BUSINESS
MANAGEMENT
CHAPTER 5 :
MANAGERIAL
CONTROL
INTRODUCTION TO MANAGERIAL
CONTROL
Control is the last functional chain in the management process
Through control, managers can determine whether
organizational goals have been successfully achieved or
otherwise
DEFINITION OF MENAGERIAL
CONTROL
According to Stoner, Freeman and Gilbert (1995), managerial
control is a process to ensure that actual activities are
conducted according to the planned activities
According to Mockler, control is defined as a systematic effort
in determining a set of performance standards based on the
objectives of planning the formation of a feedback system, and
the comparison between the actual performance and the set
standards
According to Robbins and Coulter (1996), control is a process
to ensure activities are implemented as planned and activities
that are considered to be incorrect are corrected
As a whole, managerial control is a process whereby managers
ensure that actual activities are conducted in line with the
planned activities and take corrective actions to correct any
mistakes that occur in order to achieve organizational goals
CONCEPTS IN CONTROL
Cost is one of the aspects that managers attempt to control.
Managers may either bear high costs or fail in achieving
organizational goals
The criteria that determines the effectives of a control system is
how far managers control the activities that are conducted to
achieve organizational goals
Every organizational practices as a different control system in
order to achieve its goals
Managers always emphasize two aspects of control in order to
ensure a high level of employee performance and the
achievement of organizational goals
Output control / performance control
This control is used to determine the actual performance or
results exhibited by employee in an organization
Output control is measured by taking into account three aspects:
Efficiency managers obtain an overall picture of the employees
level of efficiency
Quality managers determine whether the actual performance
of employees fulfils the established standards of quality
Feedback managers obtain feedback from
employees to
ensure all activities are well conducted and take corrective
action if problems occur during the implementation of the
activities
Behavior control
This control is performed to ensure employee behaviour is in
accordance to what is desired by the organization. Control is
implemented so that organizations do not face problematic
employees or employee who show undesired behaviours such
as being absent, lazy, tardy, not punctual, not trustworthy, share
company secrets, careless and tend to make mistakes,
irresponsible, and day dream while at work. Budget the
organizations financial performance
In order to implement both these controls, managers must use
the following techniques:
Budget the organizations financial performance
Quality control to control employee behaviour
Self-evaluation by managers
Financial statement
RELATIONSHIP BETWEEN
MANAGERIAL CONTROL AND
PLANNING
If not perform managerial control will not know whether the
organizational goals and plans have been achieved or whether
corrective action needs to be taken in the future
If no planning, a control system would not be needed in the
organization
Control measures the progress of goals which are achieved and
enables managers to detect the level of quality and weaknesses in
planning in order to take corrective action before it is too late.
IMPORTANCE OF
CONTROL
Strong and Smith stated that good management required
an effective control system. The combination of wellplanned objectives, a strong organization, effectives
instructions, and motivation will not bring success to an
organization if a suitable control system is not practiced
by the organization
FOUR IMPORTANT FACTORS OF CONTROL
IN AN ORGANIZATION
a) Internal and external changes in an
organizational.
i.
An organizational tends to due to
internal and external changes in the
organizational.
ii. Examples of internal changes in an
organizational structure.
iii. Examples of external changes in an
organization are the increase in the
production and labour costs, changes
in consumers taste, and the
introduction of new production of
new products in the market.
b) Organizations size and decentralization
i.
The organizations growth in size
will increase the number of
employees and jobs. The managers
duty to supervise the increasing
number of employees will become
difficult.
ii. Decentralization in an organization
also requires control to be performed
in order to avoid the abuse of power.
c) Mistakes
i.
d) Allocation of power and responsibilities.
i.
Employees can make mistakes.
Through control, managers can correct
these mistakes before it becomes
serious.
Although managers allocate their
power and responsibilities to the
employees, they are still responsible
for each task performed by the
employees.
ii. managers should monitor the duties
performed by each employee in order
to ensure the duties are completed in
accordance to the established
organizational goals.
THE CONTROL PROCESS
a) Set the standards.
i.
This step involves the formation of
standards for each management
activity such as sales and production
target, attendance of employees, and
safety records.
ii. Standards are the benchmark for an
aspect that requires control. Managers
must know the standards which have
been established.
b) Measure the actual performance.
i.
