Controlling

 Controlling Defined

Controlling is the process of ensuring that actual activities conform to planned activities. Planning and controlling are closely related. In fact, controlling is more pervasive than planning. Controlling helps managers monitor the effectiveness of their planning, organising and leading activities.

In fact, controlling determines what is being accomplished - that is, evaluating the performance and, if necessary, taking corrective measures so that the performance takes place according to plans. Controlling can also be viewed as detecting and correcting significant variations in the results obtained from planned activities.

 

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Steps in the Control Process

The basic control process involves the following steps:

(1)   Establishing standards and methods for measuring performance

(2)   Measuring the performance

(3)   Determining whether performance matches the standard

(4)   Taking corrective action

1.         Establishing standards and methods for measuring performance: Standards are, by definition, simply the criteria of performance. They are the selected points in an entire planning programme at which performance is measured so that managers can receive signals about how things are going and thus do not have to watch every step in the execution of plans.

2.          Measuring the performance: The measurement of performance against standards should be done on a forward-looking basis so that deviations may be detected in advance of their occurrence and avoided by appropriate actions.

3.          Determining whether performance matches the standard: It is an easy but important step in the control process. It involves comparing measured results with the standards already set. If performance matches the standard, managers may assume that "everything is under control". In such a case the managers do not have to intervene in the organisation’s operations.

4.          Taking corrective action: This step becomes essential if performance falls short of standards and the analysis indicates that corrective action is required. The corrective action could involve a change in one or more activities of the organisation’s operations. For example, the branch manager of a bank might discover that more counter clerks are needed to meet the five-minute customer-waiting standard set earlier. Control can also reveal inappropriate standards and in that case, the corrective action could involve a change in the original standards rather than a change in performance.

It needs to be mentioned that, unless managers see the control process through to its conclusion, they are merely monitoring performance rather than exercising control. The emphasis should always be on devising constructive ways to bring performance up to standard rather than on merely identifying past failures.

 

 

Importance of Controlling in Management

Planning without controlling is useless. Undoubtedly, controlling also helps managers monitor environmental changes and the effects of these changes on the organisations’ progress. The gravity of control in management may be ascertained from the following discussion:

(1)    Coping with changes: Each and every modern organisation has to cope with changes in the environment. New products and technologies emerge, government regulations are two often amended or enacted, competitors change their strategies. The control function helps managers to respond to these environmental changes as and when necessary.

(2)   Creating better quality: Modern industries follow total quality management (TQM) which has led to dramatic improvements in controlling. Under it, process flaws are spotted, and the process is purged of mistakes. Employees are empowered to inspect and improve their own work and this also helps change their attitudes and approaches to achieving effective control. There are innumerable examples in which the TQM program had helped restore quality, decrease cost and increase production of giant organisations that confronted threats of shutdowns owing to low quality, high cost and declining productivity.

(3)     Creating faster cycles: Control helps speed up the cycles involved in creating and then delivering new products and services to customers. Speed is essential in complying with customers' orders. But modern marketing managers must remember that today's customers expect not only speed but also customised products and services. It is clear that the most successful companies try to personalise things and tailor them to individual needs. They most successfully target narrow customer niches with specific models.

(4)   Adding value: An organisation that strives to survive through competition should be able to "add value" to products or services so that customers prefer them to those offered by the organisation’s rivals. Very often this added value takes the form of above-average quality achieved through exacting control procedures.

(5)     Facilitating delegation and teamwork: Modern participative management has changed the nature of the control process. Under the traditional system, the manager would specify both the standards for performance and the methods for achieving them. Under a new, participative system, managers communicate the standards, but then let employees, either as individuals or as teams, use their own creativity to decide how to solve certain work problems. The control process, then, lets the manager monitor the employees' progress without hampering employee’s creativity or involvement with the work.

Control as a Feedback System

Most managers exercise control through information feedback, which shows deviations from standards and initiates changes. In other words, feedback information helps compare performance with a standard and to initiate corrective action. In controlling, managers do measure actual performance, compare this measurement against standards, and identify and analyse deviations. But then, for making necessary corrections, they must develop a program for corrective action and implement this program in order to arrive at the performance desired.

 

Feedforward Control

It is now increasingly recognised that control must be directed towards the future in order to be effective. Knowing about deviations long after they occur is useless. What managers need for effective control is a system that will tell them well in time for corrective action and that problems will occur if they do not do something about them now. Feedback from the output of a system is not good enough for control. It is little more than a post-mortem, and no manager can ever change the past.

