Principles of Management Controlling
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Controlling involves measuring performance against standards, identifying deviations, and taking corrective actions. The chapter discusses the definition, nature, and process of controlling. It also covers characteristics of effective control, types of control for different purposes, common control methods like budgets and reports, and how accounting concepts and techniques can be used as control devices for areas like quality, production, and inventory. The overall goal of controlling is to ensure activities stay on track according to plans.
Principles of Management Controlling
- 2. Learning Objectives At the end of the chapter, you are all expected to understand the following: Definition of Controlling The Nature of Controlling The Control Process Characteristics of Control Types of Control Control Methods and Systems Accounting Concepts and Techniques as Control Devices 2
- 3. What is Controlling? 3 The process of measuring and correcting activities (plans, organization, personnel etc.) of an organization. Controlling determines what is being tackled by evaluating the performance and if there is a deviation, by applying corrective measures so that the activities take place according to plans. Can be considered as the activity for knowing and correcting important changes in the activities that are planned.
- 4. Nature of Controlling 4 Where other fundamental functions of management are performed perfectly, controlling is still inevitable , for it is used to further effect some improvements. Controlling means big savings of money in operation Planning is related to controlling. The failure of planning would mean failure in controlling and the success of planning means success of controlling. Controlling alerts the manager to potentially critical problems • Top Management – when goals are not met • Middle and Lower Management – when the objectives are not met Managers can use the following: • Prevent crises • Standardized outputs • Appraise employees performance • Update plans • Protect an organization’s asset
- 5. The Control Process 5 Controlling involves the following: 1. Establishing Standards – standards are desired levels of performance and constitute the foundation of the process. These serve as the criteria against which the performance is evaluated. 2. Measuring Performance Against the Established Standards – should be both quantity and quality: • Quality – Quality of output. What is produced compared to what should be produced. Parallel to effectiveness • Quantity - Finding out the amount or number of output. Parallel to efficiency. • Time – Formulating the timetable for achieving certain goals at certain dates. • Cost - Went over of the budget or not. 3. Comparison of Actual Performance – The core of the controlling process. Checking the actual meets the predetermined or planned performance. 4. Taking corrective action when and where deviation from the standards occur. – corrections and fine tuning may be necessary to
- 6. Characteristics of Control 6 The function of control is to keep work moving on schedule as planned towards the established objectives and goals. Control should meet the certain characteristics: • Attuned to the activity – control should reflect needs of people using them. • Deviation must be identified quickly – what is the use of checking the process or parts after they breakdown? • Must be forward-looking – avoid historical, use of forecast and other forward looking devices. • Must be strategically oriented – selecting the crucial points at which control is applied. • Should be flexible – permits unexpected changes or situations. • Should be economical – cost of controlling should not exceed the benefits of it. •Should easy to be understood – people should understand its purpose
- 7. Types of Control 7 There are many different types of control to be used for different purpose: 1. Control used to standardize performance – helps to increase efficiency and decrease costs 2. Control used to safeguard company assets – company assets must be protected from theft, vandalism, wastage and misuse. 3. Control used to standardize quality – for specific quality level of the product. 4. Controls designed to set limits within which delegated authority can be exercised without further top management approval – manuals, procedures etc. 5. Control used to measure job performance – special reports, output data etc. 6. Control used for planning and programming instructions – sales and production costs 7. Control necessary to allow top management to keep firm’s various plans and program in balance – master budgets, use of
- 8. Control Methods and Systems 8 Two Kinds of Control Methods: 1. Behavior (or Personal) Control – based on direct and personal surveillance. 2. Output (or Impersonal) Control – based on measurement of output. Tracking production records and sales as example of control output. Flexible Budgets – are designed to vary with the volume of sales or some other measure of output. Zero-Based Budgeting – to justify an entire budget request in detail, from scratch. Direct Observation – daily tour of the facility, annual visit to all branches Written Reports – can be prepared on a periodic or “as necessary” basis • Analytical – interpret the facts • Informational – presents the facts Audits – may be conducted by internal or external personnel Time Related Charts and Techniques – though the use of Gantt charts, PERT, CPM Management By Objectives (MBO) – once implements, could also be used in controlling
- 9. Accounting Concepts and Techniques as Control Devices 9 1. Tests of Liquidity – used to determine a firm’s ability to meet short-term obligations and to remain solvent in the event of adversities. 2. Tests of Debt Service – are employed to present the project’s ability to meet long-term obligations. 3. Tests of Probability – shows the operational performance and efficiency of the project. 4. Test of Total Debt Coverage 5. Funds Flow Analysis – employed to determine the major uses and sources of funds. 6. Tests of Operating Leverage – indicate how the projects employ assets for which it pays a fixed cost. 7. Test of Financial Leverage – present how a project employs funds which pay a fixed return. 8. Tests of Capital Investment – evaluate the justification for investing in the project.
- 10. Accounting Concepts and Techniques as Control Devices 10 Quality Control - deals with setting up of quality standards in advance in such areas and comparing these with actual standards. Production Control – aim is to produce the right product in the proper quantity and quality, at the right time and by the best and least cost methods. Inventory Control – excess and not maintaining adequate inventory should be balanced. Economic Order Quantity (EOQ) – determines the most economic level of inventory Maintenance of Inventory – alphabetical, mnemonics, numerical, sign, combination Control Report – for feedback of information.