Management Chapter 7

CHAPTER - SEVEN
THE CONTROLLING FUNCTION

7.1 MEANING AND NEED FOR CONTROL

Meaning of controlling
Controlling is directly related to planning. The controlling process ensures that plans are being
implemented properly. In the functions of management cycle - planning, organizing, directing,
and controlling - planning moves forward into all the other functions, and controlling reaches
back. Controlling is the final link in the functional chain of management activities and brings the
functions of management cycle full circle. Control is the process through which standards for
performance of people and processes are set, communicated, and applied. Effective control
systems use mechanisms to monitor activities and take corrective action, if necessary. The
supervisor observes what happens and compares that with what was supposed to happen. He or
she must correct below-standard conditions and bring results up to expectations. Effective
control systems allow supervisors to know how well implementation is going. Control facilitates
delegating activities to employees. Since supervisors are ultimately held accountable for their
employees' performance, timely feedback on employee activity is necessary.

Controlling is the process in which management evaluates performance using predetermined

standards and in light of the results makes a decision regarding corrective action. Controlling is
the process of establishing and implementing mechanisms to ensure that objectives are achieved.
Controlling;- is one of the basic managerial functions, which deals with evaluating how well an
organization is achieving its goals and taking action to maintain or improve performances.
Controlling is a managerial function, which involves comparing actual performance with
standard, identifying and analyzing deviations, finding causes of deviations, if any, takes
corrective actions to meet the standards in subsequent periods.

Need for Controlling

-Controlling is important in order to confirm the degree to which organization is efficient in
using its resources and to ensure the degree to which organization is successful in attaining its
objectives. A controlling system contains the measures that allow managers to assess how
effectively the organization is producing goods and services.

7.2 THE CONTROL PROCESS

The control process is a process, which includes different steps in establishing controlling. The
control process is a continuous flow between measuring, comparing and action. There are four
steps in the control process: establishing performance standards, measuring actual performance,
comparing measured performance against established standards, and taking corrective action.

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Fig 7.1 Control Process Steps

1. Establishing standards of performance

Standard is any established rule or basis of comparison used to measure capacity, quantity,
content, value, cost, quality, or, performance. Standard is pre-determined amount of desired
performance. A standard is any guideline established as the basis for measurement. It is a
precise, explicit statement of expected results from a product, service, machine, individual, or
organizational unit. It is usually expressed numerically and is set for quality, quantity, and time.
Tolerance is permissible deviation from the standard. What is expected? How much deviation
can be tolerated?

Time controls relate to deadlines and time constraints. Material controls relate to inventory and
material-yield controls. Equipment controls are built into the machinery, imposed on the
operator to protect the equipment or the process. Cost controls help ensure cost standards are
met. Employee performance controls focus on actions and behaviors of individuals and groups of
employees. Examples include absences, tardiness, accidents, quality and quantity of work.
Budgets control cost or expense related standards. They identify quantity of materials used and
units to be produced.

Financial controls facilitate achieving the organization's profit motive. One method of financial
controls is budgets. Budgets allocate resources to important activities and provide supervisors
with quantitative standards against which to compare resource consumption. They become
control tools by pointing out deviations between the standard and actual consumption.

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Operations control methods assess how efficiently and effectively an organization's

transformation processes create goods and services. Methods of transformation controls include
Total Quality Management (TQM) statistical process control and the inventory management
control. Statistical process control is the use of statistical methods and procedures to determine
whether production operations are being performed correctly, to detect any deviations, and to
find and eliminate their causes. A control chart displays the results of measurements over time
and provides a visual means of determining whether a specific process is staying within
predefined limits. As long as the process variables fall within the acceptable range, the system is
in control. Measurements outside the limits are unacceptable or out of control. Improvements in
quality eliminate common causes of variation by adjusting the system or redesigning the system.

The just-in-time (JIT) system is the delivery of finished goods just in time to be sold,
subassemblies just in time to be assembled into finished goods, parts just in time to go into
subassemblies, and purchased materials just in time to be transformed into parts.
Communication, coordination, and cooperation are required from supervisors and employees to
deliver the smallest possible quantities at the latest possible date at all stages of the
transformation process in order to minimize inventory costs.

Establishment of performance standards is a prerequisite for the operation of the control system.
Standards provide yardstick (comparison measurement) against which performance is measured
in order to determine variance, if any, between standards and actual performance.

In standard:

-The basis of standard will be heavily quantitative

E.g., return on investment in one year is compared with that of the previous year.
-At the other time the basis will be more qualitative as when the public’s view of the enterprise is
examined, and management attempts to answer the question-is our performance getting better or
becoming worse?
2. Measuring actual performance
After standards are established, managers must measure actual performance to determine
variation from standards. In measuring performance emphasis should be placed on its
quantitative as well as qualitative aspects. Control measurements are generally used for
measuring those aspects of performance which can be expressed in qualitative terms such as
employee morale, interpersonal and inter group relations, work environment, etc, and
quantitative terms such as costs, revenues, number of hours worked, and so forth. Supervisors
collect data to measure actual performance to determine variation from standard. Written data
might include time cards, production tallies, inspection reports, and sales tickets. Personal
observation, statistical reports, oral reports and written reports can be used to measure
performance. Management by walking around, or observation of employees working, provides
unfiltered information, extensive coverage, and the ability to read between the lines. While

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providing insight, this method might be misinterpreted by employees as mistrust. Oral reports
allow for fast and extensive feedback.

