CHAPTER 18

INTRODUCTION TO CONTROLLING

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BACTONG, CLEOFAS, EMPE, DE DIOS,
MATANGUIHAN, PILI, TALAMAYAN, ROMERO
LEARNING OBJECTIVES
After reading and studying this chapter, the reader should be able
to:

1. Explain the nature and importance of control

2. Describe the three steps in the control process

3. Explain how organizational performance is measured

4. Describe tools used to measure organizational performance

5. Discuss contemporary issues in control

PREPARED BY:
BACTONG, CLEOFAS, EMPE, DE DIOS,
MATANGUIHAN, PILI, TALAMAYAN, ROMERO
18.1 WHAT IS CONTROLLING AND WHY IS IT IMPORTANT?

CA. WHAT IS CONTROLLING

ontrolling is the final management function. It is the process of monitoring,

comparing and correcting work performance. Effective controlling ensures that
activities are accomplished in ways that leads to attainment of goals. Therefore, it
could be determined by how well they help their employees and managers achieve
their goals.
B. WHAT IS THE IMPORTANCE OF PLANNING
Planning can be done when an organizational structure is created to facilitate
efficient achievement of goals, and employees motivated through effective
leadership. But there’s no assurance that activities or projects are going as planned,
also the goals employees and managers are working on.
So this is why controlling is important because it’s the only way managers know
whether organizational goals are being attained.
The values of control function can be seen in these specific areas: planning,
employee empowerment, and protecting the workplace.
1. PLANNING
In Chapter 8, we discussed about goals, which provide specific directions to
employees and managers, as the foundation of planning. Stating goals or
having employees to accept goals is not enough because it doesn’t
guarantee that the necessary actions to accomplish those goals have
been taken. There’s an old saying that states, “The best-laid plans often go
awry.”
An effective manager follows up to ensure that what employees are supposed to
do is being done and goals are being achieved.
Controlling provides the critical link back to planning. IF managers didn’t
control, they have no way of knowing whether their goals and plans are being
achieved, and what future actions to provide.
2. EMPLOYEE EMPOWERMENT
Many managers are unwilling to empower their employees because they fear
something will go wrong for which they could be held responsible. An effective
control system can provide information and feedback on employee
performance and minimize the chance of potential problems.

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 3. PROTECTING THE WORKPLACE
Today’s environment brings of heightened threats from natural disasters,
financial scandals, workplace violence, supply chain disruptions, security
breaches and even possible terrorist attacks. Managers must protect
organizational assets in any of these unnatural phenomenon.
Comprehensive controls and backup plans will help assure minimal work
disruptions.

PLANNING
GOALS
FIGURE 18-1 OBJECTIVES
STRATEGIES
PLANNING - PLANS
CONTROLLING LINK

CONTROLLI
NG ORGANIZIN
G
STANDARDS PLANNING -
CONTROLLI STRUCTURE
MEASUREMEN
TS NG LINK HUMAN
RESOURCE
COMPARISON
MANAGEMENT
ACTIONS

LEADING
MOTIVATION
LEADERSHIP
COMMUNICATI
ON
INDIVIDUAL
and GROUP
BEHAVIOR

18.2 THE CONTROL PROCESS

A. THE THREE-STEP CONTROL PROCESS

T
he high frequency and severity of the company’s injury rates not only affected
employee morale but also resulted in lost workdays and affected the bottom
line. In order to turn this situation around, rely on the control process.
The control process is a three-step process of measuring actual performance,
comparing actual performance against a standard, and taking managerial action to
correct deviations or to address inadequate standards. The control process assumes
that performance standards already exist, and they do. They’re specific goals created
during the planning process.

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 Step 1
Measuring
FIGURE 18-2 Actual
Performanc
e
THE CONTROL
PROCESS

GOALS AND
OBJECTIVES
Organizational
Divisional
Departmental
Step 2
Step 3 Individual
Comparing
Taking Actual
Managerial Performanc
Action e Against
Standard

STEP 1. MEASURING ACTUAL PERFORMANCE

To determine what actual performance is, a manager must first get information
about it. Thus, the first step in control is measuring.

