4 main steps in control process in management are:
Control as a management function involves the following steps:
1. Establishing Standards:
Standards are criteria against which results are measured. They are norms to achieve the goals. Standards are usually measured in terms of output. They can also be measured in non-monetary terms like loyalty, customer attraction, goodwill etc. Some of the standards are as.
a. Time standards:
The goal will be set on the basis of time lapse in performing a task.
b. Cost standards:
These indicate the financial expenditures involved per unit, e.g. material cost per unit, cost per person, etc.
c. Income standards:
These relate to financial rewards received due to a particular activity like sales volume per month, year etc.
d. Market share:
This relates to the share of the company's product in the market.
Productivity can be measured on the basis of units produced per man hour etc.
These goals will be set with the consideration of cost per unit, market share, etc.
2. Measuring Performance
Measurement involves comparison between what is accomplished and what was intended to be accomplished. The measurement of actual performance must be in the units similar to those of predetermined criterion. The unit or the yardstick thus chosen be clear, well-defined and easily identified, and should be uniform and homogenous throughout the measurement process.
The performance can be measured by the following steps:
(a) Strategic control points:
It is not possible to check everything that is being done. So it is necessary to pick strategic control points for measurement. Some of these points are:
It is a significant control point and must be as much per unit of time as was expected. If the income is significantly off form the expectation then the reasons should be investigated and a corrective action taken.
Total and operational cost per unit must be computed and must be adhered to. Key expense data must be reviewed periodically.
Some minimum inventory of both the finished product as well as raw materials must be kept in stock as a buffer. Any change in inventory level would determine whether the production is to be increased or decreased.
(iv) Quality of the product:
Standards of established quality must be maintained especially in food processing, drug manufacturing, automobiles, etc. The process should be continuously observed for any deviations.
Excessive absenteeism of personnel is a serious reflection on the environment and working conditions. Absenteeism in excess of chance expectations must be seriously investigated.
(b) Meclzanised measuring devices:
This involves a wide variant of technical instruments used for measurement of machine operations, product "quality for size and ingredients and production processes. These instruments may be mechanical, electronic or chemical in nature.
(c) Ratio analysis:
Ratio analysis is one of the most important management tools. It describes the relationship of one business variable to another.
The following are some of the important ratios:
i) Net sales to working capital:
The working capital must be utilised adequately. If the inventory turnover is rapid then the same working capital can be used again and again. Hence for perishable goods, this ratio is high. Any change in ratio will signal a deviation from the norm.
ii) Net sales to inventory:
The greater the turnover of inventory, generally, the higher the profit on investment.
iii) Current ratio:
This is the ratio of current asset (cash, receivables etc.) to current liabilities, and is used to determine a firm's ability to pay the short term debts.
iv) Net profits to net sale:
This ratio measures the short-run profitability of a business.
v) Net profits to tangible net worth:
Net worth is the difference between tangible assets (not good will, etc) and total liabilities. This ratio of net worth is used to measure profitability over a long period.
vi) Net profits to net working capital:
The net-working capital is the operating capital at hand. This would determine the ability of the business to finance day-to-day operations.
vii) Collection period on credit sales:
The collection period should be as short as possible. Any deviation from established collection period should be promptly investigated.
viii) Inventory to net working capital:
This ratio is to determine the extent of working capital tied up in inventory. Generally, this ratio should be less than 80 per cent, ix) Total debt to tangible net worth: This ratio would determine the financial soundness of the business. This ratio should remain as low as possible.
(d) Comparative statistical analysis:
The operations of one company can be usefully compared with similar operations of another company or with industry averages. It is a very useful performance measuring device.
(e) Personal observation:
Personal observation both formal and informal can be used in certain situation as a measuring device for performances, specially, the performance of the personnel. The informal observation is generally a day-to-day routine type. A manager may walk through a store to have a general idea about how people are working.
3. Comparing the Actual Performance with Expected Performance
This is the active principle of the process. The previous two, setting the goals and the measurement format are the preparatory parts of the process. It is the responsibility of the management to compare the actual performance against the standards established.
This comparison is less complicate if the measurement units for the standards set and the performance measured are the same and quantified. The comparison becomes more difficult when these require subjective evaluations
Ralph C. Davis identifies four phases in the comparison.
1. Receiving the raw data.
2. Accumulation, classification and recording of this information.
3. Periodic evaluation of completed action to date.
4. Reporting the status of accomplishment to higher line authority.
At the third phase, deviations if any are noted between standards and performance. If clear cut deviations are there, then management must study the:-
(i) Causes for deviation
(ii) Effect of deviation
(iii) Size of deviation
(iv) Positive or negative deviation.
4. Correcting Deviations:
The final element in the process is the taking corrective action. Measuring and comparing performance, detecting shortcomings, failures or deviations, from plans will be of no avail if it does point to the needed corrective action.
Thus controlling to be effective, should involve not only the detection of lapses but also probe into the failure spots, fixation of responsibility for the failures at the right quarters, recommendation of the best possible steps to correct them. These corrective actions must be applied when the work is in progress. The primary objective should be avoidance of such failures in future.
The required corrective action can be determined from the qualified data as per the standards laid out and the performance evaluation already done. This step should be taken promptly, otherwise losses may be cumulative and remedial action will be all the more difficult to take.
Corrective action must be well balanced, avoiding over controlling and at the same time letting not things to drift.