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Pamantasang Lungsod ng Manila

MBA-TEP
Organization and Management
Dr. Neri Pescadera,Ph.D.

Narciso D. Isidro Jr.

 Controlling 2

Controlling – is a management function that involves comparing actual

performance with planned performance and taking corrective
action if needed, to ensure the objectives are achieved.

Three Phases of Controlling:

1. Anticipating the things that could go wrong and taking preventive

measures to see that they don’t.
2. Monitoring or measuring performance in some way in order to
compare what is actually happening with what is supposed to be
happening.
3. Correcting performance problems that occur. This is the
therapeutic aspect of control.
Control’s Close Link to Planning

Planning and Controlling might be thought of as a Siamese Twins

because they are so closely related. Planning sets the ship’s course and
controlling keeps it on course. When the ship begins to veer off the
course, the navigator notices it and recommends a new heading
designed to return the ship to its proper course. Essentially,
management control works the same way. Management set goals and
seek information on whether they are being reached as planned. If
not, management make adjustments.

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Importance of Controls

Control is important in view of the many variables that can

put things off track. Because anything involving human is
imperfect, management must use control to monitor
progress and to make intelligent adjustments as required.

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Examples of Controls
- Delegation (Accountability)

- Evaluation (Performance)

- Financial Statement (Budget Management)

- Performance Management (Observation and Feedback)

- Policies and Procedures (Behaviors in Workplace)

- Quality Control and Operations Management

- Risk, Safety and Liabilities

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 Characteristics of Effective
Control System
1. Controls need to focus on appropriate activities – Effective controls
must focus on critical factors that affect both the individual’s and
the organization’s abilities to achieve objectives.
2. Controls should be timely – Information needed for comparisons
and control purposes needs to be in the management’s hands in
order to make effective corrective action. Delays in generating,
gathering or disseminating information can prolong the occurrence
and extent of deviation.
3. Controls must be cost effective – The benefit of using appropriate
controls should be worth their cost of installation and operation.
Too much control can be worse than too little. The key is to
provide appropriate for the situation and provide savings greater
that the costs involved.
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 Characteristics of Effective Control
System

4. Controls should be accurate and concise – Controls must provide

information about operations and people in sufficient quality and
quantity to enable managers to make meaningful comparisons to
operations standards. As with control, too much information can
be as bad as too little.

5. Controls should be accepted by the people they affect – Controls and

their applicability to specific situations should be communicated
clearly to those responsible for implementing them and to those
who will be governed by them.

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Types of Control Systems
1. Feed forward controls – are preventive controls that try to anticipate
problems and take corrective action before they occur. Example – a
team leader checks the quality, completeness and reliability of their
tools prior to going to the site.

2. Concurrent controls – (sometimes called screening controls) occur

while an activity is taking place. Example – the team leader checks
the quality or performance of his members while performing the
cpm on equipments in the site.

3. Feedback controls – measure activities that have already been

completed. Thus corrections can take place after performance is
over. Example – feedback from facilities engineers regarding the
completed job.

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 Types of Control

Input Processes Output

Feed forward Concurrent Feedback

Control Control Control
Anticipates Corrects problems Corrects problems
problems as they happen after they occur

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Steps in the Control Process
1. Establishing Performance Standards – A standard is a unit of
measurement that can serve as a reference point for evaluating results.
Management should set its sights on something it wants to
accomplish. Managers should exercise control by comparing
performance to some standards or goals.

Types of Standards

A. Tangible – clear, concrete specific and generally measurable.

1. Numerical Standards – expressed in numbers - items

produced, absences, percentage of sales, etc.

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Steps in the Control Process
2. Monetary Standards – measured in terms of money – profit
margins, costs, etc.

3. Physical Standards – quality, durability, size, weight and other

factors related to physical composition.

4. Time Standards – refer to the speed with which the job is to

be done – project completion dates.

B. Intangible Standards – relate to human characteristics which

are not expressed in terms of numbers, money, physical
qualities or time – desirable attitude, high morale, ethics and
cooperation.
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Steps in the Control Process
2. Measuring Performance – After setting the standards, managers must
monitor performance to ensure that it complies with the established
standards.

How Often to Measure Performance – Determining how often to

measure performance is an important decision. A strategic control
point is a performance measurement point located sufficiently early in
an activity to allow any necessary corrective actions to be taken to
accomplish the objective.

