Lesson 11: Controlling

Question 1

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 the future.

Answer 1

Controlling

Question 2

Importance of Controlling

Answer 2

1. When controlling is properly implemented, it will help the organization achieve its goal in the most efficient and effective manner possible.
2. Proper control measures minimize the ill effects of such negative occurrences (Deviations, mistakes, and shortcomings).

Question 3

This completes the cycle of management functions.

Answer 3

Controlling

Question 4

Steps in the Control Process

Answer 4

1. Establishing performance objectives and standards.
2. Measuring actual performance.
3. Comparing actual performance to objectives and standards.
4. Taking necessary action based on the results of the comparisons.

Question 5

Examples of Establishing Performance Objectives and Standards

Answer 5

1. Sales Targets
2. Production Targets
3. Worker Attendance
4. Safety Record
5. Supplies Used

Question 6

Expressed in quantity or monetary terms.

Answer 6

Sales Targets

Question 7

Expressed in quantity or quality.

Answer 7

Production Targets

Question 8

Expressed in terms of the rate of absences.

Answer 8

Worker Attendance

Question 9

Expressed in many accidents for given periods.

Answer 9

Safety Record

Question 10

Expressed in quantity or monetary terms for given periods.

Answer 10

Supplies Used

Question 11

Three Distinct Types of Control

Answer 11

1. Feedforward Control
2. Concurrent Control
3. Feedback Control

Question 12

When management anticipates problems and prevents their occurrence, the type of control measure undertaken.

This type of control provides the assurance that the required human and nonhuman resources are in place before operations begin.

Answer 12

Feedforward Control

Question 13

When operations are already ongoing and activities to detect variances are made, this type of control is said to be undertaken.

Answer 13

Concurrent Control

Question 14

When information is gathered about a completed activity, and in order that evaluation and steps for improvement are derived, this type of control is undertaken.

This type of control also validates objectives and standards.

Answer 14

Feedback Control

Question 15

Components of Organizational Control Systems

Answer 15

1. Strategic Plan
2. Long-Range Financial Plans
3. The Operating Budget
4. Performance Appraisals
5. Statistical Reports
6. Policies and Procedures

Question 16

Provides the basic control mechanism for the organization.

Answer 16

Strategic Plans

Question 17

The process of budgeting for operations and growth and renewal for buildings, infrastructure, and land.

Answer 17

Long-Range Financial Plans

Question 18

Indicates the expenditures, revenues, or profits planned for some future period regarding operations. The figures appearing in the budget are used as standard measurements for performance.

Answer 18

Operating Budget

Question 19

Measures employee performance. As such, it provides employees with a guide on how to do their jobs better in the future.

Also function as effective checks on new policies and programs.

Answer 19

Performance Appraisals

Question 20

Pertain to those that contain data on various developments within the firm.

Answer 20

Statistical Reports

Question 21

Informations which may be found in a Statistical Report

Answer 21

1. Labour Efficiency Rates
2. Quality Control Rejects
3. Accounts Receivable
4. Accounts Payable
5. Sales Reports
6. Accident Reports
7. Power Consumption Report

Question 22

Refer to the framework within which the objectives must be pursued.

Answer 22

Policies

Question 23

A plan that describes the exact series of actions to be taken in a given situation.

Answer 23

Procedure

Question 24

Strategic Control Systems

Answer 24

1. Financial Analysis
2. Financial Ratio Analysis

Question 25

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.

Answer 25

Financial Analysis

Question 26

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. The result will be compared with a required norm which is usually related to what other companies in the industry have achieved, or what the company has achieved in the past.

Answer 26

Financial Ratio Analysis

Question 27

Types of Financial Ratios

Answer 27

1. Liquidity Ratios 2. Efficiency Ratios 3. Financial Leverage Ratios 4. Profitability Ratios

Question 28

These ratios assess the ability of a company to meet its current obligations.

