Unit - 4
Directing and Controlling
Q1) What is Controlling?
A1) Ernest Dale in his book “Theory and Practice of Management” has stated that –
“The modern concept of managerial control envisages a system that not only provides a historical record of what has happened to the business as a whole but also pin points the reasons why it has happened and provides data that enable the chief executive or the departmental head to take corrective steps if he finds he is on the wrong track.”
Further, Koontz, O’Donnell and Weihrich have said- “Controlling as the measurement and correction of the performance of activities of sub-ordinates in order to make sure that enterprise objectives and the plans devised to attain them are being accomplished.”
Therefore, the managerial function of control implies measurement of actual performance comparing it with the standards set by plans and correction of deviations to ensure attainment of objectives according to plans.
Thus, control is an important function of management. It is an essential feature of scientific management. In fact, much of the precision of managerial education is focused on the improvement of control techniques. It is generally used for putting restrains over the elements being controlled. In managerial terminology, control is ensuring work accomplishment according to plans. It is a process that guides activity towards some predetermined goals.
Q2) Explain the process of controlling.
A2) Process
The top management initially must decide what elements of the environment and the organization need to be monitored, evaluated and controlled. The four key areas to be monitored and controlled are – the macro environment, mission and objectives, the industry environment and internal operations.
Step # 1. Key Areas to be Monitored:
I. Macro-Environment:
One of the key areas to be monitored is the macro-environment of the company. This area should be focused first. Normally individual companies cannot influence the environment significantly. But the external environmental forces must be continuously- monitored as the changes in the environment influence the implementation of the plans of the company.
II. Mission and Objectives:
This includes modifying any one or more of the areas like company’s mission, objectives, plans, goals, strategy formulation and implementation. The modification depends upon the nature and degree of changes and shifts in the environment.
III. Industry Environment:
The manager also monitors and controls the industry related environment. The environmental forces may not be as they were planned. The changes in the environment may provide new opportunities or pose new threats. The plan, therefore, should be modified accordingly.
The industry environment of the future should be considered by the top management for the purpose of evaluation and control.
IV. Internal Operations:
The manager has to evaluate the internal operations continuously in view of the changes in the macro-environment and industry environment. The manager has to introduce changes in internal operations when changes in the environment affect the plans.
Step # 2. Establishing Standards:
Evaluating an organizational performance is normally based on certain standards. These standards may be the previous year’s achievements or the competitor’s records or the fresh standards established by the management. Qualitative judgements like the qualitative features of the product or service in the last year may be used.
Quantitative measures like Return on Investment (ROI), Return on sales may also be used for judging the performance. Companies should establish the standards for evaluating the performance of the strategies taking several factors into consideration.
The standards may include:
1. Quality of Products/Services.
2. Quantity of Products to be Produced.
3. Quality of Management.
4. Innovativeness/Creativity.
5. Long-term investment value.
6. Volume of sales and/or market share.
7. Financial soundness in terms of return on investment, return on equity capital, market price of the share, earning per share etc.
8. Community and environmental responsibility in terms of amount spent on community development, variety of facilities provided to the community, programmes undertaken for environmental protection and ecological balance etc.
9. Soundness of human resources management in terms of percentage of employee grievances redressed, employee satisfaction rate, employee turnover rate, industrial relations situation etc.
10. Ability to attract, develop and retain competent and skilled people.
11. Use of company’s assets.
12. Production targets, rate of capacity utilization, design of new products, new uses of existing products, rate of customer complaints about the product quality, suitability of ingredients etc.
13. Corporate image among the customers and general public.
14. Market place performance.
15. Standards relating to the organizational variables include freedom and autonomy, level of control, responsibility, formal organization and degree of formality and informal organization scope for innovation and creativity.
Step # 3. Measuring Performance:
The manager has to measure the performance of various areas of the organization before taking an action. Performance may be measured through quantitative terms or qualitative terms. Reports and statements help to measure the actual performance through quantitative terms and managerial observations help to measure performance through qualitative terms.
Production, sales, profitability, staff cost etc. can be measured through quantitative terms and quality of the product, employee’s performance, attitude etc. can be measured through qualitative terms.
Step # 4. Compare Performance with Standards:
Once the performance of different aspects of the organization is measured, it should be compared with the predetermined standards. Standards are set to achieve the already formulated organizational goals and plans. Organizational standards are yardsticks and benchmarks that place organizational performance in perspective.
The manager should set standards for all performance areas of the organization based on organizational goals and strategies. Normally, the standards vary from one company to the other company. Further, they also vary from time to time in the same company. The standards developed by General Electric Company can be used as model standards.
