CHAPTER 9: CONTROLLING Flashcards
refers to the “process of ascertaining whether organizational objectives have been achieved, if not, why not, and determining what activities should them be taken to achieve objectives better in the future
CONTROLLING
completes the cycle of management functions.
CONTROLLING
_________, _________, ________ happen inevitably. When they occur in the daily operations, they contribute to unnecessary expenditures which increase the cost of producing goods and services.
Deviations, mistakes, and shortcomings
___________ minimize the ill effects of such negative occurrences. An effective inventory control system, for instance, minimizes, if not totally eliminates losses in inventory.
Proper control measures
4 STEPS IN THE CONTROL PROCESS
- establishing performance objectives and standards
- measuring actual performance
- comparing actual performance to objectives and standards, and
- taking necessary action based on the results of the comparisons.
In controlling, what has to be achieved must first be determined. Examples of such objectives and standards are as follows: 5
- SALES TARGET
- PRODUCTION TARGET
- WORKER ATTENDANCE
- SAFETY RECORDS
- SUPPLIES USED
which are expressed in quantity or monetary terms
SALES TARGET
which are expressed in quantity or quality;
PRODUCTION TARGET
which are expressed in terms of rate of absences;
WORKER ATTENDANCE
which is expressed in number of accidents for given periods;
SAFETY RECORDS
which are expressed in quantity or monetary terms for given periods.
SUPPLIES USED
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.
Measuring Actual Performance
Once actual performance has been determined, this will be compared with what the organization seeks to achieve. Actual production output, for instance, will be compared with the target output
Comparing Actual Performance to Objectives and Standards
The purpose of comparing actual performance with the desired result is to provide management with the opportunity to take corrective action when necessary.
TAKING NECESSARY ACTION
3 TYPES OF CONTROL
- FEEDFORWARD CONTROL
- CONCURRENT CONTROL
- FEEDBACK CONTROL
When management anticipates problems and pre- vents their occurrence, the type of control measure undertaken is called
FEEDFORWARD CONTROL
This type of control provides the assurance that the required human and nonhuman resources are in place before operations begin.
FEEDFORWARD CONTROL
WHAT TYPE OF CONTROL
The manager of a chemical manufacturing firm makes sure that the best people are selected and hired to fill jobs. Materials required in the production process are carefully checked to detect defects
FEEDFORWARD CONTROL
When operations are already ongoing and activities to detect variances are made, ___________ is said to be undertaken.
CONCURRENT CONTROL
WHAT TYPE OF CONTROL
The manager of a construction firm constantly monitors the progress of the company’s projects. When construction is behind schedule, corrective measures like the hiring of additional manpower are made.
CONCURRENT CONTROL
In a firm engaged in the production and distribution of water, the chemical composition of the water procured from various sources is checked thoroughly before they are distributed to the consumers.
CONCURRENT CONTROL
What type of control
The production manager of an electronics manufacturing firm inspects regularly the outputs consisting of various electronics products coming out of the production line.
CONCURRENT CONTROL
When information is gathered about a completed activity, and in order that evaluation and steps for improvement are derived, _________ is undertaken.
FEEDBACK CONTROL
Corrective actions aimed at improving future activities are features of ___________.
feedback control
__________ validates objectives and standards. If accomplishments consist only of a percentage of standard requirements, the standard may be too high or inappropriate.
FEEDBACK CONTROL
WHAT TPE OF CONTROL
the supervisor who discovers that continuous overtime work for factory workers lowers the quality of output.
FEEDBACK CONTROL
6 COMPONENTS OF ORGANIZATIONAL CONTROL SYSTEMS:
- STRATEGIC PLAN
- THE LONG-RANGE FINANCIAL PLAN
- THE OPERATING BUDGET
- PERFORMANCE APPRAISAL
5.STATISTICAL REPORTS - PROCEDURE AND POLICIES
provides the basic control mechanism for the organization
STRATEGIC PLANS
the ___________recommends a direction for financial activities. If the goal does not appear to be where the firm is headed, the control mechanism should be made to work.
financial plan
An ___________ indicates the expenditures, revenues, or profits planned for some future period regarding operations.
operating budget
Measures employee performance. As such, it provides employees with a guide on how to do their jobs better in the future.
PERFORMANCE APPRAISAL
also function as effective checks on new policies and programs. For example, if a new equipment has been acquired for the use of an employee, it would be useful to find out if it had a positive effect on his performance.
PERFORMANCE APPRAISAL
pertain to those that contain data on various developments within the firm
Statistical Reports
Among the information which may be found in a statistical report pertains to the following:
- labor efficiency rates
- quality control rejects
- accounts receivable
- accounts payable
- sales reports
- accident reports
- power consumption report
refer to “the framework within which the objectives must be pursued”
POLICIES
A _______ is “a plan that describes the exact series of actions to be taken in a given situation.”
