INTRODUCTION The word ÂcontrollingÊ is often mentioned, both in the home and workplace. You must have heard one of these well-known statements „we must control the quality of our products and services‰, „we must control our production costs‰, „we should control our departmental expenses‰. At home, among popular statements are „you should control your childÊs behaviour‰ or „you should control your husband‰. At a more serious level, have you ever been ordered to complete a report to be submitted to your superior officers, head of unit or to the headquarters? What is the rationale in spending thousands of ringgit to hire accredited auditors to audit our accounts and is it necessary for us to hire accountants and account clerks into the organisation to prepare quarterly, half-yearly or yearly financial statements? Reports and quarterly financial statements allow managers to analyse, compare and measure organisational performance to determine if the objectives set in the initial stages of planning have been achieved. This managerial activity is known as controlling. The controlling factors are often the keys to achieve organisational effectiveness. After making comparisons and discovering that the performance

TTooppiicc

1122

Controlling

By the end of this topic, you should be able to: 1. Describe three methods of controlling; 2. Describe the control process ; 3. Differentiate three types of control; 4. Explain ten effective control requirements; and 5. State at least two weaknesses and two issues of control.

LEARNING OUTCOMES

TOPIC 12 CONTROLLING

158

gap between what was planned and what is actually achieved is too wide (regardless of whether this is positive or negative), managers will be interested to know what caused this gap. As a manager, you should be sensitive to the performance of your workers and know the control techniques so that gaps in the planning can be coordinated so as to ensure that organisational objectives are achieved. 12.1 WHAT IS CONTROLLING? Controlling is the process of monitoring organisational activities to ensure that goals are achieved as planned and taking corrective action on any significant deviations. An effective control system ensures that activities are carried out in a way which will ensure achievement of organisational objectives. The criteria which determines the effectiveness of this system is the ability of the system to help in achievement of goals. In general, there are three methods in establishing a control system, i.e. market control, bureaucratic control and normative control.

Table 12.1: Methods of Control

No. Methods Explanation

1. Market Control This method emphasises the use of the external market mechanism. Control is established based on criteria like price competition or market share. Organisations which use this method normally have clear products and services and stiff competition.

2. Bureaucratic Control This method emphasises authority that depends on administrative rules, procedures and policies. This type of control is premised on strict hierarchical mechanisms. It depends on uniformity of activity, and clear job description to direct workersÊ behaviour.

3. Normative Control This method is referred to development of control system where the behaviour of the workers is controlled by shared values, norms, traditions, beliefs and other aspects of organisational culture. It depends on individuals and groups to identify appropriate work behaviour and performance measurement. It is used in organisations where team work is widely practiced. The organisation is guided and controlled by group culture compared to administrative control.

TOPIC 12 CONTROLLING

159

Normally, organisations will choose bureaucratic or normative control with a bit of market measurement control.

12.2 THE IMPORTANCE OF CONTROLLING Has it ever occurred to you what will happen if there is no control? All parents want their children to receive a good education so that they can grow up into disciplined and well respected and useful citizens. Imagine if our daughters go out and come back at midnight and the next day is a school day. No control means allowing one to do as he pleases. What will happen to him? There is no certainty that organisational activities will be carried out as planned and the desired goals accomplished. Control is the final link in the management chain. The quality of the control depends on the planning and allocation of activities. If managers do not plan and allocate activities well from time to time, controlling becomes null and void. 12.2.1 The Control Process There are only three steps in the control process: measurement of actual performance, comparison between actual measurement with standards and taking management action to correct deviations or achievements that are below standards. (please refer to Figure 12.1). The control process makes the assumption that performance standards have already been set, it must be set beforehand to allow managers to use it as a yardstick for comparison. Standards are set at the planning stage. The objectives that have been determined are the standards that will be used to measure and compare performance.

Provide three methods of controlling.

1. _________________ Control

2. _________________ Control

3. _________________ Control

SELF-CHECK 12.1

TOPIC 12 CONTROLLING

160

12.2.2 What is Measurement? When the term measurement is mentioned, we think of someone using a tape measure to measure something. Measuring is the first step in the control process. You should be interested in finding out how a manager measures. It certainly is not with a tape although there are undeniably some managers who use tapes in their line of work.

Figure 12.1: Control process

There are four sources of information that are often used by managers to measure actual performance:

• Personal observation, • Statistical reports, • Verbal reports and • Written reports.

With the help of Figure 12.1, explain the control process.

ACTIVITY 12.2

TOPIC 12 CONTROLLING

161

Table 12.2 explains the four sources of information to measure performance.

Table 12.2: Sources of Information to Measure Performance

No. Sources of Information Explanation

1. Personal Observation Personal information provides in-depth information and knowledge about the actual activities. It allows an intensive coverage and avails opportunities to managers to know about the actual processes being carried out rather than only from what is reported to them. Personal information is considered as an inferior source of information as it is subject to perception bias. What is observed by one manager may not be seen by another manager. In addition, it is time consuming and makes the control measures very obvious. Workers regard observation activities of managers as being due to a lack of confidence in workersÊ abilities.

