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INTRODUCTION
The long-term existence of many companies, most often, is placed in
CONTROLLING jeopardy when some aspects of their activities go out of control. Consider
the following examples:
1. A news report indicated that the fire which destroyed the P800
• What is Controlling? million Superferry 7 luxury ship on March 26, 1997 was caused by illegal
• Importance of Controlling connections made on its electrical system.' If this is true, the losses could
• Control Process be attributed to inadequate management control.
• Types of Control 2. The tragedy that happened at the Ozone Disco in March 18, 1996
clearly manifested management's lack of control over the day-to-day
• Components of Organizational Control Systems
operations of the firm. Even the failure to detect earlier the violations in
• Strategic Control Systems the Building Code spells lack of effective government control.
• Identifying Control Problems 3. The management of a telephone company could not stop the
unauthorized use of lines assigned to many of its subscribers. Customers
become angry when they are billed for calls they never made.

INTRODUCTION WHAT IS CONTROLLING?

The examples presented constitute a very small
percentage of unwanted occurrences that happen Controlling refers to the "process of ascertaining
everyday in the business world. Apart from the whether organizational objectives have been achieved; if
destruction of lives and property, normal business not, why not; and determining what activities should then be
taken to achieve objectives better in the future.“
operations are hampered causing discontinuities in
employment and the provision of products and services. Controlling completes the cycle of management
functions. Objectives and goals that are set at the planning
These could not have happened if only adequate stage are verified as to achievement or completion at any
controls were instituted. given point in the organizing and implementing stages.
When expectations are not met at scheduled dates,
corrective measures are usually undertaken.
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IMPORTANCE OF CONTROLLING IMPORTANCE OF CONTROLLING

When controlling is properly implemented, it will help
The importance of controlling may be illustrated as it is
the organization achieve its goal in the most efficient and
applied in a typical factory. If the required standard daily
effective manner possible.
output for individual workers is 100 pieces, all workers who
Deviations, mistakes, and shortcomings happen do not produce the requirement are given sufficient time to
inevitably. When they occur in the daily operations, they improve; if no improvements are forth-coming, they are
contribute to unnecessary expenditures which increase the asked to resign. This action will help the company keep its
cost of producing goods and services. Proper control overhead and other costs at expected levels. If no such
measures minimize the ill effects of such negative control is made, the company will be faced with escalating
occurrences. An effective inventory control system, for production costs, which will place the viability of the firm in
instance, minimizes, if not totally eliminates losses in jeopardy.
inventory.

CONTROL PROCESS 1. Establishing Performance Objectives and Standards

In controlling, what has to be achieved must first be determined.
The control process consists of four steps, namely: Examples of such objectives and standards are as follows:
1. establishing performance objectives and 1. Sales targets - which are expressed in quantity or monetary
standards terms;
2. measuring actual performance 2. Production targets - which are expressed in quantity or quality;
3. comparing actual performance to objectives and 3. Worker attendance - which are expressed in terms of rate of
absences;
standards, and
4. Safety record - which is expressed in number of accidents for
4. taking necessary action based on the results of given periods;
the comparisons. 5. Supplies used - which are expressed in quantity or monetary
terms for given periods.
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1. Establishing Performance Objectives and Standards 2. Measuring Actual Performance

• Once objectives and standards are established, the • There is a need to measure actual performance so that
measurement of performance will be facilitated. Standards when shortcomings occur, adjustments could be made. The
differ among various organizations. In construction firms, adjustments will depend on the actual findings.
project completion dates are useful standards. In chemical
manufacturing firms, certain pollution measures form the basis • The measuring tools will differ from organization to
for standard requirements. organization, as each have their own unique objectives.
• After the performance objectives and standards are Some firms, for instance, will use annual growth rate as
established, the methods for measuring performance must be standard basis, while other firms will use some other tools
designed. Every standard established must be provided with its like the market share approach and position in the industry.
own method for measurement.

