5

In The Name Of Allah, The Most Beneficent, The Most Merciful

 Controlling
Controlling is the process of evaluating and
regulating ongoing activities to ensure that goals are
achieved.
OR
Controlling is the process of determination or
measurement of progress towards objectives in
accordance with the establishing plan.
OR
Controlling function involves monitoring actual
performance, comparing actual to standard and
taking action if necessary.
• Controlling is the process of evaluation,
modification and examination

• In management language controlling is the

process used to make sure that results
confirm to the plan.
Actually, the control function consists of the managers
measuring the performance of subordinates and
making those corrections deemed necessary to reach
the planned objectives. To state briefly controlling
involves compelling events to confirm to established
plans.
This is an exercise of all levels of management.
The objective of the control is to develop
discipline among the employees.
This discipline can be developed by “watching”.
“To see that employees perform, what they are
suppose to perform and measure the
deviation from established standards as well
as to take corrective action.”
Now we can say controlling
 Is process of measuring the progress
 Assurances of confirmation of plans
 Provides the knowledge of end result
 Gives guidelines for future action
 Make sure, what is done and what is intended
 Types/components of control
 Feed forward Control
This type of control is done before an execution of
an action. It helps the manager to prevent the
problems which might come in future. By making
proper arrangements in advance the problem can be
controlled or eliminated.
Feed forward control prevents from anticipated
problems. So the managers have to shift their
priority to the next two types of controlling.
 Concurrent control
Concurrent control is applicable during the
execution of an action or activity. This is very
widely adopted technique as it helps the
manager to overcome the problem at very
initial stage and thus a lot of damage is
avoided.
 Feedback Control
Control imposed after an action has occurred.
The most common and famous control
systems helps the manager to come across the
fault and how they can avoid it in the future.
Quantity, Quality, Time, and Determine
Performance
cost. Standards

Measurement
Monitoring Stage. Of Actual
Performance

Comparison of The
Actual and “Control Process”
Reviewing Stage Planned
Performance