These standards include:
i. Profitability Standards:
They include how much gross profit, net profit, return on investment, earning per share, percentage of profit to sales, the company should earn in a given time period.
ii. Market Position Standards:
These standards include total sales, sales region-wise and product-wise, market share, marketing costs, customer service, customer satisfaction, price, customer loyalty shifts from or to other organization’s products etc.
iii. Productivity Standards:
These standards indicate the performance of the organization in terms of conversion of inputs into output. These standards include capital productivity, labour productivity, material productivity etc.
iv. Product Leadership Standards:
They include the innovations and modifications in products to increase the new uses of the existing product, developing new products with new uses etc.
v. Human Resources Standards:
These standards include providing competitive salaries, benefits and different aspects of quality of work life. They also include human resources performance, productivity, turnover rates, absenteeism rates providing challenging and creative jobs etc.
vi. Employee Attitude Standards:
They include employees’ favourable attitude towards the nature of work, organization, salaries, benefits, working environment, quality of work life, treatment by superiors etc.
vii. Social Responsibility Standards:
All organizations discharge their responsibilities towards different sections of the society. These standards are related to the services of organizations towards community, government, employees, suppliers, creditors etc.
viii. Standards Reflecting Balance between Short-Range and Long-Range Goals:
Short- range and long-range strategies should be balanced successfully. Standards in these areas should bring balance between these two goals.
Step # 5. Take No Action, if Performance is in Harmony with Standards:
If the performances of various organizational areas match with the standards, the manager need not take any action. He should just allow the process to continue. However, he can try to improve the performance above the standards, if it would be possible, without having any negative impact on the existing process.
Step # 6. Take Corrective Action, if Necessary:
Managers should take necessary corrective action, if performance is not in harmony with standards. If the deviation is positive i.e., performance is above the standards continuously, revises the standards. On the contrary, if performance is below standard, take steps to improve the performance.
The managers compare the performance with standards. If they find any deviation between the standards and performance, they should take corrective action to bridge the gap between the standards and performance.
Causes of Deviations:
It is very easy to conclude that someone made a mistake, when deviations are identified. But the deviations maybe the result of an unexpected move by a competitor, or changes in external environment.
Therefore, the manager should consider the following before making a decision, in this regard:
1. Was the cause of deviation internal or external?
2. Was the cause random, or should it have been anticipated?
3. Is the change temporary or permanent?
4. Are the present plans still appropriate?
5. Does the organization have the capacity to respond to the change needed?
Corrective Action:
Corrective action may be defined as change in a company’s operations to ensure that it can more effectively and efficiently reach its goals and perform its established standards.
Plans that do not achieve standards produce three possible responses viz.:
(i) To revise plans,
(ii) To change standards and
(iii) To take corrective action in the existing process without changing standards and plans.
Change in plans may require a ‘fine tuning’ of the existing strategy or complete changes in plans. If it is realized that the existing standards are unrealistic under the present conditions, the manager should reset the standards taking the existing conditions into consideration.
Corrective action may be as simple as to increase the price or may be as complex as change the chief executive officer. Deviations require re-examination of the company’s mission, objectives, and relationship to its environment, internal strengths, weaknesses and plans. After having an idea of the process of control, now we shall study the types of control. Now, we shall discuss the control techniques.
Q3) Write a note on standards and bench marking.
A3) One way of identifying the values that will be used in an evaluation is to develop explicit standards, evaluative criteria or benchmarks or to use existing relevant standards, criteria or benchmarks.
‘Standard’ can refer to an aspect of performance, or to the level of performance, or to a combination of both. The level of performance can be specified tightly or described in terms that will vary according to the context. These standards can be considered minimum levels required, or levels required to be considered ‘best practice’.
For example, the SPHERE standards for Humanitarian Aid refer to an aspect of performance (access and water quantity) and to the level of performance (sufficient quantity, sufficiently close) without being prescriptive:
Water supply standard 1: Access and water quantity: All people have safe and equitable access to a sufficient quantity of water for drinking, cooking and personal and domestic hygiene. Public water points are sufficiently close to households to enable use of the minimum water requirement.
By comparison, the Better Business Bureau’s Standards for Charity Accountability refer to an aspect of performance (finance) and to the level of performance (which is tightly defined):
FINANCES: This section of the standards seeks to ensure that the charity spends its funds honestly, prudently and in accordance with statements made in fund raising appeals. To meet these standards, the charitable organization shall 'spend at least 65% of its total expenses on program activities'.
