CONTROLLING

 Refers to the process of ascertaining whether organizational objectives have been achieved.  Means steering or regulating, leading to the practical achievement of the agreed objectives.  means setting standards, measuring actual performance and taking corrective action

IMPORTANCE OF CONTROLLING
Proper control measures minimize the ill effects of such negative occurrences. It will help organization achieve its goal in the most efficient and effective manner possible. It guides the management in achieving pre-determined goals. It enables management to avoid repetition of past mistakes.

STEPS IN THE CONTROL PROCESS

1. Establishing performance objectives and standards. Examples of such objectives and standards: 1. Sales target 2. Production target 3. Worker attendance 4. Safety record 5. Supplies used 2. Measuring actual performance. There is a need to measure actual performance so that when shortcomings occur, adjustments could be made. The adjustments will depend on the actual findings. The measuring tools will differ from organization to organization, as each have their own unique objectives. 3. Comparing actual performance to objectives and standards. Once the actual performance has been determined, this will be compared with what the organization seeks to achieve. 4. Taking necessary action based on the results of the comparison. The purpose of comparing actual performance with the desired result is to provide management with the opportunity to take corrective action when necessary.

TYPES OF CONTROL
1. Feed-forward Control  It is said to be undertaken when management anticipates problems and prevent their occurrences.  It is desirable  Managers can practice the way they forecast and develop new plans and strategies in order to better forecast growth.  Also sometimes called preliminary control, pre-control, preventive control or steering control. 2. Steering Control  Is a type of control designed to detect deviation to the established goal or standard that allow correction to be made before a particular sequence of action is completed. 3. Concurrent Control  It is undertaken when the operations are already ongoing and activities to detect variances are made.  Sometimes called screening or Yes No control. 4. Feedback Control  It is undertaken when all the information is gathered about a complete activity, and in order that evaluation and steps for improvement are detected.

COMPONENTS OF ORGANIZATION
 Strategic Plan It provides the basic control mechanism for the organization. It is a process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.  Long-Range Plan It is a long-term plan establishes a firm basis for all business operations.  Operating Budget It indicates the expenditures, revenues, or profits planned for some future period regarding operations.  Performance Appraisals It measures employee performance. It provides employees with a guide on how to do their jobs in the future. It is also a function as effective checks on new policies and programs.  Statistical Reports It pertains to those that contain data on various developments within the firm.

 Policies It refers to the framework within which the objectives must be pursued. An example of policy is as follows: Whenever two or more activities compete for the companys attention, the client takes priority.  Procedures It is a plan that describes the exact series of actions to be taken in a given situation. An example of procedure is as follows: Procedure in the purchase of equipment: 1. The concerned manager forwards a request for purchase to purchasing officer; 2. The purchasing officer forwards a request to top management approval;

It compose of the following: labor efficiency rates quality control rejects accounts receivable accounts payable sales report accident reports power consumption report

3. When approved, the purchasing officer makes a canvass of the requested item; if disapproved, the purchasing officer returns the form to the requesting manager; 4. The purchasing officer negotiates with the lowest complying bidder.

STRATEGIC CONTROL SYSTEMS

To be able to assure the accomplishment of the strategic objectives of the company, strategic control systems become necessary. These systems consist of the following: 1. Financial analysis It is the process of assessing the financial condition, operating performance and viability of the enterprise. Financial statements: Balance Sheet A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year. Income Statement Is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes. Cash Flow Statement Is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. 2. Financial ratio analysis This is a widely used tool in financial statement analysis as they provide means of measuring and evaluating company performance and financial position. Under this method, one account appearing in the financial statement is paired with another to constitute a ratio.

FINANCIAL RATIOS MAY BE CATEGORIZED INTO THE FOLLOWING TYPES:

1) Liquidity Ability of an organization to meet its current financial obligations. In banking, adequate liquidity means being able to meet the needs of depositors wanting to withdraw funds and borrowers wanting to be assured that their credit or cash needs will be met. Liquidity is also measured in terms of debt capacity or borrowing capacity to meet shortterm demands for funds. 2) Efficiency  Comparison of what is actually produced or performed with what can be achieved with the same consumption of resources (money, time, labor, etc.). It is an important factor in determination of productivity. 3) Financial leverage  The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders' return on their investment and often there are tax advantages associated with borrowing. 4) Profitability

Ability of a firm to generate net income on a consistent basis. It is often measured by price to earnings ratio.

