CONTROLLING THE ORGANIZATION

Objective:
1.Discuss the nature of controlling
2.Describe the link between planning and controlling
3.Identify and discuss control methods and systems
4. Prepare a budget plan

• The nature of controlling

• The link between Planning and Controlling
• Control Methods and Systems
• Accounting or Financial Controls
• Marketing Controls
• Budgeting/Budget plan

The Nature of Controlling –Controlling is an ongoing process that involves

members at all levels of the organization.
The control function is the responsibility of everyone
Thus employees are expected to address problem even if these are not within
his or her area of responsibility
The controlling function is both anticipatory and retrospective
*It anticipates problems so that immediate corrective actions can be employed.
*It is also retrospective because it looks back and reviews previous actions and
operation in order to determine which aspects conform to standards and which
need improvement.

The control process

1.ESABLISHMENT OF STANDARDS- The first step is to develop criteria by
which performance will be measured
* Time standards set goals based on the length of time devoted to the task.
*Cost standards are compromised of expected financial expenses involved
in the project or activity.
*Income standards include the gain of financial rewards received after a
particular activity or projects

2. MEASURE OF PERFORMANCE- Performance is measured by identifying

strategic control points. This includes indicators such as income,
expenses ,inventory ,product quality and the number of work hours put by
employees
Employees performance can be measured through actual observation.
It can also be measured by using device that analyze Machine operations
and production process
Financial ratios can also be employed as a measure of performance, where
analyst take information form a company’s financial statement and compare it
with its main competitors
3.Comparison of the actual performance with the standards -
Management can gather data form performance measurement and
compare it with the established standards
The company can also conduct benchmarking by comparing their
performance with exemplary practice from other companies in the
industry.
4.Taking corrective actions and realigning process when
necessary- When the company has determined that its performance
has deviated from the standard, corrective actions should be taken and
applied
Deviations from the standards may be a result of incorrect planning, a
lack of coordination in the conduct of task, or the misinterpretation of
instructions. Some companies allow their employees to make
necessary corrective measure to their work. Other employees get
directives form management on how to implement necessary
corrections to their jobs.

The link Between Planning and

Controlling
Planning and Controlling are closely related management
functions. Planning identifies the goals and standards that an
organization should aim for while controlling ensures that the
performance of the whole organization conforms to the outlined
plans. Controlling also provides management with vital
information that can be used in the formulation of new plans for
the company.
During the planning stage, the company sets its goals, develops
its vision and mission statements, and identifies strategies that
will be implemented. Once the company implements its plan, the
 controlling function becomes the mechanism that ensures that
all plans are realized. Planning provides the baselines of the
company’s success.
The link between planning and controlling can be summarized
be the diagram bellow

1. Do the plans 2. Carry out the plans

through strategies
formuated

4. Correct deviations and 3.Monitor and compare

return to no.2; or improve actual performance
future plans by going back with plans
to no 1
The control process enables managers to ensure synergy
between the planning and controlling functions. The process
ensures that the organization is on track toward realizing its
plans and enables management to intervene and address any
deviation from the standard. Once problems have been
addressed, the organization may choose to make improvements
on their future plans.
Managers should not be complacent with their planning and
must bear in mind that the implementation of plans require
constant monitoring. This will enable a company to make
improvements, guarantee that their operation remain optimal,
and ensure that their products and services continue to be
relevant In their respective markets.

Control Methods and Systems

In implementing control methods and techniques, the manager
must be aware of the timeliness by which they can apply certain
control techniques. Certain control measure may be applied
before, during and after a certain task or operation. The
appropriate measure must be applied at the correct time to
ensure the smooth conduct of operations.
Control Measures based on timelines

Before During After

 Inputs Process Output

Feedforward Concurrent Feedback

Control Control control

1. Feedforward control- This type of control anticipates the

occurrence of possible problems so that preventive measures
can be implemented before the actual operation.
This is commonly practiced by airline companies.

2. Concurrent Control-This type of control implemented while the

activity is in progress. Managers practice concurrent control to
monitor the activity as it happens and address problems as they
occur.
3. Feedback Control- This type of control is done after the
activity. Feedback enables the managers to gather information and
determine whether the activity is a success or a failure. Suppose a
company has target 5% increase in sales within a month. At the end
of the month, Managers gather sales date to find out the target
increase was achieved. If after a period of three months, the
company is still not meeting its target, managers must evaluate their
 operation and implement solutions to address the problem.
Feedback is the most common control implemented by companies.