Correcting Stage. Take Corrective

Action

Follow-up Stage. Follow-Through

Actions
In control function things to be controlled are:-
• Budget (Capital allocated for salaries,
purchasing, payments)
• Raw Material (inventories are stock piles of
materials that will become part of the product
during the conversion process)
• Work Force
• Quality
 “What to Measure?”
• Targets to be achieved
• Employees satisfaction
• Output of inputs
• Employees turn over and absenteeism
• Internal control system. What it does mean?
Generally while talking on internal control
system means addressing;
 policies, processes, talks, behavior.
 these controls enable a business to operate
effectively, comply with laws and provide good
quality information from reports.
ICS exist to enhance the achievement of
organizational objectives.
• The control system is seen as consisting of:
 the control environment– management
philosophy, operating style and management
policies
 control procedures– control mechanisms such as
segregation of duties, authorization, reconciliation
and so on.
• ICS refers as;
Systematic measures (such as reviews, checks and
balances, methods and procedures) instituted by an
organization to:
• (1) conduct its business in an orderly and efficient
manner.
• (2) safeguard its assets and resources.
• (3) deter and detect errors, fraud, and theft
• (4) ensure accuracy and completeness of its
accounting data.
• (5) produce reliable and timely financial and
management information.
• (6) ensure adherence to its policies and plans.
• An internal control is a business practice,
policy or procedure that is established within
an organization to create value or minimize
risk.
A subset of internal controls, IT controls, are
designed to ensure that the information
technology (IT) within an organization
operates as intended, that data is reliable, and
that the organization is in compliance with all
applicable laws and regulations.
• Features of ICS:
• Following are the features
• Management Integrity (honesty or reliability or
truthfulness).
• Management integrity, or the moral character of
persons of authority, sets the overall tone for the
organization.
• Management integrity is communicated to employees
through employee handbooks and procedural manuals.
• The Management Library indicates that in addition to
communicating management integrity, policy manuals
facilitate training to employees.
• However, management’s enforcement of policies is the
major indicator of an organization’s commitment to a
successful internal control system.
• Competent Personnel
• An organization’s ability to recruit and retain
competent personnel indicates management’s
intent to properly record accounting transactions.
In addition, the retention of employees increases
the comparability of financial records from year to
year. Furthermore, an auditor’s confidence in the
underlying accounting records increases as he
observes the reliability of the organization’s
personnel. This in turn reduces an auditor’s
assessment of the risk of a material misstatement
in the entity’s financial statements.
• Segregation of Duties
• The University of California at Los Angeles notes
that a segregation of duties is critical to effective
internal control because it reduces the risk of
mistakes and inappropriate actions.
• An effective system of internal control separates
authoritative, accounting and custodial functions.
For instance, one employee opens incoming mail,
a second employee prepares deposit slips for daily
receipts, while a third employee deposits receipts
in the bank.
• Records Maintenance
• Maintaining appropriate records ensures that
proper documentation exists for each business
transaction.
• Records management involves storing,
safeguarding and eventually destroying tangible
or electronic records.
• Also, appropriate back-up deters an employee or
management from creating phantom transactions
in the underlying accounting records.
• The Environmental Protection Agency emphasizes
that a good records management program
reduces operating costs, improves efficiency and
minimizes the risk of litigation(lawsuits).
• Safeguards
• safeguards prevent unauthorized personnel from
accessing valuable company assets. Safeguards
are physical, such as locks on doors, or intangible,
such as computer software passwords.
• Regardless of the methods, safeguards are a
necessary feature of an organization’s internal
control system.
• Many business owners instinctively protect
inventory, cash and supplies.
• However, blank checks, company letterhead and
signature stamps are items that requires
safeguarding that are commonly overlooked.
 Tools and Techniques OF Measuring Controlling Performance
• Financial Control:
• Dear students, as we all know every business wants to
earn profit. To achieve this goal, managers need financial
control.
• For instance; they might analyze quarterly income
statements for excessive expenses. And they calculate
financial ratio to ensure that;
• Sufficient cash is available to pay ongoing expenses.
• That debt levels haven’t become too high,
• Or that assets are being used productively.
• The objectives they would like to calculate are:
• Liquidity(Current ratios and Quick ratios or Acid ratios)
• Leverage( Debt to assets…..total debt/total assets)
• Activities(inventory turnover….sales/inventory)
• Profitability( profit margin on sales and Return on
investment)
• The Balanced Scorecard Approach
• Managers can use the BS approach to measure
organizational performance from more than just a
financial perspective.
• A BS typically looks at 4 areas that contribute to a
company’s performance: (1) finance (2) customers (3)
interna processes (4) people/innovation/growth assets.
• According to this approach, managers should develop
goals in each of the four areas and then measure
whether the goals are being met.
• Information Control
• Dear students, as we know information is the ‘life blood’
of an organization, and managers need the right
information at the right time and in the right amount to
monitor and measure organizational activities and
performance.
• Information helps to determine whether work has been
