The document provides an overview of controlling as the terminal management function, describing its pervasive and dynamic nature. It then discusses types of control according to time (preventive, concurrent, feedback) and source (internal, external). Finally, it outlines the control process and various qualitative and quantitative control techniques, including budgets and financial ratios.
2. Controlling and the other
management functions
Controlling referred to as the terminal management function.
Controlling is a pervasive function- which means it is performed by
managers at all levels and in all type of concerns.
Evaluating the other management functions.
Controlling is a dynamic process- since controlling requires taking
reviewal methods, changes have to be made wherever possible.
Strongly associated with planning.
Controlling is forward looking- Controlling analysis the past and
help achieving future goals.
3.
4. Controlling Planning
Planning-
Controlling
Linkage
Leading Organizing
5. Types and strategies of control
Controlling can be classified in
1. According to time
a. Before
b. During
c. After
2. According to the source of control
a. Internal
b. External
6.
7. 1. The Time element in control
a. Preventive Control (before)
Prior to performance of an activity.
Prevent deviation from performance standard.
Most cost-effective method.
Can be applied for e.g. in:
a. Manufacturing (purchase high quality machine part).
b. Human resource (recruiting non smokers).
8. Cont….
b. Concurrent Control (during):
Monitoring activities while they are carried out.
Observation of deviation from standards.
Makes constructive suggestions.
Such controls are also known as steering controls.
For eg: suppose a telemarketing manager overhears a telemarketer
fails to ask a customer for an order. On the spot, the manager would
coach the telemarketer about how to close an order.
9. Cont….
c. Feedback Control or post controls (after):
Evaluate an activity after it is performed.
Pointing out what went wrong in the past.
Financial statement analysis is a form of feedback control.
10. II. External and Internal Controls
External control strategy
Based on the belief that employees are motivated primarily by
external rewards and need to be controlled by their mangers.
For eg: Relience
Internal control strategy
Based on the belief that employees can be motivated by building
their commitment to organisational goals.
For eg: Toyota Corp.
13. Steps in the control process
The steps in the control process follow the logic of planning:
1) Performance standard are set.
2) Performance is measured.
3) Performance is compared to standards.
4) Corrective action is taken if needed.
14.
15.
16. 1. Setting Appropriate Standards
Set realistic and acceptable standard to the people involved.
Standard can be:
a. Quantitative (cost of sales, profits or time to complete an activity)
b. Qualitative (viewer’s perception of the visual appeal of an
advertisement)
Laws are often basis of standards (disposal of toxins, fair
employee practices)
An effective standard leads to obtainment of objective.
Standards can be set using historical data or break-even point
analysis.
17. 2. Measuring Actual Performance
Observation of the performance
a simple example would be observing to make sure a sales associate
always asks a customer “ Is there anything else I could show you
now?”
The three important conditions for effective performance
measurement are:
a. Agree on the specific aspects of performance to be measured.
b. Agree on the accuracy of measurement
needed.
c. Agree on who will use the measurements.
18. 3. Comparing Actual Performance To
Standards
Size of the discrepancy between performance standard and
actual results.
How much deviation from the standard is a basis for corrective
action.(exception principle)
The manager has to find out two things here- extent of
deviation and cause of deviation.
After finding out the deviation the information should be
communicated.
19. 4. Taking Corrective Action
Once the causes and extent of deviations are known, the
manager has to detect those errors and take remedial measures
for it.
There are three courses of action:
Do nothing
Solve the problem(taking corrective steps)
Revise the standard(may occur in case of error in planning)
20. Non Budgetary Control Techniques
Non Budgetary control techniques can be classified into two types
Qualitative Control Technique
Qualitative control technique are methods based on human
judgements about performance that result in a verbal rather than a
numerical evaluation.
For e.g. customer service might be rated as “outstanding”.
Quantitative Control Technique
Quantitative control technique are methods based on numerical
measures of performance
For e.g. such as lines of computer code produced per hour.
21. Qualitative Control Technique
The competence and ethics of people collecting information for qualitative
controls influence the effectiveness of these controls.
Technique
1. External Audit: Verification of financial records by external agency or
individual. Conducted by an outside agency, such as a CPA (Certified
Public Accounting Firm).
2. Internal Audit: Verification of financial records by an internal group of
personnel. Wide in scope, including evaluation of control system.
22. Cont….
3. Management Audit: Use of auditing techniques to evaluate the overall
effectiveness of management. Examines wide range of management
practices, policies and procedures.
4. Personal Observation: Manager’s firsthand observations of how well
plans are carried out. Natural part of manger’s job.
5. Performance appraisal: formal method or system of measuring, evaluating
and reviewing employee performance. Points out areas of deficiency and
areas for corrective action; manger and group members jointly solve the
problem.
23. Quantitative Control Techniques
Gantt Chart: Chart depicting planned and actual progress of work on
a project. Describes progress on a project.
PERT: Method of scheduling activities and events using time
estimates. Measuring how well the project is meeting the schedule.
Break-even analysis: Ratio of fixed costs to price minus
variable costs. Measuring organization's performance and gives
basis for corrective action
24. Cont….
Economic-Order Quantity: Inventory level that minimizes ordering
and carrying costs. Avoids having too much or too little inventory.
Variance Analysis: Major control device in manufacturing.
Establishes standard costs for materials, labor and overhead and
then measures deviations from these costs.
25. Budgetary and Financial Ratio as
Control Devices
The control process relies on the use of budget s and financial
ratios.
In budgets planned expenditure and actual expenditures are
compared.
A more advanced method of using budgets for control is to use
financial ratio guidelines for performance.
26.
27. Cont….
Following are the four important ratios for control
Gross Profit Margin:
Gross Profit Margin= Sales – Cost of Goods Sold
Sales
This ratio measures the total money available to cover operating expenses
and make profit.
Assume the night club owner needs to earn a 30 percent gross profit
margin.
Gross Profit Margin= $42,500 - $ 19500 = $23,000 = 0.54 or 54%
$42500 $42,500
28. Cont….
Profit margin: profit margin measures profit earned per dollar of
sales as well as the efficiency of the operations.
Profit margin = Net income_ = $6,060 = 0.14 or 14%
Sales $42,500
A profit margin of 14 percent would be healthy for most businesses. It
also appears to present a more realistic assessment of how well night
club in question performs as a business.
29. Cont….
Return on Equity: the return on equity is an indicator of how much
a firm is earning on its investment. It is the ratio between net income
and the owner’s equity.
Return on equity = Net income
Owner’s equity
Assume that the owner of the nightclub and restaurant invested
$400,000 in the restaurant and that the net income for the year
$72,500. the return on equity is $72500/$4,00,000 = 0.181 0r 18.1%
The owner can be happy because few investments offer such high
return.
30. Cont….
Revenue per employee: A simple financial ratio that is widely
used by business mangers is revenue per employee, expressed
as.
Revenue per employee = Number of Employee
Total Revenue
