Chapter 10

Controlling the management process

Learning outcomes

• Give an overview of the purpose of control

• Describe how a control process should function

• Explain the various types of control

• Discuss the characteristics of an effective control system

Chapter outline

• Introduction

• The purpose of control

• The control process

• Types of control

• Characteristics of an effective control system

• Summary
Introduction

• Final component of management process

• Control procedures to ensure goals are met

• Actual performance compared to standard required

• Forms the basis for a new cycle of management activities –

feedback and review process which influences planning

• Areas of control management should focus on

• Characteristics of effective control system

The purpose of control

A control process is necessary for the following reasons:

• Linked with planning, organising and leading

• Helps companies adapt to environmental change

• Helps limit the accumulation of error

• Helps companies cope with increasing organisational size and

complexity

• Helps minimise costs.

The control process
Step 1: Establish standards

• Establish a performance standard at strategic points

• Performance or control standard is a planned target against which

the actual performance will be compared

• Appropriate performance standards:

• Profit standards

• Market-share standards

• Productivity standards

• Staff-development standards.
Step 2: Measure actual performance

• Collection of information and reporting on actual performance are

continuous activities

• Activities need to be quantifiable before any valid comparisons can

be made

• Important requirement for reports to be absolutely reliable for the

measurement of actual achievements

• Control by exception – only important disparities reported to top

management in large organisations.
Step 3: Evaluate deviations

• Determine the performance gap between the performance standard and

actual performance
• Important to know why a standard has only been matched, and not
exceeded.
• Essential to ensure that the disparities are genuine

• Determine whether the deviations are large enough to justify further

investigation
• All reasons for the deviations and the relevant activities should be identified.
Step 4: Take corrective action

• Corrective actions need to be taken to ensure that deviations do not

recur

• If actual achievements match standards then no corrective action is

needed

• If actual achievements do not match standards, three possible actions

exist:
• Actual performance can be improved to reach the standards
• Strategies can be revised to accomplish the standards
• Performance standards can be lowered or raised to make them more realistic.
Types of control

• Organisations control activities and processes in a number of

different areas and at different levels in the organisation.

• The four key areas of control include the following:

• Physical resources
• Human resources
• Information sources
• Financial resources.
The control of physical resources

• Inventory control
• Economic-ordering quantity (EQP)
• Material requirements planning (MRP) system
• Just-in-time (JIT) system

• Quality control
• Define the quality goals or standards
• Measure quality
• Rectify deviations and solve quality problems in an effort to keep the cost of
quality as low as possible.
The control of financial resources

• Financial resources and abilities are vital to the success of

the organisation, and therefore need to be strictly controlled

• Financial control is concerned with the following:

• Resources as they flow into the organisation
• Financial resources that are held by the organisation
• Financial resources flowing out of the organisation.
The budget

• The budget contributes to financial control:

• Supports management in coordinating resources, departments and
projects
• Provides guidelines on application of the organisation’s resources
• Defines or sets standards that are vital to the control process
• Makes possible the evaluation of resource allocation, departments or
units.
• Financial analysis (or ratio analysis) can be used to complement the
budget when applying financial control
Types of budgets
The control of information resources

• Relevant and timely information made available to

management during the management process is vital in
monitoring how well goals are accomplished

• The faster feedback is received, the more effectively the

organisation’s control systems function.
The control of human resources

• Control of human resources falls within the ambit of human

resources management

• The main instrument used to control an organisation’s human

resources is performance measurement

• Other human resources control instruments include specific

ratio analyses that can be applied to labour turnover,
absenteeism and the composition of the labour force.
Characteristics of an effective control system

• Integration

• Flexibility

• Accuracy

• Timeliness

• Simplicity
Integration of planning and control
Summary

• Control is a fundamental management function and is the

final step in the management process
• Control focuses on all the activities in the organisation
• Effective control systems characterised by the extent to
which planning and control are integrated
• Application of control system should not become so complex
that it costs more than it saves.