Michael Scriven’s Logic of Evaluation uses the term ‘standards in a different way – it begins by identifying evaluative criteria (aspects of performance), and then criteria (levels of performance), and then collecting evidence of performance and synthesizing it.
Benchmarking involves a process of comparing one’s own performance to an appropriate comparison which might be the industry standard or a similar organization.
Example
The Humanitarian Charter and Minimum Standards for Disaster Response (SPHERE) sets out the standards for the global community to respond to communities affected by disaster. The SPERE project was launched in 1997 by a group of humanitarian NGOs and the Red Cross and Red Crescent movement. The Sphere Project provides a set of guidelines that are set out in the Humanitarian Charter and Minimum Standards in Disaster Response (commonly referred to as the Sphere Handbook).
Hygiene promotion standard 1: Affected men, women and children of all ages are aware of key public health risks and are mobilized to adopt measures to prevent the deterioration in hygienic conditions and to use and maintain the facilities provided.
The Evaluation team that conducted the Independent Completion Report for the Fiji Education Sector Program for AusAID used the five OECD-DAC development evaluation criteria to come to an assessment of the merit and worth of the program. The team added the following three criteria to the usual five:
Q4) Explain the techniques of control.
A4) Control is a fundamental managerial function. Managerial control regulates the organizational activities. It compares the actual performance and expected organizational standards and goals. For deviation in performance between the actual and expected performance, it ensures that necessary corrective action is taken.
There are various techniques of managerial control which can be classified into two broad categories namely-
Traditional Techniques of Managerial Control
Traditional techniques are those which have been used by the companies for a long time now. These include:
1. Personal Observation
This is the most traditional method of control. Personal observation is one of those techniques which enables the manager to collect the information as first-hand information.
It also creates a phenomenon of psychological pressure on the employees to perform in such a manner so as to achieve well their objectives as they are aware that they are being observed personally on their job. However, it is a very time-consuming exercise & cannot effectively be used for all kinds of jobs.
2. Statistical Reports
Statistical reports can be defined as an overall analysis of reports and data which is used in the form of averages, percentage, ratios, correlation, etc., present useful information to the managers regarding the performance of the organization in various areas.
This type of useful information when presented in the various forms like charts, graphs, tables, etc., enables the managers to read them more easily & allow a comparison to be made with performance in previous periods & also with the benchmarks.
3. Break-even Analysis
Breakeven analysis is a technique used by managers to study the relationship between costs, volume & profits. It determines the overall picture of probable profit & losses at different levels of activity while analyzing the overall position.
The sales volume at which there is no profit, no loss is known as the breakeven point. There is no profit or no loss. Breakeven point can be calculated with the help of the following formula:
Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit
4. Budgetary Control
Budgetary control can be defined as such technique of managerial control in which all operations which are necessary to be performed are executed in such a manner so as to perform and plan in advance in the form of budgets & actual results are compared with budgetary standards.
Therefore, the budget can be defined as a quantitative statement prepared for a definite future period of time for the purpose of obtaining a given objective. It is also a statement which reflects the policy of that particular period. The common types of budgets used by an organization.
Some of the types of budgets prepared by an organization are as follows,
Modern Techniques of Managerial Control
Modern techniques of controlling are those which are of recent origin & are comparatively new in management literature. These techniques provide a refreshingly new thinking on the ways in which various aspects of an organization can be controlled. These include:
1. Return on Investment
Return on investment (ROI) can be defined as one of the important and useful techniques. It provides the basics and guides for measuring whether or not invested capital has been used effectively for generating a reasonable amount of return. ROI can be used to measure the overall performance of an organization or of its individual departments or divisions. It can be calculated as under-
Net income before or after tax may be used for making comparisons. Total investment includes both working as well as fixed capital invested in the business.
2. Ratio Analysis
The most commonly used ratios used by organizations can be classified into the following categories:
3. Responsibility Accounting
Responsibility accounting can be defined as a system of accounting in which overall involvement of different sections, divisions & departments of an organization are set up as ‘Responsibility centers. The head of the center is responsible for achieving the target set for his center. Responsibility centers may be of the following types:
4. Management Audit
Management audit refers to a systematic appraisal of the overall performance of the management of an organization. The purpose is to review the efficiency &n effectiveness of management & to improve its performance in future periods.
5. PERT & CPM
PERT (programmed evaluation & review technique) & CPM (critical path method) are important network techniques useful in planning & controlling. These techniques, therefore, help in performing various functions of management like planning; scheduling & implementing time-bound projects involving the performance of a variety of complex, diverse & interrelated activities.
Therefore, these techniques are so interrelated and deal with such factors as time scheduling & resources allocation for these activities.
