MODULE 2

FUNCTIONS OF MANAGEMENT

Unit 5
CONTROLLING
UNIT LEARNING OUTCOMES

❖ TLO 4:Describe a manager’s Controlling function, as well as the control

systems and processes in an organization.

Definition

Controlling is a critical function because it ensures that all the management function of
leading, planning, and organizing are all towards the same goal. It’s the process of
monitoring, comparing, and correcting work performance. All managers should control
even if their units are performing as planned because they can’t really know that unless
they’ve evaluated what activities have been done and compared actual performance
against the desired standard. Effective controls ensure that activities are completed in
ways that lead to the attainment of goals. Whether controls are effective, then, is
determined by how well they help employees and managers achieve their goals.

Why is control so important?

Planning can be done, an organizational structure created to facilitate efficient

achievement of goals, and employees motivated through effective leadership. But
there’s no assurance that activities are going as planned and that the goals employees
and managers are working toward are, in fact, being attained. Control is important,
therefore, because it’s the only way that managers know whether organizational goals
are being met and if not, the reasons why. The value of the control function can be seen
in three specific areas: planning, empowering employees, and protecting the workplace.

The second reason controlling is important is because of employee empowerment.

Many managers are reluctant to empower their employees because they fear something
will go wrong for which they would be held responsible. But an effective control system
can provide information and feedback on employee performance and minimize the
chance of potential problems.

The final reason that managers control is to protect the organization and its assets.
Today’s environment brings heightened threats from natural disasters, financial
scandals, workplace violence, supply chain disruptions, security breaches, and even
possible terrorist attacks. Managers must protect organizational assets in the event that
any of these things should happen. Comprehensive controls and backup plans will help
assure minimal work disruptions.
 THE CONTROL PROCESS

The control process is a three-step process of measuring actual performance, com-

paring actual performance against a standard, and taking managerial action to correct
deviations or to address inadequate standards. The control process assumes that
performance standards already exist, and they do. They’re the specific goals created
during the planning process.

STEP 1. MEASURING ACTUAL PERFORMANCE

HOW WE MEASURE. Four approaches used by managers to measure and report actual
performance are personal observations, statistical reports, oral reports, and written
reports.

WHAT WE MEASURE.What is measured is probably more critical to the control process

than how it’s measured. Why? Because selecting the wrong criteria can create serious
problems. Besides, what is measured often determines what employees will do. What
control criteria might managers use?
Some control criteria can be used for any management situation. For instance, all
managers deal with people, so criteria such as employee satisfaction or turnover and
absenteeism rates can be measured. Keeping costs within budget is also a fairly com-
mon control measure. Other control criteria should recognize the different activities that
managers supervise. For instance, a manager at a pizza delivery location might use
measures such as number of pizzas delivered per day, average delivery time, or
number of coupons redeemed. A manager in a governmental agency might use
applications typed per day, client requests completed per hour, or average time to
process paperwork.

Most work activities can be expressed in quantifiable terms. However, managers should
use subjective measures when they can’t. Although such measures may have
limitations, they’re better than having no standards at all and doing no controlling.

STEP 2. COMPARING ACTUAL PERFORMANCE AGAINST STANDARDS

The comparing step determines the variation between actual performance and the
standard. Although some variation in performance can be expected in all activities, it’s
critical to determine an acceptable range of variation. Deviations outside this range
need attention.
STEP 3. TAKING MANAGERIAL ACTION

Managers can choose among three possible courses of action: do nothing, correct the
actual performance, or revise the standards. Because “do nothing” is self-explanatory,
let’s look at the other two.

CORRECT ACTUAL PERFORMANCE.Sports coaches understand the importance of

correcting actual performance. During a game, they’ll often correct a player’s actions.
But if the problem is recurring or encompasses more than one player, they’ll devote
time during practice before the next game to correcting the actions. That’s what
managers need to do as well.

Depending on what the problem is, a manager could take different corrective actions.
For instance, if unsatisfactory work is the reason for performance variations, the
manager could correct it by things such as training programs, disciplinary action,
changes in compensation practices, and so forth. One decision that a manager must
make is whether to take immediate corrective action, which corrects problems at
once to get performance back on track, or to use basic corrective action, which looks
at how and why performance deviated before correcting the source of deviation. It’s not
unusual for managers to rationalize that they don’t have time to find the source of a
problem (basic corrective action) and continue to perpetually “put out fires” with
immediate corrective action. Effective managers analyze deviations and if the benefits
justify it, take the time to pinpoint and correct the causes of variance.