3. Comparing Actual Performance to Objectives and

4. Taking Necessary Action
Standards
• Once actual performance has been determined, this will be The purpose of comparing actual performance with the desired
compared with what the organization seeks to achieve. Actual result is to provide management with the opportunity to take
production output, for instance, will be compared with the corrective action when necessary.
target output. This may be illustrated as follows: If in the illustration cited above, the management of the
construction firm found out that only 15 kilometers were finished
A construction firm entered into a contract with the after two months, then, any of the following actions may be
government to construct a 100 kilometer road within ten undertaken:
months. It would be, then, reasonable for management to 1. hire additional personnel;
expect at least 10 kilometers to be constructed every month. As 2. use more equipment; or
such, this must be verified every month, or if possible, every 3. require overtime
week.
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CONTROL TYPES OF CONTROL

PROCESS FEEDFORWARD CONTROL
• When management anticipates problems and prevents their occurrence,
the type of control measure undertaken is called feedforward control.
This type of control provides the assurance that the required human and
nonhuman resources are in place before operations begin. An example is
provided as follows:
• The manager of a chemical manufacturing firm makes sure that the best
people are selected and hired to fill jobs. Materials required in the
production process are carefully checked to detect defects. The
foregoing control measures are designed to prevent wasting valuable
resources. If these measures are not undertaken, the likelihood that
problems will occur is always present.

TYPES OF CONTROL TYPES OF CONTROL

CONCURRENT CONTROL CONCURRENT CONTROL
• When operations are already ongoing and activities to Examples of activities using concurrent control are as follows:
detect variances are made, concurrent control is said to be • The manager of a construction firm constantly monitors the progress of
undertaken. It is always possible that deviations from the company's projects. When construction is behind schedule,
corrective measures like the hiring of additional manpower are made.
standards will happen in the production process. When such
• In a firm engaged in the production and distribution of water, the
deviations occur, adjustments are made to ensure chemical composition of the water procured from various sources is
compliance with requirements. Information on the checked thoroughly before they are distributed to the consumers.
adjustments are also necessary inputs in the pre-operation • The production manager of an electronics manufacturing firm inspects
phase. regularly the outputs consisting of various electronics products coming
out of the production line.
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TYPES OF CONTROL TYPES OF CONTROL

FEEDBACK CONTROL
When information is gathered about a completed activity, and in
order that evaluation and steps for improvement are derived, feedback
control is undertaken. Corrective actions aimed at improving future
activities are features of feedback control.
Feedback control validates objectives and standards. If
accomplishments consist only of a percentage of standard
requirements, the standard may be too high or inappropriate.
• An example of feedback control is the supervisor who discovers that
continuous overtime work for factory workers lowers the quality of
output. The feedback information obtained leads to some adjustment
in the overtime schedule.

COMPONENTS OF ORGANIZATIONAL CONTROL  STRATEGIC PLANS

A strategic plan provides the basic control mechanism for the organization.
SYSTEMS When there are indications that activities do not facilitate the
accomplishment of strategic goals, these activities are either set aside,
1. strategic plan modified or expanded. These corrective measures are made possible with
the adoption of strategic plans.
2. the long-range financial plan  THE LONG-RANGE FINANCIAL PLAN
3. the operating budget The planning horizon differs from company to company.' Most firms will be
4. performance appraisals satisfied with one year. Engineering firms, however, will require longer term
financial plans. This is because of the long lead times needed for capital
5. statistical reports projects. An example is the engineering firm assigned to construct the LRT
6. policies and procedures within three years. As such, the three-year financial plan will be very useful.
The financial plan recommends a direction for financial activities. If the goal
does not appear to be where the firm is headed, the control mechanism
should be made to work.
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 THE OPERATING BUDGET  STATISTICAL REPORTS

