The 4th Management Function: CONTROLLING

Managing for productivity and results

You as a manager

…

Competitive advantage

Diversity

Globalization

Information technology

Ethical standards

Your happiness &

goals

Planning

Organizing

Leading

Controlling

… to achieve

productivity and

realize results

…must operate in

a complex environment

and…

…make decision about

the 4 management functions

What is productivity?• Productivity can be applied at any level, whether for

you as an individual, for work unit you’re managing, or for organization you work for

• It is defined by the formula of outputs divided by inputs for a specified period of time. ▫ Outputs are all the goods and services produced. ▫ Inputs are not only labor but also capital, materials, and

energy productivity = outputs/ inputs = goods+services/ labor+capital+materials+energy

Why increasing productivity is important?•Productivity is important to companies

because ultimately it determines whether the organization will make profit or even survive

• These functions (below) affect one another and it turn affect in Org’s productivity

Planning: set goals & decide how to achieve

them

Organizing: arrange tasks,

people, and other

resources to accomplish

the work

Leading: motivate people to work hard to achieve Org’s goals

Controlling: monitor

performance, compare it with goals, and take corrective action as needed

For productivity

What is Controlling?

•A process of monitoring performance, comparing with goals, and correcting work performance as needed to make sure performance meets objectives

Why control is needed?

•To adapt to change & uncertainty•To discover irregularities & errors•To reduce costs, increase productivity, or

add value•To detect opportunities•To deal with complexity•To decentralize decision making &

facilitate teamwork

Why control is needed?

•To adapt to change & uncertainty▫Consumer tastes change▫New competitor appear▫Technologies are reborn▫New materials are invented▫Government regulations are altered

Why control is needed?

•To discover irregularities & errors▫Cost overruns▫Manufacturing defects▫Employee turnover▫Bookkeeping errors▫Customer satisfaction

Why control is needed?

•To reduce costs, increase productivity, or add value▫Reduce labor costs▫Eliminate waste▫Increase output▫Increase product delivery cycle▫Add value to product

Why control is needed?

•To detect opportunities▫Hot-selling products▫Competitive prices on materials▫Changing population trends▫New overseas market

Why control is needed?

•To decentralize decision making & facilitate teamwork▫Allow top management to decentralize

decision making at lower levels within the organization

▫Encourage employees to work together in teams

Why control is needed?

•To deal with complexity▫Help managers, in larger organization,

coordinate well with various elements: several product lines material-purchasing policies customer bases workers from different cultures

Control Process

•It is a 3 steps processes of measuring actual performance, comparing actual performance against a standard, and taking managerial action to correct deviations or inadequate standards

•3 main steps for controlling process:1. Measuring2. Comparing 3. Taking Managerial Action

1. Measuring• Establish standard: “What is the desired outcome we want?”

▫ A control standard (or performance standard or standard) is the desired performance level for a given goal, for example, level of charitable contributions, number of students retained, number of financial performance, number of employee hiring, number of manufacturing defects, percentage increase in market share, percentage reduction in costs, number of customer complaints, and etc.

• Measure performance: “What is the actual performance?”▫ Example: number of products sold, units produced, cost per

item sold, new products create by research scientist, scholarly writing by a college professor, or opinions expressed in peer report

How we measure & report actual performance

Advantages (+) Drawbacks (-)

Personal Observations •Get firsthand knowledge•Information isn’t filtered•Intensive coverage of work activities

•Subject to personal biases•Time-consuming•Obtrusive (interfering)

Statistical Reports •Easy to visualize•Effective for showing relationships

•Provide limited information•Ignore subjective factors

Oral Report •Fast way to get information•Allow for verbal and nonverbal feedback

•Information is filtered•Information can’t be documented

Written Reports •Comprehensive (detailed)•Formal•Easy to file and retrieve

•Take more time to prepare

2. Comparing Performance to Standard• This step determines the variation between actual

performance and a standard

• How much deviation (difference) is acceptable? It depends on the range of variation built into the standards.

• Managers prefer to see performance exceeds the standards.

• The greater the difference between the desired and actual performance, the greater the need for action.

Acceptable Range of Variation

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Acceptable rage of variation

Acceptable Upper Limit

Acceptable Lower Limit

3. Taking managerial action

•“What changes should we make to obtain desirable outcomes?”