Q5) What are the factors influencing control effectiveness?
A5) Effective Control System (9 Principles of Designing Effective Control System) Managers are responsible for controlling in the organization and a manager must improve the effectiveness of the organization’s control system; as can do a great deal to improve the effectiveness of their control systems.
Controlling is the last step of management where how the implemented plan is working is assessed and evasive actions are taken.
9 principles of the effective control system are:
To design an effective control system without error for the organization; these 9 principles must be followed. They are more than just principles.
These are guidelines for managers for designing a control system that works.
Matching controls to plans and position
Control techniques should reflect the plans they are designed to follow. Managers need the information that will tell them how the plans for which they are responsible are progressing.
Controls should also be tailored to positions, i.e., they may differ in between positions.
Some control techniques, such as those involving standard hours and costs, budgets, and various financial ratios, have general application in various situations.
However, none of these techniques are completely applicable in any given situation. Managers should, therefore, be aware, of the critical factors in their plans requiring control, and they must use techniques and information suited to them.
Controls should also reflect the place in the organization wherein responsibility for action lies, thereby enabling managers to correct deviations from plans.
Ensuring flexibility to control
Flexibility is another essential characteristic of an effective control system. This means that the control system itself must be flexible enough to accommodate the change.
In other words, the controls should remain workable in the face of changed plans, unforeseen circumstances, or outright failures.
The illustration may be of organization whose diverse product lines require 101 different raw materials. The company’s inventory control system must be able to manage and monitor the current levels of inventory for all the 101 materials.
When a change in the product line changes the number of raw materials needed, or when the required quantities of any of the existing materials change, the control system, should be able to accommodate the revised requirements.
Yet the seniors and probably other students with certain problems may simply have to take the course and they will be accommodated in its flexible computerized admission registration system.
Ensuring accuracy
Control systems must also be accurate managerial decisions based on inaccurate information that may prove costly and harmful.
If for example, sales estimates are artificially high, a manager might either cut advertising on the assumption that it is no longer needed or increase advertising to enhance the sale.
In either case, the action may not be appropriate.
Similarly, a manager, unaware of the hidden production cost, may quote a sales price much lower than is desirable. The accuracy of control systems goes a long way in preventing such damaging upshots.
Seeking objectivity of controls
As far as possible the information provided by the control system should be objective.
If on the other hand, controls are subjective, a manager’s or an executive’s personality may influence judgments of performance and make them less accurate.
Thus, the control system should ideally provide objective information to the manager for evaluation and action.
Achieving the economy of controls
A limiting factor of control: systems are their cost.
So to be effective, controls must be worth their cost.
Although it sounds simple, it is very difficult to accomplish. If tailored to the job and the size of the enterprise, control will probably be economical.
To be precise, control techniques and approaches can be called efficient when they bring to light actual or potential deviations from plans with the minimum of cost.
Tailoring control to individual managers
Control systems and information are, of course, intended to help individual managers carry out their function of control.
If they are not of a type that a manager can or will understand, they will not be useful.
What managers cannot understand they will not be useful; what managers cannot understand they will not trust; and what they do not trust they will not use.
Pointing up exceptions
One of the best ways to make control effective is to make sure that it is designed to point up exceptions.
Controls that concentrate on exceptions from planned performance allow managers to benefit from the time-honored exception principle and detect those areas that require their attention.
Fitting the system of control to the organizational culture
An effective control system must fit in with the organizational culture.
For example;
if employees have been managed without allowing them any participation in decision making, the sudden introduction of a permissive control system will hardly succeed.
On the other hand, in an organization where people have been allowed participation and freedom, the tight control system may fail to produce positive results.
Ensuring corrective action through the control
An effective control system will disclose where failures are occurring and who is/are responsible for the failures and it will ensure that some corrective action is taken.
Control is justified only if deviations from plans are corrected by an appropriate authority.
Taking the proper corrective action necessitates sufficient authority to accomplish this task.
Conclusion
An effective control system is important for an organization to run properly and achieve its goals. Any good control system will pass these 9 principles.
If any part of it is ignored; then controlling the organization’s resources will be very difficult for managers.
Q6) Write a note on co-ordination.
A6) Coordination is the function of management which ensures that different departments and groups work in sync. Therefore, there is unity of action among the employees, groups, and departments.
It also brings harmony in carrying out the different tasks and activities to achieve the organization’s objectives efficiently. Coordination is an important aspect of any group effort. When an individual is working, there is no need for coordination.
Therefore, we can say that the coordination function is an orderly arrangement of efforts providing unity of action in pursuance of a common goal. In an organization, all the departments must operate a part of a cohesive unit to optimize performance.
