CONTROL METHODS AND

SYSTEMS METHODS OF
CONTROL
Module 6
A.Quantitative Methods ➢ It makes use
of data and different quantitative tools
for monitoring and controlling
production output.
The chart is the most widely recognized quantitative.
Charts used as control tools normally contrast time and
performance. The visual impact of a chart often provides
the quickest method of relating data. A difference in
numbers is much more noticeable when displayed
graphically.
Two common quantitative tools are (1) Budgets and (2) Audits.

1. BUDGET ➢ It is considered the best-known control device.

Budgets and control are, in fact, synonymous. An
organization’s budget is an expression in financial terms of a
plan for meeting the organization’s goals for a specific period. A
budget is an instrument of planning, management, and control.
Budgets are used in two (2) ways: a. To establish facts that
must be taken into account during planning; b. To prepare a
description and financial information to be used by the chain of
command to request and manage funds.
1. AUDITS ➢ Internal auditing involves the independent
review and evaluation of the organization’s non-tactical
operations, such as accounting and finances. ➢ As a
management tool, audit measures and evaluates the
effectiveness of management controls.
A. Non- Quantitative Methods
➢ These refer to the overall control performance instead
of only those of specific organizational processes.
➢ These methods use tools such as inspections,
reports, direct supervision, and on-the spot-checking
and performance evaluation or counseling to accomplish
goals.
Types of Non-Quantitative Methods
1. FEEDFORWARD CONTROL ➢ A control method that prevents
problems in a firm because managerial action is taken before the actual
problem occurs.
2. CONCURRENT CONTROL ➢ It is a method that takes place while
work activity is happening. Example: Direct supervision or management
by walking around.
3. FEEDBACK CONTROL ➢ It is a control that takes place after the
occurrence of the activity. It is disadvantageous because, by the time the
manager receives the information, the problem had already occurred.
Note: When the above three control methods are compared,
managers choose the feedforward method as the most desirable
because of its preventive action. The concurrent control’s
advantage is that it can help managers’ correct problems before
they become too costly or damaging. Feedback Control advantage
is the exhibiting of variance between the standard and the actual
work performance. Little variance indicates that planning is
successful while significant variance may give managers an idea of
how to plan better.
4. EMPLOYEE DISCIPLINE
➢ It is a control challenge for managers, for enforcing discipline in the workplace is
not easy.
➢ This includes workplace privacy, employee theft, and workplace violence, among
others, are some of the concerns in employee discipline.
➢ From simple monitoring of employees’ computer usage at work to protecting
employees at work from psychologically unstable workers who may have hidden
desires to harm them, managers need discipline control to ensure that tasks can be
efficiently and effectively carried out as planned.
5. PROJECT MANAGEMENT
➢ It ensures that the task of getting a project’s activities done on time, within the
budget, and according to specifications, is successfully carried out.
➢ Project Managers need technical and interpersonal skills to control the
implementation of the project efficiently and efficiently.
Project Planning Process Controls include the ff:
a. Defining objectives
b. Identifying activities & resources
c. Establishing sequence & estimating time for activities
d. Determining the project completion date
e. Comparing with objectives and determining additional resource
requirements.
APPLICATION OF MANAGEMENT CONTROL IN
ACCOUNTING AND MARKETING CONCEPTS AND
TECHNIQUES

ACCOUNTING/FINANCIAL CONTROL RATIOS

Management control in accounting and finance is the control that makes use of the balance
sheet, income statement, and cash flow statement to analyze and examine financial statements in
order to determine the company’s financial soundness and viability, as well as financial ratios to
determine the company’s stability.
On the other hand, management control in marketing is the control that makes use of projected
sales or forecast, statistical models, econometric modeling, surveys, historical demand data, and
actual consumption of their products.
Sales is considered to be the “lifeblood of the business”. No matter how good the product is, it is not
sold in the market, there is no way that business can survive. Thus, the projected sales often guide
the sales manager or the marketing head on how much the target or the quota must be. In a way,
this will also serve as a guide for the operations manager in determining the number of units to be
produced. Excess production may mean cost, and unsold items may resort to inventory expenses or
worse, the obsolescence or degradation of the product. Indeed, the sales forecast requires
consideration.
A firm may generate a set of assumptions regarding the macroeconomic environment to which all
divisions must adhere as their guide, but forecast can still be generated from the customer level and
taken into account. Macroeconomic Environment is a business environment that includes or
considers economic aggregates such as national income, total volume, total volume of savings, and
money supply.
 Two (2) Sets of Forecast used by some firms:

a. Top-Down Sales Forecast – relies heavily on

macroeconomic and industry forecast with the use of
statistical models thru econometric modelling to achieve
the firm’s grown target.
b. Bottom-Up Sales Forecast – it begins by talking with
customers in a form of survey or ‘traffic count’, by
assessing the demand in the coming periods.
The goal of business is to gain profit. To achieve this, managers
need accounting/financial controls. Managers must also analyze
the organization’s financial condition, which is done with the
help of the following financial ratios.
1. LIQUIDITY RATIO – test the organization’s ability to meet short term
obligations; it may also refer to acid tests done when inventories turn over slowly
or are difficult to sell.

current ratio = current assets / current

liabilities

Example: Compute the liquidity ratio of a fast-food restaurant. Its current

assets amount to ₱ 3 million while its current liabilities are at Php 2 million.