FIGURE 18-3

SOURCES OF INFORMATION
FOR MEASURING
PERFORMANCE
Benefits Drawbacks
Personal o Get firsthand knowledge o Subject to personal biases
Observations o Information isn’t filtered o Time-consuming
o Intensive coverage of work activities o Obtrusive

Statistical o Easy to visualize o Provide limited information

Reports o Effective for showing relationships o Ignore subjective factors

Oral o Fast way to get information o Information is filtered

Reports o Allow for verbal and nonverbal feedback o Information can’t be documented

Written o Comprehensive o Take more time to prepare

Reports o Formal
o Easy to file and retrieve

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 There are four approaches used by managers to measure and report actual
performance: personal observations, statistical reports, oral reports, and
written reports. Most managers use a combination of these approaches.
STEP 2. COMPARING ACTUAL PERFORMANCE AGAINST THE STANDARD
The comparing step determines the variation between actual performance and
the standard. Although some variation in performance can be expected in all
activities, it’s critical to determine an acceptable range of variation. Deviations
outside this range need attention.
STEP 3. TAKING MANAGERIAL ACTION
Managers can choose among three possible courses of action: do nothing,
correct the actual performance, or revise the standards.
1. “Do nothing” is self-explanatory.
2. Correct Actual Performance. Depending on what the problem is, a manager
could take different corrective actions:
A. Immediate Corrective Action - corrects problems at once to get
performance back on track
B. Basic Corrective Action - looks at how and why performance deviated
before correcting the source of deviation
3. Revise the Standard. It’s possible that the variance was a result of an
unrealistic standard:
A. too low a goal - the standard needs the corrective action, not the
performance
B. too high a goal - a manager should look at whether the goal is too easy
and needs to be raised

18.3 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE

A. WHAT IS ORGANIZATIONAL PERFORMANCE

P
erformance is the end result of an activity. Organizational
performance is the accumulated results of all the organization’s work
activities.

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B. MEASURES OF ORGANIZATIONAL PERFORMANCE
All managers must know which measures will give them the information they need
about organizational performance. Commonly used ones include organizational
productivity, organizational effectiveness, and industry and company
rankings.
1. ORGANIZATIONAL PRODUCTIVITY
Productivity is the amount of goods or services produced divided by the inputs
needed to generate that output. Output is measured by the sales revenue an
organization receives when goods are sold (selling price X number sold). Input
is measured by the costs of acquiring and transforming resources into outputs.
2. ORGANIZATIONAL EFFECTIVENESS
Organizational effectiveness is a measure of how appropriate organizational
goals are and how well those goals are being met. It’s what guides managerial
decisions in designing strategies and work activities and in coordinating the
work of employees.
3. INDUSTRY AND COMPANY RANKINGS
Rankings are a popular way for managers to measure their organization’s
performance. It is determined by specific performance measures which differs
from each list. It also give managers (and others) an indicator of how well their
company performs in comparison to others.

18.4 TOOLS FOR MEASURING ORGANIZATIONAL PERFORMANCE

A. TYPES OF CONTROL TOOLS

W
hat kinds of tools could managers use for monitoring and measuring
performance? All managers need appropriate tools for monitoring and
measuring organizational performance. Before describing some
specific types of control tools, let’s look at the concept of feedforward,
concurrent, and feedback control.
1. FEEDFORWARD CONTROL
This is the most desirable type of control which prevents problems because it
takes place before the actual activity begins. The key to feedforward control is
taking managerial action before a problem occurs. This control requires timely
and accurate information that isn’t always easy to get. Thus, managers
frequently end up using the other two types of control.

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 2. CONCURRENT CONTROL
This type of control takes place while a work activity is in progress. If managers
see something that is not particularly well in terms of work, they fine-tune it. All
managers can benefit from using this control because they can correct
problems before they become too costly. The best-known form of concurrent
control is direct supervision. Direct Supervision, or Management by
Walking Around, is when a manager is in the work area interacting directly with
employees.
3. FEEDBACK CONTROL
The most popular type of control relies on feedback. In this type, the control
takes place after the activity is done. The damage had already occurred even
though the organization corrected the problem once it was discovered. And
that’s the major problem with this type of control. By the time the manager has
the information, the problems have already occurred leading to waste or
damage. However, feedback controls do have two advantages:
1. Feedbacks give managers meaningful information on how effective their
planning efforts were. Managers can use the information to formulate new plans
if ever a problem occurred.
2. Feedbacks can enhance motivation.
B. FINANCIAL CONTROLS
One of the purposes of establishing a business is earning a profit. To achieve this
goal, managers need financial controls. Managers might use financial measures
such as ratio analysis and budget analysis.
FIGURE 18-4
POPULAR FINANCIAL

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 LIQUIDITY

measures an organization’s ability to meet its

current debt obligations.
LEVERAGE
examines the organization’s use of debt to
finance its assets and whether it’s able to meet its
interest payments on the debt.

