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