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.