1. Administrative control- This technique entails establishing

producers and politics that ensure efficiency in the activities of the
company. Integral to administrative control is the full and timely
implementation of management policies and plans. This
technique also utilizes documentation using integrated information
systems and other systems and other systems software, and
various kinds of report which are standardized to ensure complete
and consistent information.
Specific examples include the following:
a. Maintenance operation involving toxic substance are done during
night time when most employee are not present.
b. Worker assignments are regularly rotated to ensure that they will
not experience repetitive motion injuries.
c. Worker who works in hot areas are required to take regular break
to enable them to cool down. They are also given fluids to prevent
dehydration and heat stroke.
2.Delegation-This involves assigning an employee to take
responsibility in completing a task. Delegation also incorporates
empowerment as employees are given authority over their task, making
them accountable for their own actions .Although delegation is closely
related to leading, It also involves control since in performing their
assigned task, the employees exercise control and manage
their behavior and activities which help them accomplish their task and
limit the possibility of committing mistakes
3.Evaluation- This type of control involves the collection and
analysis of information in order to make decisions. This involves
collecting the results of marketing efforts, sales reports , and project
evaluations. Control exercised in conducting evaluation through the
selection of the sources of information that will be based on analysis.
Information sources may include project staff, agencies, and other
participant. Logbooks or journals are also good sources of information,
as well as official documents such as school records and census data.
Other data gathering techniques include surveys, Interviews, and actual
observation of activities. Evaluation enables the company to identify
aspects of operations and task that need revision or improvement and
identify problem areas that need to be immediately addressed.

4.Financial Reports- Financials figures provide information

on how money is spent and how profits are maximized by
the company. Financial reports include balance sheets ,
income statements , and cash flows. A company
implements control trough regular financial audits that
ensures that financial management practice follow
generally accepted standards. Managers also use
financial ratios to monitor the company’s overall financial
performance. The following are the common financial
ratios utilized in monitoring company performance:
a. Liquidity ratio- measures the company’s ability to meet
its current debt obligations.
b. Leverage ratio- assesses the organizations use of debt
to finance its assets and meet the interest payments on
debts.
c. Activity ratio- measures the efficiency of the company in
using its assets to meet its various financial obligation and
convert its various accounts to cash
d. Profitability ratio- measures the efficiency of the
company in generating profits

5. Performance Appraisal- This provides a general

impression of employee performance. Through
appraisal, supervisors and employees are given the
opportunity to discus how they can best meet goals by
correcting or improving performance, and attaining and
maintaining exemplary performance. Appraisal also
provides opportunities for employees to be rewarded for
good performance and for managers to identify
opportunities for training and development to address
poor performance
*The intuitive approach- relies on the use of perception
to appraise employees in a subjective manner.
*The self-appraisal approach- requires the employees to
conduct self-evaluation.
*The trait approach- evaluates employees based on
certain traits like honesty, flexibility, creativity, and
punctuality.
*The achievement-based approach- compares the
performance of employees against goals set by the
company
*The group approach- involes employees being
evaluated by a group of persons
6. Policies and Procedures- These form part of the
internal control of an organization as they guide behavior
in the workplace. Procedures and policies ensure that
employees carry out task in an effective and efficient
fashion and that directives and instructions are consistent.
Policies and procedures are used to implement control
activities in all position and at all levels in the organization.
These activities include approvals, authorizations,
procurements, verifications, performance reviews,
and segregation of duties. Policies and procedures are
effective control activities when they are implemented
consistently in the organization.
7. Quality control- This method relies on the quality of
products and services as a basis for establishing
performance standards, monitoring results, and comparing
results with the standards. Quality control is defined by the
International Organization for standardization (ISO) as
the “the operational techniques and activities that are used
to satisfy quality requirements.” The ISO is an
international standard setting body comprised of
representatives from national standards organizations of
around 163 countries. The organization develops common
international standards to facilitate world trade, safeguard
consumers and ensures that certified products conform to
minimum standards of quality.
An essential component of quality control is quality
assessment. It consist of set of activities designed to find
out if quality control activities are effective. Quality
assessment enables companies to adjust their operations
to conform to established standards. Quality control is
aimed primarily as a preventive measures, but should
errors arise in the conduct of operation or in production,
The company’s control systems should have means to
check and evaluate their activities to trace the source of
errors. The five w’s are set of question that guide
managers and quality control specialist in analyzing an
error and determining its cause. The five Ws are as
follows:
a. What error was made?
b. Where was it made?
c. When was it made?
d. Who made it?
e. Why was it made?
Answering these questions will enable managers to
determine the nature of the error, find ways to correct It,
and ensure that it will not be repeated.

