Topic Controlling

9
LEARNING OUTCOMES

By the end of this topic, you should be able to:

1. Explain the term controlling and the main purpose of control;
2. Examine the steps involved in the process of control;
3. Describe the forms of control; and
4. Analyse the perspectives and activities that need to be controlled.

INTRODUCTION
Controlling is one of the four main functions in management. It is important to
managers in order to ensure all planning, organising and leading run as
smoothly as desired. If managers are able to ensure that each plan made and
every task given to the employees are carried out perfectly, and the results
expected is what had been planned, control is not required. Unfortunately,
managers are not able to ensure these conditions will run smoothly without the
occurrence of any problems since most planning is done by humans and humans
are known to be diverse in terms of abilities, motivation and others. In a rapidly
changing business environment, not only the expected results must be controlled,
planning must also be monitored and controlled.

9.1 DEFINITION OF CONTROL

SELF-CHECK 9.1

What do you understand about control within a particular

organisation?
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Management control is a systematic effort to fix or establish the standard of

performance through planning objectives, designing information feedback
systems, comparing true performance with the fixed standard, determining
whether there are any disadvantages or weaknesses and taking suitable actions
to ensure all resources within the organisation can be used in the most effective
and efficient way in achieving the objective of the organisation.

According to Rue et. al. (2000), control is the process of ensuring that
organisational activities are running according to plan. This process can be
carried out by comparing the true performance with the standard that has been
established and taking corrective actions in order to rectify any distortion that
does not comply with the standard.

The main purpose of control in management is to prepare managers to face

future or existing problems before they turn critical. In general, an organisation
with a good control mechanism will have the advantage of competing strength
compared to organisations without a good control system. The following are
several examples of the importance of control for organisations:

9.1.1 Quality Assurance

The smooth running of a particular process can be monitored and problems can
be avoided by having control. Control is able to stimulate the organisation to
monitor and increase the quality of products and services offered. Through the
activities related to the control process, members of the organisation will always
be driven to act according to the plans that have been established.

9.1.2 Preparation to Face Changes

Change cannot be avoided. Change in environmental factors such as markets,
competitors, technology and legislation makes the control process important for
managers in responding towards opportunities and threats. Control helps the
organisation to suit its products to the needs and wants of consumers in the
market.

EXERCISE 9.1

What is meant by controlling as a process?

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9.2 STEPS IN THE CONTROL PROCESS

According to Rue et. al. (2000), a control process has three basic needs: fixing of
standards to be used in measuring the level of growth; monitoring decisions and
comparing it to the standards, that is, the comparison of the organisationÊs true
performance with the planned performance; and finally, taking corrective actions
in rectifying any disadvantages and weaknesses that occurred in achieving the
performance that has already been set. Figure 9.1 illustrates the steps involved in
the process of control.

Figure 9.1: Control process

Source: Lewis et. al. (2001). Management

9.2.1 Establishing Standards

SELF-CHECK 9.2
You must have heard about standards used in measuring the level of
performance of a particular company. What do you understand about
this term and do you know how a particular standard is formed?

Standard is the base for comparison to measure the level of performance of a

company in order to find out whether the company is compliant. Standard is the
point of reference in making comparisons to another value. Standard can be
defined as what is required out of a particular job or an individual. In
management control, standards are usually derived from the objectives.
Standards should be easy to be measured and interpreted. A specific objective
that can be measured makes it more suitable to be used as a standard. If this
standard is not clearly and specifically stated, it may be interpreted in a different
way and will then raise various difficulties that can affect the goals of the
organisation.
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In general, there are three types of standards: physical standard such as quantity
of products and services, number of customers and quality of products and
services; financial standard which is stated in the form of money, and this
includes labour cost, sales cost, material cost, sales revenue, profit margin and
others; and lastly, time standard which includes the performance rate of a
particular task or the time period required to complete a particular task.

9.2.2 Measuring Performance and Making

Comparisons
Performance measurement is a type of control. Actual results need to be
monitored to ensure that output produced is according to the specific standard.
The main purpose of performance monitoring is to gather data and detect
deviation and problem areas. Measurement has no meaning if it is not compared
to the standard. The next step is performing the comparison of standards.
Comparison of standard is a process where comparison is made between the true
performances with the standard set. This step is important because it allows any
deviation or distortion to be detected and corrective actions can be taken in order
to achieve the goals that have been set.

9.2.3 Corrective Actions

It is often found that managers establish standards and monitor decisions but do
not take suitable actions. The first and second steps in control will be
meaningless if corrective actions are not taken. Before taking any steps in
correcting, detailed analysis must be carried out in order to find out the factors
that caused the particular deviation.

This corrective action may involve change in one or more operation activities of
the organisation such as modification, repairing of machines, preparation of
certain courses and others, or it might also involve a change in the fixed
standard. Corrective action is a process of identifying the distorted performance,
analysing the distortion and developing and implementing programmes in order
to rectify it.

