Basic Elements of Control
Controlling
Controlling involves monitoring and
measuring performance against goals and plans,
showing where deviations from standards exist,
and helping to correct them.
Control is the regulation of organizational activities so
that some targeted element of performance remains within
acceptable limits. Without this regulation, organizations
have no indication of how well they are performing in
relation to their goals. Control, like a ship’s rudder, keeps
the organization moving in the proper direction. At any
point in time, it compares where the organization is in
terms of performance (financial, productive, or otherwise)
to where it is supposed to be. Like a rudder, control
provides an organization with a mechanism for adjusting
its course if performance falls outside acceptable
boundaries.
The Purpose of control
There are four purposes of controlling:
Adapting to Environmental Change
Limiting the Accumulation of Error
Coping with organizational complexity
Minimizing Costs
• Adapting to Environmental Change In today’s
complex and turbulent business environment, all
organizations must contend with change. If managers
could establish goals and achieve them
instantaneously, control would not be needed. But,
between the time a goal is established and the time it
is reached, many things can happen in the
organization and its environment to disrupt
movement toward the goal—or even to change the
goal itself.
• Limiting the Accumulation of Error Small
mistakes and errors do not often seriously
damage the financial health of an organization.
Over time, however, small errors may
accumulate and become very serious.
• Coping with Organizational Complexity When a
firm purchases only one raw material, produces one
product, has a simple organization design, and enjoys
constant demand for its product, its managers can
maintain control with a very basic and simple system.
But a business that produces many products from
myriad raw materials and has a large market area, a
complicated organization design, and many
competitors needs a sophisticated system to maintain
adequate control.
• Minimizing Costs When it is practiced
effectively, control can also help reduce costs
and boost output. For example, Georgia-
Pacific Corporation, a large wood products
company, learned of a new technology that
could be used to make thinner blades for its
saws.
Levels of Control
There are four levels of control.
1. Operations Control
2. Financial Control
3. Structural Control
4. Strategic Control
Operations Control
Operation Control focuses on the processes the
organization uses to transform resources into
products or services. Example: Quality control.
Financial Control is concerned with the
organization’s financial resources. Example:
Monitoring Receivables to make sure that
customers are paying bills.
Structural Control
Structural Control is concerned with how the
elements of the organization’s structure are
serving their intended purpose. (Monitoring the
administrative ratio to make sure that staff
expenses do not become expensive.
Strategic Control focuses on how effectively the
organization’s corporate, business, and functional
strategies are succeeding in helping the
organization meet its goals and objectives.
Steps in Control Process
3. Compare 4. Evaluate
1. Establish 2. Measure
Performance Performance
Standards Performance
& Standards and take action
Compare
Establish Measure
Performance
Standards Performance
& Standards
Establish Standards
The first step in the control process is
establishing standards.
Control Standard: A target against which
subsequent performance is to be
compared.
Example: A deliver of Pizza within 24 hours
Measure Performance
The second step is to measure performance.
Performance measurement is a constant,
ongoing activity for most organization.
Compare Performance& Standards
The third step in the control process is
comparing measured performance against
established standards.
Performance can be higher or lower than
the standard.
Evaluate Performance
The final step in the control process is
determining the need for corrective action.
After comparing performance against
control standards, one of three actions is
appropriate. Maintain status quo, Correct
deviation, or change the standard
Operation Control
Three forms of operation control
Preliminary control: deals with inputs
Screening control: deals with transformation
Post action control: deals with output
• Areas of Control Control can focus on
any area of an organization. Most
organizations
• define areas of control in terms of the four
basic types of resources they use: physical,
human, information, and financial
• Preliminary control concentrates on the resources—financial,
material, human, and information—the organization brings in
from the environment. Preliminary control attempts to monitor
the quality or quantity of these resources before they enter the
organization
• Screening control focuses on meeting standards for product
or service quality or quantity during the actual transformation
process itself. Screening control relies heavily on feedback
processes.
• Postaction control focuses on the outputs of the organization
after the transformation process is complete. Corning’s old
system was postaction control—final inspection after the
product was manufactured.
• Financial control is the control of financial resources
as they flow into the organization (such as revenues
and shareholder investments), are held by the
organization (for example, working capital and
retained earnings), and flow out of the organization
(like pay
• and expenses).
• Budgetary Control
• A budget is a plan expressed in numerical terms.
Organizations establish budgets for work groups, departments,
divisions, and the whole organization. The usual time period
for a budget is one year, although breakdowns of budgets by
the quarter or month are also common.
• Other Tools for Financial Control:
• Although budgets are the most common means of financial
control, other useful tools are financial statements, ratio
analysis, and financial audits.
• Financial Statements A financial statement is a profile of
some aspect of an organization’s financial circumstances.
Financial statements must be prepared and presented in
commonly accepted and required ways. The two most basic
financial statements prepared and used by virtually all
organizations are a balance sheet and an income statement.
• Ratio Analysis Financial ratios compare different elements of
a balance sheet or
• income statement to one another. Ratio analysis is the
calculation of one or more financial rat
• Financial Audits Audits are independent appraisals of an
organization’s accounting, financial, and operational systems.
The two major types of financial audits are the external audit
and the internal audit.ios to assess some aspect of the financial
health of an organization
STRUCTURAL CONTROL
• Bureaucratic Control
• Bureaucratic control is an approach to organization design
characterized by formal and mechanistic structural
arrangements. As the term suggests, it follows the bureaucratic
model. The goal of bureaucratic control is employee
compliance. Organizations that use it rely on strict rules and a
rigid hierarchy, insist that employees meet minimally
acceptable levels of performance, and often have a tall
structure. They focus their rewards on individual performance
and allow only limited and formal employee participation.
• Decentralized Control
• Decentralized control, in contrast, is an approach to
organizational control characterized by informal and
organic structural arrangements. As Figure 14.6 shows,
its goal is employee commitment to the organization.
Accordingly, it relies heavily on group norms and a
strong corporate culture, and gives employees the
responsibility for controlling themselves.
Characteristics of Effective Control
• 1. Integration with Planning
• Flexibility
• Accuracy
• Timeliness
• Objectivity
• Thanks All