Management Control Applications

Control is applied to many functional areas in the business
organization, particularly in accounting and marketing. These
two departments generate important information regarding
the overall performance of the company. The accounting
departments provides financial information that can help
determine the financial stability of the organization. The
marketing department, meanwhile, provides data on the
company’s sales performance.

Accounting or Financial Controls

Financial controls are important tools to determine whether
the company is on track toward achieving its financial goals.
Financial ratios are the one of the control methods utilized in
financial control. These rely on the information gained from
financial statements, which are formal records of the financial
activities of the organization. The main types of financial
statements are the balance sheet and the income statement.

Balance sheet-The balance sheet provides a

summary of the company’s financial position over a period of
time. The balance sheet indicates financial information as of a
certain period of date. For example, a company may issue a
balance sheet dated December 31, 2015 reflecting all the
transactions made by the firm until a particular date. A
balance sheet is beneficial not only for the company’s
management, but also for creditors, suppliers, customers, and
other stakeholders. The three major part of a balance sheet
are the following:
1.Asets- are the things or resources that the company owns.
These include things that the company has purchased or
acquired. It also includes cost paid in advance but have not
been used like prepaid rent and prepaid insurance. There are
three classification of assets: current assets; property, plant
and equipment; and intangible assets.
a) Current Assets. Include cash on hand, cash
deposited in banks, prepaids or advance payments
not yet used, accounts receivable, and inventory.
Accounts receivable refer to the sales of goods or
services that are not yet collected, or sales still on
credit. Inventory includes the cost of raw materials
work in process, and finished goods.

b) Property, plant, and equipment-include assets

such as land, building, leasehold improvements,
equipment, future and fixtures, delivery trucks,
machinery, and other capital owned by the company.
These are examples of non-current assets or assets
that cannot be easily converted to cash.
 c) Intangible assets- Refer to assets that do not have
physical substance and may be hard to evaluate.
They include parents, copyright, goodwill, and the
popularity of a trademark or company name.
Some companies add another classification called other
assets in their balance sheets. These refer to assets that
cannot be classified under the main classifications of
assets, or acquisitions that do not conform with the usual
transactions of the company. Some companies also put a
separate classification for short term investments in their
balance sheets.

Balance Sheet
December 31,2015
Assets_________________ Liabilities_________________
Current assets Current Liabilities
Cash 2,100 Notes payable 5,000
Petty cash 100 Accounts payable 35,900
Temporary Investment 10,000 Wages payable 8,500
Accounts Receivable net 40,500 Interest Payable 2,900
Inventory 31,000 Taxes payable 6,100
Supplies 3,800 SSS/Philhealth 2,600
Prepaid Insurance 1,500 Total current liabilities 61,000
Total current assets 89,00
Investments 36,000 Long term liabilities
Notes payable 20,000
Property, plant, and equipment Bonds payable 400,000
 Land 5,500 Total long term liabilities 420,000
Land Improvements 6,500 Total Liabilities 481,000
Buildings 180,000
Equipment 201,000
Less: accum deprecation 56,000 Liabilities
Prop, plant, and equipment 337,000 Common Stock 110,000
Retained earnings 170,000
Intangible assets Accum other comprehensive income
9,000
Good will 105,00 Total stock equity 289,000
Trade names 200,000
Total intangible assets 305,000
Other assets 3,000 Total liabilities and stockholder equity 770,000
Total assets 770,000
In the actual balance sheet, assets are listed on the side while the
liabilities and owner’s equity are listed on the other. Ideally the sum of
both side should be identical so that the sections are balanced . The
balance sheet is an important tool in determining the financial standing
of the company in terms of comparing the company’s assets against its
liabilities. The standard formula for determining the financial status of a
company using a balance sheet is ASSETS= LIABILITIES+OWNER’S
EQUITY.

