What is Control Function and Why is it Important in an Organization?

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By: Site Engineer, Staff

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In popular language, to control means to check, or to exercise restraint over a person or an object. Thus translated, control is used synonymously with supervision. Control is a specific aspect of management, but it is not synonymous with it, or with supervision.

It is an important managerial function, which is concerned with the measurement and correction of activities of subordinates, in order to make sure that enterprise objectives and plans devised to attain them are being accomplished.

Control is the process by which the manager measures the performance of his subordinates against predetermined standards, and initiates actions to correct any undesirable deviations. Its purpose is to ensure that the organization (or any of its units) achieves its goals.

Every organization usually has a hierarchy of controls. Top management, through the exercise of strategic control, ensures that the corporate goals are met, while middle managers try to ensure the attainment of departmental goals through management controls. Operational control, which is the responsibility of first-line managers (supervisors and foremen), aims at correcting the deviations of the achievements of individuals, or sub-units from established standards.

For control to be meaningful, objectives or standards must be established, authority clearly defined, jobs assigned unambiguously, and accurate and timely feedback on the performance of subordinates obtained.

The most popular control techniques used are budgets, periodic reports, audits, and management by objectives.

When managers set objectives for the enterprise and develop plans to accomplish those objectives, they do not relax, believing that everything will work out smoothly. The assumptions upon which the objectives were set may be false; subordinates may fail to understand and carry out instructions and directives faithfully, or factors that were initially not considered may prevail during the implementation of the plans. A variety of problems may take actual performance less than expected. The purpose of control is to ensure the attainment of organization goals, by taking corrective action in the light of experiences, during the implementation of plans and programmes.

The control system in the organization functions is to adjusting operations to ensure the achievement of predetermined standards and objectives.

Types of Control

The control function is performed at every level of the organization. Each level of management is responsible for the attainment of particular goals. While top management is responsible for the achievement of organizational goals, middle and lower management are responsible for departmental or unit goals. Even non-supervisory staff usually have performance targets. These objectives and performance targets form the basis of control at each level. Though the exercise of the control function may have a wider impact on managers at higher levels, the nature and structure of control are essentially the same for all levels.

Three types of control can, therefore, be identified – strategic, management and operational.

1. Strategic Control

This is used by top management to assure itself that the organization is reasonably efficient in moving towards its goals. Top management is generally not sufficiently close to the scene of operations. They neither have the time nor the desire to be involved in the details of operations. Nevertheless, top management is keenly interested in the overall performance of the organization. Summary indices, such as profit statement and earnings per share, enable top management to satisfy itself that the organization is moving in the general direction of the set goals.

By nature, strategic management is undertaken at long intervals of perhaps a year or more. However, it enables top management to evaluate its strategies and to develop new ones.

2. Management Control

This is control exercised by middle managers over a clearly defined unit or programme in the organization. Usually, the unit or programme has a significant contribution to make in achieving organizational goals, and the manager who is responsible for the unit has a duty to ensure that the target is achieved within the allocated period. The Production Manager, for example, must turn out a definite quantity of output according to a predetermined cost, quality and time standards, while the Marketing Manager has objectives in terms of market share and product development. Other departments have similar goals to achieve with the resources allocated to them. Management control enables managers to ensure that the activities of personnel in their departments result in the attainment of the goals established for the unit.

Management control is undertaken regularly at short intervals of one month or other suitable periods. In contrast to strategic control, which is concerned with the overall measure of organizational performance, in management control, detailed budgets and time schedules form the basis of decisions.

3. Operational Control

This is the process of ensuring that specific tasks are carried out effectively. It is concerned with the tasks of individuals performing largely routine jobs. In such jobs, it is possible to specify rules, procedures, and schedules, by which the task is to be performed. Operational control ensures that the area of discretion by the individual is limited and that the task is executed according to plan.