ACTIVITY assess how efficiently and effectively the company

is using its assets.

measures how efficiently and effectively the company

PROFITABILITY is using its assets to generate profit.

Budgets are planning and controlling tools. When a budget is formulated, it’s a
planning tool because it indicates which work activities are important and what and
how much resources should be allocated to those activities. It is also used for
controlling because they provide manager with quantitative standards against
which to measure and compare resources consumption.
C. BALANCED SCORECARDS
The balanced scorecard approach is a way to evaluate organizational
performances from more than just the financial perspective. It typically looks at four
areas that contribute to the company’s performance:
1. Financial
2. Customer
3. Internal processes
4. People/Innovation /Growth assets
Managers should develop goals in each areas and then measure if the goals are
being met. Although a balanced scorecard makes sense, managers will tend to
focus on areas that drive organization’s success and use scorecards that reflect
those strategies.
D. INFORMATION CONTROLS
Managers deal with information controls in two ways: as a tool to help them control
other organizational activities, and as an organizational area they need to control.
In measuring actual performance, managers need information about what is
happening within their area of responsibility and about the standards in order to be

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 able to compare actual performance with the standard. They also rely on information
to help them determine if deviations are acceptable. Information is important! Most
of the information tools that managers use come from the organization’s
management information system.
A management information system (MIS) is a system used to provide managers with
needed information on a regular basis. In theory, this system can be manual or
computer based. The term system in MIS implies order, arrangement and purpose.
MIS focuses on providing managers with information (processed and analyzed
data) not merely data (raw and unanalyzed facts). It collects data and turns them
into relevant information for managers to use.
Because information is critically important to everything an organization does,
managers must have comprehensive and secure controls in the place to protect that
information. Information controls should be monitored regularly to ensure all
possible precautions are in place to protect important information.
E. BENCHMARKING OF BEST PRACTICES
Benchmarking is the search for the best practices among competitors and non-
competitors that lead to their superior performance. It means learning from others.
Benchmarking should identify various benchmarks, which are the standards of
excellence against which to measure and compare. As a tool for monitoring and
measuring organizational performance, benchmarking could be used to identify
specific performance gaps and potential areas of improvements.

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MATANGUIHAN, PILI, TALAMAYAN, ROMERO
 Connect best
practices to
strategies and FIGURE 18-5
goals.
Identify best SUGGESTIONS FOR
practices INTERNAL
throughout the
BENCHMARKING
organization.
Develop best
practices
reward and
recognition
systems.
Communicate
best practices
throughout the
organization.
Create a best
practices
knowledge-
sharing system.

Nurture best
practices on an
ongoing basis.

18.5 CONTEMPORARY ISSUES IN CONTROL

CA. FOUR CONTROL ISSUES MANAGERS FACE

ontrol is an important managerial function. There are four control issues that
managers face: cross-cultural differences, workplace concerns, customer
interactions, and corporate governance.
1. ADJUSTING CONTROLS FOR CROSS-CULTURAL DIFFERENCES
Control techniques can be quite different for different countries. The differences
are primarily in the measurement and corrective action steps of the control
process.
Because distance creates a tendency to formalize control, global organizations
often rely on extensive formal reports for control, most of which are
communicating electronically. Managers in technologically advanced countries
uses indirect control devices such as computers and direct supervision while
managers in less advanced countries use more direct supervision and highly
centralized decision making for control.
Managers in foreign countries also need to be aware of constraints on corrective
actions they take.

