ControllingControlling involves ensuring that performance does not deviate from standards. Controlling consists of five steps: (1) set standards, (2) measure performance, (3) compare performance to standards, (4) determine the reasons for deviations and then (5) take corrective action as needed (see Figure 1, below). Corrective action can include changes made to the performance standards—setting them higher or lower or identifying new or additional standards. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service. Show
The measurement of performance can be
done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree. CostsFinancial costs—direct
(i.e., paying for an accountant for an audit) and indirect (i.e., people employed by the organization whose primary function is related to control—internal quality control, for instance). BenefitsCost and productivity control—ensures that the firm functions effectively and efficiently. KEY TAKEAWAYS The control function can be viewed as a five-step process: (1) Establish standards, (2) Measure performance, (3) Compare actual performance with standards and identify any deviations, (4) Determine the reason for deviations, and (5) Take corrective action, if needed. Check Your Understanding Answer the question(s) below to see how well
you understand the topics covered in this section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times. Licenses and AttributionsWhat is measurement of actual performance in controlling process?Measuring actual performance: If performance is not measured, it cannot be ascertained whether standards have been met. Comparing actual performance with standards or goals: Accept or reject the product or outcome. Analyzing deviations: Managers must determine why standards were not met.
What is standard in controlling process?1] Setting Standards
This is the first step of the control process. Before we begin any other work, the managers need to set the standards against which the actual performances will be measured. These standards, objectives, goals, targets etc. will be used to define the purpose of the firm.
What is the difference between standard performance and actual performance?The term used to indicate the difference between standard performance and actual performance is 'Deviation'. On comparing Actual performance with Standard performance, the 'deviations' are revealed.
Why it is important to compare the actual performance with the standard performance?Actual performance is compared with standards in the process of controlling to take corrective actions if significant deviation occurs.
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