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 Calculation
Liquidity Test Current Ration Current Assets
Current Liabilities
Acid Test Current assets less inventories
Current Liabilities
Operation Test Inventory turnover Sales
Inventory
Total asset turnover Sales
Total assets
Profitability Profit margin Net profit after Taxes
Total Sales
Return on Investment Net profit after taxes
Total assets