Just like control, the measurement of
performance is a repetitive process.
For example, a teacher will evaluate
his students performance through
quizzes, assignments, and projects
from the beginning until the end of the
semester.
ii. If the standards are met, the activities
were conducted as planned. On the
other hand, if the standards are not
met, mistakes might have occurred and
corrective action must be taken
promptly to amend those mistakes.
c) Compare actual performance with the
standards.
i.
After the actual performance is
evaluated, managers need to compare
the actual performance with the
established standards to identify
whether the actual performance has
met the standards.
ii. If the standards are met, the activities
were conducted as planned. On the
other hand, if the standards are not
met, mistakes might have occurred
and corrective action must be taken
promptly to amend those mistakes.
d) Take corrective action.
i.
If the standards are not met, managers
must identify the cause of the
situation.
ii. Managers can overcome this problem
either by re-evaluating the standards
(high standards will be difficult to
achieve) or taking corrective action,
for example repairing faulty machines
or providing training for unskilled
employees.
iii) Sometimes, corrective action
involves changes to one or several
activities in the organizational
operations.
Set the standards
Measure the actual performance
Compare the actual performance with the standards
Take corrective action
EFFECTIVE CONTROL
PRINCIPLES
a) Flexibility
b) Accuracy of information
Managers must obtain correct, valid
accurate, and trustworthy information.
Managers must explain to employees what
must be done and what has been done.
Information must be told accurately in
order to avoid confusions and
misunderstandings. Some information must
be kept confidential in order to protect the
organizations interests.
Control activities requires flexibility
and should be adjustable from time to
time according to changes in the
environment. For examples, flexibility
is required when the management sets
standards with the organizations profit
in mind, whereby managers would be
able to increase and decrease the
standards based on the total sales and
operational costs incurred at that time.
c) Timeliness
Information must be delivered at the right
time and at a suitable place.
d) Focus on important factors
Controlled activities must only comprise
important activities and focus should be
given to either the performance aspect or
the employees aspect. If organizations want
to increase the quality of employees,
managers must concentrate on the
performance aspect. Meanwhile, if
managers want their employees to show
good behavior, concentration
must be given on the employee aspect.
e) Acceptance by employees
An aspect that is controlled must obtain
consensus from all the employees in the
organization. For example, if the
organization sets the working hours from
8.00 a.m. until 4.00 p.m., all employees
must adhere to this policy.
CHARACTERISTIC OF
EFFECTIVE CONTROL
a) Accurate information.
Information obtained must be accurate,
measurable, and comparable to the
standards. The accuracy of information
received by employees is important to
rectify the problems.
b) Comprehensive objectives
The established objectives must be
understood by the individuals assigned to
achieve it. A control system that is difficult
to understand can cause undesired mistakes
to occur.
c) Timeliness
Control must be conducted at the suitable
and right time in order to bring progress to
the organization.
d) Easy to operate
An effective control system should be
able to detect any irregularities that occur
in a quick and easy manner so that
corrective action can be taken promptly.
e) Economical
The implementation of a control system
must be economical, logical, and realistic in
terms of costs.
f) Flexible
The control system must be flexible in
order for organizations to grab new
opportunities and act promptly to any
changes that occur.
g) Acceptance by employees
The implementation of a control system
must have certain meaning and goals so that
it can be easily understood and accepted by
all the employees.
PROBLEMS IN FORMING
RIGID AND FLEXIBLE
CONTROL SYSTEMS
The right level of control is needed because controls that are
rigid or flexible can bring a negative impact to the
organization.
The problem that may occur in forming a rigid or a flexible
control system are depicted.
RIGID CONTROL
FLEXIBLE CONTROL
SYSTEM
SYSTEM
Employees become rebellious
Employees perform their tasks
half -
Employees will face pressure
heartedly
Employees discipline will
decline
Low productivity
Low productivity
Relationship between
Wastage of resources
employees and managers will be
affected due to limited
communication
Job performance will decline
Job performance will decline
These problems must be eliminated as it can obstruct the
achievement of organizational goals. Managers always face
difficulties in determining the type of problem that really exist
If would be difficult to control a larger number of employees as
employees might take advantage of this situation to be absent
or late to work. Dissatisfaction of employees towards the
management will cause employees to be lazy, rebellious, and
work half heartedly.
