Control Process

The process of measuring actual performance, comparing it against a standard, and taking managerial action to correct deviation or inadequate standard

• Expected performance

• Measuring actual performance

• Corrective action

Control Process-Steps

• Establish Standards

-Standard: criteria of performance

• Comparing Actual Performance

-Range of variation• Taking Managerial Action

-Immediate corrective action

-Basic corrective action

• Revise the standards-Unrealistic standard

-Goal too high

Types of control

• Feedforward

-Most desirable

• Concurrent -Direct supervision

• Feedback

-Most popular

Feed forward control

Control that focuses on human, material, and financial resources flowing into the organization also called pre-action or preventive control

Feed back Control

Control that focuses on the organization’s output also called post-action or output control

Concurrent Control

Control that consists of monitoring ongoing employee activities to ensure their consistency with established standards

Approaches to control

• Market

• Bureaucratic

• Clan

• Organizational

Market control

Control systems that emphasize the use of external market mechanisms to establish the standards used for controlling

Bureaucratic Control

The use of rules, policies-hierarchy of authority, rewards systems, and other formal devices to influence employee behavior and assess performance

Clan Control

The use of social values, traditions, common beliefs, and trust to generate compliance with organization standards

Organizational Control

The systematic process through which managers regulate organizational activities to make them consistent with expectations

established in plans, targets and standard of performance.

Standards

Standards are yardsticks against which actual or expected performance in measured

Types of Standards

• Physical

• Capital

• Cost

• Revenue

• Intangible

• Goals

• Strategic

Physical Standards

They reflect quantities such as labour hours per unit of production, units of production per machine-hour, durability of a fabric, fastness of colour, rate of climb of an airplane etc

Cost Standards

Cost Standards are monetary measurements such as cost per unit produced, labour cost per hour, material cost per unit, machine operating cost per hour, cost of per foot of of well drilled etc.

Capital Standards

Reflect Capital invested in the factory rather than operating costs and reflect ratios of current assets to current Liabilities, debt to net worth, cash & receivables to payables, the size and turnover of inventous.

Revenue Standards

Revenue standards reflect monetary values of sales, such as revenue per passenger-mile, average sale per customer, sales per capital in given market area.

Intangible Standard

Standards not expressed in either physical or monetary measurements such as competence of sales manager, effectiveness of advertising campaign, success of public relations department, morale of employees etc

Goal Standards

Reflects performance or output (production) against targets such as production of cars against a target of 300 cars per month, actual production of cloth against a target of 15,000 yards per month, actual visits to clients by sales people against a target of 10 per week etc

Strategic Standards

Comprises of comparison of actual performances & results against overall objectives of an organization over a period of time (usually one year), such as annual profits, growth, market share, stock value, etc

Requirements of Effective Control

• Tailoring controls to plans and position

• Tailoring controls to individual Managers

• Provisions for exceptions

• Seeking objectivity

• Ensuring flexibility

• Matching with Organizational Culture

• Achieving economy

Qualities of Effective Control System

• Accuracy• Reasonable Criteria• Timeliness • Economy• Flexibility• Understandability• Emphasis on Exception• Multiple Criteria• Corrective action

Dysfunctional Control

• Regulation Fixation

• System Imperfections

• Emphasis of Procedures

• Rigid Control Techniques

Control Tools & Techniques

• Information Tools

• Financial Tools

• Analytical Tools

• Traditional Tools

Information Tools

• Organizational Communication

• MIS

Financial Tools

• Budget

• Ratio analyses

Analytical Tools

• Gnatt Chart

• PERT

• Milestone budgeting

Traditional Tools

Statistical data

Special reports & analysis

Operational data

Personal observations

Budget

A numerical plan for allocating resources to specific activities

Types of Budgets

• Revenue

• Expense

• Time, space, material & product

• Capital expenditure

• Cash

Popular Financial Ratios Objective Ratio CalculationLiquidity Test Current Ration Current Assets

Current Liabilities Acid Test Current assets less inventories

Current LiabilitiesOperation Test Inventory turnover Sales

Inventory Total asset turnover Sales

Total assetsProfitability Profit margin Net profit after Taxes

Total Sales Return on Investment Net profit after taxes

Total assets