 

Requirements For Feed forward Control

In short, the requirements for a workable feed forward control system are:

1.      Making a thorough and careful analysis of the planning and control systems.

2.      Developing a model of the system.

3.      Reviewing the model regularly to see whether the input variables identified and their inter- relationships continue to represent realities.

4.      Collecting data on input variables regularly, and putting them into the system.

5.      Assessing regularly the variations of actual input data from planned-for inputs, and evaluating the impact on the expected end result.

6.      Taking action to solve problems.

 

Control Techniques

Managers use a large number of tools and techniques for effective controlling. Therefore we need to discuss specific techniques for managing the control process. First we’ll discuss budgetary control. And then we shall deal with other control techniques and methods.

A.     Budgetary Control:

Budgeting is the formulation of plans for a given future period in numerical terms. Organisations may establish budgets for units, departments, divisions, or the whole organisation. The usual time period for a budget is one year and is generally expressed in financial terms.

Budgets are the foundation of most control systems. They provide yardsticks for measuring performance and facilitate comparisons across divisions, between levels in the organisation, and from one time period to another.

Budgets usually serve four control purposes: (i) they help managers co-ordinate resources; (ii) they help define the standards needed in all control systems; (iii) they provide clear and unambiguous guidelines about the organisation’s resources and expectations and (iv) they facilitate performance evaluations of managers and units.

Types of Budgets

 

Most organisations use a number of different kinds of budgets - (i) financial; (ii) operating; and (iii) non-monetary.

1.         Financial budgets: Such budgets detail where the organisation expects to get its cash for the coming time period and how it plans to spend it. Usual sources of cash include sales revenue, the sales of assets, the issuance of stock, and loans. On the other hand, the common uses of cash are to purchase new assets, pay expenses, repay debts, or pay dividends to shareholders. Financial budgets may be of the following types:

(a)    Cash budget: This is simply a forecast of cash receipts and disbursements against which actual cash "experience" is measured. It provides an important control in an enterprise since it breaks down incoming and outgoing cash into monthly, weekly, or even daily periods so that the organisation can make sure it is able to meet its current obligations. Cash budget also shows the availability of excess cash, thereby making it possible to plan for profit- making investment of surpluses.

(b)    Capital expenditure budget: This type of financial budget concentrates on major assets such as a new plant, land or machinery. Organisations often acquire such assets by borrowing significant amounts through, say, long-term bonds or securities. All organisations, large or small, business or non-business, pay close attention to such budget because of the large investment usually associated with capital expenditure.

(c)   The balance sheet budget: It forecasts what the organisation’s balance sheet will look like if all other budgets are met. Hence it serves the purpose of an overall control to ensure that other budgets mesh properly and yield results that are in the best interests of the organisation.

2.         Operating budgets: This type of budget is an expression of the organisation's planned operations for a particular period. They are usually of the following types:

(a)   The sales or revenue budget: It focuses on income the organisation expects to receive from normal operations. It is important since it helps the manager understand what the future financial position of the organisation will be.

(b)   The expense budget: It outlines the anticipated expenses of the organisation in an specified time period. It also points out upcoming expenses so that the manager can better prepare for them.

(c)    The project budget: It focuses on anticipated differences between sales or revenues and expenses, i.e. profit. If the anticipated profit figure is too small, steps may be needed to increase the sales budget or cut the expense budget.

3.   Non-monetary budgets: Budgets of this type are expressed in non-financial terms. They may include hours of direct labour, units of output, or machine hours. Such budgets are generally used by supervisors in controlling workers in the main.

B.   Non-budgetary Control Devices

The following are some control devices which are not related to budget.

1.         Operational audit/internal audit: It is the regular and independent appraisal of the accounting, financial, and other operations of an enterprise by a staff of internal auditors. In its most usual form operational auditing includes auditing of accounts, appraisal of operations in general and weighing actual results against planned results. Operational auditors, thus, assure that accounts really reflect the fact, appraise procedures, policies, quality of management, effectiveness of methods and other phases of operations.

2.         Milestone budgeting: Used by an increasing number of companies in recent years in controlling engineering and development, milestone budgeting breaks a project down into controllable pieces and then carefully follows them. In this approach to control, "milestones" are defined as identifiable segments.