Controlling

 Monitorperformance to reach the

goal (supervising all basic function
of management for success of
company)
Controlling
refers to the "process of ascertaining whether
organizational objectives have been achieved;
if not, why not; and determining what
activities should then be taken to achieve
objectives better in the future. Controlling
completes the cycle of management functions.
objectives and goals that are set at the
planning stage are verified as to achievement
or completion at any given point in the
organizing and implementing stages.
IMPORTANCE OF CONTROLLING

When controlling is properly

implemented, it will help the
organization achieve its goal in the most
efficient and effective manner possible.
Deviations, mistakes, and shortcomings
happen inevitably. when they occur in the
daily operations, they contribute to
unnecessary expenditures which increase
the cost of producing goods and services.
STEPS IN THE CONTROL PROCESS

1. establishing performance objectives

and standards.
2. measuring actual performance.
3. comparing actual performance to
objectives and standards.
4. taking necessary action based on
the results of the comparisons.
ESTABLISHING PERFORMANCE OBJECTIVES AND
STANDARDS
1. Sales targets- which are expressed in quantity
or monetary terms.
2. Production targets- which are expressed in
quantity or quality.
3. Worker attendance- which are expressed in
terms of rate of absences.
4. Safety record- which is expressed in number of
accidents for given periods.
5. Supplies used- which are expressed in quantity
or monetary terms for given periods.
After the performance
objectives and
standards are
established, the
methods for
measuring
performance must be
designed. Every
standard established
must be provided with
its own method for
measurement.
Measuring Actual Performance
There is need to measure actual
performance so that when
shortcoming occur, adjustments
could be made .The adjustments
will depends on the actual
findings.
Comparing Actual Performance to Objectives and Standards
Once actual performance has been
determined, this will be compared with what the
organization seeks to achieve. Actual production output,
for instance, will be compared with the target output.
this may be illustrated as follows;
A construction firm entered into a contract
with the government to construct a 100 kilometer road
with the months. It would be, then, reasonable for
management to expect at least 10 kilometers to be
constructed every month. As such, this must be verified
every month. or if possible week.
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.
If in the illustration cited above, the
management of construction firm found out
that only 15 kilometers were finished after two
months, then, any the following actions may be
undertaken.
1. Hire Additional personnel
2. Use more equipments
3. require overtime
Types of Control
1. Feedforward control
2. concurrent control
3. Feedback control
Feedforward Control
This type of control provides the
assurance that the required human and nonhuman
resources are in place before operations begin.
Example:
The manager of a chemical
manufacturing firm makes sure that the best
people are selected and hired to fill jobs.
Materials required in the production process are
carefully checked to defects. The foregoing
control measures are designed to prevent wasting
valuable resources. If these measures are not
undertaken, the likelihood that problems will
occur is always present.
Concurrent Control
When operation are already ongoing and activities to
detect variances are made, concurrent control is said to
be undertaken. It is always possible that deviations
from standards will happen in the production process.
When such deviations occur, adjustments are made to
ensure compliance with requirements. Information on
the adjustments are also necessary inputs in the pre-
operation phase.
Example:
The manager of a construction firm constantly monitors
the progress of the company's projects. When
construction is behind schedule, corrective measures
like the hiring of additional manpower are made.
Feedback Control

When information is gathered about a completed

activity, and in order that evaluation and steps for
improvement are derived, feedback control is
undertaken. Corrective actions aimed at improving
future activities are features of feedback control.

Feedback control validates objectives and standards. If

accomplishments consist only of a standard
requirements, the standard may be too high or
inappropriate.
Example:
Feedback control is the supervisor
who discovers that continuous overtime work
for factory workers lowers the quality of
output. The feedback information obtained
leads to some adjustment in the overtime
schedule.
COMPONENTS OF ORGANIZATION
CONTROL SYSTEM

1. Strategic plan
2. The long-range financial plan
3. The operating budget
4.Performance appraisals
5.Statistical reports
6. Policies and procedures
Strategic Plans
Provides the basic control
mechanism for the organization.
When there are indications the
activities do not facilitate the
accomplishment of strategic goals,
these activities are either set aside,
modified or expanded. The corrective
measures are made possible with the
adoption strategic plans.
The Long-Range Financial Plan
The planning horizon differs from
company to company. Most firms will
be satisfied with one year. Engineering
firms, however, will require longer
term financial plans. This is because of
the long lead times needed for capital
projects. An example is the
engineering firm assigned to construct
the Light Rail Transit (LRT) within
three years. As such, the three year
financial plan will be very useful.
The Operating Budget
An operating budget indicates the expenditures,
revenues, or profits planned for some future period
regarding operations. The figures appearing in the
budget are used as standard measurements for
performance.

Performance Appraisals
Measures employee performance . As such, it provides
employee with a guide on how to do their jobs better in
the future. Performance Appraisals also function as
effective checks on new policies and programs.
Example, if a new equipment has been acquired for the
use of an employee, it would be useful to find out if it
had a positive effect on his performance.
Statistical Reports
Pertain to those that contain data on various
developments within the firm. Among the information
which may be found in a statistical report pertains to
the following:

1. Labor efficiency rates

2. Quality control rejects
3. Accounts receivable
4. Account payable
5. Sales reports
6. Accident reports
7. Power consumption report
Policies and Procedures
Policies refer to "the framework within which the objectives must be
pursued." A procedure is " a plan that describes the exact series of
actions to be taken in a given situation.“
An example of policy is follows:
"Whenever two or more activities compete for the company's attention,
the client takes priority.“
An example of procedure is as follows:
"Procedure in the purchase of equipment:
1. The concerned manager forwards a request for purchase to the
purchasing officer;
2. The purchasing officer forwards the request to top management for
approval;
3. When approved, the purchasing officer makes a canvas of the
requested item; if disapproved the purchasing officer returns the
form to the requesting manager;
4. The purchasing officer negotiates with the lowest complying bidder.
STRATEGIC CONTROL SYSTEMS

