Complete Guide To Control Mechanisms In Business

The four functions of management are planning, leading, organizing and controlling. Companies use various control mechanisms — business plan, needs assessment, budgets, audits, pricing, communications, training, performance reviews, and employee incentives — to optimize performance in each of these areas.

What are Control Mechanisms in Business?

Control can be defined by its function: it promotes business continuity. A company may continue to exist, but if the business is not profitable, it does not have a clear mission. In order to maintain a business, managers may need to alter monetary, employee, or operational aspects of it. Managers tend to use control mechanisms to monitor performance in the four areas of management to ensure that the company can perform successfully.

Types of Control Mechanisms in Business

Control mechanisms are necessarily subjective. They are the mechanisms and procedures used to provide pertinent information about each aspect of business, as well as instructions and rewards for reaching a particular standard or goal. The selection of these control mechanisms depends largely on the industry of the business and the kind of product or service it provides.

The best control mechanisms provide feedback to managers, so they can continually maximize efficiency, productivity, and profits. A control system must be based on effective measurement, which is used for decisions and judgments based on fact. This may involve the use of both formal and informal controls.

Control Mechanisms in Business

Since business is conducted by individuals and groups, managers must exercise certain kinds of control that ensure the activities and goals of the company are met.

Control Mechanisms in Business Planning

Planning is the most important control for businesses. This is subjective and depends upon the conditions of the industry, the business’s history and the amount of risk facing the company.

A business plan describes the conditions for success of a business with the help of a SWOT analysis — which stands for strengths, weaknesses, opportunities, and threats — and a financial statement. The business plan gives direction to the company by providing a road map to management and serves as a communication mechanism.

Control Mechanisms in Business Leadering

Management is also necessary for the efficient use of available resources, which is frequently determined by the roles of leadership in business.

Leadership in business is subjective and depends on the size of a business, the complexity of its operations, the infrastructure of the company, and the financial and human resources of the business.

Leading involves motivating and leading employees and the members of a business to work toward common goals.

A few good managers have the ability to inspire their employees to reach their goals and are the heart and soul of any successful company.

The most common ways of developing such leaders are by using formal training programs and setting up mentoring relationships.

Control Mechanisms in Business Control

Control mechanisms are necessary to keep employees and the members of a business on the right path.

These control mechanisms help managers correct mistakes and avoid problems before they happen.

Many aspects of a business that may need controls are not measurable and are not formalized – such as market conditions. Because they are subjective, these controls vary from business to business; however, they all work toward the improvement and success of a company.

The most frequently used control mechanisms are:

Organizational structure
Human resources
Economic resources
Schedules
Operational procedures
Setting goals
Training
Publicity and promotions
Monetary incentives
Performance appraisals

Control Mechanisms in Business Performance Reviews

The two main reasons for conducting performance reviews are to recognize productive employees and to identify performance that is not up to par with requirements. Performance appraisals may be formal or informal and may include structured interviews as well as standard operating procedures. The objective of a performance review is to develop such plans for increased productivity as are appropriate.

Performance reviews must be conducted objectively and with specific guidelines to address the needs of all employees. The responsibility for conducting such reviews should be given to employees who are experienced and objective.

Performance appraisals are subjective in nature.

Organizational efficiency depends on high performance and motivation of employees. The use of performance appraisal tools helps measure employees’ job performance and assess their future.

Performance appraisal is a process of systematically gathering information about employee performance and forecasting future behavior and can be an effective mechanism to motivate employees.

Objective measures such as production records, productivity indices, and customer surveys may be used as one source of data for performance appraisal.

These measures can provide some feedback on work performance, but they do not take into account all the factors that contribute to the quality of work.

In addition to performance appraisal review by supervisors, employees should be given an opportunity to evaluate their own performance.

Control Mechanisms in Business Setting Goals

Many managers say that the most important step in the control of a business is to set goals and to measure the achievement of these goals. Managers must also have a plan of action in view of the goals that are not met.

As long as there is a discrepancy between goals and actual performance, there is no need for concern. The real test of good management is when there is agreement that goals are being achieved and financial results are strong.

The use of goal setting promotes efficiency and productivity, which are essential for the effective operation of any organization. Goals are the cornerstone of any operation.

Goals are used as an effective control mechanism because they give direction to an organization.

Performance goals should result in specific objectives and criteria. Objectives are measurable standards that must be met to achieve good results. Criteria are used to establish how objectives will be used and whether they are being used effectively. Criteria are under-developed measures used to assess a situation.

Control Mechanisms in Business Training

A comprehensive training program for the members of an organization is essential for the growth and stability of any business.

Control mechanisms in training are used to prepare employees, develop their skills and make them aware of their job responsibilities and the benefits they can derive from their jobs.

Training programs help to create a positive work environment that boosts efficiency and productivity.

Training programs for all employees can not exceed what is required for the managers to carry out their duties.

Manager’s Training

Training is an integral part of the company’s efforts to be an acknowledged leader in its industry. This is accomplished by understanding the company’s management responsibility.

While management practices come from the top, it is up to middle managers to put these practices into action. This is achieved through quality training programs for all members of an organization.

Control Mechanisms in Business Research and Development

Research and development (R&D) is a major task for all organizations.

This strategy allows the organization to be ahead of the competition by providing adequate strategies to meet customer needs. The strategy also provides cost savings by improving production methods and cutting costs.

The control mechanism for R&D should be used to measure actual performance against the forecast. Because R&D is innovative and subject to uncertainty, the allocation of resources is not always certain. This makes it difficult to develop a control mechanism for this area.

A relaxed, not too strict, control mechanism is advantageous for R&D to circulate freely. However, in order to achieve business objectives and to measure performance there is a need for a more precise, formalized control mechanism for R&D.

Control Mechanisms in Business Administration

Systems management is a useful control mechanism for the administration of a business. Many reports and forms can be generated to monitor and measure how well a business performs in general, as well as in specific areas of operation.

Control mechanisms in administration are also necessary to control the various types of transactions of a business, such as the preparation of budgets, audits, payroll, billing, receivables, etc.

The use of a control mechanism in administration allows a business to act and react to its environment in an orderly, predictable manner.

Control Mechanisms in Business Accounting

The use of a control mechanism in accounting allows an organization to determine the financial status of the business. Through careful and systematic monitoring, an organization can gain better control over its finances for proper budgeting, projections, and forecasts.

Control mechanisms in accounting help in the implementation of accounting policies and practices as well as financial transactions, ensuring that all accounting records are accurate and current. Accurate records also allow the business to make informed decisions about the future of the organization.

Control mechanisms in accounting help to assess the credibility of the company. These mechanisms also ensure that the internal and external levels of the company are in agreement with each other.

Control Mechanisms in Business External and Internal Controls

Control mechanisms in business serve to mitigate the risks and uncertainties that result from operating in a complex and dynamic environment.

External controls are used to mitigate undesirable and uncontrolled activity at the external boundary of a system, which may provide threat to a system.

or products are infected with defects.

Internal controls are used to mitigate undesirable and uncontrolled activity at the internal boundary of a system, which may reduce the efficiency and effectiveness of a system.

External and internal controls are complementary, each serving a distinctly different role.

External controls serve to protect an organization from harm. Internal controls serve to protect and manage an organization’s resources.

Control mechanisms in business can be classified into three basic categories: