CHAPTER SEVEN

CONTROLLING

7.1. Meaning of control

• Controlling is the process of ensuring that

actual activities conform to planned

activities.

• “Controlling means the process of

gathering and ‘feeding back’ information

about performance so that decision makers

can compare actual results and decide what

to do about any apparent discrepancies or

problems”.

… cont’d • Controlling is the measurement and

correction of performance in order to make

sure that enterprise objective and plans are

accomplished.

From that point, control consists of a series

of steps intended to help ensure that actual

performance conforms to expected

performance

7.2. Control process

• One can notice that the forth definition givenabove divides the controlling function intofour steps:

1) establishing performance standards,

2) measuring actual performance,

3) comparing actual performance toestablished standards and

4) taking corrective action, if necessary.

7.3. Types of control

1. FEED FORWARD CONTROL - is apreliminary control that takes placebefore operations begin and includesthe development of policies,procedures and rules that are designedto ensure that planned activities will becarried out properly. It is a futuredirected control method.

2. CONCURRENT CONTROL- is the heartof any operating control system.Concurrent control takes place during theaction phase of carrying out the plans andincludes direction, monitoring andadjusting the activities as they occur

3. FEEDBACK CONTROL - measures outputs of a process and feed into the system or inputs for corrective action to obtain desired outputs.

- Managers measure actual performance,compare the measurement with actualstandards, and identify and analyze deviations.

- They develop a progress for corrective actionand implement it to achieve the desiredperformance.

7.4 Techniques of control

• The methods and systems can take many forms and can be intended for various forms: budgetary methods, non budgetary control devices and modern methods.

a) Budgetary Methods:

b) Non Budgetary Control Methods:

c) Modern Methods of Control

a) Budgetary Methods:

budgets are formal quantitative statements of the resources set aside for carrying out planned activities over given periods of time.

• Operating Budgets

The most common types of operating budgets are

- the expense,

- revenue and

- profit budgets.

• Variable Budget: are cost schedules that show how each cost should vary as the level of output varies.

They are used where operations are repetitive, where there are a large number of different expenses and where these expenses can be accurately estimated.

Three types of costs are considered when developing variable budgets: Fixed, Variable, and semi-variable costs.

• Zero Base Budgeting: The enterprise’sprograms are divided into packages composedof goals and activities and then costs arecalculated from the base.

By starting the budget of each package frombase zero, costs are calculated afresh for eachbudget period, without referring the changesfrom the previous period.

b) Non Budgetary Control Methods:

• Statistical Data: Statistical analysis with wider application of tools and techniques, and the clear presentation of statistical data, whether of a historical or a forecast nature, are important to control.

• Special Reports and Analysis: For control purposes, special reports and analyses help in particular problem areas.

• Auditing: Auditing validates the honesty andfairness of financial statements to provide a criticalbasis for management decisions.

It is a process of appraisal.

External audit is largely a verification processinvolving the independent appraisal of theorganization’s financial accounts and statements.The audit is conducted by accounting personnelemployed by an outside firm or by charteredaccountants.

Internal audit or operational auditing is carried outby members of the organization

• Personal Observation: Managers have the risk of seeing that enterprise’s objectives are accomplished by people and go to the area of activities and taking notice of what is being done. This is nothing but “Management by Walking Around”.

c) Modern Methods of Control

• Program Evaluation and Review Technique (PERT):

• Management Information system

• Computers:

Effective control system

• Focus on critical points

• Integration

• Acceptability

• Timeliness

• Economic Feasibility

• Accuracy

• Comprehensibility

• Tailoring controls to plans and positions

• Tailoring controls to individual managers

Thank you !!!