An operating budget indicates the expenditures, revenues, or profits Statistical reports pertain to those that contain data on various
planned for some future period regarding operations. The figures developments within the firm. Among the information which may be
appearing in the budget are used as standard measurements for
performance. found in a statistical report pertains to the following;
1. labor efficiency rates
 PERFORMANCE APPRAISALS 2. quality control rejects
Performance appraisal measures employee performance. As such, it 3. accounts receivable
provides employees with a guide on how to do their jobs better in 4. accounts payable
the future. Performance appraisals also function as effective checks 5. sales reports
on new policies and programs. For example, if a new equipment has 6. accident reports
been acquired for the use of an employee, it would be useful to find 7. power consumption report
out if it had a positive effect on his performance.

 POLICIES AND PROCEDURES

Policies refer to "the framework within which the objectives must be
pursued." A procedure is "a plan that describes the exact series of
actions to be taken in a given situation.

An example of policy is as follows:

“It is the policy of this Company to provide and maintain safe and
healthy working conditions, equipment and system of work for all
employees, and to provide such information, training and
supervision as they need for this purpose. We also accept our
responsibility for the health and safety of other people who may
be affected by out activities.”
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 POLICIES AND PROCEDURES

STRATEGIC CONTROL SYSTEMS
An example of a procedure is as follows:
"Procedure in the purchase of equipment:
1. the concerned manager forwards a request for purchase to the
To be able to assure the accomplishment of the strategic
purchasing officer; objectives of the company, strategic control systems
2. the purchasing officer forwards the request to top management for become necessary. These systems consist of the
approval; following:
3. when approved, the purchasing officer makes a canvass of the
requested item; if disapproved, the purchasing officer returns the 1. financial analysis
form to the requesting manager; 2. financial ratio analysis
4. the purchasing officer negotiates with the lowest complying bidder.“
It is expected that policies and procedures laid down by management will
be followed. When they are breached once in a while, management is
provided with a way to directly inquire on the deviations. As such, policies
and procedures provide a better means of controlling

1. FINANCIAL ANALYSIS 2. FINANCIAL RATIO ANALYSIS

The success of most organizations depends heavily on its financial Financial ratio analysis is a more elaborate approach used in
performance. It is just fitting that certain measurements of financial controlling activities. Under this method, one account appearing in the
performance be made so that whatever deviations from standards are financial statement is paired with another to constitute a ratio. The
found out, corrective actions may be introduced. result will be compared with a required norm which is usually related
A review of the financial statements will reveal important details about to what other companies in the industry have achieved, or what the
the company's performance. The balance sheet contains information company has achieved in the past. When deviations occur, explanations
about the company's assets, liabilities, and capital accounts. Comparing are sought in preparation for whatever action is necessary.
the current balance sheet with previous ones may reveal important Financial ratios may be categorized into the following types:
changes, which, in turn, provide clues to performance. 1. liquidity
The income statement contains information about the company's 2. efficiency
gross income, expenses, and profits. When also compared with previous
3. financial leverage
years' income statements, changes in figures will help management
determine if it did well. 4. profitability
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• LIQUIDITY RATIOS • EFFICIENCY RATIOS

These ratios assess the ability of a company to meet its current These ratios show how effectively certain assets or liabilities
obligations. The following ratios are important indicators of liquidity: are being used in the production of goods and services. Among the
1. Current ratio - This shows the extent to which current assets of the more common efficiency ratios are:
company can cover its current liabilities. The formula for computing 1. Inventory turnover ratio - This ratio measures the number of
current ratio is as follows: times an inventory is turned over (or sold) each year. This is
Current ratio = current assets ÷ current liabilities computed as follows:
Inventory turnover ratio = cost of goods sold ÷ inventory
2. Acid-test ratio - This is a measure of the firm's ability to pay off
short-term obligations with the use of current assets and without 2. Fixed asset turnover - This ratio is used to measure utilization of
relying on the sale of inventories. the company's investment in its fixed assets, such as its plant and
Acid-test ratio = current assets – (inventories ÷ current liabilities) equipment.
Fixed asset turnover = net sales ÷ net fixed assets