done as per standards or not, or to compare actual
performance with standard, they also rely on
information to help determine whether deviations are
acceptable. Finally, they rely on information to help
develop appropriate courses of action.
• Theories of control
1. Nature of control.
The manager of an organization are
responsible to its owners and stakeholders
for the achievement of its goals.
In this regard they need to find reliable and
systematic ways of ensuring that:
(a) All individuals and units understand their
goals and performing job accordingly.
(b) Resources are efficiently mobilized.
(c) progress is as per expectation and
periodically reviewed.
2. Levels of control
Robert Anthony classified managerial activities into three basic levels.
1. Strategic management= carried out by the top position: concerned
with direction setting rules and policy making and crisis handling. It is
largely consist of the setting of control environment;
 Strategic planning– determining course to be
taken
 Board procedures– appointment of the
directors, segregation of duties and so on
 Setting and reviewing organizational culture
 Policies on the conduct of business, financial
and other performance measures, risk
assessment, environmental and ethical issues.
 Mentoring achievement of the compliance with
plans and policies set.
• Tactical management= carried out by the
middle line concerned with establishing
means to corporate ends, mobilizing and
controlling resources and innovating new
ways of achieving goals.
• Operational management= carried out by the
operating core concerned with routine
activities carry out tactical plans.
3. Effective control system.
The effectiveness of any control system is likely to
depend on the extent to which it satisfies six criteria.
We call these the 6’A’s.
1) Acceptability= to the people who will operate it: to
fit with their needs and expectations and culture of
the units.
2) Accessibility= in terms of its ease of understanding
and operation
3) Adaptability= to changing conditions and demands
cont’d.
4. Action orientation= so that deviations trigger
corrective action or improvement
5. Appropriateness= to the circumstances and skills and
needs of the people operating it…..
6. Affordability= or cost effectiveness: the cost of
operating controls must be less.
• Practical difficulties with control:
 many systems are based on forecasting the
future, the information is not available or too
expensive or time consuming to collect.
 it is not easy to persuade the people for action
It is not easy to set the standard to be achieved
 lack of availability of accurate and timely available
information internally and externally
 it is not always easy to distinguish between
controllable and uncontrollable aspects of the
operation
4. Control strategies and processes.
There are various models describing how controls are
applied in organization.
1.4.1 Market, bureaucratic, and clan control…..
William Ouchi identified three basic control strategies
used by the organization….
(a) Market control= this control system determines how
the firms set their price mechanism and related
performance measures, internally and externally, to
control org. behavior.
Generally market control used for income statement,
balance sheet, and cash flow.
(b) Bureaucratic control=
 Uses an impersonal system of rules and reports to maintain
control.
 The main mechanism of control are policies, standard
operating procedures, rules, statistical reports, budgets, staff
performance appraisal.
 The primary purpose of bureaucratic control is to standardize
and control employees behavior.
 To make bureaucratic control work, managers must have the
authority to maintain control over the organization.
(c) Clan(people) control=
 Is based on corporate culture.
 It depends on shared values and standards of behavior within
the organization, and assume that employees ‘buy in’ to the
purpose, goals, and expectations of the organization.
 The clan has a primary focus on the involvement and
participation of the employees.
 In a clan an important value is taking care of employees and
making sure they have whatever they need to help them be
satisfied as well as productive.
Ouchi suggested that all organizations use a mix
of these strategies, but contingency view as to
which control mechanism is likely to prevail
(successful).
• Performance appraisal---- Controlling the individual
• Performance appraisal can help improve the
efficiency and effectiveness of an organization.
• The appraisal system is used for monitoring, and
evaluate employees.
• It is also used to motivate employees.
• Keeping in mind above stetements the definition
will be……..
‘ THE REGULAR AND SYSTEMATIC REVIEW OF
PERFORMANCE AND ASSESSMENT OF POTENTIAL,
WITH THE AIM OF PRODUCING ACTION PROGRAMS
TO DEVELOP BOTH WORK AND INDIVIDUALS’
• HOW TO ENSURE EFFECTIVE APPRAISAL?
 Fair and consistent
Commitment and support from senior managers
Serious intent
Relates to main objectives of organization
Purpose should be clearly understood by all
parties
Cost effective
• Benefits to organization
Provides a system for assessing competence of
employees and identifies areas for improvement
Provides a fair process for reward decisions
Identifies candidates for promotion and early
retirement etc
Helps identify and formulate training needs
Provides a basis for HR planning
• Benefits to employees
Feedback about performance at work
Can compare difference between performance
against standards
Provides a basis for remuneration
May be used for an opportunity to discuss future
prospects and ambition
Identifies training and development needs.
• Barriers to effective performance appraisal
Appraisal as confrontation
Appraisal as judgment
Appraisal as chat (make conversation)
Appraisal by bureaucracy
• Barriers can be overcome if:
There is commitment from all parties involved
There is system of follow up and feedback
Training and development
• Evaluating the effectiveness
Cost and benefit analysis
Investigating improvements
Monitor performance results
Reviewing staff turnover to identify cause
of staff leaving.
Monitoring succession and promotion
processes and results. Redundancy