Summary
Highlights
The typical control process involves establishing standards (setting performance criteria), measuring and reporting actual performance (monitoring for deviations), and taking action (correcting deviations by modifying plans, improving training, or adjusting leadership).
Controlling is the final function of management, ensuring that organizational members' work performance aligns with the organization's values and standards through monitoring, comparing, and correcting actions. It's crucial for managing resources and ensuring profitability.
Management control involves ensuring that the firm's operating cash flow is sufficient, efficient, and profitable. It extends beyond employee performance to all organizational resources, including finances and assets, to meet the ultimate goal of earning profit.
Control methods are techniques used to measure an organization's financial stability, efficiency, effectiveness, production, and employee morale. Managers must devise aligned and consistent control methods and systems to attain these concerns.
Quantitative methods utilize data and tools expressed in numbers for monitoring and controlling production output. Examples include charts (visualizing data like sales trends for quick analysis) and budgets (financial plans for meeting goals, used for planning and fund management).
An audit is a quantitative method that measures and evaluates the effectiveness of management controls. An independent person or group checks operations, programs, activities, and financial statements to ensure proper controls are implemented and resources are managed and recorded truthfully.
Non-quantitative methods refer to overall control of performance, not just specific processes. These include inspections, reports, direct supervision, 'on the spot' checking, performance evaluation, and counseling. These methods focus on observation and direct interaction rather than numerical data.
Other control methods include feed forward control (prevents problems before they occur), concurrent control (occurs while work activity is happening, e.g., GPS tracking), and feedback control (takes place after an activity to gather comments and suggestions for improvement).
Employee discipline is a control challenge for managers, ensuring tasks are carried out efficiently and effectively. Project management control ensures project activities are completed on time, within budget, and according to specifications, with project planning controlling objectives, resources, and timelines.
In accounting and finance, management control uses balance sheets, income statements, and cash flow statements to analyze financial soundness and viability through financial ratios. In marketing, it uses projected sales, statistical models, and historical data to promote buying or selling products/services, vital for business survival (sales being the lifeblood).
Various financial ratios are used to determine a company's stability and performance. Key ratios include liquidity ratio (ability to meet short-term obligations), leverage ratio (financing from borrowed money vs. owner investment), and activity ratio (efficiency of inventory use).
Profitability ratio determines generated profits, distinguishing profit from sales by deducting expenses. Return on investment measures asset efficiency in generating profits. Asset management, through inventory turnover (sales divided by average inventory), aims to use resources efficiently and operate at minimum cost.
Strategic control involves systematic monitoring of long-term directions and goals, comparing intended goals with actual performance to make necessary modifications. Benchmarking is an approach of measuring a company's services and practices against industry leaders to identify areas for improvement and achieve competitive superiority.