9.3 DYNAMIC PROCESS

According to Williams (2000), the running of a control process is a continuous
act. This process cannot be done only once in order to gain the achievement
expected. This is considered as a dynamic process. This dynamic process begins
with looking at the true performance and measuring the achievement level of
that particular performance.
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Managers will then compare the performance achieved with the performance
that has been fixed. If there happens to be any difference, it must be analysed in
order to identify the cause of the differences and this is followed by the
correcting act. This process must be done repeatedly and must be given full
attention by the manager in order to achive the performance goals set.

9.4 BASIC METHODS OF CONTROL

According to Williams (2000), a control process consists of three basic methods
which are identified as future control, concurrent control and feedback control.

Figure 9.2: Three basic methods of control

Source: Jones, G. R., George, J. M., & Hill, C. W. L. (2000). Contemporary management
(2nd ed.). Boston: Irwin McGraw Hill

9.4.1 Future Control

This type of control is also known as prevention control. This involves the use of
information, including information from the latest results, is to forecast what will
happen in the future so that preventive measures can be taken. It is implemented
to prevent the occurrence of deviation between what had really happened with
what is expected to happen. Prevention is carried out through detailed analysis
on the input before it is accepted into the process of organisation transformation.
Input is ensured to comply with the quality standards established so that the
results obtained are as expected.

One example of the use of this control is when a manager ensures that the sample
of raw material that is going to be used complies with the standard established
by the organisation or based on certain specifications to avoid damage towards
the product in the future.
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9.4.2 Concurrent Control

Concurrent control is carried out during the process of transformation. When this
control is carried out, restoration actions, corrective actions or modifications are
done after distortion is detected. For a production-oriented organisation, this
controlling action is taken while input is being processed while for service-
oriented organisations, it is taken while service is being provided.

Through this method of control, organisations will monitor their operations and
simultaneously take the necessary corrective actions before the transformation
process is completed. This will help to reduce mistakes in the outputs being
produced. Examples of this method of control are mid-term examinations,
control of accounts, control of inventories and others.

9.4.3 Feedback Control

Feedback control involves gathering information related to the weaknesses of
controlling measures after an incident takes place. This type of control is
implemented after the transformation process has been completed with the
purpose of finding out whether the whole activity ran properly with results as
expected.

This control is also able to determine whether the plan that is going to be carried
out has the continuity with the previous programme. It is also able to evaluate
the effectiveness and efficiency of the involved parties in performing the
activities of the organisation. An example of this method of control is the use of
low-quality raw materials that resulted in the production of low-quality
products. The act of changing the raw materials used is one of the examples of
feedback control.

9.5 FORMS OF CONTROL

According to Williams (2000), there are five forms of control that can be used by
managers in implementing the process of control bureaucratic, objective,
normative, concertive and self. Figure 9.3 illustrates these five forms of control.
156 TOPIC 9 CONTROLLING

Figure 9.3: Five forms of control that can be used by managers in organisations

9.5.1 Bureaucratic Control

This method uses hierarchy authority to influence employees. Rewards are given
to employees who obey and punishment is meted out to employees who do not
obey the policies, regulations and procedure of the organisation.

9.5.2 Objective Control

This method uses the measurement of observation towards the behaviour of
employees or output produced to evaluate work performance. Managers are
more focused on the observation or measurement towards the behaviour of
employees or outputs rather than the policies or rules. Objective control consists
of two forms of control; behaviour control and output control.

Behaviour control is the rule of behaviour and actions that controls the behaviour
of employees in their tasks. Output control is the form of control that controls the
output of employees by granting rewards and incentives. Important features in
the implementation of output control are reliability, fairness and accuracy,
convincing employees and managers to achieve the expected results while
rewards and incentives depend on the performance standard that has been
established.

9.5.3 Normative Control

Normative control is a method that arranges the behaviour of employees and
results through norms and beliefs shared together among all the members within
the organisation. There are two main substances in this type of control which are,
sensitivity towards selection of employees based on their attitude and norms,
and obtaining inspiration based on experience and observation of employees.
 TOPIC 9 CONTROLLING ! 157

9.5.4 Concertive Control

This is a method that uses the norms and behaviour discussed, formed and
agreed by the work group. This form of control plays a role in an autonomous
work group. An autonomous work group is a work group that operates without
the presence of a manager and is fully responsible for the control of process, task
group, output and behaviour. Autonomous work groups gradually grow
through two stages of concertive control. First, members work and learn from
each other, supervising the work of each member and develop norms and beliefs
that guide and control them. Secondly, the appearance and acceptance of
objectives as guide and control of behaviour.

9.5.5 Self Control

It is a system where managers and employees control their own behaviour by
establishing their own goals; monitor their own progress and their own
achievements of goals, and reward themselves when goals have been achieved.

