How Can Do Controlling as a Function of Management

 Controlling as a Function of Management

In this lesson, we will explore the role of controlling as a function of management and its use of various control mechanisms to reach organizational goals.

Background: The Management Process

Controlling is the fourth step in the management process. Let's review the process as a whole to better understand how controlling fits.

The first step, planning, involves developing short- and long-term goals for the organization. This includes setting goals and planning for the necessary resources needed to attain the set goals. Goals can be short-term, like a sales blitz, or long-term, like developing a new marketing plan. Either way, managers begin by first planning for the goals.

The next step, organizing, involves performing all of the tasks needed to get the job done. This means gathering all of the resources, like people, capital and information, so that everything is ready when needed.

The next step, directing, involves actually executing the plan - putting all of the resources to work to achieve the short- and long-term goals set forth in the planning stage.

The final step, and the main focus of our lesson, is controlling. It involves comparing actual performance to expected performance.

Controlling as a Process

The controlling process involves:

1. Establishing standards to measure performance
2. Measuring actual performance
3. Comparing performance with the standard
4. Taking corrective action

Controlling Process Explained

The controlling process is simply a set of steps a manager uses to determine whether organizational goals have been met. Let's explore each step of the process and apply examples to demonstrate its function for management. Let's use the example of TQM Auto Repair Shop to understand the controlling process.

Establishing Standards to Measure Performance

This involves making decisions about the goals an organization wants to focus on during a period of time. These can be financial, customer satisfaction, production or employee performance-related goals.

Measuring Actual Performance

This involves creating measuring tools to collect data. The tool should be able to report on performance as it relates to the standards set, or 'measures,' developed in the first step of the controlling process. These tools can be a balance sheet, a sales report, data collected from a customer satisfaction survey or even an employee performance appraisal.

Comparing Performance with the Standard

This involves comparing 'actual' performance to performance standards based on data collected in the second step of the controlling process. Using the measuring tools created in the second step, managers are able to compare current performance and productivity to the standards set. A manager may want to compare sales performance from last year to this year by comparing the actual sales from the previous year to the sales of the current year. This comparison tells a manager whether the sales team is below, meeting or exceeding goals. These are called variances, or differences between what was expected and what actually occurred.

Taking Corrective Action

This involves determining whether changes need to be made, what changes need to be made and devising a plan for making changes. Managers will use comparisons to determine what needs to be investigated. If sales are lower than expected, managers will look at various things.

Perhaps the salespeople are not making as many client calls as they did last year. In this case, corrective action may be taken against the employees for non-performance. A manager may look at the work itself. Maybe there are too many clients and not enough staff. In this case, a manager may have to hire more staff. The price of the product or service may be too high, and it may affect demand. In this case, a manager may have to look at ways to add value to a product or service or lower prices.

Controlling Process in Action

Let's look at examples of the controlling process in action. Sam, the manager of TQM Auto Repair Shop recently set goals for his business. First, Sam must establish standards, or a set of 'requirements' for his business. Sam is working on the first step, establishing standards to measure performance.

Sam wants to make $100,000 more this year than he did last year so he can replace older equipment in the repair shop. Raising the price of repairs can do this. This is a financial goal.

It is important not to take customers for granted. A goal to increase customer satisfaction from 84% last year to 90% this year is set. Customer service satisfaction must increase by six percent this year. This is a customer service-related goal.

Sam sets a goal to increase the quota, or a goal set for production, for the amount of cars each mechanic must repair each week. This is a production goal.

With all of the new goals Sam set for the repair shop over the past week, employees may not be able to keep up with the workload. To ensure the goals are met, Sam must devise a way to measure the productivity and performance of his employees. This measurement is compared with the goals he set above, or the preset standards. Once he evaluates the information, Sam can provide feedback to each employee. This will help them make improvements to their work. This is an employee performance appraisal.

Sam developed the standards for what he would like to accomplish in the above step. Now, he needs to develop a way of determining whether the goals are being met. Sam creates a new pricing guide, a customer satisfaction survey, a sales quota system and an employee evaluation system. Sam is working on the second step, measuring actual performance.

Sam will present the new pricing guide to employees. He explains his plan for raising much-needed revenue to each employee so the employee understands the reason for the price increase. It is important to include employees in setting goals. If Sam's employees understand the reason for the price increase, they will be more likely to buy-in to the goal.

Sam also introduces the customer satisfaction survey to his customers. Each customer will fill out a survey where they will rate their experience based on many factors like:

• Timeliness of repairs
• Quality of work
• Price
• Friendliness of mechanics
• Ease of payment