Controlling

PRINCIPLES OF MANAGEMENT

Chapter 7- Controlling

The Need to Control

          It is imperative that the manager institute effective controls in his organization so he will not be at the mercy of internal and external forces that can disrupt its efficiency.

Controlling Defined

          Controlling is the managerial activity for ensuring the achievement of an organization’s objectives.

          More specifically, control is checking to determine whether plans are being observed and suitable progress toward the objectives is being made, and acting, if necessary, to correct deviations.

The Controlling Process

          The controlling process has three basic step:

1. Establishing standards against which performance can be measured. These standards which are often expressed in terms of money, time quotas, etc., say how things ought to be.

2. Comparing actual performance against standards. This step, which necessitates the collection of accurate data relating to actual performance, helps the manager see how things really are.

3. Correcting deviations or straightening of what is crooked. After the causes of deviations have been identified, appropriate corrective action should b taken so that performance takes place according to plans.

Types of Control

          Three types of control are often employed in organizations:

1. Preliminary Control

          This a type of control which identifies major problems before they occur. It is pre-emptive and focuses on the preventions of deviations by assuring that every possible malfunction has been taken care of. 

          The controller does not wait for a record of a hit or miss to start controlling. He tries to eliminate everything that might go wrong.

          Preliminary control called “feed forward” control is the best type since it allows deviations to be corrected before they seriously lead to non-realization of the organization’s objectives.

2. Concurrent Control

          This form of control endeavors to monitor the operation in progress. Under this types, work may not proceed to the nest step unless it passes a screening test. Control of this nature are essentially safety devices.

3. Post-Action Control

          In this type, control is carried out after the event. This is the poorest form of control because it is wasteful of resources. It exists only for the improvement of the next attempt. Post control methods include analysis of budget, financial statements, and quality control.

Characteristics of an Effective Control System

1. An effective control system must be suitable for the activity it seeks to regulate and should be the minimum required to achieve the desired results.

2. The standards employed must be objective and measurable. 

3. An effective control system uses the “exception principle” which provides that only exceptional circumstances (especially good or especially bad situations) require attention of management. Where normal procedures are running uneventfully, there is no need for the intervention of management.

4. It provides only usable data to the manager concerned.

5. It quickly report undesirable deviations to give the managers the opportunity to take action in time to prevent them.

6. It must be flexible otherwise it will be unable to maintain control of operations when a plan fails or is suddenly changed.

7. It must be worth the expense. A purchasing control that delays deliveries and costs more than the item purchased is an example of inefficient control.

8. It shows the way to corrective action. It must not only identify what the deviation is, where it occurred, but also who or what is responsible for it. From here the manager can evaluate the situation and decide what the appropriate action should be.

9. It pinpoints where the responsibility lies for the various control activities. For this reason, accountability and authority must be clearly defined.

10. It reviews standards and objectives periodically. This is necessary because situations change and new methods and techniques are developed.

11. It is on-going process since the environment, operations, personnel, etc. of an organization are constantly changing. If the process is carried out continuously, the inevitable small deviations that occur daily should; not develop into sizable problems.

Control Techniques

A. Traditional Control Techniques

1. Budgetary Control

          A budget is a financial statement prepared and approved prior to a defined period of time, of the policy to be pursued during that period for the purpose of achieving a predetermined objective.

          Budgetary control is the establishment of budgets relating the responsibilities of executives to the requirements of a policy. And the continuous comparison of actual with budgeted results.

2. Break-Even Point Analysis

          Break-even point is the point when income is equal to the total cost, that is, the level of activity when neither profit nor loss is made by the organization. The manager analyzes the break-even point and determines the step or steps to be taken: to maximize profits, he can try to maximize sales and reduce cost.

  

B. Specialized Control Techniques

1. Gantt chart Technique.

          This is a way of presenting control information to management developed by Henry L. Gantt. Data relating to costs, sales, or production are plotted by time period as a series of bars.

2. Network Analysis

          This is a technique for controlling a complex project which requires analyses into its various activities and events. This technique include the Critical Path Technique (CPM) and Program Evaluation and Review Technique (PERT) and the more recent Graphic Evaluation and Review Techniques (GERT).

3. Milestone Scheduling

          This is a schedule and control procedure developed by the National Aeronautics and Space Administration (NASA). Like the Gantt chart, it uses bar charts and to monitor progress.

Controlling Overall Performance

          Overall performance controls are necessary because they provide the means for ensuring that overall performance is consistent with overall plans.

          The manager needing overall performance control can use the following techniques:

1. Income Statement

          This is statement complied at the conclusion of an accounting period for the purpose of calculating the net profit or loss from business operation. This is done by deducting administrative expenses, financial, selling and distribution overheads for the gross profit, derived from the trading account, adding any income from investments and subtracting financial charges such as bank interests.  

2. Return on Investment (ROI)

          Every business organization must control its operations to achieve an optimum rate of return, that is, a rate of return on investments which adequate to satisfy the shareholders, and which is satisfactory for the type of business.

3. Key Area Control

          This is a control technique by which an organization rates its performance in a number of critical areas. Key areas may include quantity, quality, time, and cost with profit as the criterion of success.

4. Audits

          There are three types of audits:

a. Internal Audits. This type of audit is conducted by internal auditors who are employees of the organization and are responsible for performing impartial monitoring activities.

b. External Audits. This type of audit is conducted by external auditors who are not employees of the company. Their task is to inspect financial accounts and business records at the end of the financial year to ensure that they present an accurate and fair picture of profits, losses, assets, and liabilities.

c. Management Audit. It is a periodic assessment of managerial performance conducted by internal and external auditors. It primary aim is to determine whether positive results are being obtained from the managerial team or not.