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 Another challenge for global managers in collecting data for measurement and
comparison is comparability.
2. WORKPLACE CONCERNS
Managers need controls to ensure that work can be done efficiently and
effectively as planned.
In workplace privacy, managers monitor what their employees are doing
because that they want to ensure that they are working and not surfing the web
for non-work related site. They also don’t want to risk hostile workplace
environment and lastly, they ensure that the company’s secrets aren’t being
leaked.
Employee theft is any unauthorized taking of company property by employees
for their personal use. The concept of feedforward, concurrent, and feedback
control is useful for identifying measures to deter or reduce employee theft as
discussed on 18.4.
When it comes to workplace violence, managers should ensure that the
environment for employees is safe and that the relationship between co-workers
and the employer is good. What can managers do to reduce possible workplace
violence? Once again, the concept of feedforward, concurrent, and feedback
control can help identify actions that managers can take.
3. CONTROLLING CUSTOMER INTERACTIONS
Managers at Enterprise Rent-a-car understand the connection between
employees and customers and the importance of controlling these customer
interactions. A company that proclaims customer service as one of its goals, it
quickly and clearly becomes apparent whether that goal is being achieved by
seeing how satisfied customers are with their service. The concept of service
profit chain can help.
A service profit chain is the service sequence from employees to
customers to profit. The company’s strategy and service delivery system
influence how employees deal with customers; that is, how productive they are
in providing service and the quality of that service. The level of employee service
productivity and service quality influences customer perceptions of service
value. Customer loyalty improves organizational revenue growth and
profitability. Managers who want to control customer interactions should work to
a long-term and mutually beneficial relationships among the company,
employees, and customers. Loyalty and good service quality are the outcome of
this concept.
3. CORPORATE GOVERNANCE

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The system used to govern a corporation so that the interests of corporate
owners are protected.
The Role of Board of Directors. The original purpose was to have a group,
independent from management, looking out for the interests of shareholders
who were not involved in the day-to-day management of the organization. But
now, this type of “quid pro quo” arrangement has changed.
Financial Reporting and the Audit Committee. An addition to expanding the
role of board of directors. Managers are to certify their companies’ financial
results. It led to better information and transparency.

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 CHAPTER SUMMARY
by Learning Outcomes

18.1 EXPLAIN the nature and importance of control.

Controlling is the process of monitoring, comparing, and correcting work

performance. As the final step in the management process, controlling provides
the link back to planning. If managers didn’t control, they’d have no way of
knowing whether goals were being met.
Control is important because (1) it’s the only way to know if goals are being met,
and if not, why; (2) it provides information and feedback so managers feel
comfortable empowering employees; and (3) it helps protect an organization
and its assets.

18.2 DESCRIBE the three steps in the control process.

The three steps in the control process are measuring, comparing, and taking
action. Measuring involves deciding how to measure actual performance and
what to measure. Comparing involves looking at the variation between actual
performance and the standard (goal). Deviations outside an acceptable range of
variation need attention.
Taking action can involve doing nothing, correcting the actual performance, or
revising the standards. Doing nothing is self-explanatory. Correcting the actual
performance can involve different corrective actions, which can either be
immediate or basic. Standards can be revised by either raising or lowering them.

18.3 EXPLAIN how organizational performance is measured.

Organizational performance is the accumulated results of all the organization’s

work activities. Three frequently used organizational performance measures
include (1) productivity, which is the output of goods or services produced
divided by the inputs needed to generate that output; (2) effectiveness, which is
a measure of how appropriate organizational goals are and how well those
goals are being met; and (3) industry and company rankings compiled by
various business publications.

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18.4 DESCRIBE tools used to measure organizational
performance.

Feedforward controls take place before a work activity is done. Concurrent

controls take place while a work activity is being done. Feedback controls take
place after a work activity is done.
Financial controls that managers can use include financial ratios (liquidity,
leverage, activity, and profitability) and budgets. One information control
managers can use is an MIS, which provides managers with needed information
on a regular basis. Others include comprehensive and secure controls such as
data encryption, system firewalls, data backups, and so forth that protect the
organization’s information.
Balanced scorecards provide a way to evaluate an organization’s performance
in four different areas rather than just from the financial perspective.
Benchmarking provides control by finding the best practices among competitors
or non-competitors and from inside the organization itself.