2. Statistical Reports Real-time statistical reports that measure organisational performance can be obtained from sophisticated computer applications like SPSS and SAS. Statistical reports can be in the form of graphs, bar charts, spreadsheets, etc. that can be used by managers to evaluate performance. It can be demonstrated easily and is effective to show relationships. However, it only provides limited information about a particular activity.

3. Verbal Reports Information can also be obtained from verbal reports, i.e. via conferences, meetings, personal or telephone conversations. The pros and cons are almost similar to personal observation. It can be obtained quickly and allows for feedback, language expression and voice intonation. However, verbal reports have no written record for future reference. In addition, the information received is filtered.

4. Written Reports Although this is slower than verbal reports, written reports are formal, more comprehensive and have greater depth. Written reports are easily kept for reference.

TOPIC 12 CONTROLLING

162

After being exposed to the available sources of information, the question is, which source should be used? The overall control measures of a manager should utilise all the above sources of information. 12.2.3 What Do Managers Measure? In the control process, what is to be measured is more important than how it is to be measured. Serious problems can occur if the wrong criteria are selected. Workers will try their level best to achieve high levels in what is being measured because what is being measured will determine the desired criteria or behaviour. There are some control criteria that can be applied in any management situation. Criteria like worker satisfaction or worker turn-over and absenteeism can be measured. You should be aware that there are certain performance activities that are difficult to measure in a quantitative way but most activities can be divided into specific information segments. Besides this, managers need to determine the types of values that workers, units or departments can contribute to the organisation and convert those contributions into standards. 12.2.4 How Do Managers Determine Differences

between Actual Performance and the Planned Goals?

By making comparisons, one can determine the degree of differences between actual performance and standards. As such, it is important for managers to determine the variation or deviation range. What is interesting to managers is the gap and direction of the deviation and how wide the deviation gap is. If there is directional deviation, where is the deviation heading towards? More or less?

Draw a mind-map of the sources of information for the control process.

ACTIVITY 12.3

TOPIC 12 CONTROLLING

163

12.2.5 What are the Steps that Management Can Take?

The third and final step in the control process is taking management action. Managers can take one of the three actions: • Leave it as it is (status quo). • Improve actual performance. • Change the standards.

Table 12.3: WorkersÊ Performance Management Action

No. Actions Explanations

1. Leave it alone (status quo)

Leave the present situation as it is. Although this action seems irrational, you will be surprised to know how widely this method is used.

2. Improve If deviation shows a negative figure, managers need to take improvement measures. The next question is what is the immediate or basic action that must be taken? Quick action will solve the problem quickly and return performance to the right path. Basic corrective action finds out how and why the deviation happened and corrects the source of the deviation. Effective managers analyse the deviation and take time to permanently solve problems related to differences in standards and actual performance.

3. Change Standards

It cannot be denied that differences happen because of unreasonable standards, i.e. the goals that were set were either too high or too low. As such, it is the standards that need to be re-examined and not the performance. It could be dangerous to change standards because if workers do not accomplish the standards, they will most likely blame them . If you feel that the standards are realistic, maintain them.

TOPIC 12 CONTROLLING

164

12.3 TYPES OF CONTROL When we know that there is deviation, what is the type of control that we can impose? There are three types of control: • Feedforward Controls, • Concurrent Controls ; and • Feedback Controls

Table 12.4 provides explanation on Type of Control to Prevent Deviation

Table 12.4: Types of Control to Prevent Deviation

No. Types of Control Explanation

1. Feed-forward This is the most desired form of control. This type of control prevents potential problems from occurring. Preventive steps are taken before the actual activity is carried out. This is a forward type of control. The key to this kind of control is taking management action before the problem occurs. Feed-forward control allows managers to avoid making comparisons by overcoming problems before occurrence. However, this kind of control needs accurate and timely information which is sometimes difficult to obtain.

2. Concurrent This control is implemented concurrently with the activity. Managers can take corrective action before huge costs are incurred. One of the most popular ways of concurrent control is direct supervision.

3. Feedback You may not have experienced both types of control stated above but you must have surely experienced this final type of control, i.e. feedback control. This is the most popular type of control. Control is implemented after the occurrence. The main disadvantage of this control is by the time managers get the information, the damage has been done. But there are advantages. It avails managers useful information on how effective is the planning. Besides this, positive feedback further enhances the workersÊ motivation levels.

TOPIC 12 CONTROLLING

165

Figure 12.2: Types of control

12.4 COMPULSORY QUALITY REQUIREMENTS FOR EFFECTIVE CONTROL SYSTEMS (a) Precision A quality control system provides data or information that is reliable and

verifiable. It is pointless to have a control system that does not provide the true picture. Increasing sales figures are not meaningful if there are abundant stocks in the store.

There are three types of control that are implemented by many organisations. Match the appropriate types of control. 1. This is the most desired form of control. This type of

control prevents potential problems from occurring. Concurrent ( )

2. This control is implemented concurrently with the activity. Managers can take corrective action before huge costs are incurred.