•There are 3 possibilities:▫Make no changes▫Recognize and reinforce positive

performance▫Take action to correct negative

performance

3. Taking managerial action (con’t)•When performance meets or exceeds the

standards set, managers should give rewards, ranging from giving a verbal “Job well done” to more substantial payoffs such as raises, bonuses, and promotions to reinforce good behavior

3. Taking managerial action (con’t)• When performance falls significantly short of the

standard, managers should carefully examine the reason why and take the appropriate action.

▫ They may need to revise the standards as they were unrealistic or faced changing conditions.

▫ Or when the employees can’t perform tasks to achieve the standards, manager may need to take some actions according to the specific reason of low performance.

▫ Example: When a UPS driver fails to perform according to the standard set for him/her, a supervisor rides along and give suggestions for improvement. If drivers are unable to improve, they are warned, then suspended, and then dismissed.

Types of control

Future-oriented

Feedforward controls

Present-oriented

Concurrent controls

Past-oriented

Feedback controls

Before the work is done: Anticipates problems

While the work is going on: Corrects problems as they occur

After the work is done: Corrects problems after they occur

Feedback

Types of control (con’t)• Feedforward—control the future: before the work begins

▫ It takes place before operations begin and is intended to prevent anticipate problems

▫ The purpose is to keep problems from happening so that manager won’t have to fix them afterward

• Concurrent—control for the present: while the work is in progress▫ It takes place while operations are going on and is intended to minimize

problems as they occur▫ The purpose is to correct problems before they become too difficult or

expensive by directing, monitoring, and fine-tuning activities• Feedback—control for the past: after the work is done

▫ It takes place after operations are finished and is intended to correct the problems that have already occurred

▫ The drawback is the damage has already been done, however, the benefit is feedback shows how well the planning process worked and tell employees how well they performed, thereby contributing to employee motivation

Levels of Control1. Strategic control by top managers

▫ It is monitoring performance to ensure that strategic plans are being implemented and taking corrective action as needed

2. Tactical control by middle managers▫ It is monitoring performance to ensure that tactical plans—

those at the divisional or departmental level—are being implemented and taking corrective action as needed

3. Operational control by first-level managers▫ It is monitoring performance to ensure that operational

plans—day to day goals—are being implemented and taking corrective action as needed

Areas of control• Physical control: buildings, equipments, and tangible

products▫ Example: the use of computers, cars, and other

machinery.▫ There are inventory-management controls to keep

track of how many products are in stock, how many will be needed, and what their delivery dates are from suppliers

▫ There are quality controls to make sure that products are being built according to certain acceptable standards

• Human control• Informational control• Financial control

Areas of control (con’t)• Physical control: buildings, equipments, and

tangible products• Human control: controls used to monitor

employees ▫Example: personality tests and drug testing for

hiring, performance tests during training, performance evaluations to measure work productivity, and employee surveys to assess job satisfaction and leadership

• Informational control• Financial control

Areas of control (con’t)• Physical control: buildings, equipments, and

tangible products• Human control: controls used to monitor

employees • Informational control

▫Example: production schedules, sales forecasts, environmental impact statement, analyzes of competitions

• Financial control

Areas of control (con’t)• Physical control: buildings, equipments, and

tangible products• Human control: controls used to monitor employees • Informational control• Financial control

▫ Example: Are bills being paid on time? How much money is owed by customers? Is there enough cash on hand to meet payroll obligations? What are the debt-repayment schedules? What is the advertising budget?

▫ Financial controls are very important because they can affect the other 3 types of resources

Balanced Scorecard Approach • The balanced scorecard approach to evaluate

organizational performance beyond just a financial perspective.

• Managers should develop goals in each of 4 areas and then measure whether the goals are being met.

Balanced Scorecard Perspectives• The Learning & Growth Perspective:

Includes employee training, learning and corporate cultural attitudes related to both individual and corporate self-improvement.

• The Business Process (Internal) Perspective:Includes how well their business is running, and whether its products and services conform to customer requirements (the mission).

• The Customer Perspective:Includes customers satisfaction, how to fulfill their needs in order to prevent future decline

• The Financial Perspective:Include all financial controls, timely and accurate funding data will always be a priority for organizations

Importance of Control

•It helps managers know whether organizational goals are being met and if they’re not being met, the reason why

•Maintaining productivity depends on control as control is to make something happen the way it was planned to happen