WHAT IS CONTROLLING - Actual production output, for instance, will be

compared with the target output.

Process of ascertaining whether organizational
objectives have been achieved; if not, why not; and
determining what activities should then be taken to 4. Taking necessary action based on the results of
achieve objectives better in the future. the comparisons
IMPORTANCE OF CONTROLLING - The purpose of comparing actual performance
with the desired result is to provide
- When controlling is properly implemented, it management with the opportunity to take
will help the organization achieve its goal in corrective action when necessary.
the most efficient and effective manner
possible.
- Proper control measures minimize the ill effects
TYPES OF CONTROL
of such negative occurrences.
1. Feedforward control
4 STEPS IN THE CONTROL PROCESS - When management anticipates problems and
1. Establishing performance objectives and prevents their occurrence
standards - It provides assurance that the required human
- In controlling what has to be achieved must first and nonhuman resources are in place before
be determined. operations begin
Example: 2. Concurrent control
⚫ Sales target- which are expressed in - When operations are already ongoing and
quantity or monetary terms activities to detect variance are made,
⚫ Production targets- which are expressed concurrent control is said to be undertaken. It is
in quantity or quality always possible that deviation from standards
⚫ Workers attendance- which are will happen in the process. When such deviation
expressed in terms of rate of absences occur, adjustment are made to ensure
⚫ Safety record- which is expressed in compliance with requirements . Information on
number of accidents for given periods the adjustment are also necessary inputs in the
⚫ Supplies used- which are expressed in pre-operation phase.
quantity or monetary terms for given ⚫ Example: the manager of a construction
periods. firm constantly monitors the progress of
- Once objectives and standards are established, the company’s project. When
the measurement of performance will be construction is behind schedule,
facilitated. corrective measures like the hiring of
additional manpower are made.
2. Measuring actual performance 3. Feedback control
- There is need to measure actual performance so - When information is gathered about the
that when shortcomings occur, adjustment completed activity, and in order that evaluation
could be made. and steps for improvement are derived.
- The measuring tools differ from organization to - Aimed to improved future activities
organization, as each have their own unique ⚫ Example- the supervisor who discovers
objectives. that continuous overtime work for
factory workers lowers the quality of
3. Comparing actual performance to objectives ouput. The feedback information
and standard obtained leads to some adjustment in
- Once actual performance has been determined, the overtime schedule.
this will be compared with the organization
seeks to achieve.
COMPONENTS OF ORGANIZATIONAL STRATEGIC CONTROL SYSTEMS
CONTROL SYSTEMS - To be able to assure the accomplishment of the
1. Strategic plan strategic objectives of the company, strategic
- It provides the basic control mechanism for the control systems become necessary. These
organization. system consist of the following:
- When there are indicators that activities do not
facilitate the accomplishment of strategic goals, 1. Financial analysis
these activities are either set aside, modified or - The success of most organizations depends
expanded. heavily on its financial performance. It is just
fitting that certain measurements of financial
2. The long-range financial plan performance be made so that whatever
- The planning horizon differs from company to deviations from standards are found out,
company. Most firms will be satisfied with one corrective actions may be introduced
year. Engineering firms, however, will require - A review of the financial statements will reveal
loner term financial plans. This is because of the important details about the company's
long lead times needed for capital projects. performance. The balance sheet contains
information about the company's assets,
3. The operating budget liabilities, and capital accounts. Comparing the
- Indicates the expenditures, revenues, or profits current balance sheet with previous ones may
planned for some future period regarding reveal important changes, which, in turn,
operations. The figures appearing in the budget provide clues to performance.
are used as standard measurements for - The income statement contains information
performance. about the company's gross income, expenses,
and profits. When also compared with previous
4. Performance appraisals years' income statements changes in figures will
- Measures employees performance help management determine if it did well.
- It provides employees with a guide on how to
do their jobs better in the future. 2. Financial ratio analysis
- Financial ratio analysis is a more elaborate
5. Statistical reports approach used in controlling activities.
- It pertains to those that contain data on various - Under this method, one account appearing in
developments within the firm. Among the the financial statement is paired with another to
information which may be found in a statistical constitute a ratio. The result will be compared
report pertains the following: with a required norm which is usually related to
1. Labor efficiency rates what other companies in the industry have
2. Quality control rejects achieved, or what the company has achieved in
3. Accounts receivable the past.
4. Accounts payable - When deviations occur, explanations are sought
5. Sales reports in preparation for whatever action is necessary.
6. Accidents reports Financial ratios may be categorized into the follow-
7. Power consumption reports ing types:

6. Policies and procedures • liquidity - These ratios assess the ability of a

- Refer to “the framework within which the company to meet its current obligations.
objectives must be pursued”. The following ratios are important indicators of
- A procedure is “a plan that describe the exact liquidity:
series of actions to be taken in a given
situation.”
 1. Current ratio - This shows the extent to before interest and taxes cover or exceed
which current assets of the company can the company's interest expense.
cover its current liabilities. It may be computed by using the following
formula:
The formula for computing current ratio is as follows:
Times interest earned ratio= profit before tax +
Current ratio = current assets/current liabilities interest expense / interest expense
• Profitability- These ratios measure how much
1. Acid-test ratio- This is a measure of the firm's
operating income or net income a company is
ability to pay off short-term obligations with the
able to generate in relation to its assets, owner's
use of current assets and without relying on the
equity, and sales.
sale of inventories.
Among the more notable profitability ratios are as
The formula is as follows:
follows:
Acid-test ratio = current assets - inventories/current
1. Profit margin ratio - This ratio compares the net
liabilities
profit to the level of sales.
• efficiency - These ratios show how effectively
The formula used is as follows: Profit margin ratio = net
certain assets or liabilities are being used in the
profit/net sales
production of goods and services.
2. Return on assets ratio - This ratio shows how
Among the more common efficiency ratios are:
much income the company produces for every
1. Inventory turnover ratio - This ratio peso invested in assets.
measures the number of times an
The formula used is as follows: Return on assets ratio =
inventory is turned over (or sold) each
net income/assets
year.
This is computed as follows: 3. Return on equity ratio This ratio measures
Inventory turnover ratio = cost of the returns on the owner's investment.
goods sold/inventory
2. Fixed asset turnover - This ratio is used It may be arrived at by using the following formula:
to measure utilization of the company's Return on equity ratio = net income/equity
investment in its fixed assets, such as its
IDENTIFYING CONTROL PROBLEMS
plant and equipment."
The formula used is as follows: Recognizing the need for control is one thing, actually
Fixed asset turnover = net sales/net implementing it is another. When operations become
fixed assets complex, the engineer manager must consider useful
• financial leverage- This is a group of ratios steps in controlling. Kreitner mentions three
designed to assess the balance of financing approaches:
obtained through debt and equity sources.
1. executive Reality check - The concept of
Some of the more important leverage ratios are
"executive reality check" means that managers
as follows:
and executives should occasionally experience
1. Debt to total assets ratio - This ratio shows
the work their employees do to understand the
how much of the firm's assets are financed
by debt. challenges and realities of the job.
It may be computed by using the following Example:
formula
Debt to total assets ratio = total debt/total • In a college, purchase requests for classroom
assets supplies (important for teaching) are treated as
a low priority, while requests from nonacademic
2. Times interest earned ratio - This ratio mea- staff (who have direct access to the president)
sures the number of times that earnings get top priority.
 This unfair practice led to frustration among checklist for symptoms of inadequate control
faculty, who felt the president's talk on quality may be used, Kreitner has listed some of the
teaching was meaningless. common symptoms as follows:"
1. An unexplained decline in revenues and
• At Central Luzon State University, executives
profits.
are required to teach at least one class. This
2. A degradation of service (customer
hands-on experience helps them create better
complaints).
plans and policies since they understand the
3. Employee dissatisfaction (complaints,
realities teachers face.
grievances, turnover).
• An engineering manager who occasionally 4. Cash shortages caused by bloated
works alongside laborers can see challenges inventories or delinquent accounts
that aren't obvious from the comfort of his receivable
office. 5. Idle facilities or personnel
- By directly experiencing frontline work, leaders 6. - Disorganized operations (workflow
gain better insight, which helps them make bottlenecks, excessive paperwork)
more realistic and fair decisions. 7. Excessive costs
8. Evidence of waste and inefficiency
2. comprehensive internal audit (scrap, rework).
- is to check how well an organization is running
and prevent small problems from growing into It must be noted that behind every symptom is a
major issues. problem waiting to be solved. Unless this problem is
- A comprehensive internal audit is essential for clearly identified, no effective solution may be derived.
spotting and addressing small issues early, Nevertheless, problems are easily recognized if
ensuring they don’t lead to larger, more costly adequate control measures are in place.
problems for the organization.
SUMMARY:
Purpose of an Internal Audit:
Controlling is one of the main functions of management.
• To evaluate the efficiency and effectiveness of It comes after planning, organizing, and directing
an organization’s activities. Controlling is aimed at determining whether objectives
were realized or not, and if not, by providing means for
• It helps identify issues early before they become achievement.
significant problems.
Controlling is important because it complements the
Example of a Small Problem Growing: other management functions
• An employee with 15 years of service resigns. Controlling is a process consisting of various steps,
• A week later, another long-serving employee namely: establishing performance objectives and
from the same department also resigns. standards, measuring actual performance, comparing
actual performance with objectives and standards, and
• If a third person resigns soon after, it signals a taking necessary action based on the results of the
deeper issue that requires investigation. comparison.
• By the time the problem is discovered, the Control/ may be classified either as feedforward
organization may have already faced losses. concurrent, or feedback
3. general checklist of symptoms of inadequate Organizational control systems consist of the strategic
control plan, the long-range financial plan, the operating
budget, performance appraisals, statistical reports,
Symptoms of Inadequate Control
policies and procedures
- If a comprehensive internal audit cannot be
Strategic control systems consist of financial analysis
availed of for some reason, the use of a
and financial ratio analysis.
There are means to identify control problems. They are
the executive reality check, the comprehensive internal
audit, and the general checklist of symptoms of in-
adequate control.