Areas (KRA)

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Establishing Standards
▪ KRA – aspects of the org that need to function effectively so that the org
succeeds in accomplishing goals and objectives
▪ In case of marketing – sales volume, salesperson’s performance, sales expenses,
advertising expenses
▪ In production – quantity, quality, cost, productivity
▪ In case of HR function – industrial relations, attrition, absenteeism
▪ Performance standards at higher levels – abstract and difficult to be
measured
▪ Eg: Org’s standards like customer satisfaction, employee morale

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Measurement of Performance
▪ Performance measures – quantitative (sales figures, cost of units) or
qualitative (non-numerical data)
▪ Continuous and on-going activity. Timing of measurement → crucial for
success of control operations
▪ Timing of performance measurement – influenced by nature of
product/service, time-frame of org’s goals
▪ Short-term, long-term
▪ Mismatch between timing and duration of goals → failure of control exercise

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Measurement of Performance
▪ Four measures of performance
1. Personal observations
2. Statistical reports
3. Oral reports
4. Written reports
▪ Sales performance – daily, weekly, monthly sales figures
▪ Production performance – product quality, production volume, unit cost
▪ Absenteeism, turnover, employee satisfaction – measure any management
situation

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Correcting Variations from Standards and Plans
▪ Some variation can be anticipated in all activities
▪ Actual performance – more than (positive variation), less than
(negative variation), or equal to standard
▪ Variation exceeds limit – take corrective action

Need for Action = Desired Performance – Actual Performance

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Correcting Variations from Standards and Plans
Managers act in one of the three ways
1. Maintain status quo
▪ When performance = standards, or deviation within limit
▪ Positive feedback, rewards to employees
2. Correcting actual performance
▪ When performance < standards
▪ Corrective actions – change in behaviour, actions, other aspects
3. Changing the standards
▪ Improper standards – unrealistically high/low
▪ Revise standards as required

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Correcting Variations from Standards and Plans
Correcting actual performance
▪ Unsatisfactory work → provide training, disciplinary action, decrease
monetary benefits
▪ Decide – immediate corrective action or basic corrective action
▪ Immediate corrective action – if performance problem is to be attended immediately
▪ Basic corrective action – if manager wants to know root cause of the problem
▪ Basic corrective action – helps manager to know why and how performance deviated

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Critical Point Standards
Principle of point control – effective control requires attention to those
factors critical in evaluating performance against plans

1. Physical standards 5. Program standards

2. Cost standards 6. Intangible standards

3. Capital standards 7. Goals as standards

8. Strategic plans as control

4. Revenue standards
points
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Critical Point Standards
1. Physical standards
▪ labor-hours per unit of output, pounds of fuel per horsepower per hour, ton-miles
2. Cost standards
▪ direct and indirect costs per unit produced, labor cost per unit or per hour,
material cost per unit, machine-hour costs, selling cost per dollar or unit of sales
3. Capital standards
▪ return on investment, ratio of current assets to current liabilities, ratio of debt to
net worth, etc.
4. Revenue standards
▪ revenue per bus passenger-mile, average sales per customer, and sales per capita
in a given market area

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Critical Point Standards
5. Program standards
▪ a variable budget program, a program for formally following the development of
new products
6. Intangible standards
▪ competence of the divisional purchasing agent,
7. Goals as standards
▪ Qualitative and quantitative goals of the org as standards
8. Strategic plans as control points for strategic control
▪ Systematic monitoring at strategic control points and modifying the organisation’s
strategy based on this evaluation
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Benchmarking
An approach for setting goals and productivity measures based on
industry best-practices

1. Strategic benchmarking

2. Operational benchmarking

3. Management benchmarking

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Benchmarking
1. Strategic benchmarking
▪ compares various strategies and identifies the key strategic elements of success
2. Operational benchmarking
▪ compares relative costs or possibilities for product differentiation
3. Management benchmarking
▪ focuses on support functions such as market planning and information systems,
logistics, human resource management, and so on

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Types of Management Controls
Management
controls

Operations control Financial control Structural control Strategic control Information control

Feedforward Financial
Centralisation
control statements

Concurrent control Ratio analysis Formalisation

Feedback control Budgets Output control

Financial audits Cultural control

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Operations Control
Operations control deals with the processes adopted by an organisation for
conversion of resources into products or services
▪ Org → open systems → interact with environment through input-throughput
(process)-output cycles → control at every process
▪ Three types of control
1. Feedforward control (preliminary control)
2. Concurrent control (screening control)
3. Feedback control (post-action control)