18.5 DISCUSS contemporary issues in control.

Adjusting controls for cross-cultural differences may be needed primarily in the

areas of measuring and taking corrective actions.
Workplace concerns include workplace privacy, employee theft, and workplace
violence. For each of these issues, managers need to have policies in place to
control inappropriate actions and ensure that work is getting done efficiently and
effectively.
Control is important to customer interactions because employee service
productivity and service quality influences customer perceptions of service
value. Organizations want long-term and mutually beneficial relationships
among their employees and customers.
Corporate governance is the system used to govern a corporation so that the
interests of corporate owners are protected.

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 REVIEW AND DISCUSSION QUESTIONS
Assessment Exercises

I. TRUE OR FALSE
Write Z if the statement is true and Y if false.

1. Employee theft is any unauthorized taking of company property by employees

for company use.

2. Controlling is one way of the managers in knowing whether organizational

goals are being attained.

3. An athlete striving for the finish line in a close race and concert of an
orchestra can be both considered as performance.

4. One of the advantages of feedback control is enhancing one’s motivation.

5. Organizational performance can be measured by organizational

productivity, organizational efficiency, and industry and company
rankings.

6. There’s an old saying that states, “The best-laid plans often go successful.”

7. In corporate governance, two areas where reform has taken place are the
role of the board of directors and the financial reporting and the
accounting committee.

8. One decision that a manager must make is to take immediate corrective

action, which looks at how and why performance deviated before
correcting the source of deviation.

9. Planning provides link back to controlling.

10. The 4 areas that affect the company’s performance are: Financial,
Customer, Innovation assets, and Internal processes

11. The sequence of service is from employers to customers to profit.

12. The control process assumes that performance standards already exist,
but they don’t.

13. BusinessWeek and Forbes have the same measures for determining the rank
of various companies or organization.

14. Managers do not need financial control.

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15. Range of variations the acceptable parameters of variance between actual
performance and the standard.

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 II. MULTIPLE CHOICE
Underline the group of words containing the correct answer.
1. Type of control wherein the manager takes action even before problems occur.
a. Feedback Control
b. Concurrent Control
c. Feedforward Control
d. Financial Control
2. The value of control function can be seen in these specific areas:
a. Planning and Employee empowerment
b. Planning, Employee empowerment, and Organizing
c. Planning and protecting the workplace
d. Planning, Protecting the workplace, and Employee empowerment
3. The first step in control.
a. Comparing
b. Measuring
c. Observing
d. Reporting
4. The following describe what Organizational Effectiveness is, except for...
a. Measure of how well organizational goals are being met
b. Guides managerial decisions in designing strategies
c. Popular way of measuring the organization’s performance
d. Bottom line for managers
5. Controlling includes:
a. Standards, Measurements, Actions, and Leadership
b. Standards, Comparison, Employee empowerment, and Structure
c. Comparison, Actions, Standards, and Measurements
d. Standards, Measurements, Actions, Comparisons, and Strategies
6. What are the four control issues managers experience?
a. Cross-cultural differences, Workplace concerns, Customer interactions, and Corporate
governance.
b. Workplace privacy, Employee theft, Role of board of directors, and financial reporting and
the audit committee.
c. Cross-cultural differences, Corporate governance, Workplace privacy, and Employee theft
d. Workplace privacy, Workplace concerns, Customer interactions, and Employee theft
7. Taking managerial action includes:
a. Do something, correct actual performance, and revise the standard
b. Do nothing, correct actual performance, and revise the standard
c. Immediate corrective action and basic corrective action
d. Eventual corrective action and basic corrective action
8. Which of the following is the possible cause of workplace violence?
a. Rapid and predictable change
b. Unresolved grievances
c. Democratic leadership
d. All of the above

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9. Organizational Performance is the…
a. Amount of goods or services produced divided by the inputs needed to generate output.
b. End result of an activity
c. Measure of how appropriate organizational goals are
d. Accumulated results of all organizational work activities
10. The most popular type of control wherein the control takes place after the activity is
done.
a. Financial Control
b. Feedback Control
c. Concurrent Control
d. Information Control
11. Controlling is…
a. Arranging and structuring work to accomplish organizational goals.
b. Monitoring and evaluating work performance.
c. Setting goals, establishing strategies for achieving those goals and develop plans.
d. Motivating employees, resolving work group conflicts influencing individuals and dealing
with employee behavioral issues.
12. What are the reasons for managers to monitor what employees are doing?
a. They don’t want to risk being sued for creating a non-hostile workplace environment.
b. Managers want to ensure that company secrets aren’t being leaked.
c. Employees are hired to work and to surf the web for work-related sites
d. None of the above
13. One of the ratio analysis used by managers to know how efficiently a company is
using its assets.
a. Leverage
b. Activity
c. Profitability
d. Liquidity
14. One approach used by managers to measure and report actual performances,
which is easy to visualize
a. Personal Observations
b. Statistical Reports
c. Oral Reports
d. Written Reports