EXERCISE 9.2

State the three basic methods in a control process and the five forms of
control that can be implemented within an organisation.

9.6 FACTORS THAT NEED TO BE CONTROLLED

SELF-CHECK 9.3
In managing an organisation, a manager is responsible for ensuring the
smooth running of the management process. He has to ensure that
detailed control is carried out. What do you think are the factors that
need to be controlled by a manager in his organisation?

Determining the matters to be controlled is as important as making decisions on

whether to control or in what method should control be done. There are several
perspectives that need to be controlled by a manager in order for the organisation
to be able to achieve the goals expected.
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9.6.1 Financial Perspective

One of the important areas that need to be controlled is finance. There are times
when the financial performance does not reach the expected standard. If this
condition remains undetected and relevant actions are not taken, the existence of
the company might be in jeopardy. Financial perspective is generally related to
activities such as sales, purchases and others.

Financial statements are important sources of financial information for an

organisation. A balance sheet shows how strong the financial position, assets,
liabilities and the position of the equity holder for a certain financial period. A
profit-loss statement or income statement shows the summary of the operational
activities and the relationship between expenditure and revenue for a particular
financial year.

According to Williams (2000), there is a new approach in the financial

perspective known as economic value added. Economic value added is the total
profit of a company which exceeds the capital cost in a particular year. In this
perspective, a manager must impose control so that the total profit of a company
always exceeds the capital cost for the company to continuously gain economic
value added.

9.6.2 Human Resource Perspective

The control towards human resources is vital for organisations. If an organisation
is unable to control its human resources properly such as losing expert workforce
hence it will jeopardise the performance and achievement of the company.
Organisations need to have planning that is able to motivate the employees. For
example, organisations need to be concerned regarding the problems faced by
the employees by creating harmonious discussions between the management and
the employees union.

9.6.3 Quality Perspective

Internal operations of organisations are usually measured through quality.
Operations control is very important for every organisation especially for
manufacturing firms. This is because efficiency and effectiveness of operations
control will determine the level of production and organisational performance as
fixed by the standard. The quality value of products and services produced based
on the standard will be able to strengthen the perception of the customers
towards the quality of goods that they had purchased. For example, the control
of product quality is able to reduce waste and product defects and this will
further save cost. Inventory control is also effective in reducing the costs of
investments related to inventory.
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9.6.4 Consumer Perspective

According to Williams (2000), in order to measure the performance of customers,
an organisation needs to impose control on customers who leave the organisation
and not based on the survey of customer satisfaction. In this perspective, the
manager will make evaluation by measuring the percentage rate of customers
who left the organisation. By controlling customers from leaving the
organisation, a company will be able to increase profits. For example, the cost in
obtaining a new customer is five times more compared to the cost of retaining an
existing customer.

EXERCISE 9.3

Essay Question

Why does the perspective of finance need to be controlled?

TRUE (T) or FALSE (F) Statements

1. Control is the process of finding out what is happening compared

to the standards established.

2. Decision on control does not affect decision on future planning.

3. Organisations practising bureaucratic control are very difficult to

change.

4. Future control is also known as prevention control.

5. Economic value added is the total profit of a company which

exceeds its capital cost in a year.

Multiple Choice Questions

1. What are the most methods of control based on?

A. Future control
B. Feedback control
C. Concurrent control
D. Dynamic control
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2. What type of control is a method that uses norms and behaviour that have
been discussed, formed and agreed by the work group?

A. Concertive
B. Bureaucratic
C. Normative
D. Self

3. Which type of control is implemented during the occurrence of the

transformation process?

A. Concurrent
B. Prevention
C. Objective
D. Feedback

4. Which is not a basic need of the control process?

A. Establish standard
B. Comparing true performance with standard
C. Controlling objectives
D. Taking corrective actions if necessary

5. What perspective is usually used to measure operational performance in

an organisation?

A. Finance
B. Quality
C. Human resource
D. Customers

Controlling Caselet

1. What is controlling?
2. Do you agree with the type of control used by the manager in the above
scenario? Why? Why not?
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The main purpose of management control is to prepare managers to face

existing or future problems before it becomes critical.
Management control has three basic needs: establishing standards;
monitoring decision and comparing it to the standard; and making
corrections on any distortion that occurred between the true decision and the
standard.
Control is a dynamic process because it is a continuous process.
Control process consists of three basic methods: future control which is also
known as prevention control; concurrent or present control; and feedback
control.
There are five forms of control that can be used by managers in implementing
the control process: bureaucratic, objective, normative, concertive and self.
In order to ensure that the organisation can achieve its goals, several
important perspectives must be controlled finance, human resource, quality
and customers.

Autonomous work group Normative

Behaviour control Objective
Bureaucratic Output control
Concertive Prevention control
Corrective action