Controlling - PowerPoint

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         The Nature of Control in
Control is a process to regulate organizational
 activities so that some targeted element of
 performance remains within acceptable
 limits. Without this regulation ,
 organizations have no indication of how
 well they perform in relation to their goals.
 Example : ship’s rudder, keeps the
 organization moving in the proper direction.
 Like a rudder, control provides an
 organization with a mechanism for
 adjusting its course if performance fails
 outside of acceptable boundaries.
What Is the Purpose of Control?

• It is one of the four basic
  management functions
  and has four basic
  functions. What are the
   – Adapts to environmental
   – Limits accumulation of
   – Helps coping with
     organizational complexity.
   – Helps minimize costs.
         The Purpose of Control

  Adapt to environmental change            Limit the accumulation of error

                       Control helps the organization

Cope with organizational complexity               Minimize costs
Adapts to environmental change.
All organizations need to contend with change. A properly
  designed control system can help managers anticipate,
  monitor, and respond to changing circumstances. In
  contrast, an improperly designed system can result
  organization performance that falls far below acceptable
Limits accumulation of error.
Small mistakes and errors do not often seriously damage
  an organization's financial health. However, small errors
  may accumulate and eventually become vary serious.
  Controlling helps managers to rectify small mistakes and
  errors so that they do not become a major problem for
  the long run.
Helps coping with organizational complexity.
Small companies which produces only one product, has
 simple organizational design, and enjoys constant
 demand, can maintain control with a very basic and
 simple system. But business that produce many products
 and has a large market area, a complicated organization
 design , many competitors needs sophisticated system to
 maintain adequate control. Example : Emery Air Freight
 was quite profitable until it bought Purolator Courier
 Corporation. After the acquisition the company became
 big, and more complex, but it added no new controls to
 organization. Consequently, Emery lost market share
 and was on the verge of bankruptcy.
Helps minimize costs.
When practiced effectively, control can help reduce costs
 and boost output. Example : Georgia- pacific
 Corporation, a furniture company, learned a new
 technology that it could use thinner blades for its saws.
 The company used its control system to calculate that
 massive amount of wood could be saved by using the
 thinner blades, and thus it could save them a huge cost.
 As the company discovered, effective control systems
 can eliminate waste, lower labor costs, and improve per
 unit output.
                  Types of Control

Organizations practice control in a number of different
 areas and at different levels, and the responsibility for
 managing control is widespread.

Areas of Control
Most organizations define areas of control in terms of the
  four basic types of resources they sue : physical, human,
  information, and financial resources.
Control of physical resources includes inventory
  management, quality control, and equipment control.
Control of human resources includes selection and
  placement, training and development, performance
  appraisal, and compensation.
Control of information resources includes sales and
 marketing forecasting, environmental analysis, public
 relations, production scheduling, and economic

Financial control involves managing the organization’s debt
  so that it does not become excessive, ensuring that the
  firm always has enough cash on hand to meet its
  obligations, also that receivables are collected and bills
  paid on a timely basis.
Levels of Control
Levels of Control
• Operational control:
   – Focuses on the processes used to transform
     resources into products or services.
• Financial control:
   – Concerned with financial resources. Example :
     Monitoring receivables to make sure that
     customers are paying their bills on time.
• Structural control:
   – How the elements of organization’s structure are
     serving the intended purposes. Example :
     Monitoring the administrative ration to make sure
     that staff expenses do not become excessive.
• Strategic control:
   – How effective the organization’s corporate,
     business, and functional strategies are succeeding
     in helping the organization meet its goals and
     objectives. Example : if a corporation has been
     unsuccessful in implementing its strategy of
     related diversification, its managers need to
     identify the reasons, either change the strategy or
     renew their efforts to implement it)
       Responsibilities for Control
• Control rests with all managers. Managers decide which types
  of control the organization will use, and they implement control
  systems and take actions based on the information provided by
  control systems.

• Large corporations have one or more specialized managers
  called controller. A controller is responsible for helping line
  managers with their control activities, for coordinating the
  organization's overall control system, and for gathering and
  assimilating relevant information. The job of a controller in
  especially important in organization where control systems are

• Many organizations are beginning to use operating employees
  to help maintain effective control. Employees participation is
  often used as a vehicle for allowing operating employees an
  opportunity to help facilitate organizational effectiveness.
Steps in the Control Process
   Steps in the Control Process
Establish Standards

The first step in the control process is establishing
  standards. A control standard is a target against which
  subsequent performance will be compared. Example : at
  Taco Bell Fast –food restaurant service standards are

   – 95% of all the customers are greeted within 3 minutes
   – Preheated chips will not sit in the warmer for more than 30
   – All Empty tables will be cleaned within 5 minutes after being

Standard established for control should be expressed in
  measurable terms. In the above example standard one is
  95%, three is ‘‘ All Tables’’.
Control standards should be consistent with the
  organization’s goals. Taco Bell has organizational goals
  involving customer service, food quality, and restaurant

A final aspect of establishing standards is to identify
   performance indicators. Performance indicators are
   measures of performance that provide information that is
   directly relevant to what is being controlled. Example : an
   organization is following a tight schedule in building a new
   plant. Relevant performance indicators can be buying a
   site, selecting a building contractor, ordering equipment.
   However, monthly sales increase are not relevant in this
   regard. On the other hand, if control is focused on
   revenue, then monthly sales increases are relevant,
   whereas buying land for a new plant is less relevant.
Measure Performance

This is the second step in the control process.
  Performance measurement is a constant , ongoing
  activity for most organization. For control to be
  effective, performance measures must t be valid.