How to Measure – This can be done through the following:

1. Personal observation.
2. Written or oral reports by or about employees.
3. Automatic methods.
4. Inspections, test or samples.

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Steps in the Control Process
3. Comparing Performance with Standards and Analyzing Deviations. –
Information receive regarding a serious departure from standards
should be investigated in order to determine what caused the
deviation. Jumping into conclusion without analyzing the problem
might produce ineffective corrective action.

It is also important to check results that are substantially above

standards in order to determine why they varied from standards.
Operating procedures should be check to determine if these are being
followed correctly or if there is an improvement in operations that
should be included in the new standards.

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Steps in the Control Process
4. Taking Corrective Action if Necessary – This is the final step in the
control process. Adjustments, fine-tuning, and perhaps drastic action
may be necessary to pull off important tasks or to maintain standards.
Examples of Corrective Actions
- Making a decision to retrain a new employee whose
performance has not progressed as expected.
- Shifting several employees from their normal jobs to help meet a
deadline on another job.
- Counseling an employee whose performance has recently been
below standard.
- Reprimanding an employee for failure to adhere to safety rules.
- Shutting down a piece of equipment for maintenance after
defective output is traced to it.

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Management by Exception

Even under the best of circumstances, deviations from performance

standards are bound to occur. Given the broad range of areas over
which control is being exerted, it is essential to distinguish between
critical and less-critical deviations.

Under management by exception, a manager focuses on critical control

needs and allows employees to handle most routine deviations from
standards. The attention should be focused on exceptional rather
than routine problems.

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 Control Techniques
 Besides budgets, there are other accounting and
financial concepts and techniques which are used
as control devices.
 This include responsibility accounting, cost
accounting, standard cost approach, direct
costing, and ratio analysis.
 This position of the financial study gauges the
projects profitability, liquidity, cash solvency,
and growth overtime.
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 Test of liquidity

 These measures are used to determine a firm’s ability to meet short-term

obligations, and to remain solvent in the event of adversities.

Current assets
a. Current ratio = Current Liabilities

Current assets-inventories
b. Quick or acid-test ratio = Current liabilities

Cost of sales
c. Liquidity of inventories = Average Inventory

Cash + marketable securities + receivables

d. Defensive Position = Projected operating expenditure/ No. of days

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 Test of the debt service

 These test are employed to present the project’s ability to meet long-
term obligations.
Total liabilities
c. Debt to network ratio = Total Equities

Long term liabilities

b. Total Capitalization = long term liabilities & equities

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 Test of Profitability

 These show the operational performance and efficiency of the project.

Net income after Tax

d. Net Profit Margin = Sales

Profit before interest and taxes

g. Operating profit margin = Sale

Gross profit
j. Gross profit margin = Sales

Net Income + interest

 Return on financier’s investment = Stock equity & long term liability

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 Net income
b. Return on owner’s investment = Stock Equity

Profit before interest & taxes

e. Return on net operating profit = Total tangible assets

Sales
h. Asset turnover = Total Tangible assets

Net Income
h. Return on assets, earning power = Total Tangible Assets

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Internal Control

Internal control encompasses the policies and procedures than an

organization establishes to ensure that it operates in accordance with
management’s intention and that accountability is maintained for all
transactions. This includes the methods adopted by the organization
to safeguard its assets, to check the accuracy and reliability of its
accounting data, to promote operational efficiency and to encourage
adherence to prescribed policies and procedures.

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Internal Control

Two Aspects of Internal Control

1. Administrative (Operational) Controls – are generally aimed at

improving operating efficiencies or otherwise controlling the
activities of the organization.

2. Internal Accounting Controls – primarily directed at reliable

financial reporting (ensuring the accuracy and reliability of financial
data and safeguarding of assets).

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Purpose of Internal Control
Internal Controls are put into place to allow management to monitor
operations, identify business risks and generate pertinent financial
and non-financial information. These controls are designed and
implemented so that management can run the organization. Internal
controls also ensure that responsibilities are met.

Generally speaking, internal controls are established to provide

reasonable assurance that:

1. Transactions are executed in accordance with management’s

authorization.

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Purpose of Internal Control

2. Transactions are recorded as necessary to permit the preparation of

accurate financial statements and to maintain accountability for the
organization’s assets.

3. Access to assets is restricted to instances authorized by the

management.

4. Assets are periodically compared with the accounting records, both

to determine the accuracy of records and to account for the assets.

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Thank You!!!

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