Unexpected problems are unavoidable although organizations
plan a control system.
TYPES OF CONTROL
There are 4 basic types of control :
a)
Feed forward control
b)
Concurrent control
c)
Filtering control
d)
Feedback control
FEED FORWARD CONTROL
Feed forward control is performance before an activity starts
Managers who conduct feed forward control are usually
involved in making policies, procedures, and rules to eliminate
any undesired behaviors
The objective of feed forward control is to avoid mistakes that
occur before the activity is implemented
The advantage the management can avoid any problems
CONCURRENT CONTROL
Concurrent or steering control is performed during the implementation of a job
or activity
Since control is conducted while the activity is being implemented, management
can take action promptly to correct the mistakes that occur before it becomes
serious. This can reduce the cost of taking corrective action
Concurrent control is not only conducted on employees performance, but it is
also conducted on human and non-human resources such as equipment,
machinery, and the office layout
Even though concurrent control can slow down and activity to the minimum
level, however this type of control can avoid bigger problems from occurring
Concurrent control is more effective if managers obtain
accurate information regarding environmental changes
and the development of desired organizational goals
at the right time
Concurrent control enables managers to grab unexpected
opportunities
Although the actual performance might deviate from the
performance standards or original plans, it is not too late from
managers to take corrective action. Managers can allocate
organizational resources to sectors that will bring profit to the
organization
FILTERING OR YES/NO
CONTROL
Filtering or yes/no control involves a filtering process, whereby
certain procedures must be approved before an operation is continued
Filtering control is usually performed after the organization
implements the activities and the result are obtained
Managers will take corrective action after seeing the organizations
achievement in a certain period
Filtering control is important and it is performed widely compared to
other types of control
Filtering control is suitable for reviewing and evaluating the
effectiveness of an activity
FEEDBACK CONTROL
The objective of feedback control is to measure the results of an
action
Through feedback control, any source of weaknesses in plans or
standards can be identified
This control is also used as the basis for giving rewards or motivating
employees
The speed of information flow is an important factor in ensuring an
effective feedback control. If weaknesses are detected early,
corrective action can be taken promptly
CONTROL TECHNIQUES
Managers practice various control techniques and systems to handle
different problems in an organization
Financial control is widely used because information can be measured and
compared easily. The financial control techniques are financial statements,
audit, and budget
Traditional non financial control techniques comprise statistical data,
special report and analysis, internal operation audit, and self evolution by
managers
Modern non financial control techniques comprise of the Gantt Chart,
Milestones Budget, Critical Part method (CPM), and Programme Evaluation
and Review Techniques
FINANCIAL CONTROL
TECHNIQUES
Financial statements
Financial statements are used to calculate the financial value of an
organizations internal and external product and service
Financial statements are usually used to measure the following
aspects :
Liquidity position ability to turn assets into cash in order to meet
the organizations current financial needs or obligations
Long term liability and equity position
Profitability position ability to earn a profit in a certain time
period of time
The financial statements of and organization comprise 3 main
statements, that is the break even analysis, balance sheet, and
the funds flow statements
Break even analysis
The break even analysis is used to study the relationship
between sales or revenues and costs and determine the break
even point whereby total sales will be equal to total costs
The different between total sales (total revenue) and total costs
(total expenditure) is the profit or loss earned by the
organization in a certain time period
Organization can use the above information to forecast
profitability, control expenditure, plan marketing activities, and
select profitable project
The break even point in the break - even analysis can be
determined by using graphical and algebraic methods
Balance sheet
Balance sheet is a statement that lists the assets, liabilities, and
equity of an organization at a specific date
Balance sheet provides a snapshot of the organizations at a
investment in assets and the financial resources used to finance
these assets. In summary, balance sheet shows the
organizations financial position on the last date of the financial
period
Funds flow statement
Funds flow statement reports the organizations sources
and usage of founds for a certain financial period. Funds
are defined as a group of cash. Through this statement,
managers will be able to determine the inflow and
outflow of the business for a specific financial period
AUDIT
Audit is the process of analysing and identifying detail that
have mistakes, correction the mistaken, and updating the
financial statements after taking into account the mistakes
Usually, audit will be conducted by external auditors who do
not have any interest in the organization
BUDGET
Budget is a quantitative statement stated in monetary value. It describes the
managements plans to achieve certain objectives in a given time frame
The budgeting period depends on the requirement of the users and is
prepared before the start of a financial period
An organization has several department or units that has its respective
functions. Each unit will prepare a separate budget according to the units
plans and goals
Budget prepare by each unit or division are known as component budget.