The Control Process

The control process is the series of activities that are performed to compare actual with expected performance and take corrective measures. The activities include setting goals or standards, assigning responsibility to an individual for goal achievement, measurement of performance, taking corrective action, and adjustment of goals and standards where necessary.

Setting Standards

Standards are simply a predetermined measure of performance. In an examination, the standard is usually a grade which separates passes from failures. Standards can be set for all key result areas of the organization. This means that all areas that contribute to the attainment of the overall goal of the organization should have performance standards set for them.

For standards to be useful for control purposes, it must be possible to determine the degree of attainment of the standard. This may be in quantitative terms. In general, quantitative standards are preferred, but in some areas, such as public relations, it is extremely difficult to set standards of performance in quantitative terms.

Some examples of key areas in which standards have been set in organizations are profitability, market position, productivity, personnel development, employee attitudes, public responsibility, and product leadership. Profitability standards may be expressed as a percentage return on sales. In the areas of personnel development, leadership and product qualitative standards may be used.

Although sophisticated techniques may be used to facilitate the setting of standards, the actual standards established in the organization are a matter for managerial determination.

Assignment of Responsibility

Responsibility for goal achievement in the key result areas must be assigned to individuals. Before an individual can be held responsible for certain results, he must be given facilities to enable him to achieve those results. There is no use in assigning responsibility for profitability to an individual who has no authority over sales or the cost of sales.

Also assigning responsibility for return on investment cannot be meaningful and useful if the individual does not decide on the level of investment to be used in generating profits. Assignment of responsibility should be matched with adequate authority over resources needed to carry on with the assigned responsibility.

This activity cannot be complete without clarification of the rewards, and of course, sanctions for good or poor performance. The subordinate must have a clear understanding of what rewards to expect for adequate performance and the consequences of failure.

Measurement of Performance

Measurement of performance is closely related to the establishment of standards. Once a standard has been set, the measuring unit is also established. A product quality standard may be established, in terms of the rate of defects of quantity produced per time period.

Performance measurement may be done by means of personal observation, physical measurement or counting. Where performance cannot be measured quantitatively, the supervisor uses subjective judgment to rate performance.

These performance measures are good only when they are reliable and valid. A measure is reliable if repeated measurements of performance yield consistent results. It is said to be valid if it actually measures performance and not some other variables. Since performance measures are required for control purposes, it is important that the information generated by made readily available to the manager, who has responsibility for control. Accounting information, for example, is usually historical.

Therefore, it is of limited value for control purposes if it is communicated to the manager after the business has failed. An audit report that is communicated to management five years after the event is of no practical value except, perhaps, moral. Ideally, performance information should reach the manager instantly, so that he can prevent rather than merely correct a deviation. In the absence of the ideal situation, performance information should reach the manager with the minimum delay.

Taking Corrective Action

Performance information is needed for the manager to determine whether or not there is a deviation from predetermined objectives. Most systems are bound to deviate from the charted course.

The question is “What is the degree of deviation?” Some deviations are marginal and acceptable, and so do not require any action on the part of the manager. Some others are of significant magnitude, enough to demand the attention of the manager. What is considered significant is a matter of managerial judgment. Some mechanical control systems have what is called tolerance limits, that is, points within which action need not be taken to correct any observed derivation.

In some projects, however, managers cannot afford to wait until the tolerance limits are exceeded before taking action. It may not be possible to correct the consequences of exceeding tolerance limits, no matter how closely defined they may have been.

It may not be desirable to have clear signals of trouble before taking action. Therefore, managers must seek to predict if tolerance limits are likely to be exceeded and to decide on what action should be taken.

Before action is taken to correct significant deviations, it is necessary to analyze the deviation to determine its cause. Excessive cost on a construction project may be attributed to wastage or pilferage of raw materials. It may also be due to an increase in prices over which the project supervisors have no control. The corrective action, and in fact the point in the organizational hierarchy at which that action is taken must depend on the cause of the deviation.