Income Statement
The income statement reports profits earned or losses incurred by the
company over a given period. The time interval is specified in its
heading such as “For the Month Ended, January 31, 2015”; “For the
three Months Ended, March 31, 2015” (which means from January 1 to
march 21, 2015); or “For the Year ended December 31, 2015”. The
income statement consist of three main parts:
1. Revenue- This is the income from primary activities such as
the production and selling of goods on the part of the
manufacturer. Sales revenue refers to revenue gained from
the sale of goods by retailers, distributors, manufacturers,
and wholesalers.
Other Revenue comes from secondary activities unrelated
to the main business like rent from an idle warehouse or
garage.

2. Expenses- These are cost incurred in the operation of the

business such as salaries and wages of employees; utilities
like electricity, water, and telephone; sales commission, and
expenses in advertising and promotions.
3. Net income- The income statement lists the revenue and
expenses incurred by the company, and the total expenses
is subtracted from the total revenues. The resulting amount
is the net income and may be expressed as a profit or loss .
A profit indicates that the expenses are less than the
income or total revenue at a given period. If the expenses
are greater than the revenue, the company has incurred a
loss. The standard formula of the net income is Net
Income=Revenues- Expenses

Income Statement For the five

months ended May 31,2015
Revenues and gains 108,000
Expenses and losses 90,000
Net income 18,000
 Marketing Controls
Control is also applicable in the marketing function since setting
performance standards is an important part of developing
marketing objectives. To determine the effectively of marketing
plans and strategies, sales performance is monitored and
compared to the established standards. Corrective actions are
implemented in case of deficiencies in sales performance. Many
companies employ a marketing controller who is knowledgeable
in both finance and marketing processes. There are four type of
marketing controls:

1.Strategic control- This refers to process implemented to

control the formulation and execution of strategic plans. The
organization evaluates these activities to determine whether it is
taking advantage of opportunities in terms of target markets and
marketing channels. This is the responsibility of top
management and the marketing auditor. There are two tools
used to implement strategic control.
a) Marketing effectiveness-This marketing control tool
evaluates the extent and quality of customers relations,
how the marketing functions of the organization, and how
 well marketing activities and functions are coordinated. It
also assesses the extent of the marketing information
system, the quality of current marketing strategies, and
how marketing plans are communicated to other members
of the organization. It also looks into the effective use of
marketing resources and the company’s responsiveness to
new marketing developments. Conducting e review of
market effectiveness is a complex endeavor that uses a
variety of data gathering instruments such as
questionnaires.
b)Marketing audit- This is a detailed and systematic
analysis of past and present marketing activities of the
organization. It provides a forecast of market growth in
consonance with changing market conditions and gives
suggestions on how to improve sales performance. It also
evaluates the total marketing operation including its
objectives and policies, and includes an evaluation of
procedures and employees involved. The audit is done
periodically depending on the need of the organization.
Managers conducting marketing audit also conducts
SWOT analysis and environmental scanning.

2.Anual plan control- This method uses annual marketing

targets as performance standards to determine whether the
planned results or outcomes were achieved. The following are
the tools used in annual plan control:
a) Sales analysis- This involves analyzing a company’s sales
data to determine trends and changes in sales figures and
identify any discrepancy or variance in performance. This
helps managers plan and direct sales efforts and enables
sales personnel to evaluate and improve their
performance.
b) Market share analysis- This determine the overall
standing of the company against its competitors. The
company gathers information regarding the characteristic
of the market, its key players and significant market
segments. The analysis provides the company a view of
which part of the market are saturated by competitors, and
which are yet to be engaged by the company. This
information becomes the basis for managers to develop
strategies and marketing plans for exploring opportunities
or adapting to significant shifts in the market. The company
identifies corrective measures if the data indicate that its
market share has shrunk, and comes up with strategies to
take advantage of an expanding market share.

c) Marketing expenses to sales ratio- This entails

comparing marketing expenses with the achieved sales of
the company. Marketing expenses require a marketing
budget which is set of planned marketing expenditures
need to achieve targeted sales within a set of period. The
 most common expense areas include sales force
expenses, promotional expenses, distribution expenses,
and market research expenses. Each area is allocated a
specific amount that will be sent for various marketing
activities. For example, promotional expenses may include
advertising, brochures, and flyers. At the end of the
specified period, managers measure and determine the
ratio of total marketing expenses to sales. When expenses
exceed the control limits, managers then must determine
the reason for such de

d) viations.

