Controlling

Dr. Mafasiya Fairoz

Senior Lecturer
Department of Management And Entrepreneurship
Faculty of Management And Finance
University of Ruhuna

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 Learning Outcomes

1. Define Controlling and Why Is It Important

2. Describe the process of controlling

3. Explain the tools for Measuring Organizational

Performance

4. Contrast feed forward, concurrent, and feedback

controls.

5. Discuss Contemporary Issues in Control

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 What Is Controlling?

• Controlling
 The process of monitoring activities to ensure that
they are being accomplished as planned and of
correcting any significant deviations.

 Organizational control refers to the systematic

process of regulating organizational activities to make
them consistent with the expectations established in
plans, targets, and standards of performance (Daft
L.Richard,2012)

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 Why Is Controlling Important?
• As the final link in management functions:
 Planning
 Controls let managers know whether their goals
and plans are on target and what future actions to
take.
 Empowering employees
 Control systems provide managers with information
and feedback on employee performance.
 Protecting the workplace
 Controls enhance physical security and help
minimize workplace disruptions.

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 Why Is Controlling Important?

 Ensuring order and discipline

It helps to minimize dishonest behavior on the part of the
employees by keeping a close check on their activities.

Facilitating coordination in action

Each department and employee is governed by
predetermined standards which are well coordinated with one
another. This ensures that overall organizational objectives are
accomplished.

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 Why Is Controlling Important?

 Achieving competitive advantages

It helps managers superior efficiency, quality,

responsiveness to customers, and innovation – the four
building blocks of competitive advantage

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The Planning–Controlling Link

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 The Planning–Controlling Link

planning and controlling are interrelated and, in fact, reinforce

each other in the sense that

Planning based on facts makes controlling easier and

effective;
and

Controlling improves future planning by providing information

derived from past experience

Thus, planning without controlling is meaningless.

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 Designing Control Systems

Control system is formal target setting,

monitoring, evaluation, and feedback systems
that provide managers with information about how
well the organization’s strategy and structure are
working.

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 Designing Control Systems
• Market Control
 Emphasizes the use of external market mechanisms
to establish the standards used in the control system.
 External measures: price competition and relative
market share
• Bureaucratic Control
 Emphasizes organizational authority and relies on
rules, regulations, procedures, and policies.
• Clan Control
 Regulates behavior by shared values, norms,
traditions, and beliefs of the firm’s culture.

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 Three Organizational Control Systems
Type of Control Characteristics

Output/Market Uses external market mechanisms, such as price

control competition and relative market share, to establish
standards used in system. Typically used by organizations
whose products or services are clearly specified and
distinct and that face considerable marketplace
competition.
Bureaucratic Emphasizes organizational authority. Relies on
control administrative and hierarchical mechanisms, such as
rules, regulations, procedures, policies, standardization of
activities, well-defined job descriptions, and budgets to
ensure that employees exhibit appropriate behaviors and
meet performance standards.

Clan Regulates employee behavior by the shared values,

control norms, traditions, beliefs, and other aspects of the
organization’s culture. Often used by organizations in
which teams are common and technology is changing
rapidly.
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 Controlling Process

The Process of Controlling is a systematic process

involving the following steps.

1. Setting performance standards

2. Measurement actual performance
3. Comparison of actual performance against chosen
standards of performance
4. Evaluate the results and initiate corrective action if the
standard is not being achieved

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Controlling Process

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 The Controlling Process
1. Setting performance standards
Standards serve as benchmarks towards which an
organization strives to work.

Quantitative
Qualitative
Cost
Revenue
Goodwill
Product units
Motivation of employees
Time
Employee Satisfaction
sales
Customer satisfaction

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 The Controlling Process

2. Measurement of actual performance

Performance should be measured in an objective

and reliable manner.

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 Measuring: How and What We Measure
• Sources of Information (How) • Control Criteria
 Personal observation (What)
 Statistical reports  Employees
 Oral reports
 Satisfaction
 Written reports
 Turnover

 Absenteeism
Company’s
performance
 Budgets
 Costs
 Gross profit ratio
 Output
 Net profit ratio
 Sales
 Return on investment

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Common Sources of Information for
Measuring Performance

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 The Controlling Process

3.Compare actual performance against standards

 Significance of variation is determined by:
 Theacceptable range of variation from the
standard (forecast or budget).
 Thesize (large or small) and direction (over or
under) of the variation from the standard (forecast
or budget).

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Defining the Acceptable Range of Variation

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 The Controlling Process
4. Evaluate the result and initiate corrective Action
 “Doing nothing”
 Only if deviation is judged to be insignificant.
 Correcting actual (current) performance
 Immediate corrective action to correct the problem
at once.
 Basic corrective action to locate and to correct the
source of the deviation.
 Corrective Actions

– Change strategy, structure, compensation

scheme, or training programs; redesign jobs; or
fire employees
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 The Controlling Process

4. Evaluate the result and initiate corrective

Action
 Revising the standard
Examining the standard to ascertain
whether or not the standard is realistic, fair,
and achievable.
– Keeping the validity of the standard.
– Resetting goals that were initially set too
low or too high.