Wastage of raw materials can be reduced through the action of project supervisors. Pilferage can be eliminated or minimized through the joint action of the Stock Manager and Project Manager. Action to reduce costs due to a general increase in the prices of raw materials may hinge on an adjustment of the purchasing policy.

Action to correct observed deviation is not limited to operations alone. It can involve adjustment of the standards or objectives. It may be discovered that the objectives were unrealistic under the prevailing circumstances. An objective of a company to increase production by one million units a year may prove to be unrealistic due to stringent economic policies introduced by the government.

Corrective action includes revision of plans, objectives and standards, as well as reorganization.

The control process described above is basic to all control system found in organizations. The reporting system embedded in it may be simple or complex, depending on the nature of the environment, size, and technology of the organization. However, not all the control systems are equally effective or efficient.

A control system is said to be efficient if the benefit derived is at least equal to the cost of it; that is – if it is economical. There is a tendency for managers to play safely in the implementation of policies and programmes. This tendency often leads to the establishment of more control than is optimal, or to the investment of resources in information gathering processes.

Additional information, of course, costs money; and the cost of an extensive control system can be quite high. It is important, therefore, to balance the cost of the control system against the benefits expected.

A control system is effective if the existence of a significant deviation, with minimum time-lag, and enables corrective action to be taken. The critical nature of timely information for control purposes has already been discussed. The design of the reporting systems, therefore, should be such that information about performance is readily available.

Performance can be observed and corrective action taken swiftly where necessary. Many managers are however not closely involved in operations, and performance information must be transmitted to them. The speed at which this is done may afford the manager enough time to avoid a major crisis.

In some projects, any delay whatever could lead to irreversible deviation from targets. In such circumstances, the deviation must be predicted for necessary action to be taken.

The control system should also be capable of showing clear signals of the existence of significant problems, requiring the action of the manager. Employees encounter several problems while performing their various tasks. Not all such problems need to be brought to the attention of a superior officer. Therefore, the control system should be able to discriminate among problems and call attention to the critical ones that may affect the attainment of goals.

Basic of Control

The management functions of control can be performed only when certain conditions exist. The primary condition is that objectives and goals must have been established, and plans layout to achieve them. Without objectives, we have not direction and without plans, we have no means of achieving our objectives. Obviously, without targets and plans, we cannot take corrective action, because there is nothing to correct. Every level of performance must necessarily be acceptable since there is no standard against which to measure performance.

Organizational structure is also a necessary condition for control. Organizational structure is essentially a part of the plan to achieve set goals. And since the purpose of control is to ensure the performance of activities by subordinates and take corrective action, it is necessary that tasks be properly classified and assigned to various identifiable groups and individuals. For each group and individuals, performance targets must be clearly stated, and adequate resources provided to enable performance to take place.

An important element of a proper organization structure necessary for control is the delegation of authority over the tasks and resources to the subordinate assigned. Without adequate delegation of authority, the subordinate cannot be held responsible for the state of performance of the assigned tasks and corrective action cannot be affected where a deviation has been observed.

Delegation of authority and control are closely related. As we have seen above, a manager cannot exercise control over the performance of a subordinate where he has not delegated authority. However, once there is a delegation, the need for control increases. The manager is always accountable to his superior for tasks assigned to him. Delegation of authority by him does not absolve him of accountability, for performance and control are the principal means by which he can ensure that the task is executed as planned.

Information from operations is a vital element in the control process. Before action can be taken to correct deviation from plans or standards, the manager must have information about actual performance or level of achievement of the objectives. This is possible only when information flows from operations to the manager.

A Project Manager may have detailed time schedules and cost targets for a construction project. The project supervisor may have a clear definition of responsibilities and adequate authority to execute construction work. Yet, the cost may seriously deviate from target because cost information was not communicated to the manager. Without adequate information on the level of costs, the Manager cannot take action to correct the deviation.

