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CONTROLLING

Controlling refers to the ‘’process of ascertaining whether


organizational objectives have been achieved; if not, why not;
and determining what activities should then be taken to
achieve objectives better in future.’’

It comes after planning, organizing, and directing.

Controlling is aimed at determining whether objectives were


realized or not and if not, by providing means
for achievement.
IMPORTANCE OF CONTROLLING

- It will help the organization achieve its goal


in the most efficient and effective manner
possible.

-Proper control measures minimize


the ill effects of such negative occurrences.
STEPS IN THE CONTROL PROCESS

1. Establishing performance objectives and standards.

2. Measuring actual performance.

3. Comparing actual performance to objectives


and standards, and

4. Taking necessary action based on the results


of the comparisons.
ESTABLISHING PERFORMANCE OBJECTIVES
AND STANDARDS.
Sales Targets – which are expressed in quantity or
monetary terms;

Production Targets – which are expressed in quality or quantity;

Worker attendance – which are expressed in terms of rate of absences;

Safety Record – which is expressed in number of accidents for given


periods;

Supplies Used – which are expressed in quantity or monetary


terms for a given period.
ESTABLISH
Steps in the PERFORMANCE
Control Process OBJECTIVES AND
STANDARDS

MEASURE ACTUAL
PERFORMANCE

do nothing
DOES ACTUAL
PERFORMANCE
MATCH THE
STANDARDS Yes

No

TAKE
CORRECTIVE
ACTIONS
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

COMPARING ACTUAL PERFORMANCE


TO OBJECTIVES AND STANDARDS
Once actual performance has been determined, this
will be compared with what the organization seeks
to achieve
TAKING NECESSARY ACTION

The purpose of comparing actual


performance with the desired result is to
provide the management with the
opportunity to take corrective action when
necessary
TYPES OF CONTROL
Feedforward control – provides the assurance that
the required human and nonhuman resources
are in place before operations begin.
Concurrent control- this control is said to be
undertaken when operations are already
ongoing and activities to detect variances are
made.

Feedback control – When information is gathered about a


completed activity, and in order that evaluation and steps for
improvement are derived.
COMPONENTS OF ORGANIZATIONAL
CONTROL SYSTEMS

1. Strategic plan
2. The long-range financial plan
3. The operating budget
4. Performance appraisals
5. Statistical reports
6. Policies and procedures
STRATEGIC CONTROL SYSTEMS
* Financial analysis
The success of most organizations depends
heavily on its financial performance. It is just fitting that
certain measurements of financial performance be made so
that whatever deviations from standards are found out,
corrective actions may be introduced.

* Financial Ratio Analysis


Financial ratio analysis is more elaborate approach
used in controlling activities. Under this method,
one account appearing in the financial statement is paired
with another to constitute a ratio.
Financial Ratio
Liquidity Ratios – these ratio assess the ability of a company
to meet its current obligations

Indicators of Liquidity
* Current Ratios – this shows the extent to which
current assets of the company can cover
its current liabilities.

𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑟𝑎𝑡𝑖𝑜 =
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Acid-test ratio – This is the measure of the firm’s ability to


pay off short-term obligations with the use of current
assets and without relying on the sale of inventories
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐴𝑐𝑖𝑑 − 𝑡𝑒𝑠𝑡 𝑟𝑎𝑡𝑖𝑜 =
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Efficiency Ratios – these ratio show how effectively
certain assets or liabilities are being used in the
production of goods and services.

• Inventory turnover ratio – this ratio measures the number


of times an inventory is turned over (or sold) each year.
𝑐𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 =
𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

• Fixed asset turnover – this ratio is used to measure utilization of


the company `s investment in its fixed assets,
such as plant and equipment.
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝐹𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑁𝑒𝑡 𝑓𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠
Financial Leverage Ratios- this is a group of
ratios designed to assess the balance of
financing obtained through debt and equity sources

• Debt to total assets ratio – it shows how much of the firm’s assets
are financed by debt.
𝑡𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡
𝐷𝑒𝑏𝑡 𝑡𝑜 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 𝑟𝑎𝑡𝑖𝑜 =
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

• Times interest earned ratio – it measures the number of times


that earnings before interest and taxes cover or
exceed the company’s interest expense.

𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥 + 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒


𝑇𝑖𝑚𝑒𝑠 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 earned ratio =
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
Profitability Ratios – it measure how much operating income or
net income a company is able to generate in
relation to its assets, owner’s equity, and sales.

• Profit Margin Ratio – this ratio compares the net profit to the level of sales
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 𝑅𝑎𝑡𝑖𝑜 =
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠

* Return on assets ratio – this ratio shows how much income


the company produces for every peso invested in assets .
𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑎𝑠𝑠𝑒𝑡𝑠 𝑟𝑎𝑡𝑖𝑜 =
𝑎𝑠𝑠𝑒𝑡𝑠

• Return on equity ratio – it measures the returns on the owner’s


investment .
𝑛𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦 𝑟𝑎𝑡𝑖𝑜 =
𝑒𝑞𝑢𝑖𝑡𝑦
IDENTIFYING CONTROL PROBLEMS

1. Executive Reality Check


2. Comprehensive internal audit
3. General checklist of symptoms or inadequate control
THANK YOU!