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Chapter 7 Controlling

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12 views

Chapter 7 Controlling

Uploaded by

rommelrodela4
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 7.

Controlling

1. definitions
Controlling – refers to the process of ascertaining whether organizational objectives
have been achieved; if not, to determine why not; and determining what activities
should be taken to achieve objectives better in the future.

Steps in Controlling

a) Establishing performance objectives and standards. – for effective controlling, what


has to be achieved must first be determined. Typical examples of objectives and
standards are as follows:
a. Sales target – are expressed in quantity or monetary terms.
b. Production target – are expressed in quantity and quality
c. Worker attendance – is expressed in terms of rate of absences
d. Safety records – are expressed in number of accidents for given periods
e. Supplies used – are expressed in quantity or monetary terms for given
periods.

b) Measuring actual performance – there is a need to measure actual performance so


that when shortcomings occur, adjustments could be made. Adjustment will depend
on the actual findings.
c) Comparing actual performance to objectives and standards – once actual
performance has been determined, this will be compared with what the
organization seeks to achieve.
d) Taking necessary action – the purpose of comparing actual performance with the
desired result is to provide management with the opportunity to take corrective
action when necessary.

Types of Control and their Relation to Operations

a. Concurrent Control – when operations are already ongoing and measures to detect
variances are made, concurrent control is said to be undertaken.
b. Feedback Control – when information is gathered about a completed activity for
purpose of evaluating and deriving required steps for improving the activity,
feedback control is undertaken.

Components of organizational control system

To effectively control activities, organizations adapt control systems consisting of the


following components:

 Strategic plan – this provides the basic control mechanism for the organization.
When there are indications, that activities undertaken do not facilitate the
accomplishments of strategic goals, these activities are set aside, modified or
expanded.
 Long – range financial plans – the planning horizon differs from company to
company. Most firms will be satisfied with a one-year plan. Engineering firms,
however, will require longer-term financial plans.
 The operating budget – this indicates the expenditures, revenues, or profits planned
for some future period regarding operations.
 Performance appraisal – this measures employee performance. As such, it provides
employee with a guide on how they could do their jobs better in the future.
 Statistical reports – these are those that contain data on various developments
within the firm. Among the information which may be found in a statistical reports
are the following:
o Labor efficiency rates
o Quality control rejects
o Accounts receivable
o Accounts payable
o Sales report
o Accident report
o Power consumption reports

2. The link between planning and controlling


 Meaning:
o Planning – is the basic function of every enterprise as in planning we decide
what is to be done, how it is to be done, when it is to be done and by whom
it must be done. Planning bridges the gap between where we are standing
today and where we want to reach.
o Controlling – keeping a check that everything is in accordance with plan and
if there is any deviation, taking preventive measures to stop that deviation.
The meaning of controlling makes it clear that controlling function is
undertaken for right and timely implementation of plans.
 Planning and controlling are interdependent and interlinked:
o The controlling function compares actual performance with the planned
performance and if there is no planned performance then controlling
manager will not be able to know whether the actual performance is O.K or
not.
 Planning and controlling are both backward looking as well as forward looking:
o Controlling is backward looking because like a postmortem of past activities
the manager looks back to previous year’s performance to find out its
deviation from standard planning is also backward looking because planning
is guided by past experiences and feedback report of controlling function.

3. Control Methods and Systems

Management control systems – tools to aid management for steering an organization


toward its strategic objectives and competitive advantage.
According to Simons (1995), Management control systems are formal, informal-
based routines and procedures managers use to maintain alter patterns in
organizational activities.

Anthony and Young (1999) showed management control system as a black box. The
term black box is used to describe an operation whose exact nature cannot be
observed.

Management Control System

According to Maciariello et al. (1994), management control is concerned with


coordination, resource allocation, motivation and performance measurement.

Alif Aiqal (2007) defined Management Control as the process by which managers
influence other members of the organization to implement the organization’s
strategies.

4. Management accounting and management accounting system

Anthony & Young (1999) showed that management accounting has three major
subdivisions:

 Full cost accounting


 Differential accounting
 Management control or responsibility accounting

Chenhall (2003) mentioned that the terms management accounting (MA),


management accounting system (MAS), management control systems (MCS), and
organizational controls (OC) are sometimes used interchangeably.

Management control system techniques

According to Horngren et al. (2005), management control system is an integrated technique


for collecting and using information to motivate employee behavior and to evaluate
performance. Management control system use many techniques such as:

 Activity – based costing


 Balance scorecard
 Benchmarking and Benchtrending
 Budgeting
 Capital Budgeting
 JIT (Just in Time)
 Kaizen (continuous Improvement)
 Program management techniques
 Target costing
 Total quality management (TQM)
5. Role of budgets in planning and control

Types of budgets

 Master budget
o Operating budgets
o Financial budgets
Time frame
 Annual period
 Multi-year rolling budget
Gathering information
 Forecasting sales
 Forecasting other variables

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