Transmission of information from operations to the Manager presupposes that there is a means of measuring and transmitting performance information to the Manager. Performance may be measured by the subordinate, the Manager, or by a third party. Performance information is usually transmitted in reports, whether oral or written, by the subordinate, or through personal observation by the manager.

Control Techniques

There are several control points in the organization even though the structure of control is the same, different problems are encountered in their use. The problems encountered in the management of the funds of the organization are different from those of production or personnel.

Service and non-profit organizations have unique control problems. Some techniques that have been found useful, in controlling activities in various areas of the organization, have been developed. In this section, we will discuss some of these techniques and indicate the areas in which they can be profitably employed.

The techniques are used both for planning and control. This is because of the close relationship between the two managerial functions. Planning – ‘deciding on goals and standards and how to achieve them’ is the beginning of the control function. Control provides a basis for further planning. Thus, although the two functions are discussed separately, they are part of a continuous process in the organization. Techniques found useful in planning are commonly used for control purposes as well. The techniques discussed below re budgets, reports, audits, and management by objectives (MBO).

The Budget

Budgets are prepared for the entire organization and for its constituents. It is the statement, in numerical terms, of a plan for a future period. It shows results that are expected to be realized during the plan period. In general, budgets are expressed in financial terms, but other quantitative measures, such as units produced, may be employed.

Budgets relate to a definite period in the future. In most cases, this period is one year, although other planning periods may be used. For example, a revenue budget may be for a year, half-year, quarter, one month or even a week. The determinants of the period used are the nature of the business and the need for control.

Once a budget has been approved by management, it represents a standard which everyone is committed to action. Consequently, it becomes a means of control. Performance is measured against the standards stipulated in the budget, which form the basis for corrective action. The budget is a useful control tool because it identifies, not only the standards expected to be achieved but also those who have responsibility for meeting the standards.

Types of Budgets

There are various types of budgets. Budgets can be prepared for sales, production, maintenance of equipment, labor inventory, etc. The most common types of budgets, however, are profit budget, sales budgets, cash budgets, and capital budgets.

A profit budget is a summation of revenue and expense budgets. A revenue budget consists of sales projections multiplied by expected selling prices; while the expense budget is the projected expenses of the organization during the plan period.

A cash budget shows the cash needs of the organization during the plan period. Like the profit budget, it summarizes the cash inflows arising from sales and other revenue-generating activities, and cash inflows arising from disbursements necessary to pay for expenses. A capital budget shows an organization’s projections of capital assets acquisition. This type of budget usually covers more than one year.

Budgets and Flexibility

Budgets are prepared on the basis of certain assumptions about conditions of the environment of the organization. Often, these conditions may not be realized. Prices may fall below those anticipated. Strikes and other unexpected events may make budgets an unrealistic basis for control. In spite of these, budgets are not useless, inflexibility is introduced into the process.

Flexibility may be achieved with periodic reviews of projections to reflect the new conditions. A flexible budget is one that is prepared for a range of activity levels, instead of a single level. This provides a dynamic basis for comparison of performance because it is automatically geared to changes in the level of activity.

Reports

Managers depend on reports to be able to evaluate performance in non-routine areas and special projects. Most special projects cannot be effectively and efficiently executed through the normal hierarchical organization. When ad hoc teams or committees are established to execute such projects, management has no formal process of monitoring performance, except through the reports of the teams and committees.

Management also uses reports to provide more comprehensive information on the activities and programmes that is usually provided by established channels. Besides financial data, information on the quality of work done, problems and an appraisal of the programmes may be included in control reports.

There are disadvantages in the use of written reports as a control device. The manager may have some inhibitions in communicating actual performances to his superiors. Vital information may not be included, or the manager’s judgment of actual performance may be faulty. Thus, reports must be supplemented by observations and discussions with persons involved in the project, in order to uncover incipient problems.

For reports to serve their purpose as a control mechanism, they must both be timely and economical.