Feedback ( )

3. This is the most popular type of control. Control is implemented after the occurrence.

Feedforward ( )

SELF-CHECK 12.2

TOPIC 12 CONTROLLING

166

(b) Timeliness Information provided should be accurate at the time it is being used. It

must be used to prevent a disaster before it happens. Reports about the financial crisis which occurred five years ago will not have any drastic impact on present day importers.

(c) Economy Management must impose the lowest control costs to get the desired

outcome. Any costs imposed for control should not be higher than the returns.

(d) Flexibility Effective control must be adequately flexible to adapt to current needs and

maximise existing opportunities. (e) Understanding A complicated control system will result in unnecessary mistakes,

disappoint the workers and eventually, the system will be ignored. (f) Reasonable Criteria Control should set challenging standards which will motivate the workers

to accomplish high performance levels and not aim to break their spirit and prevent them from achieving the goals.

(g) Strategic Position Managers may not be able to control all activities that occur in an

organisation. They should place controls on factors which are strategic to organisational performance. Control should be imposed on differences that cause huge adverse effects, example, transportation costs totalling RM50,000 a month compared to postal costs of RM 1,500 a month. A 5% increase in transportation costs is more critical than a 20% increase in postal costs.

(h) Importance of Exemptions The exemption system ensures that managers do not go overboard

regarding information that deviates from standards. If a manager is given the autonomy to approve a monthly entertainment allowance of RM750 per worker and a 10% increment in salary, the senior manager should not be anxious if the differences in standards do not exceed the limits set. Hence, the senior managers are exempted from worrying about matters like this.

TOPIC 12 CONTROLLING

167

(i) Multiple-criteria Managers and workers will try and show their respective strengths only on

criteria within their control. Other criteria may be completely set aside. As such, multiple-criteria should be used to prevent outcomes which only look superficially good.

(j) Corrective Action An effective control system proposes that action should be taken to correct

a deviation. The system should be able to discern problems and suggest corrective actions. If production cost goes up by 5%, then overtime costs should be reduced at the same rate.

12.5 WEAKNESSES OF CONTROLLING It must be emphasised here that if control is done properly, it can achieve the goals that have been set, but what are the consequences if control is not carried out in a proper manner? For example, in a plastic making factory, you are required to increase productivity due to increased orders for new plastic containers. Besides this, the old system has been replaced by a new computerised system which takes time to master, in addition to the new design of the plastic containers having to be programmed into the system. You are also required to achieve the same productivity level in the same period of time. How do you feel? Do you feel inundated? This happens because control has taken over the organisation which in fact should be managed by the organisation. When the control system is not flexible or is unreasonable, workers will loose sight of achieving the overall organisational goals. As we are aware, a control system cannot cater to all activities. The problem arises when an individual or a unit in an organisation tries to give a rosy picture on what can be controlled only. Weaknesses occur when the control system is not comprehensive. If a control system only evaluates the output quantity, then workers will ignore quality. If the control system evaluates activities per se, then the outcome will be side-lined. As such, it can be said that control has both pros and cons if not implemented well. Failure to create a flexible control system will give rise to more severe

Draw a mind-map of the various qualities that an effective control system should have.

ACTIVITY 12.4

TOPIC 12 CONTROLLING

168

problems compared to problems which in the first place could have been avoided if a proper control system had been put into place.

12.6 ETHICAL ISSUES IN CONTROLLING Advancements in technology have simplified control activities but these advancements have also given rise to several ethical questions. This is because technological advancements have provided employers with sophisticated control mechanisms. One of the topics of discussion on personalising the work place is email communication. Workers have voiced concerns of being dismissed because of emails that were sent. The monitoring of the computer is another ethical issue being debated. The monitoring of computer usage is to collect, process and provide feedback about performance which can assist managers to monitoring workersÊ performance and development. It can also help managers to identify work practices that are unethical or costly. Although this method has a lot of advantages, several complaints of violating personal privacy which in turn leads to increased stress have been voiced. The final aspect of ethical issues related to control which is no less important is work behaviour. The question is how far should an organisation exercise control on the personal life of the workers? Where do rules and controls of the employer end? Does the management have the right to direct what you should do in your personal time, even if you are at home? Are you still tied up with rules and employer control at 10 pm if your working hours are from 8 am to 5 pm and you are working overtime voluntarily? Can the employer order you to work overtime if you do not want to? These are all important issues still being debated upon today.

Computers were invented to increase productivity. It also raises the issue of workerÊs personal rights at the same time. Employers can, among other things, read emails, listen in on phone conservations, monitor computer-related work, up to the point of every movement in the office being observed.

TOPIC 12 CONTROLLING

169

• Management uses controlling mechanism to ensure goals are achieved by

means of constant monitoring exercises. • Organisations can incorporate controlling systems into work processes based

on pro-active, concurrent and/or re-active approaches. • Effective control mechanisms do not only require ability to precisely define

and measure problems, identify appropriate solutions and take necessary actions to close performance gaps but also to be able to incorporate quality requirements into the control systems.