TO TEST LIQUIDITY
These ratios assess the ability of a company to meet its current obligations. 1. Current ratio this shows the extent to which current assets of the company can cover its current liabilities. Formula:
 

2. Acid-test ratio this is a measure of the firms ability to pay off short term obligations with the use of current assets and without relying on the sale of inventories. Formula:
 

3. Cash ratio this only measures the ability of a firms cash, along with investments that are easily converted into cash, to pay its short term obligations. Formula:
 

TO TEST EFFICIENCY:
These ratios show how effectively certain assets or liabilities are being used in the production of goods and services. 1. Inventory turnover ratio this ratio measures the number of times an inventory is turned over (or sold) each year. Formula:
  

2. Fixed asset turnover this ratio is used to measure a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment. Formula:
  

3. Total asset turnover this ratio measures a firm's efficiency at using its assets in generating sales or revenue. Formula:

4. Accounts receivable turnover this ratio measures how effective the companys credit policies are. Formula:

5. Accounts Payable turnover this ratio measures how a company manages paying its own bills. Formula:

TO TEST FINANCIAL LEVERAGE

These ratios are designed to assess the balance of financing obtained through debt and equity sources. 1. Interest coverage this ratio is used to measure a companys ability to meet its interest obligations with income earned from the firms primary source of business. Formula:
 

2. Debt to total assets ratio - shows the proportion of a company's assets which are financed through debt. Formula:
 

TO TEST PROFITABILITY
These ratios measure how much operating income or net income a company is able to generate in relation to its assets, owner, equity, and sales. 1. Gross margin this ratio reveals how much a company earns taking into consideration the costs that it incurs for producing its products and/or services. Formula:


2. Operating margin - This ratio used to measure a company's pricing strategy and operating efficiency. Formula:
  

3. Return on assets ratio This ratio shows how much income the company produces for every peso invested in assets. Formula:


4. Return on equity ratio This ratio measures the returns on the owners investment. Formula:


5. Profit margin ratio This ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc. Formula:


IDENTIFYING CONTROL PROBLEMS

Executive Reality Check -Top managers periodically working at lower-level jobs to become more aware of operations. Comprehensive Internal Audit - Is undertaken to determine the efficiency and effectively of the act of an organization. - It aims to detect dysfunctions in the organization before they bring bigger troubles to management. Internal Auditors obligation of Independence refers to: -The reporting Line or status of the CAE -Attitude of auditors, procedure of the internal audit department -Communication right

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEMS

1. Control at all levels in the business 2. Acceptability to those who will enforce decisions 3. Flexibility 4. Accuracy 5. Timeliness 6. Cost effectiveness 7. Understandability 8. Balance between objectivity and subjectivity 9. Coordinated with planning, organizing and leading

IDENTIFYING CONTROL PROBLEMS

o Executive reality check o Comprehensive internal audit o General checklist of symptoms of inadequate control

SYMPTOMS OF INADEQUATE CONTROL

      

 Degradation of service
An unexplained decline in revenues and profits. Employee dissatisfaction Cash shortages caused by bloated inventories or delinquent accounts receivable. Idle facilities or personnel Disorganized operations Excessive cost Evidence of waste and inefficiency

DEGRADATION OF SERVICE Types of Customers:  The meek customer  The aggressive customer  The High Roller customer  The Rip off customer  The Chronic Complainer customer
Features of Controlling Function Following are the characteristics of controlling function of management1. Controlling is an end function- A function which comes once the performances are made in conformities with plans. 2. Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns. 3. Controlling is forward looking- because effective control is not possible without past being controlled. Controlling always looks to future so that follow-up can be made whenever required. 4. Controlling is a dynamic process- since controlling requires taking review methods, changes have to be made wherever possible. 5. Controlling is related with planning- Planning and Controlling are two inseparable functions of management. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. Planning presupposes controlling and controlling succeeds planning.

UNIVERSITY OF PERPETUAL HEP SYSTEM College of Engineering and Tech Voc

CONTROLLING

Submitted by:
Amil, Anna Cecilia Gorne, Marbie P. Pamatiga, Marlyn Joy G.

Submitted to:
Engr. Marcelo Ramos Jr.