REVISE THE STANDARD. It’s possible that the variance was a result of an unrealistic
standard—too low or too high a goal. In that situation, the standard needs the corrective
action, not the performance. If performance consistently exceeds the goal, then a
manager should look at whether the goal is too easy and needs to be raised. On the
other hand, managers must be cautious about revising a standard downward. It’s
natural to blame the goal when an employee or a team falls short. For instance,
students who get a low score on a test often attack the grade cutoff standards as too
high. Rather than accept the fact that their performance was inadequate, they will
argue that the standards are unreasonable. Likewise, salespeople who don’t meet their
monthly quota often want to blame what they think is an unrealistic quota. The point is
that when performance isn’t up to par, don’t immediately blame the goal or standard. If
you believe the standard is realistic, fair, and achievable, tell employees that you
expect future work to improve, and then take the necessary corrective action to help
make that happen.

MANAGERIAL DECISIONS IN CONTROLLING

The figure above summarizes the decisions a manager makes in controlling. The
standards are goals that were developed during the planning process. These goals
provide the basis for the control process, which involves measuring actual performance
and comparing it against the standard. Depending on the results, a manager’s decision
is to do nothing, correct the performance, or revise the standard.
TYPES OF CONTROL
FEEDFORWARD/CONCURRENT/FEEDBACK CONTROLS
Managers can implement controls before an activity begins, during the time the activity
is going on, and after the activity has been completed. The first type is called
feedforward control; the second, concurrent control; and the last, feedback control.
FEEDFORWARD CONTROL. The most desirable type of control—feedforward control
—prevents problems because it takes place before the actual activity.For instance,
when McDonald’s opened its first restaurant in Moscow, it sent company quality control
experts to help Russian farmers learn techniques for growing high-quality potatoes and
to help bakers learn processes for baking high-quality breads. Why? McDonald’s
demands consistent product quality no matter the geographical location. They want a
cheeseburger in Moscow to taste like one in Omaha. Still another example of
feedforward control is the scheduled preventive maintenance programs on aircraft done
by the major airlines. These programs are designed to detect and hopefully to prevent
structural damage that might lead to an accident.
The key to feedforward controls is taking managerial action before a problem occurs.
That way, problems can be prevented rather than having to correct them after any
damage (poor-quality products, lost customers, lost revenue, etc.) has already been
done. However, these controls require timely and accurate information that isn’t always
easy to get. Thus, managers frequently end up using the other two types of control.
CONCURRENT CONTROL.Concurrent control, as its name implies, takes place while
a work activity is in progress. For instance, Nicholas Fox is director of business product
management at Google. He and his team keep a watchful eye on one of Google’s most
profitable businesses—online ads. They watch “the number of searches and clicks, the
rate at which users click on ads, the revenue this generates—everything is tracked hour
by hour, compared with the data from a week earlier and charted.”If they see
something that’s not working particularly well, they fine-tune it.
The best-known form of concurrent control is direct supervision. Another term for it is
management by walking around, which is when a manager is in the work area
interacting directly with employees. For example, Nvidia’s CEO Jen-Hsun Huang tore
down his cubicle and replaced it with a conference table so he’s available to employees
at all times to discuss what’s going on.Even GE’s CEO Jeff Immelt spends 60 percent of
his workweek on the road talking to employees and visiting the company’s numerous
locations.All managers can benefit from using concurrent control because they can
correct problems before they become too costly.
FEEDBACK CONTROL. The most popular type of control relies on feedback. In
feedback control, the control takes place after the activity is done. For instance, the
Denver Mint discovered the flawed Wisconsin quarters using feedback control. The
damage had already occurred even though the organization corrected the problem once
was discovered. And that’s the major problem with this type of control. By the time a
manager has the information, the problems have already occurred, leading to waste or
damage. However, in many work areas, financial being one example, feedback is the
only viable type of control.
Feedback controls do have two advantages. First, feedback gives managers meaningful
information on how effective their planning efforts were. Feedback that shows little
variance between standard and actual performance indicates that the planning was
generally on target. If the deviation is significant, a manager can use that information to
formulate new plans. Second, feedback can enhance motivation. People want to know
how well they’re doing and feedback provides that information. Now, let’s look at some
specific control tools that managers can use.
FINANCIAL CONTROLS
Every business wants to earn a profit. To achieve this goal, managers need financial
controls. For instance, they might analyze quarterly income statements for excessive
expenses. They might also calculate financial ratios to ensure that sufficient cash is
available to pay ongoing expenses, that debt levels haven’t become too high, or that
assets are being used productively.
Managers might use traditional financial measures such as ratio analysis and budget
analysis. Liquidity ratios measure an organization’s ability to meet its current debt
obligations. Leverage ratios examine the organization’s use of debt to finance its assets
and whether it’s able to meet the interest payments on the debt. Activity ratios assess
how efficiently a company is using its assets. Finally, profitability ratios measure how
efficiently and effectively the company is using its assets to generate profits. These
ratios are calculated using selected information from the organization’s two primary
financial statements (the balance sheet and the income statement), which are then
expressed as a percentage or ratio.
FINANCIAL CONTROLS
The balanced scorecard approach is a way to evaluate organizational performance
from more than just the financial perspective. A balanced scorecard typically looks at
four areas that contribute to a company’s performance: financial, customer, internal
processes, and people/innovation/growth assets. According to this approach, managers
should develop goals in each of the four areas and then measure whether the goals are
being met.
Although a balanced scorecard makes sense, managers will tend to focus on areas that
drive their organization’s success and use scorecards that reflect those strategies. For
example, if strategies are customer-centered, then the customer area is likely to get
more attention than the other three areas. Yet, you can’t focus on measuring only one
performance area because others are affected as well.

