CONTROLLING ORGANIZATION

Definition of such can be summarized through these words:

 COMMUNICATION – to control means to communicate. The management of any

organization will always have plans with long, medium or long term objectives for
the months and years ahead. To anticipate problems while on the process,
communication must be secured with clarity.

 MOTIVATION – (e.g.) Quality control circles (QCC) – the objective of QCC is to

increase productivity and quality output. The circle forwards its recommendations
to management, which in turn, makes decision on its adoption.

 GOAL-ORIENTED – controlling must be goal-oriented because this means to

achieve organizational objectives – and will only be attained by exercising
effective control over activities.

 BUREAUCRACY- form of organization based on logic, order, and the legitimate

use of formal authority, meant to be orderly, fair, and highly efficient. Their
features include a clear‐cut division of labor, strict hierarchy of authority, formal
rules and procedures, and promotion based on competency. ** To control means
to set standards when achieving goals

 CONTROLLING FUNCTION COMPARES ACTUAL PERFORMANCE WITH

PREDETERMINED STANDARDS, ATTEMPTS TO TAKE CORRECTIVE
MEASURES.

 IT HELPS FORMULATION OF FUTURE PLANS. THUS, HELPS IN BRINGING

MANAGEMENT CYCLE BACK TO PLANNING.

STRUCTURE OF ORGANIZATIONS

 mechanistic structure - sometimes used synonymously with bureaucratic

structure, is a management system based on a formal framework of authority that
is carefully outlined and precisely followed. An organization that uses a
mechanistic structure is likely to have the following characteristics:
  Clearly specified tasks
 Precise definitions of the rights and obligations of members
 Clearly defined line and staff positions with formal relationships between the two
 Tendency toward formal communication throughout the organizational structure

 organic structure is a management system founded on cooperation and

knowledge‐based authority. It is much less formal than a mechanistic
organization, and much more flexible. Organic structures are characterized by

 Roles that are not highly defined.

 Tasks that are continually redefined.
 Little reliance on formal authority.
 Decentralized control.
 Fast decision making.
 Informal patterns of both delegation and communication.

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEM

The management of any organization must develop a control system tailored to its
organization's goals and resources. Effective control systems share several common
characteristics. These characteristics are as follows:

 A focus on critical points.

- For example, controls are applied where failure cannot be tolerated or
where costs cannot exceed a certain amount. The critical points include all
the areas of an organization's operations that directly affect the success of
its key operations.

 Integration into established processes.

- Controls must function harmoniously within these processes and should
not bottleneck operations.

 Acceptance by employees.
- Employee involvement in the design of controls can increase acceptance.

 Availability of information when needed.

- Deadlines, time needed to complete the project, costs associated with the
project, and priority needs are apparent in these criteria. Costs are
frequently attributed to time shortcomings or failures.
 Economic feasibility.
- Effective control systems answer questions such as, “How much does it
cost?” “What will it save?” or “What are the returns on the investment?” In
short, comparison of the costs to the benefits ensures that the benefits of
controls outweigh the costs.

 Accuracy.
- Effective control systems provide factual information that's useful, reliable,
valid, and consistent.

 Comprehensibility.
- Controls must be simple and easy to understand.

THE ORGANIZATIONAL CONTROL PROCESS

- involves carefully collecting information about a system, process, person,

or group of people in order to make necessary decisions about each.

FOUR STEPS OF CONTROLLING SYSTEMS

 Establish standards to measure performance.

- Within an organization's overall strategic plan, managers define goals for
organizational departments in specific, operational terms that include
standards of performance to compare with organizational activities.

 Measure actual performance.

- Most organizations prepare formal reports of performance measurements
that managers review regularly. These measurements should be related to
the standards set in the first step of the control process. For example, if
sales growth is a target, the organization should have a means of
gathering and reporting sales data.

 Compare performance with the standards.

- This step compares actual activities to performance standards. When
managers read computer reports or walk through their plants, they identify
whether actual performance meets, exceeds, or falls short of standards.
Typically, performance reports simplify such comparison by placing the
performance standards for the reporting period alongside the actual
performance for the same period and by computing the variance—that is,
the difference between each actual amount and the associated standard.
  Take corrective actions.
- When performance deviates from standards, managers must determine
what changes, if any, are necessary and how to apply them. In the
productivity and quality‐centered environment, workers and managers are
often empowered to evaluate their own work. After the evaluator
determines the cause or causes of deviation, he or she can take the fourth
step—corrective action. The most effective course may be prescribed by
policies or may be best left up to employees' judgment and initiative.

These steps must be repeated periodically until the organizational goal is achieved.

TYPES OF CONTROL

 Feedforward controls
- sometimes called preliminary or preventive controls, attempt to identify
and prevent deviations in the standards before they occur. Feedforward
controls focus on human, material, and financial resources within the
organization. These controls are evident in the selection and hiring of new
employees. For example, organizations attempt to improve the likelihood
that employees will perform up to standards by identifying the necessary
job skills and by using tests and other screening devices to hire people
with those skills.