• FINANCIAL LEVERAGE RATIOS • PROFITABILITY RATIOS

This is a group of ratios designed to assess the balance of These ratios measure how much operating income or net income
financing obtained through debt and equity sources. Some of the a company is able to generate in relation to its assets, owner's equity,
more important leverage ratios are as follows: and sales. Among the more notable profitability ratios are as follows:
1. Debt to total assets ratio - This ratio shows how much of the 1. Profit margin ratio - This ratio compares the net profit to the level of
firm's assets are financed by debt. sales. The formula used is as follows:
Debt to total assets ratio = total debt ÷ total assets Profit margin ratio = net profit/net sales
2. Return on assets ratio - This ratio shows how much income the
2. Times interest earned ratio - This ratio measures the number of company produces for every peso invested in assets.
times that earnings before interest and taxes cover or exceed the Return on assets ratio = net income/assets
company's interest expense. 3. Return on equity ratio - This ratio measures the returns on the
owner's investment.
Return on equity ratio = net income/equity
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IDENTIFYING CONTROL PROBLEMS EXECUTIVE REALITY CHECK

Employees at the frontline often complain that management
Recognizing the need for control is one thing, actually imposes certain requirements that are not realistic. In a certain
implementing it is another. When operations become state college, for instance, requests for purchase of classroom
complex, the engineer manager must consider useful materials and supplies take last priority. This is irregular because
approaches in controlling. requests of such kind must be of the highest priority considering
that the organization is an educational institution. Ironically,
1. executive reality check
because certain officers of the nonacademic staff have direct
2. comprehensive internal audit access to the president, their purchase requests almost always get
3. general checklist of symptoms of inadequate control top priority. Later on, when the president made an inspirational
speech on quality teaching, many members of the faculty just
shrugged their should and listened passively.

EXECUTIVE REALITY CHECK COMPREHENSIVE INTERNAL AUDIT

One school, the Central Luzon State University, provides a good An internal audit is one undertaken to determine the efficiency
example on how the executive reality check may be exercised. It and effectivity of the activities of an organization. Among the many
requires its executives to handle at least one subject load each. What aspects of operations within the organization, a small activity that is not
done right may continue to be unnoticed until it snowballs into a full
the executives will experience in the classroom will make him more
blown problem.
responsive in the preparation of plans and control tools.
An example is the resignation of an employee after serving the
The engineer manager of a construction firm could, once in a company for 15 years. After one week, another employee with ten years
while, perform the work of one of his laborers. In doing so, he will be of service also resigned. Both were from the same department. If after
able to see things that he never sees inside the confines of his air- another week, a third employee is resigning, a full investigation is in.
conditioned office. Because the said action exposes the engineer order. Even if the source of the problem is identified, it may already
manager to certain realities, the term "executive reality check" is very have caused considerable losses to the organization. A comprehensive
appropriate. internal audit aims to detect dysfunctions in the organization before
they bring bigger troubles to management.
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SYMPTOMS OF INADEQUATE CONTROL

If a comprehensive internal audit cannot be availed of for some reason,
the use of a checklist for symptoms of inadequate control may be used.
Some of the common symptoms as follows:
1. An unexplained decline in revenues and profits
2. A degradation of service (customer complaints)
3. Employee dissatisfaction (complaints, grievances, turnover)
4. Cash shortages caused by bloated inventories or delinquent accounts
receivable
5. Idle facilities or personnel
6. Disorganized operations (work flow bottlenecks, excessive paperwork).
7. Excessive costs
8. Evidence of waste and inefficiency (scrap, rework)
It must be noted that behind every symptom is a problem waiting to be
solved. Unless this problem is clearly identified, no effective solution may
be derived. Nevertheless, problems are easily recognized if adequate
control measures are in place.