   – Daily, weekly, and monthly sales figures measure sales
   – Production performance may be expressed in terms of
     unit cost, product quality, or volume produced.
   – Employee performance is often measure in terms of
     quality or quantity of output.
Compare Performance Against Standards.

Performance may be higher than, lower than, or identical
  to the standard. In some cases comparison is easy.
  The timetable for comparing performance to standards
  depends on a variety of factors including the
  importance and complexity of what is being controlled.
  For longer-run and higher-level standards, annual
  comparisons are necessary. In another circumstances,
  more frequent comparisons are necessary. Example :
  a business with a cash shortage may need to monitor
  its on-hand cash reserves daily.
Consider Corrective Action

Decisions regarding corrective actions draw heavily on a
  manager’s analytic and diagnostic skills. After
  comparing performance against control standards, one
  of the three actions is appropriate.

   – Maintain status quo (do nothing) : preferable when
     performance matches the standard
   – Correct the deviation : some actions are needed to
     correct the deviation. Sometimes, if performance is
     higher than expected it may cause problems.
     Example : Ford enjoyed a huge demand for Contour
     (car). There were customers waiting list and many
     were willing to pay more for the car. Ford did not
     increase production in the fear that demand would
     eventually drop. To deal with the excessive
     demand, ford reduced its advertising for the car.
     That curtailed the demand for the car.
– Change the standards: changing standard is
  necessary if it was set too high or too low. This is
  apparent if most employees routinely beat the
  standard by a wide margin or if no employees ever
  meet the standard. Also, standards that seemed
  appropriate when they were established may need
  to be adjusted because circumstances have
    Characteristics of Effective
• Integration with
• Flexibility
• Accuracy
• Timeliness
• Objectivity
Integration With Planning

Control should be linked with planning. The explicit and
  precise this linkage, the more effective the control
  system. As goals are set during the planning process,
  attention should be paid to developing standards that will
  reflect how well the plan is realized. Example : Managers
  at Champion Spark Plug Company developed twenty
  one new products. Managers decided in advance what
  level of sales they wanted to realize from each product
  for each of the next five years. They established these
  sales goals as standard against which actual sales
  would be compared. Thus by accounting for their control
  system, managers did an excellent job of integrating
  planning and control.

The Control system itself must be flexible enough to
  accommodate change. Example : an organization whose
  diverse product line requires seventy five different raw
  materials. The company’s inventory control system must
  be able to manage and monitor all seventy five
  materials. When a change in product line changes the
  number or raw materials needed, or when the required
  quantities of raw materials change, the control system
  should be able to handle the revised requirements.
  Because developing and implementing a new control
  system is expensive.

Managers make large number of decisions based on
  inaccurate decisions.
   – Field representative may hedge their sales estimates to
      make themselves look better.
   – Production managers may hide costs to meet their
   – Human resource managers may overestimate their
      minority recruiting prospects to meet affirmative action
The results of these inaccurate information managers receive
  is dramatic. If sales projection are inflated, a manager
  might cut advertising. Hiding production costs may lead a
  company quote a sales price much lower than desirable. In
  each case, the results of inappropriate information results
  inappropriate managerial action.

Timeliness does not mean quickness it rather describes a
  control system that provides information as often as is
Champion Spark Plug has a wealth or historical data on its
  sparkplug sales, it does not need information on sparkplug
  as frequently as it needs sales feedback for its newer
Retail organization usually need sales results daily so that
  they can manage cash flow and adjust advertising and
  promotion. In contrast, they may require information about
  physical inventory only quarterly or annually.
The more uncertain and unstable the circumstances, the more
  frequently measurement is needed.

The control system should provide information that is as
  objective as possible. Example : a manger responsible for
  control of his organization’s human resources asks two
  managers to submit reports.

   – One manager reports that morale at his plant is ‘‘okay’’,
     grievances are ‘‘ about where they should be’’, and
     turnover is ‘‘under control’’
   – Other manager reports that absenteeism at her plant is
     running at 4 percent, that sixteen grievances have been
     filed this year, and that turnover is 12 percent.

The second report almost always be more useful than the first

Description: Controlling, Purpose of Control, Purpose of Control, Levels of Control, Steps in the Control Process, Characteristics of Effective Control,