Controlling as a Management Function

Definition of Controlling

  • Controlling is the process of:

    • Managing financial resources

    • Monitoring operations

    • Ensuring effective use of funds

  • Focuses on:

    • Identifying priorities

    • Improving performance

    • Ensuring organizational success

Modern Concept of Controlling

  • Before: Mainly corrective

  • Now:

    • Preventive and forward-looking

    • Sets standards

    • Measures and evaluates performance

    • Improves decisions

Management Control

  • Ensures actions follow plans

  • Compares:

    • Planned performance vs Actual performance

  • Identifies deviations

  • Applies corrective actions

Importance of Controlling

  • Final (terminal) management function

  • Follows:

    • Planning

    • Organizing

    • Leading

  • Evaluates effectiveness of all functions

  • Closely linked to planning

Characteristics of Controlling

  1. End function

    • Happens after performance

  2. Pervasive

    • Applies at all levels of management

  3. Forward and backward-looking

    • Uses past data and prepares for future

  4. Dynamic

    • Continuous process requiring adjustments

  5. Related to planning

    • Planning and controlling depend on each other

Controlling Process

1. Establishing Performance Standards

  • Based on:

    • Organizational goals

    • Plans and objectives

  • Standards measure:

    • Time

    • Cost

    • Quality

    • Productivity

    • Behavior

Factors in setting standards:

  • Who is involved

  • What is monitored

  • What is to be achieved

  • Where monitoring occurs

  • When controls are applied

  • Available resources

2. Measuring Performance

  • Determine actual results

  • Uses tools and systems for accuracy

  • Ensures timely data collection

3. Comparing Performance with Standards

  • Compare:

    • Actual vs Expected performance

  • Difference = Deviation

Results:

  • Acceptable → no action

  • Unacceptable → corrective action needed

4. Taking Corrective Action

  • Fix deviations and improve performance

Depends on:

  • Standards set

  • Accuracy of measurements

  • Cause of deviation

Types:

  • Pre-planned actions

  • Automatic corrections

  • Adjustments beyond policies

Methods of Control

Quantitative Methods

  • Use numerical data and tools

Examples:

  • Charts

    • Visual comparison of performance over time

  • Budgets

    • Financial plan for achieving goals

    • Tool for planning and control

  • Audits

    • Independent evaluation of operations

    • Focus on finance and resource use

Budget (Key Concept)

  • A financial plan showing:

    • Income

    • Expenses

    • Resource allocation

Uses:

  • Guides planning decisions

  • Helps manage and control funds

Budget Systems:

  • Zero-Based Budgeting (ZBB)

  • Planning, Programming, and Budgeting System (PPBS)

Audits

  • Independent review of:

    • Financial records

    • Operations

  • Purpose:

    • Evaluate effectiveness

    • Ensure proper use of resources

Non-Quantitative Methods of Control

Definition

  • Non-quantitative methods focus on:

    • Overall performance control

    • Human behavior and processes

  • They do not rely mainly on numerical data

Common Tools

  • Inspections

  • Reports

  • Direct supervision

  • On-the-spot checking

  • Performance evaluation

  • Counseling

Other Control Methods

  • Feedforward control

  • Concurrent control

  • Feedback control

  • Employee discipline

  • Project management control

Types of Control

1. Feedforward Control

  • Prevents problems before they occur

  • Focus: future

Key Idea:

  • Proactive control

  • Detects problems early

Examples:

  • Preventive maintenance

  • Investment due diligence

2. Concurrent Control

  • Happens while activity is ongoing

  • Focus: present

Key Idea:

  • Real-time monitoring

  • Adjusts work while it is happening

Examples:

  • Direct supervision

  • Management by walking around

  • Adjusting processes during production

3. Feedback Control

  • Happens after activity is completed

  • Focus: past performance

Key Idea:

  • Reactive control

  • Used to improve future performance

Disadvantage:

  • Problems already occurred before correction

Advantage:

  • Shows gap between actual and planned performance

Examples:

  • Customer satisfaction surveys

  • Financial performance reports

Comparison of Control Types

  • Feedforward:

    • Most preventive

    • Best for avoiding problems

  • Concurrent:

    • Corrects problems in real time

  • Feedback:

    • Evaluates completed performance

    • Helps improve future planning

Budget and Financial Control

Definition of Budget

  • A financial plan that shows:

    • Income

    • Expenses

    • Resource allocation

  • Helps plan and control organizational activities

Role of Budget in Planning

  • Helps determine feasibility of projects

  • Guides financial decisions

  • Supports resource allocation

  • Helps assess risk vs return

Example Idea:

  • Large projects require budget approval before financing decisions (debt or equity)

Role of Budget in Controlling

  • Monitors spending and performance

  • Ensures expenses follow the plan

  • Helps identify and correct deviations

  • Ensures efficiency in operations

How to Plan a Budget That Works (3 Steps)

1. Base on Reality

  • List income and expenses (at least past 3 months)

  • Include irregular expenses (quarterly, bonuses, etc.)

  • Be honest and accurate

2. Choose a Budget Plan

Common Methods:

  • 50/30/20 Rule:

    • 50% needs

    • 30% wants

    • 20% savings/debt repayment

  • Fixed and Variable Budget:

    • Fixed: rent, insurance

    • Variable: food, entertainment

  • Bare Bones Budget:

    • Focus only on survival needs

    • Best for irregular income earners

3. Track Your Budget

  • Choose a tracking method:

    • Mobile apps

    • Spreadsheets

    • Notebook system

  • Consistency is important