INFORMATION CONTROLS
Managers need the right information at the right time and in the right amount to
monitor and measure organizational activities and performance.
In measuring actual performance, managers need information about what is happening
within their area of responsibility and about the standards in order to be able to
compare actual performance with the standard. They also rely on information to help
them determine if deviations are acceptable. Finally, they rely on information to help
them develop appropriate courses of action. Information is important! Most of the
information tools that managers use come from the organization’s management
information system.
A management information system (MIS) is a system used to provide managers
with needed information on a regular basis.
Because information is critically important to everything an organization does,
managers must have comprehensive and secure controls in place to protect that
information. Such controls can range from data encryption to system firewalls to data
backups, and other techniques as well. Problems can lurk in places that an organization
might not even have considered, like blogs, search engines, and Twitter accounts.
Sensitive, defamatory, confidential, or embarrassing organizational information has
found its way into search engine results.

CONTEMPORARY ISSUES IN CONTROL

ADJUSTING CONTROLS FOR CROSS-CULTURAL DIFFERENCES
Technology’s impact on control is also seen when comparing technologically advanced
nations with less technologically advanced countries. Managers in countries where
technology is more advanced often use indirect control devices such as computer-
generated reports and analyses in addition to standardized rules and direct supervision
to ensure that work activities are going as planned. In less technologically advanced
countries, however, managers tend to use more direct supervision and highly
centralized decision making for control.
Managers in foreign countries also need to be aware of constraints on corrective actions
they can take. Some countries’ laws prohibit closing facilities, laying off employees,
taking money out of the country, or bringing in a new management team from outside
the country.
WORKPLACE CONCERNS
Why do managers feel they need to monitor what employees are doing? A big reason is
that employees are hired to work, not to surf the Web checking stock prices, watching
online videos, playing fantasy baseball, or shopping for presents for family or friends.
Recreational on-the-job Web surfing is thought to cost billions of dollars in lost work
productivity annually.
EMPLOYEE THEFT is defined as any unauthorized taking of company property by
employees for their personal use. It can range from embezzlement to fraudulent filing of
expense reports to removing equipment, parts, software, or office supplies from
company premises. Although retail businesses have long faced serious potential losses
from employee theft, loose financial controls at start-ups and small companies and the
ready availability of information technology have made employee stealing an escalating
problem in all kinds and sizes of organizations. Managers need to educate themselves
about this control issue and be prepared to deal with it.
Why do employees steal? The answer depends on whom you ask. Experts in various
fields—industrial security, criminology, clinical psychology—have different perspectives.
The industrial security people propose that people steal because the opportunity
presents itself through lax controls and favorable circumstances. Criminologists say that
it’s because people have financial-based pressures (such as personal financial
problems) or vice-based pressures (such as gambling debts). And the clinical
psychologists suggest that people steal because they can rationalize whatever they’re
doing as being correct and appropriate behavior (“everyone does it,” “they had it
coming,” “this company makes enough money and they’ll never miss anything this
small,” “I deserve this for all that I put up with,” and so forth).

WORKPLACE VIOLENCE. What factors are believed to be contributing to workplace

violence? Undoubtedly, employee stress caused by an uncertain economic environment,
job uncertainties, declining value of retirement accounts, long hours, information
overload, other daily interruptions, unrealistic deadlines, and uncaring managers play a
role. Even office layout designs with small cubicles where employees work amidst the
noise and commotion from those around them have been cited as contributing to the
problem