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Managerial Decisions in the Control Process

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 Controlling for Organizational
Performance

What Is Organizational Performance?

 The accumulated end results of all of the

organization’s work processes and activities

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Organizational Performance Measures
• Organizational Productivity
 Productivity: the overall output of goods and/or
services divided by the inputs needed to generate
that output.
 Output: sales revenues
 Inputs:
costs of resources (materials, labor
expense, and facilities)

 Ultimately, productivity is a measure of how efficiently

employees do their work.

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Organizational Performance Measures

• Organizational Effectiveness
 Measuring how appropriate organizational goals are
and how well the organization is achieving its goals.
 Systems resource model
– The ability of the organization to exploit its environment in
acquiring scarce and valued resources.
 The process model
– The efficiency of an organization’s transformation process
in converting inputs to outputs.
 The multiple constituencies model
– The effectiveness of the organization in meeting each
constituencies’ needs.

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 Industry and Company Rankings
• Corporate
Industry rankings
Culture on:
Audits
•  Profits
Compensation and benefits surveys
•  Return on revenue
Customer satisfaction
 Return on shareholders’ equity
surveys
 Growth in profits
 Revenues per employee

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Types of Control

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 Tools for Controlling Organizational
Performance
• Feedforward Control
 A control that prevents anticipated problems before
actual occurrences of the problem.
 Building in quality through design.

• Concurrent Control
 A control that takes place while the monitored activity
is in progress.
 Direct supervision: management by walking
around.

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 Tools for Controlling Organizational
Performance (cont’d)
• Feedback Control
 A control that takes place after an activity is done.
 Correctiveaction is after-the-fact, when the
problem has already occurred.
 Advantages of feedback controls:
 Provide managers with information on the
effectiveness of their planning efforts.
 Enhance employee motivation by providing them
with information on how well they are doing.

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 Tools for Controlling Organizational
Performance: Financial Controls
• Traditional Controls • Other Measures
 Ratio analysis  Balanced Score Card
 Liquidity

 Leverage

 Activity

 Profitability
 Budget Analysis
 Quantitative
standards
 Deviations

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Popular Financial Ratios

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Popular Financial Ratios (cont’d)

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Controlling Organizational Performance
• Balanced Scorecard
 Is a measurement tool that uses goals set by
managers in four areas to measure a company’s
performance:
 Financial

 Customer
 Internal processes

 People/innovation/growth assets

 Is intended to emphasize that all of these areas are

important to an organization’s success and that there
should be a balance among them.

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Balanced Scorecard

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Balanced Scorecard

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 Information Controls
• Purposes of Information Controls
 As a tool to help managers control other
organizational activities.
 Managers need the right information at the right
time and in the right amount.
 As an organizational area that managers need to
control.
 Managers must have comprehensive and secure
controls in place to protect the organization’s
important information.

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 Information Controls

• Management Information Systems (MIS)

 A system used to provide management with needed
information on a regular basis.
 Data: an unorganized collection of raw, unanalyzed
facts (e.g., unsorted list of customer names).
 Information:data that has been analyzed and
organized such that it has value and relevance to
managers.

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The Qualities Of An Effective Control
System

• Accuracy • Strategic placement

• Timeliness • Multiple criteria
• Economy • Corrective action
• Flexibility
• Understandability
• Reasonable criteria

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 Contemporary Issues in Control

• Cross-Cultural Issues
 The use of technology to increase direct corporate
control of local operations
 Legal constraints on corrective actions in foreign
countries
 Difficulty with the comparability of data collected from
operations in different countries

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Contemporary Issues in Control (cont’d)

• Workplace Concerns
 Workplace privacy versus workplace monitoring:
 E-mail, telephone, computer, and Internet usage
 Productivity, harassment, security, confidentiality,
intellectual property protection
 Employee theft
 The unauthorized taking of company property by
employees for their personal use.
 Workplace violence
 Anger, rage, and violence in the workplace is
affecting employee productivity.

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Contemporary Issues in Control (cont’d)

• Customer Interactions
 Service profit chain
 Is
the service sequence from employees to
customers to profit.

 Service capability affects service value which impacts

on customer satisfaction that, in turn, leads to
customer loyalty in the form of repeat business
(profit).

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 The Service Profit Chain

Source: Adapted and reprinted by permission of Harvard Business Review. An exhibit from “Putting the Service Profit Chain to Work,” by J. L. Heskett,
T. O. Jones, G. W. Loveman, W. E. Sasser, Jr., and L. A. Schlesinger. March–April 1994: 166. Copyright (c) by the President and Fellows of Harvard
College. All rights reserved. See also J. L. Heskett, W. E. Sasser, and L. A. Schlesinger, The Service Profit Chain (New York: Free Press, 1997).
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Contemporary Issues in Control (cont’d)
• Corporate Governance
 The system used to govern a corporation so that the
interests of the corporate owners are protected.
 Corporate Governance refer to the framework of
systems, rules, and practices by which an
organization ensures accountability, fairness, and
transparency in its relationship with all stakeholders
including investors, employees, customers, and the
general public.
– More disclosure and transparency of corporate
financial information
– Certification of financial results by senior
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Thank You

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