Controlling [Revised – 05-04-2012] – Compiled by J.

Langat

06 The Control Function

“If everything’s under control, you’re going too slow.”
– Mario Andretti (Italian born American Race driver. b.1940)

Organizational Control
Simply put, organizational control is the process of assigning, evaluating, and regulating resources on an
ongoing basis to accomplish an organization’s goals. To successfully control an organization, managers
need to not only know what the performance standards are, but also figure out how to share that
information with employees. Controlling is directly related to planning. The controlling process ensures
that plans are being implemented properly. In the functions of management cycle – planning, organizing,
directing, and controlling – planning moves forward into all the other functions, and controlling reaches
back. Controlling is the final link in the functional chain of management activities and brings the
functions of management cycle full circle.

Robert J. Mockler (1970) presented a comprehensive definition of managerial control, “Management

control can be defined as a systematic effort by business management to compare performance to
predetermined standards, plans, or objectives in order to determine whether performance is in line with
these standards and presumably in order to take any remedial action required to see that human and
other corporate resources are being used in the most effective and efficient way possible in achieving
corporate objectives.” 1 Control can be defined narrowly as the process a manager takes to assure that
actual performance conforms to the organization’s plan, or more broadly as anything that regulates the
process or activity of an organization. It is the process through which standards for performance of people
and processes are set, communicated, and applied. Effective control systems use mechanisms to monitor
activities and take corrective action, if necessary. The supervisor observes what happens and compares
that with what was supposed to happen. He or she must correct below-standard conditions and bring
results up to expectations. Effective control systems allow supervisors to know how well implementation
is going. Control facilitates delegating activities to employees. Since supervisors are ultimately held
accountable for their employees’ performance, timely feedback on employee activity is necessary. The
following content follows the general interpretation by defining managerial control as monitoring
performance against a plan and then making adjustments either in the plan or in operations as necessary.

Figure 1: Controlling

1
Robert J. Mockler(1970). Readings in Management Control. New York: Appleton-Century-Crofts. pp. 14–17.
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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 behaviour 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.

Characteristics of the Control Process

• The control process is cyclical which means it is never finished. Controlling leads to
identification of new problems that in turn need to be addressed through establishment of
performance standards, measuring performance etc.
• Employees often view controlling negatively. By its very nature, controlling often leads to
management expecting employee behaviour to change. No matter how positive the changes may be
for the organization, employees may still view them negatively.
• Control is both anticipatory and retrospective. The process anticipates problems and takes
preventive action. With corrective action, the process also follows up on problems.
• Ideally, each person in the business views control as his or her responsibility. The organizational
culture should prevent a person walking away from a small, easily solvable problem because “that
isn’t my responsibility”. In customer driven businesses, each employee cares about each customer.
• Controlling is related to each of the other functions of management. Controlling builds on
planning, organizing and leading.

Importance of Control

Without effective control systems, an organization could deviate and veer off course. Viewing control as
a positive element in the organization, three major reasons why it is necessary have been identified.

1. Changing Circumstances

If managers could establish goals and achieve them instantaneously, control would not be needed. But
between the time when a goal is established and the time when it is reached, many things can happen in
the organization and its environments to disrupt movement toward the goal, or even change the goal itself.

A properly designed control system can help managers anticipate, monitor, and respond to changing
circumstances. In general, the longer the time horizon of organizational goals, the more important it is to
have adequate control.

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2. Compounding of Errors

Often, small mistakes and errors do not seriously damage the health of an organization. With the passage
of time, however, small errors may accumulate and become very serious. Control can help managers
catch errors before they compound (multiply).

3. Organizational Complexity

When a firm purchases only one raw material, produces only one product, has a simple structure, and
enjoys constant demand for its product, its manager can probably maintain control with a note pad and a
pencil. But in an organization that produces many products from a myriad raw materials, has a large
market area and a complicated organizational structure, and operates in a competitive environment, it is
difficult – if not impossible – to maintain adequate control without an elaborate control system.

The Organizational Control Process

Robert J. Mockler’s definition of control points out the essential elements of the control process. The
control process is a continuous flow between measuring, comparing and action. There are four steps in
the control process: establishing performance standards, measuring actual performance, comparing
measured performance against established standards, and taking corrective action.

1. Establish standards of performance

Within the organization’s overall strategic plan, managers define goals for organizational departments in
specific operational terms that include a standard of performance against which to compare
organizational activities.

In an industrial enterprise, standards and measurements could include sales and production targets, work-
attendance goals, waste products produced and recycled, and safety records.
In service industries, standards and measurements might include the amount of time customers will have
to wait in line at a bank, the amount of time they have to wait before the telephone is answered, or the
number of new clients attracted by a revamped advertising campaign. Managers should carefully assess
what they will measure and how they will define it when the organization will reward employees for the
achievement of standards, these standards should reflect those activities that contribute to the
organization’s overall strategy in a significant way.