Solution: current ratio = ₱ 3,000,000/₱ 2,000,000 current ratio = 1.5

Thus the restaurant’s liquidity ratio is 1.5 meaning the restaurant’s current
assets are higher than its current liabilities, and it shows that the firm can
easily pay all its current liabilities. That for every Php 1 of current liability,
the company has Php 1.5 of current assets available to pay for it.
2. LEVERAGE RATIO – determines if the organization is technically insolvent.
Meaning that the organization’s financing is mainly coming from borrowed money
or the owner’s investments.
debt-to-assets ratio = total debt / total assets

Example: Compute the leverage ratio of a fast-food

restaurant. Its Total debt amount to Php 60,000 while its
total assets are at ₱ 300,000. Solution: debt-to-assets ratio
= ₱ 60,000/₱ 300,000 debt-to-assets ratio = 0.2 Thus the
restaurant’s leverage ratio is 0.2 meaning for every ₱ 1
total asset of the company there is a ₱ 0.02 debt. This
means the debt is not quite high in Company Zing’s capital
structure. That means it may have a solid cash inflow.
3. ACTIVITY RATIO – determines if the organization is carrying more inventory
than what it needs; the higher the ratio, the more efficiently inventory assets are
being used.
Inventory turnover = cost of goods sold / average
inventory

Example: Compute the activity ratio of a fast-food restaurant. Its cost of

goods sold amounts to ₱ 3 million while its average inventory for the year
is at ₱ 2 million. current ratio = current assets / current liabilities debt-to-
assets ratio = total debt / total assets Inventory turnover = cost of goods
sold / average inventory 9 Solution: Inventory turnover = ₱ 3,000,000/₱
2,000,000 Inventory turnover = 1.5 Thus the restaurant’s inventory
turnover is 1.5 which means that the restaurant has very good inventory
control and that at 1.5 Inventory turnover shows how easily the firm turns
its inventory into cash.
4. PROFITABILITY RATIO- determines the profits that are being generated;

Profit Margin Ratio= Net profit after taxes/ total sales

Example: Jinsha’s XYZ Shop is an outdoor fishing store that sells lures and other
fishing gears. Last year, Jinsha had a net profit after taxes of ₱ 300,000 and her
Total Sales is ₱ 1,000,000. Solution: Profit Margin Ratio = ₱ 300,000/₱ 1,000,000
Profit Margin Ratio = 0.3 or 30 % Thus Jinsha converted 30% of her sales into
profits or for ₱ 1 sale, there is ₱ 0.3 profit. Or it measures the efficiency of assets to
generate profits.

Return on Investment = net profit after taxes/ total assets

Note: The return on assets ratio measures how effectively a company
can earn a return on its investment in assets. In other words, ROA
shows how efficiently a company can convert the money used to
purchase assets into net income or profits. Example: What is the
return on investment if a jewelry store’s net profit after taxes is ₱
6,000,000 and its total assets are ₱ 100,000,000.
Solution: Return on Investment = ₱ 6,000,000/₱ 100,000,000 Return
on Investment = 0.06 or 6 % Thus the jewelry store converted only 6%
return on investments out of its total assets of ₱ 100 million or for
every ₱ 1 there is a 0.06 ROI.
STRATEGIC CONTROL
➢ It is systematic monitoring at control points that leads to
change in the organization’s strategies based on assessments
done on the said strategic plans.
➢ This control provides a chance for comparing the plan’s
intended goals with the actual organizational performance, and
this becomes the basis for modifications in the firm strategies.
BENCHMARKING
➢ It is an approach or process of measuring a company’s services
and practices against those of recognized leaders in the industry to
identify areas for improvement.
➢ It is a widely used and well-accepted approach because it helps
organizations gather data and information against which
performance can be measured and controlled.
Three (3) Types of benchmarking according to Weihrich and Koontz (2005):
1. Strategic Benchmarking
➢ It compares various strategies and identifies the key strategic elements
of success.
2. Operational Benchmarking
➢ It compares relative cost or possibilities for product differentiation.
3. Management Benchmarking
➢ It focuses on support functions such as market planning and information
systems, logistics, and human resource management, among others.
Many companies used benchmarking. Some prefer to benchmark only the
top 10% or the best companies in their particular industry. Other
benchmarks best global practices and go further away from their own
industry and reason out that their goal is competitive superiority and not
just competitive parity.
The benchmarking process begins with determining which company
functions are to be benchmarked and the key performance indicators to be
measured. Then, the best industry performers have to be identified. Data
gathering and analysis follow and these become the foundations for
performance goals. New programs are implemented, and during this step,
performance is measured at regular intervals. Corrective actions are taken
to close the gap between the organization and the best-in-class
companies. The monitoring of results must be continuous to ensure
benchmarking success.