To be able to assure the accomplishment of

the strategic objectives of the company,
strategic control systems become
necessary. These systems consist of the
following:

1. Financial analysis
2. Financial ration analysis
Financial Analysis
The success of most organizations depends heavily on its financial
performance. It is just fitting that certain measurements of financial
performance be made so that whatever deviations from standards are
found out, corrective actions may be introduced.
A review of the financial statements will reveal important details about
the company's performance. The balance sheet contains information about
the company's assets, liabilities, and capital accounts. Comparing the
current balance sheet with previous ones may reveal important changes,
which, in turn, provide clues to performance.
Financial Ratio Analysis
is a more elaborate approach
used in controlling activities. Under this
method, one account appearing in the
financial statement is paired with another
to constitute a ratio. The result will be
compared with a required norm which is
usually related to what other companies in
the industry have achieved, or what the
company has achieved in the past. When
deviations occur, explanations are sought in
preparation for whatever action is
necessary.
Liquidity Ratios
These ratios assess the ability of company to meet its
current obligations. The following ratios are important
indicators of liquidity.
1. Current Ratio
This shows the extent to which current assets of the
company can cover its current liabilities. The formula for
computing current ratio is as follows:
Current Ratio= current assets/current liabilities.
2. Acid Test Ratio
This is a measure of the firm's ability to pay off short-term
obligations with the use of current assets and without
relying on the sale of inventories." The formula is as follows:
Acid Test ratio= current assets-inventories/current
liabilities.
Efficiency Ratio
These ratios show how effectively certain assets or
liabilities are being used in the production of goods and
services. Among the more common efficiency ratio are:
1. Inventory turnover ratio
This ratio measures the number of times an
inventory is turned over (or sold) each year. This is
computed as follows:
Inventory turnover ratio= cost of goods sold/inventory
2. Fixed asset turnover
this ratio is used to measure utilization of the
company's investment in its fixed assets, such as its
plant and equipment. The formula used is as follows:
Fixed asset turnover=net sales/net fixed assets.
Financial Leverage Ratios
This is a group of ratios designed to assess the balance of financing
obtained through debt and equity sources. Some of the more
important leverage ratios are as follows:
1. Debt to total assets ratio
This ratio shows how much of the firm's assets are financed by
debt. It may be computed by using the following formula.
Debt to total assets ratio= total debt/total assets.
2. Times interest earned ratio
This ratio measures the number of times that earnings before
interest and taxes cover or exceed the company's interest
expense. It may be computed by using the following formula:
Times Interest = Profit Before tax+ interest expense/ Interest
expense
Profitability Ratios
These ratios measure how much operating
income or net income a company is able to
generate in relation to its assets, owner's
equity, and sales. Among the more notable
profitability ratios are as follows:

1. Profit margin ratio

This ratio compares the net profit to the level
of sales. The formula used us is as follows:
Profit margin ration= net profit/net sales
2. Return on assets ratio
This ratio shows how much income the
company produces for every peso invested
in assets. The formula used is as follows:
Return on assets Ratio= net income/ assets

3. Return on equity ratio

This ratio measures the returns on the
owner's investment. It may be arrived at by
using the following formula:
Return on equity ratio= net income/equity
IDENTIFYING CONTROL PROBLEMS

Recognizing the need for control is

one thing, actually implementing it is another.
When operations become complex, the engineer
manager must consider useful steps in
controlling. Kreitner mentions three approaches.

1. Executive reality check

2. Comprehensive internal audit
3. General checklist of symptoms of inadequate
control
Executive Reality Check
Employees at the frontline often complain that management imposes
certain requirements that are not realistic. In a certain state college, for
instance, requests for purchase of classroom materials and supplies take
last priority. This is irregular because requests of such kind must be of the
highest priority considering that the organization is an educational
institution.

Comprehensive Internal Audit

is one undertaken to determine the efficiency and effectively of the
activities of an organization. Among the many aspects of operations within
the organization, a small activity that is not done right may continue to be
unnoticed until it snowballs into a full blown problem.
 An Example is the resignation of an
employee after serving the company for 15 years.
After one week, another employee with ten years of
service also resigned. Both were from the same
department. If after another week, a third
employee is resigning, a full investigation is in order.
Even if the source of the problem is identified, it
may already have caused considerable losses to the
organization. A comprehensive internal audit aims to
detect dysfunctions in the organization before they
bring bigger troubles to management.
Symptoms of Inadequate Control
If a comprehensive internal audit cannot be availed of for some reason,
the use of a checklist for symptoms of inadequate control may be used.

Kreitner has listed some of the common symptoms as follows:

1. An unexplained decline in revenues and profits.

2. A degradation of service (Customer Complaints).
3. Employee dissatisfaction (complaints, grievances, turnover).
4. Cash shortages caused by bloated inventories or delinquent accounts
receivable.
5. Idle facilities or personnel.
6. Disorganized operations (Work flow bottlenecks, excessive paperwork).
7. Excessive costs.
8. Evidence of waste and inefficiency (scrap, rework).
 It must be noted that behind
every symptom is a problem waiting to be
solved. Unless this problem is clearly
identified, no effective solution may be
derived. Nevertheless, Problems are easily
recognized if adequate control measures
are in place.