Standards should be defined precisely for managers and workers since:

a. Vaguely worded targets are just empty slogans until managers begin to specify what they mean and
what they intend to do to reach these goals – and when.
b. Precisely worded targets enable managers and workers to easily determine whether activities are on
target.
c. Precisely worded, measurable objectives are easy to communicate. This ease of communicating is
especially important for control since different people usually fulfil the planning and control roles.

2. Measure actual performance

Like all aspects of control, measurement is an ongoing repetitive process. The frequency of
measurements depends on the type of activity being measured.

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In a manufacturing plant, levels of gas particles in the air, for example, could be continuously monitored
for safety, whereas progress on long-term expansion objectives might need to be reviewed by top
management only once or twice a year.

Most organizations prepare formal reports of quantitative performance measurements that managers
review daily, weekly, or monthly. 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. If the organization has identified appropriate measurements, regular review of these reports
helps managers stay aware of whether the organization is doing what it should be.

In most companies, managers do not rely exclusively on quantitative measures. They get out into the
organization to see how things are going, especially for such goals as increasing employee participation
and learning.

3. Compare performance to standards

The next step in the control process is comparing actual activities to performance standards. When
managers read reports or walk through the plant, they identify whether actual performance meets,
exceeds, or falls short of standards.

Performance reports simplify comparisons 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. If performance matches the standards,
managers may assume that everything is under control.
When performance deviates from a standard, managers must interpret the deviation. They are expected to
dig beneath the surface and find the cause of the problem.

If the sales goal is to increase the number of sales calls by 10 percent and a salesperson achieved an
increase of 8 percent, where did she fail to achieve her goal? Perhaps several businesses on her route
closed, additional salespeople were assigned to her area by competitors, or she needs training in making
sales calls more effectively.

Managers should take an inquiring approach to deviations in order to gain a broad understanding of
factors that influenced performance. Effective management control involves subjective judgment and
employee discussions as well as objective analysis of performance data.

Figure 2: The Control Process

4. Take corrective action

This step is necessary if performance falls short of standards and the analysis indicates action is required.

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When performance deviates from standards, managers must determine what changes, if any, are
necessary. The corrective action could involve a change in one or more activities of the organization’s
operations. Or, it could involve a change in the original standards rather than a change in activity.

Managers may encourage employees to work harder, redesign the production process, or fire employees.
In contrast, managers using a participative control approach collaborate with employees to determine the
corrective action necessary.

In some cases, managers may take corrective action to change performance standards. They may realize
that standards are too high or too low if departments continually fail to meet or routinely exceed
standards. If contingency factors that influence organizational performance change, performance
standards may need to be altered to make them realistic and provide continued motivation for employees.

Managers may wish to provide positive reinforcement when performance meets or exceeds targets. They
may reward a department that has exceeded its planned goals or congratulate employees for a job well
done. Managers should not ignore high-performing departments at the expense of taking corrective
actions elsewhere.

An example of the control process is a thermostat:

Standard: The room thermostat is set at 20 degrees.
Measurement: The temperature is measured.
Corrective Action: If the room is too cold, the heat comes on. If the room is too hot, the heat
goes off.

Exhibit 1: Thermostat – example of a control process.

After making an evaluation of the discrepancy between the actual performance and the standard, the
manager has three courses of action: do nothing, solve the problem, or revise the standard.
1. Do Nothing If things are proceeding according to plan, no corrective action is required, but a
compliment about meeting standards might be in order.
2. Solve the Problem The big payoff from control concerns correcting deviations from standard
performance. Sometimes minor adjustments are sufficient to correct the problem. At other times
drastic action may be necessary.
3. Revise the Standard Revising the standard is necessary when it appears that the standard was
unrealistically difficult or easy.

Types of Organizational Controls

Control can focus on events before, during, or after a process. For example, a local automobile dealer can
focus on activities before, during, or after sales of new cars. Careful inspection of new cars and cautious
selection of sales employees are ways to ensure high quality or profitable sales even before those sales
take place. Monitoring how salespeople act with customers is a control during the sales task. Counting
the number of new cars sold during the month and telephoning buyers about their satisfaction with sales
transactions are controls after sales have occurred. These types of controls are formally called
feedforward, concurrent, and feedback, respectively.

• 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.
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• 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 behaviours. 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.

Organizational 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.

Financial controls

After the organization has strategies in place to reach its goals, funds are set aside for the necessary
resources and labour. 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. The 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 centres 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.

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

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costs or sales of catalogues. 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.

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.

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’ behaviours 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 performance appraisals, disciplinary programs, observations, and 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.

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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.
• Behavioural 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 technologies 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.