Controlling

• Organizations always want high productivity
• Essence of controlling:

  • Managers measure what they manage and manage what they measure.
• Controlling is the process of monitoring, comparing, and correcting work performance.
• The value of the control function can be seen in three specific areas: planning, empowering employees, and protecting the workplace.
• importance of Management Control

  1. Control is the only way that managers know whether organizational goals are being met and if not, the reasons why.
  2. An effective control system can provide information and feedback on employee performance and minimize the chance of potential problems.
  3. Managers impose control measures to protect the organization and its assets.
• Planning is the process of setting organizational goals, objectives, and strategies.
• Controlling is the process of evaluating whether the goals are achieved.
• The Control Process

  1. Measuring the actual performance based on criteria
  2. Comparing actual performance against the standard
  3. Taking managerial action
• Approaches in Measuring the actual performance based on criteria

  1. personal observations
  2. statistical reports
  3. oral reports
  4. written reports
• Issue: Actual performance cannot always be quantified
• Issue: Actual performance is not always the same as the standard. There is a concept called an acceptable range of variation and the size (large or small) and direction (over or under) of the variation from the standard (forecast or budget
• Taking managerial action

  Possible courses of action

  1. Correct actual performance
  2. Revise the standard
• Correct actual performance

  • Effective managers analyze deviations and if the benefits justify it, take the time to pinpoint and correct the causes of variance.
• Revise the standard

  • Some unrealistic standards create a variance.
  • Issue: What is the realistic standard? How it is determined
• Performance is the end result of an activity.
• Managers are concerned with organizational performance —the accumulated results of all the organization’s work activities.
• Measures of Organizational Performance

  1. Organizational productivity
  2. Organizational effectiveness
  3. Industry and company rankings
• Productivity is the measure of output (goods and/or services produced) divided by the input (cost of acquiring and transforming resources to outputs).
• Organizational effectiveness

  • It is a measure of how appropriate organizational goals are and how well those goals are being met.
• The organizational goals guide managerial decisions in formulating strategies and action programs and in coordinating the work of employees.
• Rankings are determined by specific performance measures. It gives managers (and others) an indicator of how well their company performs in comparison to others.
• Types of Control

  1. Feedforward control
  2. Concurrent control
  3. Feedback control
• Feedforward control – anticipates problems and taking managerial action before a problem occurs
• Feedforward control

  • Building in quality through design
  • Requiring suppliers conform to ISO 9002
• ISO 9002 is a model for quality assurance in production and installation.
• Concurrent control – takes place while an activity is in progress; it can be done through the practice of “Management by walking around”.
• Direct supervision

  • management by walking around
• Feedback control – takes place after the activity is done
• Control Tools

  1. Financial control
  2. The balanced scorecard approach
  3. Information control
  4. Benchmarking
• Financial control

  • the use of budget analysis and financial ratio analysis
• Financial

  1. Liquidity ratios
  2. Leverage ratios
  3. Activity ratios
  4. Profitability ratios
• Liquidity ratios measure an organization’s ability to meet its current debt obligations. The higher is the ratio/result, the better is the company’s liquidity position.
• Leverage ratios examine how much capital comes in the form of debt. The lower is the result, the better for the company.
• Activity ratios assess how efficiently a company is using its assets. A high ratio means the company is efficient.
• Profitability ratios measure how efficiently and effectively the company is using its assets to generate profits. A high result is ideal for the company.
• The balanced scorecard approach. This approach looks at four areas that contribute to a company’s performance: financial, customer, internal processes, and people/innovation/growth assets.
• A management information system (MIS) is a system used to provide managers with needed information regularly. In theory, this system can be manual or computer-based, although most organizations have moved to computer-supported applications.
• The term system in MIS implies order, arrangement, and purpose.
• A benchmark is the standard of excellence against which to measure and compare.
• Benchmarking is the search for the best practices among competitors or non-competitors that lead to their superior performance. It is a control tool for identifying and measuring specific performance gaps and areas for improvement.