Answer 28

Liquidity Ratios

Question 29

Important Indicators of Liquidity

Answer 29

1. Current Ratio 2. Acid-Test Ratio

Question 30

This shows the extent to which current assets of the company can cover its current liabilities.

Answer 30

Current Ratio

Question 31

This 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.

Answer 31

Acid-Test Ratio

Question 32

Formula for Computing Current Ratio

Answer 32

Current ratio = current assets / current liabilities

Question 33

Formula for Computing Acid-Test Ratio

Answer 33

Acid-Test ratio = (current assets - inventories) / current liabilities

Question 34

These ratios show how effectively certain assets or liabilities are being used in the production of goods and services.

Answer 34

Efficiency Ratios

Question 35

More Common Efficiency Ratios

Answer 35

1. Inventory Turnover Ratio 2. Fixed Asset Turnover

Question 36

This ratio measures the number of times an inventory is turned over (or sold) each year.

Answer 36

Inventory Turnover Ratio

Question 37

This ratio is used to measure utilization of the company's investment in its fixed assets, such as its plant and equipment.

Answer 37

Fixed Asset Turnover

Question 38

Formula for Computing Inventory Turnover Ratio

Answer 38

Inventory turnover ratio = cost of goods sold / inventory

Question 39

Formula for Computing Fixed Asset Turnover

Answer 39

Fixed asset turnover = net sales / net fixed assets

Question 40

This is a group of ratios designed to assess the balance of financing obtained through debt and equity sources.

Answer 40

Financial Leverage Ratios

Question 41

More Important Leverage Ratios

Answer 41

1. Debt to Total Assets Ratio 2. Times Interest Earned Ratio

Question 42

This ratio shows how much of the firm's assets are financed by debt.

Answer 42

Debt to Total Assets Ratio

Question 43

This ratio measures the number of times earnings before interest and taxes cover or exceed the company's interest expense.

Answer 43

Times Interest Earned Ratio

Question 44

Formula for Computing Debt to Total Assets Ratio

Answer 44

Debt to total assets ratio = total debt / total assets

Question 45

Formula for Computing Times Interest Earned Ratio

Answer 45

Times Interest Earned Ratio = (profit before tax + interest expense) / interest expense

Question 46

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.

Answer 46

Profitability Ratios

Question 47

More Notable Profitability Ratios

Answer 47

1. Profit Margin Ratio 2. Return on Assets Ratio 3. Return on Equity Ratio

Question 48

This ratio completes the net profit to the level of sales.

Answer 48

Profit Margin Ratio

Question 49

This ratio shows how much income the company produces for every peso investment in assets.

Answer 49

Return on Assets Ratio

Question 50

This ratio measures the returns on the owner's investment.

Answer 50

Return in Equity Ratio

Question 51

Formula for Computing Profit Margin Ratio

Answer 51

Profit Margin Ratio = net profit / net sales

Question 52

Formula for Computing Return on Assets Ratio

Answer 52

Return on Assets Ratio = net income / assets

Question 53

Formula for Computing Return on Equity Ratio

Answer 53

Return on Equity Ratio = net income / equity

Question 54

Identifying Control Problems

Answer 54

1. Executive Reality Check 2. Comprehensive Internal Audit 3. Symptoms of Inadequate Control

Question 55

Undertaken to determine the efficiency and effectiveness of the activities of an organization.

Answer 55

Internal Audit

Question 56

Kreitner’s List of Common Symptoms for Inadequate Control

Answer 56

1. An unexplained decline in revenues and profits. 2. A degradation of service (customer complaints). 3. Employee dissatisfaction (complaints, grievances, turnover) 4. Cash shortages caused by bloated inventories or delinquent accounts receivable. 5. Idle facilities or personnel. 6. Disorganized operations (workflow bottlenecks, excessive paperwork) 7. Excessive costs. 8. Evidence of waste and inefficiency (scrap, rework).