Component budget can be divided into operational budget and financial
budgets
Operational budget comprise budgeting statements such as the sales budget,
the direct material budget, and the production budget
Financial budgets comprise balance sheet budget, cash budget, and capital
expenditure budget. These budgets show the financial resources required to
finance the expected operations and other assets required by the
organization
Budget can be preparing in a fixed or flexible format. In fixed budgets,
estimates are based on a single level of activity. In flexible budget, estimates
are based on several levels of activity
Besides preparing budgets for the purpose of planning, budgets are also
used as a control tool through the preparation of the budget performance
report. This report compares revenues with the actual cost of activities and
the budgeted cost for the operational level that was achieved
Budget performance reports are prepared by each division,
department, or unit in the organization according to the suitable
frequency. The more often reports are prepared, the
organizations operations and financial position will be more in
control
The differences between actual and planned achievements in
the budget are known as variances. Position variances show
that actual achievements are better than the planned
achievements, while negative variances show that the planned
achievements are better than the actual achievements
TRADITIONAL NON FINANCIAL
CONTROL TECHNIQUES
Statistical data
Data usually exists in the form of facts, figures, and events
Statistical data is data obtained in the form of figures
In order to determine the actual performance, managers must obtain
information on the results that have been achieved
Control are made on statistical information to ensure that
organization goals can be achieved
Although statistical data is easy to read and measure, this data
provides limited information on the activities performed in the
organization
Special reports and analysis
The wide usage of computer in organizations encourages managers to
use statistical report to measure the actual performance
Statistical report not only cover computer output, but also include
graphs, charts, and figures in any form that can be used by managers
to evaluate performance
The actual performance can be measured through written report.
Similar to statistical data, even though the preparation of report and
analysis involves time, information shown in the reports have a high
level of reliability. In addition, the reports can be stored in a file for
future reference
INTERNAL OPERATION AUDIT
Audit is process of verifying the organizations financial statements and
records by an external party or employees who possess relevant
qualifications
There are 2 types of audit :
(a) internal operation audit
(b) external operation audit
Internal operation audit performance by internal auditors who are
employees in of organization. The objective is to evaluate the effectiveness
of organizational operations and ensure that no fraud occurs in the usage of
assets and finances. Organizational records must be kept systematically in a
secured place so that financial statements can be prepared accurately
Internal operation audit is usually performed by managers or full
time audit officers. Internal operation audit can also be conducted to
evaluate the organizations control system. The auditors will evaluate
the usage and accuracy of the organizations financial reports and if
needed, suggest ways to increase the effectiveness and efficiency of
the organizations control system
External operation audit performance by qualified external officers
to evaluate the effectiveness of the organizations control system.