Audit

The audit is usually looked upon by most people as a mechanism to determine the probity and judicious use of the organization’s resources by its managers. This is a narrow conception of what an audit is.

In its broadest sense, it a comprehensive appraisal of the operations of the organization to determine the extent to which plans were accomplished. The audit provides an opportunity to examine the extent to which the policies and procedures of the organization were complied with in executing programs, and to review such policies and procedures to make them more effective in achieving stated objectives. Thus, the audit is a powerful control device to appraise performance and improve the operations of the organization.

Management by Objectives (MBO)

Management by objectives is a system of performance appraisal in which both the subordinate and the manager agree on the goals to be achieved by the subordinate. At the end of a defined period, these goals are used as a standard to assess the performance of the subordinate. Both the period and the measures that would indicate goal accomplishment are agreed upon between the manager and the subordinate. Both the period and the measures that would indicate goal accomplishment are agreed upon between the manager and the subordinate.

Management by objectives is an important control technique. By involving the manager and the subordinate in the determination of the goals, performance measures and the period during which goals are to be accomplished, management by objectives elicits commitment and overcomes some of the dysfunctional aspects of control.

Reactions to Control

Control is designed to affect the behavior and attitudes of people in the organization. Standards are set for subordinates to achieve, and it is their performance that is measured and reported to superior officers. When managers decide on what corrective action is to be taken to ensure that standards are met, it is the subordinate who must execute the decision.

The reaction of people towards control is not often indifference. Sometimes control is accepted and welcomed; at other times, it is resented and resisted. The success or failure of control depends on what reaction it evokes from subordinates.

Control is invariably perceived by subordinates as a pressure device which curtails their freedom and diminishes their individuality. Consequently, they resist consciously or subconsciously, any form of control over their behavior. Specific aspects of the control system also generate complaints and resistance. Standards may be felt to be too high and unreasonable. The measure of performance may be seen to be inequitable or inaccurate, while corrective action may be disliked because it is a form of criticism of the behavior of the subordinate.

The reactions of subordinates towards control and aspects of the control system depend on the needs and goals of the subordinate, and the goals of the organization. If the achievement of organizational goals is consistent with the achievement of individual goals in the organization, reaction to control would tend to be positive. But if the subordinate perceives some inconsistency between his personal goals and organizational goals, response to control would tend to be negative.

An area in which the reaction of people to control can easily be seen is the measurement and evaluation of performance. The factor that is used in the measurement of performance tends to become the focus of the individual. If performance is measured, tends to become the focus of the individual. If performance is measured by the number of units produced, subordinates tend to concentrate on this factor, as they become aware of its importance in the evaluation process.

However, other factors, such as quality, tend to be neglected. The use of multiple factors such as costs, units produced, quality and morale may appear to be the obvious strategy to emphasize an all-around performance. Unfortunately, this is not always possible. High quality and low costs, for example, conflict with each other. The result is that the subordinate attempts to look good, by putting up minimum expected performance on the factors considered in the evaluation.

Since the achievement of defined standards is usually the basis of reward in the organization, subordinates use various types of devices to ensure that the standards are met. Some of the devices may not be in the long interest of the organization. For example, a profit standard may be achieved by neglecting to maintain equipment, so as to avoid maintenance expense. Employees may engage in other cost-cutting devices, which temporarily enable them to achieve profit standards, but which antagonize customers and lead to long-term losses.

Emphasis on the achievement of goals may also create intra-organizational hostility and reduce cooperation. Since organizational units are interdependent, an attempt by one unit to achieve its goal at all costs may reduce the chances of the other units achieving their own goals. The production manager may speed up production quota. The marketing manager, who may have all along been unable to fill orders, will suddenly find his warehouses overflowing with goods at the end of the planning period.

These problems can be reduced by looking beyond performance standards. Cooperation and other intangibles which are essential to the attainment of organizational goals should be incorporated, along with other performance criteria, into the control system.

 

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