 Concurrent controls
- monitor ongoing employee activity to ensure consistency with quality
standards. These controls rely on performance standards, rules, and
regulations for guiding employee tasks and behaviors. Their purpose is to
ensure that work activities produce the desired results. As an example,
many manufacturing operations include devices that measure whether the
items being produced meet quality standards. Employees monitor the
measurements; if they see that standards are not being met in some area,
they make a correction themselves or let a manager know that a problem
is occurring.
 Feedback controls
- involve reviewing information to determine whether performance meets
established standards. For example, suppose that an organization
establishes a goal of increasing its profit by 12 percent next year. To
ensure that this goal is reached, the organization must monitor its profit on
 a monthly basis. After three months, if profit has increased by 3 percent,
management might assume that plans are going according to schedule.

THE CONTROL CYCLE

Many firms control for quality through a four-step cycle that involves all levels of
management and all employees.

 First step, top managers set standards, or criteria for measuring the performance of
the organization as a whole.

 Second step of the control cycle, managers assess performance, using both
quantitative (specific, numerical) and qualitative (subjective) performance measures.

 Third step, managers compare performance with the established standards and
search for the cause of any discrepancies.

 If the performance falls short of standards, the fourth step is to take corrective action,
which may be done by either adjusting performance or reevaluating the standards.

 If performance meets or exceeds standards, no corrective action is taken.

COMPONENT OF ORGANIZATIONAL CONTROL SYSTEM

Organizational control systems consists of the following:
1. Strategic plan

- A strategic plan provides the basic control mechanism for the

organization. When there are indications that activities do not facilitate the
accomplishment of strategic goals, these activities are either set aside,
modified or expanded. These corrective measures are made possible with
the adoption of strategic plans.

2. The long-range financial plan

- The planning horizon differs from company to company. Most firms will be
satisfied with one year. Engineering firms, will require longer term financial
plans. This is because of the long head times needed for capital projects.

3. The operating budget

- An operating budget indicates the expenditures, revenues, or profits
planned for some future period regarding operations.
 4. Performance appraisals

- Performance appraisals measures employee performance. Performance

appraisals also function as effective checks on new policies and
programs.

5. Statistical reports

- Statistical Reports pertain to those that contain data on various

developments within the firm.

6. Policies and procedures

- Policies refer to the “ the framework within which the objectives

must be pursued”. A procedures is a “ plan that describes the exact
series of actions to be taken in a given situations”.

STRATEGIC CONTROL SYSTEM

To be able to assure the accomplishment of the strategic objectives of the company,

strategic control systems become necessary. These systems consists of the following :

1. Financial analysis
- The success of most organizations depend heavily on its financial
performance. It is just fitting that certain measurements of financial
performance be made so that whatever deviations from standards are
found out, corrective actions may be introduced.

2. Financial ratio analysis

- Financial ratio analysis is a more elaborate approach used in controlling
activities. Under this method, one account appearing in the financial
statement is paired with another to constitute a ratio. The result will be
compared with a required norm which is usually related to what other
companies in the industry have achieved, or what the company has
achieved in the past
 CONTROL TECHNIQUES

Control techniques - provide managers with the type and amount of information they
need to measure and monitor performance. The information from various controls must
be tailored to a specific management level, department, unit, or operation.

To ensure complete and consistent information, organizations often use standardized

documents such as financial, status, and project reports. Each area within an
organization, however, uses its own specific control techniques, described in the
following sections.

After the organization has strategies in place to reach its goals, funds are set aside for
the necessary resources and labor. As money is spent, statements are updated to
reflect how much was spent, how it was spent, and what it obtained. Managers use
these financial statements, such as an income statement or balance sheet, to monitor
the progress of programs and plans.

 Financial statements provide management with information to monitor financial

resources and activities.

 Income statement shows the results of the organization's operations over a

period of time, such as revenues, expenses, and profit or loss. The balance
sheet shows what the organization is worth (assets) at a single point in time, and
the extent to which those assets were financed through debt (liabilities) or
owner's investment (equity).
 Financial audits, or formal investigations, are regularly conducted to ensure that
financial management practices follow generally accepted procedures, policies,
laws, and ethical guidelines. Audits may be conducted internally or externally.

 Financial ratio analysis examines the relationship between specific figures on

the financial statements and helps explain the significance of those figures:

 Liquidity ratios measure an organization's ability to generate cash.

 Profitability ratios measure an organization's ability to generate profits.

 Debt ratios measure an organization's ability to pay its debts.

 Activity ratios measure an organization's efficiency in operations and use of

assets.
In addition, financial responsibility centers require managers to account for a unit's
progress toward financial goals within the scope of their influences. A manager's goals
and responsibilities may focus on unit profits, costs, revenues, or investments.

1. Budget controls

A budget - depicts how much an organization expects to spend (expenses) and earn
(revenues) over a time period. Amounts are categorized according to the type of
business activity or account, such as telephone costs or sales of catalogs. Budgets not
only help managers plan their finances, but also help them keep track of their
overall spending.