Computers give supervisors direct access to real time, unaltered data, and information. On line
systems enable supervisors to identify problems as they occur. Database programs allow
supervisors to query, spend less time gathering facts, and be less dependent on other people.
Supervisors have access to information at their fingertips. Employees can supply progress reports
through the use of networks and electronic mail. Statistical reports are easy to visualize and
effective at demonstrating relationships. Written reports provide comprehensive feedback that
can be easily filed and referenced. Computers are important tools for measuring performance. In
fact, many operating processes depend on automatic or computer-driven control systems.
Impersonal measurements can count, time, and record employee performance.

3. Comparing actual performance with the set (established) standards

The other step in the control process is to compare actual performance to the standards set for
that performance. Comparison of actual performance with the set standards leads to
identification of deviations needing attention .If there is significant deviation, managers should
analyze the real causes of deviations to take actions. Nevertheless, every deviation from the plan
doesn’t require corrective action. Some results can be considered good enough, as when there is
a desired profit of 1 million Birr and actual profit of 988,000 Birr where the deviation is
insignificant. Some variation can be expected in all activities and the range of variation - the
acceptable variance - has to be established. Management by exception lets operations continue
as long as they fall within the prescribed control limits. Deviations or differences that exceed this
range would alert the supervisor to a problem.

4. Taking corrective action

Once the underlying causes of deviations have been identified, the next step in control process is
to take corrective actions. When an employee determines the cause or causes of significant
deviation from a standard, he or she must take corrective action to avoid repetition of the
problem or defect. Policies and procedures may prescribe the actions. The corrective action may
involve changing certain conditions like replacement of machines, better service to customers,
training, transfers, revision of objectives, strategies, etc.

All the above steps in control process: establishment of standards, measurement of performance,
and comparison of actual performance to the standards set, and taking corrective actions should
be considered as interdependent parts of the control system. Changes in any one of these parts
involve changes in all the other parts. For example, corrective actions may involve revision of
standards which will affect all the other parts of the system.

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7.3 TYPES OF CONTROL

Controls are most effective when they are applied at key places. Supervisors can implement
controls before the process begins (feed forward), during the process (concurrent), or after it
ceases (feedback).

Based on the time of controlling, controls can be classified in to three: feed forward controls,
concurrent controls, and feedback controls. Each focuses on a different point of a process.
A. Feed forward controls (input or preventive controls)
- are controls that focus on the prevention of defects and deviations from the standards. They
focus on operation before it begins.
- are controls that allow managers to anticipate problems before they arise.
Example
-Screening job applicants and using several effective interviews, managers can lessen (minimize)
the chance of hiring people who lack necessary skills or experience to perform effectively.
-When manufacturer works closely with its suppliers to ensure that the suppliers deliver goods
and services that meet standards, the manufacturer is implementing forward control.
-Scheduled maintenance on automobiles and machinery. Regular maintenance feeds forward to
prevent problems. Other examples include safety systems, training programs, and budgets.

B. Concurrent controls

 Are controls that give managers immediate feedback on how effectively inputs are being
transformed into outputs so that managers can correct problems as they arise.
 Are controls that apply to process as the processes are happening.
 Are actions taken as inputs are transformed into outputs to ensure that Standards are met
and enables taking of corrective action while activities are being performed.
Concurrent controls enacted while work is being performed include any type of steering or
guiding mechanism such as direct supervision, automated systems (such as computers
programmed to inform the user when they have issued the wrong command), and organizational
quality programs. It is usually more economical to reject faulty input parts than to wait and find
out that they finished outputs does not properly.
C. Feedback /output /controls
 are controls that focus on the results of operations. They are after the fact or post
performance controls.
 are controls that give managers information about customers’ reaction to goods and services
so that corrective actions can be taken if necessary. In a feedback control, managers measure
actual performance against the standard and take corrective actions if there is any
unfavorable variation. The actions have no use for present or already done activities rather
for future activities. Examples of feedback controls include timely (weekly, monthly,
quarterly, annual) reports so that almost instantaneous adjustments can be made.

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Fig 7.3 Types of Control

Fig 7.4 Types of Control

7.4 CONTROL TECHNIQUES

A number of techniques are used for controlling. Some of them like return on investment, ratio
analysis, financial statement, etc, are used for the measurement of overall performance of the
enterprise. Other techniques like the breakeven point analysis, budgets, etc, are designed to
measure specific aspects of performance such as production costs, Sales and so on. The basic
purpose of all these techniques is, however, the same to measure actual performance and
determine deviations from desired performance so that corrective actions may be taken.

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7.5 EFFECTIVE CONTROL SYSTEMS

Control systems are formal target setting, monitoring, evaluation and feedback systems that
provide managers with information about how well the organizations strategy and structure are
working.
Characteristics of effective control systems include:
Accuracy- information that is received from control system should be accurate or real. If the
information is not correct, the resulting decisions are likely to make things worse rather than
solving problems.
Timely- the information being feedback must be provided on time to allow managers to obtain
full benefits from the data.
Economical- the cost of control system must be weighed against its benefits. If the resources
expended on the control don’t return equal or greater value, the control is better left un
implemented.
Focus on critical points- a manager does not have time to control every aspect of operations.
As a result a control system should single out specific areas that provide overall comprehensive
control.
Acceptability- people must agree that controls are necessary and the controls will not have
negative impacts on individuals or their efforts to achieve personal goal.

End!!!!

Review and Discussion Questions

1. Define "controlling"
2. What are the major types and techniques of controlling?
3. Define organizational control and explain why it is a key management function?
4. Describe differences in control focus, including feed forward, concurrent, and feedback
control?
5. Explain the four steps in the control process?
6. Describe the concept of total quality management and major TQM techniques the just-in-
time (JIT)?

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