Controlling as a Management Function

Summary and Case Study Analysis

By Dexby de Guzman

Summary

• Controlling is aimed at determining whetherobjectives were realized or not, and if not, byproviding means for achievement.

• Controlling is a process.

• Control has different types.

Summary

• Organization control systems havecomponents.

• Strategic control system includes analysis.

• There are means to identify control problems.

Case Study Analysis

GOOD MUSIC BROADCASTING CORPORATION: Ebb Tide

GIVEN:

• Engineer Frederick Panganiban was readingthe advertising sales report handed to him byhis assistant. The report contains informationconsolidated from the ten radio stationsowned and operated by Good MusicBroadcasting Corporation (GMBC). Thesestations are located in the various parts of thecountry.

Map of the Philippines

• GMBC headquarters and sales office arelocated in Makati. GMBC derives income fromadvertisements lodged by companies like SanMiguel Corporation, Ayala Life, and others.The sales office receives the cassette tapesand written texts containing the advertisingmessages of the client companies.

• The tapes are meant to be played at regularintervals in all the ten radio stations operatedby GMBC. The written text is an alternateadvertising form read by the radio announcersat regular intervals. An advertising messagedoes not exceed one minute. The advertisersare billed depending on the frequency ofexposure of their messages.

• Each station is managed by a station manager who reports directly to Engineer Panganiban, the general manager. The stations are allowed to accept local advertisements subject to availability of slots after accommodating the national advertisers.

• A certain portion of the advertising income iscredited to the account of the individualstations depending on the assignments sent tothem by the GMBC Headquarters. The totaladvertising income of a station consists of thecredit account from the head office pluswhatever income from local advertisers isderived.

Engineer Panganiban is now reviewing theconsolidated sales report. He wants someimprovement in operations so that overallincome will increase. He feels that the salesreport is useful, but he believes some otherdata may help him make a better decision.

GOOD MUSIC BROADCASTING CORPORATIONCONSOLIDATED ADVERTISING INCOME

For the Three-Year Period, 1995, 1996 and 1997(P000)

Station

1995 1996 1997

1 Dagupan 15,450 16,998 17,038

2 Santiago 12,338 11,465 10,308

3 Cabanatuan 10,440 12,444 14,486

4 San Pablo 8,988 7,676 6,493

5 Naga 11,048 12,121 8,788

6 Dumaguete 11,540 10,001 9,494

7 Tacloban 12,490 12,500 12,606

8 Cebu 20,465 22,030 24,848

9 Davao 16,370 17,017 18,644

10 Zamboanga 13,466 12,506 11,897

Total 132,595 134,758 134,602

Advertising Income (in Pesos)

Problem:

• The problem is how will Engr. Panganibanmake improvements in operations so that overall income will increase.

Objectives:

• To make improvements in operations.

• To apply controlling in GMBC.

Alternative Courses of Actions:

1. Establish performance objectives and standards.

I. Alternative standards to be used:

• 1a. Standard by station w/ highest income

• 1b. Standard by income from previous year

• A more appropriate basis may be having an incometarget value equivalent to the income of the previousyear. This is to avoid decline of income per year.

Alternative Courses of Actions:

2. Measure actual performance.• For the GMBC case, the actual performance

(income) from 1996 - 1997 were measured andgiven in a consolidated sales report.

3. Compare actual performance to objectives.• 5 out of 10 stations had a decrease in yearly

income either once or twice. The other 5 (whichare situated in highly-populated areas) haveincreasing advertising income per year.

Alternative Courses of Actions:

0

5,000

10,000

15,000

20,000

25,000

30,000

1995 1996 1997

Ad

vert

isin

g In

com

e (i

n P

eso

s)

Year

Dagupan

Santiago

Cabanatuan

San Pablo

Naga

Dumaguete

Tacloban

Cebu

Davao

Zamboanga

Figure A: Column Chart of Consolidated Sales Report

Alternative Courses of Actions:

4. Take necessary action.• For the operations of GMBC, the type of control has to be

identified to facilitate activities. Identification of controlproblems is needed. Also, an organizational control systemhas to be installed.

Considerations:• Types of Control• Identification of Control Problems• Components of Organization

Control System• Strategic Control Systems

Alternative Courses of Actions:

II. Types of Control to Consider:Alternatives:2a. Feedback Control2b. Concurrent Control2c. Feedforward Control

Comment: There is feedback control becauseinformation for the past three years has beengathered. Corrective actions are aimed atimproving income for future years.

Alternative Courses of Actions:

III. Identification of Control ProblemsAlternatives:• 3a. Executive Reality Check – Engr. Panganiban can delegate an executive

to check the operations of one of the radio stations (whose income isdeclining) for a short period of time. In this way, he can evaluate theproblems in the actual operation of the station through a report.

• 3b. Comprehensive Internal Audit – This can be done to detectdysfunctions in the radio station operations before they become bigger.

• 3c. Symptoms of Inadequate Control – One common symptom is inherentaccording to the sales report. There is an unexplained decline in revenuesand profits.

Alternative Courses of Actions:IV. Components of Organization Control SystemAlternatives:• 4a. Strategic Plan – In order to attract more advertisers, the radio

station can have a comprehensive “branding” campaign. For example, GMBC can launch a specially-composed song as their station ID.

• 4b. Long-range Financial Plan – This financial plan is needed to ensure the growth of the company for many years to come. Depreciation of assets has to be considered.

• 4c. Operating Budget – This is to have planned account of expenditures, revenues or profits in the future. Proper budgeting implies savings for the company.

Alternative Courses of Actions:

• 4d. Performance Appraisals – Engr. Panganiban can implement a friendly atmosphere of competition between radio stations to increase ratings and therefore advertisements. For instance, the search for “the best GMBC radio station” every year can be done.

• 4e. Statistical Reports – A consolidated sales report is shown in Exhibit A.

• 4f. Policies and Procedures – Engr. Panganiban needs to review company policies and procedure. There may be some errors in them. Corrective action needs to be done.

Alternative Courses of Actions:

V. Strategic Control Systems5a. Financial Analysis5b. Financial Ratio Analysis• Financial and financial ratio analysis is to be done. Since the only

available data is the consolidated sales report, a financial ratioanalysis is suitable. Yearly advertising income is given.

• Thus, profitability ratio is more appropriate than liquidity, efficiencyand financial leverage ratios. However, Engr. Panganiban still needsmore information like net sales, assets and equity which are notgiven in the problem.

Recommendations:

1. For the objective/ standard to be used, the incomefrom previous year is more appropriate than theincome of the highest-netting radio station.

2. The type of control appropriate for the situation isfeedback control since there is previous data availableand corrective actions need to be done.

3. For proper identification of problems, the symptomsfor inadequate control may be chosen. However iffunds are appropriated, the executive reality checkand comprehensive internal audit can be selected.

Recommendations:

4. An organizational control system is required. Thus, itscomponents have to be satisfied. The components arethe strategic plan, the long range financial plan, theoperating budget, performance appraisals, statisticalreports, policies and procedures. Correspondingproposals have been cited in the “alternative courses ofaction” part.

5. A financial ratio analysis is needed to accomplishstrategic objectives. Performance ratios are usefulprovided that information on net sales, assets, andequity are available.

Reference

Medina, R. Engineering Management. Manila, Philippines: Rex BookStore, Inc., 1999.

Thank You!