15. The financial ratio that measures an organization’s ability to meet its current debt
obligations.
a. Liquidity
b. Profitability
c. Leverage
d. Activity

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 REVIEW AND DISCUSSION ANSWERS
Assessment Exercises

I. TRUE OR FALSE
Write Z if the statement is true and Y if false.
1. Y 6. Y 11. Y
2. Y 7. Y 12. Y
3. Z 8. Z 13. Y
4. Z 9. Y 14. Y
5. Y 10. Z 15. Z

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 II. MULTIPLE CHOICE
Underline the group of words containing the correct answer.
1. Type of control wherein the manager takes action even before problems occur.
a. Feedback Control
b. Concurrent Control
c. Feedforward Control
d. Financial Control
2. The value of control function can be seen in these specific areas:
a. Planning and Employee empowerment
b. Planning, Employee empowerment, and Organizing
c. Planning and protecting the workplace
d. Planning, Protecting the workplace, and Employee empowerment
3. The first step in control.
a. Comparing
b. Measuring
c. Observing
d. Reporting
4. The following describe what Organizational Effectiveness is, except for...
a. Measure of how well organizational goals are being met
b. Guides managerial decisions in designing strategies
c. Popular way of measuring the organization’s performance
d. Bottom line for managers
5. Controlling includes:
a. Standards, Measurements, Actions, and Leadership
b. Standards, Comparison, Employee empowerment, and Structure
c. Comparison, Actions, Standards, and Measurements
d. Standards, Measurements, Actions, Comparisons, and Strategies
6. What are the four control issues managers experience?
a. Cross-cultural differences, Workplace concerns, Customer interactions, and Corporate
governance.
b. Workplace privacy, Employee theft, Role of board of directors, and financial reporting and
the audit committee.
c. Cross-cultural differences, Corporate governance, Workplace privacy, and Employee theft
d. Workplace privacy, Workplace concerns, Customer interactions, and Employee theft
7. Taking managerial action includes:
a. Do something, correct actual performance, and revise the standard
b. Do nothing, correct actual performance, and revise the standard
c. Immediate corrective action and basic corrective action
d. Eventual corrective action and basic corrective action

8. Which of the following is the possible cause of workplace violence?

a. Rapid and predictable change
b. Unresolved grievances
c. Democratic leadership
d. All of the above
9. Organizational Performance is the…
a. Amount of goods or services produced divided by the inputs needed to generate output.
b. End result of an activity
c. Measure of how appropriate organizational goals are
d. Accumulated results of all organizational work activities
10. The most popular type of control wherein the control takes place after the activity is
done.
a. Financial Control
b. Feedback Control
c. Concurrent Control
d. Information Control
11. Controlling is…
a. Arranging and structuring work to accomplish organizational goals.
b. Monitoring and evaluating work performance.
c. Setting goals, establishing strategies for achieving those goals and develop plans.
d. Motivating employees, resolving work group conflicts influencing individuals and dealing
with employee behavioral issues.
12. What are the reasons for managers to monitor what employees are doing?
a. They don’t want to risk being sued for creating a non-hostile workplace environment.
b. Managers want to ensure that company secrets aren’t being leaked.
c. Employees are hired to work and to surf the web for work-related sites
d. None of the above
13. One of the ratio analysis used by managers to know how efficiently a company is
using its assets.
a. Leverage
b. Activity
c. Profitability
d. Liquidity
14. One approach used by managers to measure and report actual performances,
which is easy to visualize
a. Personal Observations
b. Statistical Reports
c. Oral Reports
d. Written Reports

15. The financial ratio that measures an organization’s ability to meet its current debt
obligations.
a. Liquidity
b. Profitability
c. Leverage
d. Activity