Coordination implies synchronization of various efforts of different departments to reduce conflict. Multiple departments usually perform the work for which an organization exists.
Therefore, synchronization between them is essential. Lacking coordination, departments might work in different directions or at different timings, creating chaos.
Features of coordination
Coordination is the integration, unification, synchronization of the efforts of the departments to provide unity of action for pursuing common goals. A force that binds all the other functions of management.
The management of an organization endeavours to achieve optimum coordination through its basic functions of planning, organizing, staffing, directing, and controlling.
Therefore, coordination is not a separate function of management because management is successful only if it can achieve harmony between different employees and departments. Here are some important features of coordination:
Limitations of Coordination
Q7) Write the principles of co-ordination.
A7) Coordination is rational as a well conscious process. It pulls various parts of the organization and unifies them to make a team. Thereby it achieves the predetermined goals in an effective manner.
Also, it is an orderly synchronization of efforts by the subordinates to proper timing, amount, and quality of execution. Thus, it includes the blending of activities of different individuals and groups towards achieving the common goal.
Principles of Coordination
There are different stages to achieve effective coordination.
Early-Stage Principle
This principle states that coordination must start at a very early stage. So, in the management process, this is very vital. Thus, it can be said that this should start at the planning stage. So, this will ensure that the best plans are made. Also, it is necessary to implement these plans successfully.
Continuity Principle
According to the second principle, coordination is a process that requires continuity. Thus, it means that the process should not be only a one-time process. So, the process of coordination should begin at the time the organization starts. This shall also continue until an organization exists.
Direct contact Principle
This principle believes in direct contact. It states that managers should directly contact their subordinates. Thus, it will help in building good relations for managers with their subordinates.
Also, because of this principle, any misunderstanding will be avoided. Along with this, misinterpretations and disputes will be avoided between the subordinates and the managers.
Reciprocal relation Principle
The actions and decisions of the people working in the organization and their departments are inter-related. Thus, the actions and decisions of one department or the person will affect other departments and people in the organization.
So, before taking any decision every manager must find out the effect of that decision on the other departments. This is the principle of reciprocal relations. Thus, the coordination in the organization will be followed properly only if the principles are followed.
Clarity of objective Principle
Coordination in an organization is possible only when there are clear objectives set in the organization. Everyone working in the organization should be clear about the objectives. Thus, there should not be any doubt regarding the objectives of the organization. Thus, the objective of the organization is can be achieved quickly and easily.
Effective communication Principle
Coordination in the organization will be achieved only if there is a presence of effective communication. So, there should be good communication present between all the different departments in an organization. Furthermore, effective communication should also be present between the manager and their subordinates as well as within the employees.
Q8) What is inter dependence?
A8) Interdependence means that change in one part of a system will impact other parts of the system in seen and unseen ways. Some of the implications of these relationships can be seen immediately and others will unfold over time. For example, the loss of a business on main street will have an immediate impact on individuals shopping patterns. Over time, however, one empty storefront can lead to fewer people who are shopping downtown. This can lead to other local businesses having fewer customers and may cause other businesses to shut down.
The economic interdependencies between local shops and consumers create an ecological system that supports businesses in a community. One loss can impact the community’s economy over time. If a town doesn’t have a thriving main street and there are empty storefronts, it can cause the citizens of that community to feel like their town is dying.
This is how interdependence works, the loss of one asset impacts the whole fabric of a community and this impact keeps unfolding in both predictable and unpredictable ways.
Open Systems Versus Closed Systems
As a system becomes more connected and interdependent, it becomes more dynamic and complex. It is difficult to predict how things will unfold. It becomes an open system. An open system is different from a closed system. In a closed system, the boundaries of that system are solid. Nothing additional comes in and the dynamics of the closed system are known. The elements of the system don’t expand. In a closed system, we can analyze it and the more we understand all the parts, the more we can control the system. In an open system, the boundaries of the system are permeable. This means that changes in the larger environment will impact your organization.
Open systems are more dynamic because there are new elements and variables that keep showing up in unexpected ways. It makes the system more dynamic and less predictable. Control is possible in closed systems because the variables don’t change. They can be simple or complicated, but with enough time everything can be known and fixed. In an open system, new dynamics and variables are always appearing. Therefore, there are more unknowns than knowns. Each new dynamic or variable that impacts an organization will ripple across the organization in unpredictable ways. Therefore, open systems can only be influenced by understanding larger patterns that exist in the organization, because the organization itself cannot be controlled because it is always in movement.