3. Customer Tracking- These are the methods that determine

costumers behavior and their reaction to marketing activities.
These include consumers panels, collecting data on returns and
complaints, costumer surveys, and sales force report.
Customers tracking provides a good basis for direct consumer
feedback on satisfaction with the products and services offered.

4.Profit control- This determine the profitability of company

activities and identifies where the company is making or losing
money. Profitability is analyzed by product, segment, territory,
customers, order size, and the trade channel. A company’s
income statement can provide details of the company’s
profitability. Profit control is also good source of information for
planning. For example, a company offering just one product may
have two different customer types: industrial buyers and
ordinary consumers. Which of the two will generate higher
profits? Profit control helps managers select which customers to
focus on as well as develop strategies to increase the
profitability of other groups in their market.
5.Efficiency control- This keeps track of the efficiency of
marketing expenditures such as sales force, advertising, sales
promotion, and distribution. Efficiency control analyzes each of
these elements to ensure that they are being utilized efficiency
for the achievement of company objective. For example, the
sales force can be evaluated based on the number of sales calls
per day, number of orders, success rate, expense targets, sales
skills, and customer relationships. The efficiency of the entire
selling effort is determined by the total contributors of the sales
personnel as seen in the various measures analyzed.

Budgeting
Budgets are quantitative expressions of plans set by the
management for a specific period. Budgeting has a crucial role
in planning and controlling, and when its done properly, it can
greatly contribute to the success of the company. Budgeting is a
planning tool used to translate In quantitative terms all the plans
of the of the company. These goals and objectives are
expressed in financial terms such as targeted sales and
corresponding sales volume. The budget also identifies the
expenses needed to achieve organizational objectives such as
hiring additional personnel, advertising expenses, and
equipment repair. All the plans and the programs are
expressed as a monetary value so they can be realized
and put to actual practice to achieve concrete results. The
materials, personnel, equipment, utilizes, and other
resources needed to implemented plans and programs
are assigned a corresponding cost in the budget. This
helps management see the organization’s financial
capability in realizing the company’s objectives.

The budget is a controlling tool because it allows managers to

keep track of the cost and expenses, and determine whether
they are above or within the set limits. The same goes for
keeping track of sales targets. Budgeting helps regulates
company expenses and ensures that they are in line with sales
targets. It also helps in setting standards that can control the
use of company’s resources. Furthermore, It aids in
communicating the plans to all employees of the organization
and also encourage coordination among them since budgeting
involves different areas and activities of the organization. The
controlling aspect of budgeting also provides information that
enables the company to plan for the future by setting the overall
direction for the organization and developing new policies.

Budget Plan
A budget plan is essential to the realization of the plans of the
organization. This summarizes the cost required for the
resources or inputs needed to implement plans, programs, and
activities. These inputs include human labor and skills,
equipment, facilities, supplies, and raw materials.

A budget plan consist of two parts. These are direct cost and
indirect cost. Direct costs are expenses directly related to the
project or activity. Indirect cost are cost that are not directly
related to a project or activity but are needed for the smooth
flow of operations of the business. The specific cost to be
estimated in a budget plan are the following:
1. Operational costs- These are the direct cost of
doing the actual works, activity, or project. Examples
are the raw supplies or raw materials is needed in the
production of a good.
2. Organizational costs- These are indirect costs that
refer to activities that support operational plans, like
the maintenance of the office workplace, the plant or
manufacturing area, and utilizes such as telephone,
and electricity. These also include the costs of the
costs of the people who perform functional task that
are unrelated to the production of goods.
3. Staffing costs- These are also called labor cost and
refer to the wages or salaries of people who perform
the actual work.
4. Capital costs- These are fixed, one time cost for
large investments such as heavy equipment,
facilities, land, and buildings.