TOPIK 9

FUNDAMENTALS OF
CONTROL

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 What Is Controlling?
• Controlling
– The process of monitoring activi-ties to ensure
that they are being accomplished as planned
and of correcting any significant deviations
• The Purpose of Control
– To ensure that activities are comple-ted in
ways that lead to accomplishment of
organizational goals

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IMPORTANCE OF CONTROLLING
1. It helps ensure that performance is consis-tent
with plans.
2. It helps ensure that accomplishments through-out
an organization are coordinated in a means-ends
fashion.
3. It helps ensure that people comply with
organizational policies and procedures.
The next Figure: shows how controlling fit in with the
other management function (planning,
organizing, and leading)

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The Planning–Controlling Link

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 TYPES OF CONTROLS
• Feed-forward Controls/Preliminary Controls
take place before a work activity begins. They ensure that
objectives are clear, that proper directions are established
and that the right resources are available to accomplish the
objectives, The goal is to solve problems before they occur.
• Concurrent Controls/Steering Controls
Focus on what happens during the work process. They make
sure things are being done according to plan. The goal of
concurrent controls is to solve the problems as they occur. It
can be done by direct supervision or as likely to be computer
driven as face-to-face.

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 TYPES OF CONTROLS (cont’…..)
• Feedback Controls/Post Action Controls
take place after work is completed. They focus on the quality
of end results rather than on inputs and activities. The goals
are to solve problems after they occur and prevent future
ones.
• INTERNAL AND EXTERNAL CONTROL
Internal Control /Self Control
Manager can manage in ways that allow and expect people
to control their own behavior . This puts priority on internal
or self-control. Self-control is internal control that occurs
through self-discipline in fulfilling work and personal
responsibilities.

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 INTERNAL & EXTERNAL CONTROL
• INTERNAL CONTROL
Manager can manage in ways that allow and expect people
to control their own behavior . This puts priority on internal
or self-control. Self-control is internal control that occurs
through self-discipline in fulfilling work and personal
responsibilities.
– Organization can do the control through participation,
empowerment, and involvement.
– But internal control strategy requires a high degree of
trust.
– Self control is most likely when the process setting
objectives and standards is participative.

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 INTERNAL AND EXTERNAL CONTROL

• External Controls
a. Bureaucratic Control
Another form of external control uses authority, policies ,
procedures, job description, budgets and day-to-day supervision to
make sure that people act in harmony with organizational interests.
It is called Bureaucratic Control. Another level of bureaucratic
control comes from laws and regulations in the organization’s
external environment.
b.Clan Control/Normative Control
Clan control influences behavior through norms and expec-tations
set by the organizational culture. Clan control happens as persons
who share values and identity strongly with one another behave in
consistent ways. Clan control influences members of teams and
work groups to display common behavior pattern.

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INTERNAL AND EXTERNAL CONTROL
c. Market Control
is essentially the influence of customers and competition on
the behavior of organizations and their members. Business
firms show the influence of market control in the way that
they adjust products, pricing, promotions and other practices
in response to customer feedback and what competitors are
doing.

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 THE CONTROL PROCESS
1. Establish performance objectives and
standards
2. Measure actual performance
3. Compare actual performance with
objectives and standards
4. Take correction action as needed
(see figure 9.3)

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 THE CONTROL PROCESS (cont’…)
Step 1 : Establish Objectives and Standards
a. Output Standards – measure actual outcomes or work
results in terms of quantity, quality, cost or time.
Business use many output standards such as earning
per-share, sales growth, market share, quantity and
quality of production, costs incurred, service or
delivery time and error rate.
b. Input Standards-measure work efforts that go into a
performance task. For example, conformance with
rules, efficiency in the use of measures and work
attendance.
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 THE CONTROL PROCESS (cont’…)
Step 2 – Measure Actual Performance
Performance measurements in the control process must be
accurate enough to spot significant differences between
what is really taking place and what was originally planned.
Step 3 – Compare Results With Objectives and Standards
The control equation is :
Need for Action =
Desired Performance – Actual Performance

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 THE CONTROL PROCESS (cont’…)
To do this process, some organization use engineering
comparisons , historical comparisons (where past experience
become the baseline for evaluating current performance) and
relative comparisons (benchmark performance against that
being achieved by other people, work units or organizations).
Step 4 – Take Corrective Action
The final step is to take the action needed to correct problems
or make improvements.
Management by exception is the practice of giving
Attention to situations that show the greatest need for action.
It saves time energy and other resources by focusing attention
on high priority areas.

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 THE CONTROL PROCESS (cont’…)
Manager should alert to two types of exceptions
1. A problem situation where actual performan-ce is
less than desired. It must be understood so that
corrective action can restore performan-ce to the
desired level.
2. Opportunity situation where actual perfor-mance
turns out higher that what was desired. It must be
understood with the goal of continuing or increasing
the high level of accomplishment in the future.

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 CONTROL TOOLS AND TECHNIQUES

1. Project Management and Control

Projects are one time activities with many com-
ponent tasks that must be completed in proper order
and according to budget.
Project Management is the responsibility for overall
planning, supervision, and control of projects. A
manager’s job is to ensure that a project is well
planned and then completed according to plan : - on
time, within budget and consistent with objectives.

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 CONTROL TOOLS AND TECHNIQUES
(cont’….)

2. A Gantt Chart graphically displays the scheduling of tasks

required to complete a project. (see page 228)
3. CPM/PERT is a combination of the critical path method and
the program evaluation and review technique. This
technique helps project managers track activities to make
sure they happen in the right sequence and on time. (see
page 228). Critical Path is the pathway from start to
conclusion that involves the longest completion times.

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 INVENTORY CONTROL
• The goal of inventory control is to make sure that any
inventory is only big enough to meet immediate needs.
• The form of inventory control is
a. economic order quantity – method places new orders
when inventory levels fall to predetermined points. The
order sizes are mathematically calculated to minimize
inventory costs. (see page 229)
b. Just-in-time scheduling (JIT)-the systems reduce costs
and improve workflow by scheduling materials to arrive
at a workstation or facility just in time for use .

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 BREAKEVEN ANALYSIS

• Breakeven point occurs where revenue just equal

costs. Breakeven point use this formula:
Breakeven Point = Fixed Costs : (Price – Variable
Costs).
• Breakeven Analysis – performs what-if calculations
under different revenue and cost conditions. (see
figure 9.4)

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 FINANCIAL CONTROLS
• The foundation for analysis using financial controls is balance
sheet - shows assets and liabilities at a point in time (Assets =
Liabilities format) and income statement – shows profits or
losses at a point in time (Sales – Expenses = Net Income format).
• Financial controls of this nature often involve measures of :
a. Liquidity – ability to generate cash to pay bills
b. Leverage – ability to earn more in returns than the cost of
debt
c. Asset Management – ability to use resources efficiently
and operate at minimum cost
d. Profitability – ability to earn revenue greater than costs.

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Popular Financial Ratios

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Popular Financial Ratios

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 BALANCE SCORECARD

Balanced Scorecard
– A measurement tool that uses goals set by
managers in four areas to measure a
company’s performance:
• Financial
• Customer service/satisfaction
• Internal processes improvement
• Innovation and learning areas

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