A budget, in reality, is both a planning tool and a control mechanism. Budget

development processes vary among organizations according to who does the budgeting
and how the financial resources are allocated. Some budget development methods are
as follows:

 Top‐down budgeting. Managers prepare the budget and send it to

subordinates.

 Bottom‐up budgeting. Figures come from the lower levels and are adjusted and
coordinated as they move up the hierarchy.

 Zero‐based budgeting. Managers develop each new budget by justifying the

projected allocation against its contribution to departmental or organizational
goals.

 Flexible budgeting. Any budget exercise can incorporate flexible budgets, which
set “meet or beat” standards that can be compared to expenditures.

2. Marketing controls

Marketing controls - help monitor progress toward goals for customer satisfaction with
products and services, prices, and delivery. The following are examples of controls used
to evaluate an organization's marketing functions:

 Market research gathers data to assess customer needs—information critical to

an organization's success. Ongoing market research reflects how well an
organization is meeting customers' expectations and helps anticipate customer
needs. It also helps identify competitors.
  Test marketing is small‐scale product marketing to assess customer
acceptance. Using surveys and focus groups, test marketing goes beyond
identifying general requirements and looks at what (or who) actually influences
buying decisions.

 Marketing statistics measure performance by compiling data and analyzing

results. In most cases, competency with a computer spreadsheet program is all a
manager needs. Managers look at marketing ratios, which measure profitability,
activity, and market shares, as well as sales quotas, which measure progress
toward sales goals and assist with inventory controls.

Unfortunately, scheduling a regular evaluation of an organization's marketing program is

easier to recommend than to execute. Usually, only a crisis, such as increased
competition or a sales drop, forces a company to take a closer look at its marketing
program. However, more regular evaluations help minimize the number of marketing
problems.

3. Human resource controls

Human resource controls - help managers regulate the quality of newly hired personnel,
as well as monitor current employees' developments and daily performances.

 On a daily basis, managers can go a long way in helping to control workers'

behaviors in organizations.
 They can help direct workers' performances toward goals by making sure that
goals are clearly set and understood.
 Managers can also institute policies and procedures to help guide workers'
actions. Finally, they can consider past experiences when developing future
strategies, objectives, policies, and procedures.

Common control types include:

1. performance appraisals
2. disciplinary programs
3. observations
4. training and development assessments.
Because the quality of a firm's personnel, to a large degree, determines the firm's
overall effectiveness, controlling this area is very crucial.

4. Computers and information controls

Almost all organizations have confidential and sensitive information that they don't want
to become general knowledge. Controlling access to computer databases is the key to
this area.

Increasingly, computers are being used to collect and store information for control
purposes. Many organizations privately monitor each employee's computer usage to
measure employee performance, among other things. Some people question the
appropriateness of computer monitoring. Managers must carefully weigh the benefits
against the costs—both human and financial—before investing in and implementing
computerized control techniques.

Although computers and information systems provide enormous benefits, such as

improved productivity and information management, organizations should
remember the following limitations of the use of information technology:

 Performance limitations. Although management information systems have the

potential to increase overall performance, replacing long‐time organizational
employees with information systems technology may result in the loss of expert
knowledge that these individuals hold. Additionally, computerized information
systems are expensive and difficult to develop. After the system has been
purchased, coordinating it—possibly with existing equipment—may be more
difficult than expected. Consequently, a company may cut corners or install the
system carelessly to the detriment of the system's performance and utility. And
like other sophisticated electronic equipment, information systems do not work all
the time, resulting in costly downtime.

 Behavioral limitations. Information technology allows managers to access more

information than ever before. But too much information can overwhelm
employees, cause stress, and even slow decision making. Thus, managing the
quality and amount of information available to avoid information overload is
important.
  Health risks. Potentially serious health‐related issues associated with the use of
computers and other information technology have been raised in recent years.
An example is carpal tunnel syndrome, a painful disorder in the hands and wrists
caused by repetitive movements (such as those made on a keyboard).

Regardless of the control processes used, an effective system determines whether

employees and various parts of an organization are on target in achieving
organizational objectives.

The six major purposes of controls are as follows:

 Controls make plans effective. Managers need to measure progress, offer

feedback, and direct their teams if they want to succeed.

 Controls make sure that organizational activities are consistent.

Policies and procedures help ensure that efforts are integrated.

 Controls make organizations effective. Organizations need controls in place if

they want to achieve and accomplish their objectives.

 Controls make organizations efficient. Efficiency probably depends more on

controls than any other management function.

 Controls provide feedback on project status. Not only do they measure

progress, but controls also provide feedback to participants as well. Feedback
influences behavior and is an essential ingredient in the control process.

 Controls aid in decision making. The ultimate purpose of controls is to help

managers make better decisions. Controls make managers aware of problems
and give them information that is necessary for decision making.

SOURCES:

Bal, J., & Foster, P. (2000). Managing the virtual team and controlling
effectiveness. International Journal of Production Research, 38(17), 4019-4032.

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