External auditors are independent officers and they can provide a fair
evaluation
SELF EVALUATION BY MANAGERS
As traditional non financial control techniques have their own strengths and
weaknesses, managers should practise all the techniques so that control can be
conducted comprehensively
The collection and dissemination of the organizations information is important
in ensuring the success of a control process. Managers will face difficulties in
controlling organizational activities and performances without an effective
control system which managers the collection and dissemination of information
The difficulties in implementing a control process in an organization have
motivated managers to make a self evaluation in order to select the control
technique that should be used for the benefit of the organization as a whole
MODERN NON FINANCIAL
CONTROL TECHNIQUE
Gantt chart
Henry Gantt (1861-1919) created the Gantt Chart in order to control the
progress of projects easily. Gannts work is taken from the Taylor incentive
system, a result of his cooperation with Taylor in several projects
The schedule of the whole project is created by setting the starting time and the
completed time for each activity in the project. The activities must be completed
according to the right sequence until the project is over
The managers will be test and compare the actual implementation of activities. If
the project is completed earlier that scheduled, certain resource such as human
and machinery can be loaned to other projects facing a shortage of resources. If
there is a delay in schedule, managers can take prompt action to perform the
delayed activities and ensure that the project is completed within the set time
frame
THE STEPS THAT CAN BE USED TO BUILD
GANTT CHARTS ARE AS FOLLOWS :
Form a project team comprising members who have wide knowledge of the
project and will be involved in the whole project. The team can consist of 4
to 6 members
Prepare a list that contains all the activities that will be performance in the
project. For the purpose, the brainstorming technique can be used
Build a chart by listing all the activities that must be performed to complete
the whole project on the first column on the left side of the chart. The
activities are arranged according to its sequence. The first activity to be
performed to start the project will place on the top of the first column. The
last activity that needs to be completed at the final stage of the project will
be place last on the first column
Determine the time unit ( days, weeks, months, and years) that will
be used and build a grid using the selected time unit
Estimate the time needed to complete each activity in the first
column and form lines based on the completion period of each
activity
Determine the system that will be used to monitor the
implementation of the project ( f )
During the implementation of the project, team members must meet
at a suitable time to update the status of each activity on the chart
according to the agreed system in step ( f )
Concentrate on additional activities not listed in the schedule. The
project team must make decisions and promptly take corrective
action if any problem occur during the implementation period until
the whole project is completed
MILESTONES BUDGET
If managers select a date to accomplish a certain activity, decision, or
event, and shows the date on the charts lines, this is known as
milestones
Milestones refer to the date set to determine the target deadline to
male non financial control decision. This is usually done when a
project is being re evaluated
Milestones are dates selected to ascertain the completion date for
several phases in the project (such as for activities A, B, C, and E).
Therefore milestones help to provide additional information to the
Gantt Chart
Milestones provide a formal re evolution of information
whereby the costs, progress, and requirements to re plan or
modify the schedule can be evaluated
The Gantt Chart shows the relationship of milestones for
similar tasks in the period. In order to overcome the
weaknesses in the Gantt Chart, a formation of network analysis
such as PERT is developed
PROGRAMME EVALUATION AND REVIEW
TECHNIQUES /CRITICAL PATH ANALYSIS
Even though Gantt Chart is easy to build and use, it is only
suitable for monitoring simple projects. The relationship
between activities that must be performed in order to complete
a project is not shown in the chart
The milestones budget is used to divide big projects into sub
activities to enable managers to conduct control easily
However, the Gantt chart and milestones budget cannot be used
to manage a complex programmer or project. Therefore, a
form of network analysis is required
Nowadays, new methods that are more effective must be used to
mange a complicated project. For this purpose, 2 analysis techniques
was introduced, which are Critical Path Method (CPM) analysis and
Programmer Evaluation and Review Techniques (PERT)
Even though both CPM analysis PERT techniques were developed
separately, they were used to control the United States of Americas
defence system
CPM analysis was introduced in 1957 by Du Pont in the United
States of America to control the implementation of complicated
industrial project
PERT was used for the first time in 1958 by the United States of
Americas navy to plan and control of building the Polaris missile
The PERT and the CPM analysis uses a graphical approach to
manage a project. A network or diagram of arrows will be built
specifically fir each type of project to show the relationship and the
sequence of activities in each project
The PERT/CPM analysis can also be used for construction projects
such as highways, dams, oil pipelines or bridges, installation of
computer systems, introduction of new products, and new housing
projects
THE PERT/CPM ANALYSISCAN BE USED TO
ANSWER THE FOLLOWING QUESTION :
When the project can completed?
Among all the activities, what are the most critical activities in the project?
Among all the activities, which are the non critical activities in the project?
What is the probability of completing the project before a certain date?
Will the project be completed on time according to the schedule, earlier or later?
Is the implementation cost of the project over or under the budget?
Are the available resources sufficient to complete the project on time?
Among all the activities, which activity must be given more attention in order to
complete the project earlier but minimum additional costs?
THANK YOU