PROCEDURE
To be able to assure the accomplishment of the strategic objectives of the company, ____________ become necessary.
strategic control systems
2 TYPES OF STRATEGIC CONTROL SYSTEM
- financial analysis
- financial ratio analysis
A review of the______________ will reveal important details about the company’s performance. The balance sheet contains information about the ________, _______, __________. The income statement contains information about the _______, _______, _______, AND ______.
financial statements
company’s assets, liabilities, and capital accounts.
company’s gross income, expenses, and profits.
is a 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 analysis
4 TYPES OF FINANCIAL RATIO ANALYSIS
- liquidity
- efficiency
- financial leverage
- profitability
2 TYPES OF LIQUIDITY RATIO
- CURRENT RATIO
- ACID TEST RATIO
This shows the extent to which current assets of the company can cover its current liabilities.
CURRENT RATIO
FORMULA FOR CURRENT RATIO
CURRENT ASSETS/CURRENT LIABILITIES
is is a 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.”
ACID-TEST RATIO
FORMULA FOR ACID TEST RATIO
CURRENT ASSETS - INVENTORY/ CURRENT LIABILITIES
2 TYPES OF EFFICIENCY RATIO
- INVENTORY TURNOVER RATIO
- FIXED ASSET TURNOVER
These ratios assess the ability of a company to meet its current obligations.
LIQUIDITY RATIO
These ratios show how effectively certain assets or liabilities are being used in the production of goods and services.
EFFICIENCY RATIO
FORMULA FOR INVENTORY TURNOVER RATIO
COST OF GOODS/INVENTORY
FORMULA FOR FIXED ASSET TURNOVER
NET SALES/NET FIXED ASSET
where: net fixed asset = gross plant and equipment -accumulated depreciation
This is a group of ratios designed to assess the balance of financing obtained through debt and equity sources
Financial Leverage Ratios.
2 TYPES OF FINANCIAL LEVERAGE RATIO
- DEBT TO TOTAL ASSET RATIO
- TIMES INTEREST EARNED RATIO
This ratio measures the number of times an inventory is turned over (or sold) each year.
Inventory turnover ratio
This ratio is used to measure utilization of the company’s investment in its fixed assets, such as its plant and equipment.
FIXED ASSET TURNOVER
This ratio shows how much of the firm’s assets are financed by debt.
DEBT TO TOTAL ASSET RATIO
This ratio measures the number of times that earnings before interest and taxes cover or exceed the company’s interest expense.
TIMES INTEREST EARNED RATIO
FORMULA FOR DEBT TO TOTAL ASSETS RATIO
TOTAL DEBT/ TOTAL ASSETS
FORMULA FOR TIMES INTEREST EARNED RATIO
PROFIT BEFORE TAX + INTEREST EXPENSE/ INTEREST EXPENSE
These ratios measure how much operating income or net income a company is able to generate in relation to its assets, owner’s equity, and sales.
PROFITABILITY RATIO
This ratio compares the net profit to the level of sales.
PROFIT MARGIN
This ratio shows how much income the company produces for every peso invested in assets.
RETURN ON ASSET RATIO
This ratio measures the returns on the owner’s investment.
RETURN ON EQUITY RATIO
FORMULA FOR PROFIT MARGIN RATIO
NET PROFIT/NET SALES
FORMULA FOR RETURN ON ASSET RATIO
NET INCOME/ ASSETS
where: net income=common dividends
FORMULA FOR RETURN ON EQUITY RATIO
NET INCOME/ EQUITY
where: net income=common dividends
3 USEFUL STEPS OR APPROCHES IN CONTROLLING
- EXECUTIVE REALITY CHECK
- COMPREHENSIVE INTERNAL AUDIT
- GENERAL CHECKLIST OF SYMPTOMS OF INADEQUATE CONTROL
TYPE OF APPROACH
The engineer manager of a construction firm could, once in a while, perform the work of one of his laborers. In doing so, he will be able to see things that he never sees inside the confines of his air-conditioned office.
EXECUTIVE REALITY CHECK
is one undertaken to determine the efficiency and effectivity of the activities of an organization
INTERNAL AUDIT
8 SYMPTOMS OF INADEQUATE CONTROL:
- An unexplained decline in revenues and profits
- A degradation of service (customer complaints).
- Employee dissatisfaction (complaints, grievances, turnover).
- Cash shortages caused by bloated inventories or delinquent accounts receivable
- Idle facilities or personnel.
- Disorganized operations (work flow bottlenecks, excessive paperwork).
- Excessive costs.
- Evidence of waste and inefficiency (scrap, rework).
is one of the main functions of management. 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.
CONTROLLING
is important because it complements the other management functions.
CONTROLLING
Controlling is a process consisting of various steps. namely:
establishing performance objectives and standards, measuring actual performance, comparing actual performance with objectives and standards, and taking necessary action based on the results of the comparison
Control/may be classified either as
feedforward, concurrent, or feedback.
Organizational control systems consist of the
strategic plan, the long-range financial plan, the operating budget, performance appraisals, statistical reports, policies and procedures.
Strategic control systems consist of
financial analysis, and financial ratio analysis.
There are means to identify control problems. They are the
executive reality check, the comprehensive internal audit, and the general checklist of symptoms of inadequate control.