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Operations Control
Three types of controls on the basis of time of action

Input Process Output

Feedforward Concurrent Feedback

control control control

Anticipates Corrects Corrects

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problems problems as problems after
they happen they occur
Real-Time Information and Control or Concurrent
Control

Controls that monitor ongoing employee activity to ensure consistency with

quality standards
▪ These rely on performance standards, rules and regulations for guiding
employee tasks and behaviours
▪ Employees monitor measurements
▪ If standards are not being met – take corrective action themselves or let managers
know

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Feedback/Post Action Control
Feedback control is a process that managers can use to evaluate how effectively their teams meet the
stated goals at the end of a production process
▪ Evaluate team’s progress → planned output vs actual output
▪ Measure results of actions → take corrective actions in case of problems

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Preliminary/Feed Forward Control

These attempt to identify and prevent deviations in standards before

they occur
▪ Focus on human, material, and financial resources of the org

▪ Eg: selection and hiring of employees with skills to perform up to

standards

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Financial Control
The primary purpose of financial control is to check whether the financial resources are
optimally utilised so that the organisation controls cost and earns profit
Financial Statements
▪ Summaries of monetary data about the org
▪ Typically include balance sheet and income statement
▪ Balance sheet lists assets and liabilities – shows the financial position of the org at a
point in time (say 31st March)
▪ Income statements – indicates profit/loss of the org’s operations in a year

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Financial Control
Ratio Analysis
▪ Ratios – useful in assessing org’s financial health
▪ Ratio analysis – comparison of any two related financial data to make
meaningful inferences
▪ A single figure (say, a profit of ₹ 5M), by itself, has little meaning unless
compared with another relevant figure (say, a capital of ₹ 50M)
▪ Liquidity ratios, Activity ratios, Leverage/Capital Structure ratios,
Profitability ratios etc

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Financial Control
Budgets
▪ Financial plan of an org developed for a specific period of time
▪ Most important financial tool for controlling work activities at all levels
▪ Offer info on estimated revenues and expenses connected with a function, a unit, or an
org
▪ Indicate which work activities are important – how much resources to allocate
▪ Budgets formulated before start of work – standards for measuring, monitoring and
controlling
▪ Budget feedback - inputs for improving both the planning and controlling processes

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Financial Control
Financial audit
An independent examination and expression of opinion on the financial statement of an
enterprise by an appointed auditor
▪ Involves independent verification of org’s financials, operational and accounting practices
▪ Provides assurance on reliability and fairness of info in conformity of standards
1. Compliance audits - confirm the fairness of information against the given standards
2. Operational audits - evaluate the efficiency and effectiveness of a work activity, function, unit,
department or the whole organisation
▪ Also classified as external audit and internal audit

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Structural Control
Structural control focuses on the effectiveness of the organisation’s structural variables or
elements in accomplishing the predetermined goals and objectives
Centralisation
▪ When decision-making powers are vested with managers, they achieve control over
decision-making process
▪ Also achieve control – by insisting decision makers obtain their approval
Formalisation
▪ Managers enforce strict, detailed, formal rules, procedures, policies for guiding
decision-making process

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Structural Control
Output control
▪ Managers establish goals and objectives – act as measures for decisions – control
decision-making
Cultural control
“Organisational culture is a system of shared values and beliefs that interact with an
organisation’s members, structures, and control systems to produce behavioural norms”
▪ Establish a set of shared values and expectations – control decision-making
▪ Org culture – help manager control decision-making even without power

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Strategic Control
Attempts to identify how effective an organisation’s corporate, business and functional
strategies are in fulfilling the organisational goal and objectives
▪ Makes sure orgs keep alignment with environment that facilitates achieving goals
▪ Top-level managers – gain operational understanding of various operating units
▪ Strategic control – effective and continuous control of leadership, technology, human
resources, information, structure and operational systems
▪ Eg: Org analyses whether existing leadership structure/style accelerates or
decelerates decision-making

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Information Control
▪ Managers
▪ Need right info at right time to make right decisions
▪ Need adequate info for supervising & evaluating org’s activities
▪ Frequent info thefts – growing need for info control mechanisms
▪ Computer-based Management Information System (MIS) – acquire info in a
timely and need-based manner
▪ MIS – gathers data and converts into apt. info useful for managers

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Management by Exception in Controlling
Management by exception (MBE) is a management strategy in which
managers will only step in when there are significant deviations from
planned outcomes. These can be either operational or financial
outcomes

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