Control cycle definition
/What is the Control Cycle?
The control cycle is the iterative process of planning, monitoring outcomes, assessing results, and making revisions. The control cycle is commonly applied to the ongoing revision of corporate budgets and process flows.
When applying the control cycle to budgeting, the expectation is that each successive version of the budget will be improved, based on the information gleaned when the initial budget is compared to actual results. This approach works well in an environment where the level of competition is relaxed and few new products are released. The results are more problematic in a fast-paced environment, since business models may be radically revised on a regular basis, so there is little time to gain the benefits of an iterative feedback loop.
Steps in the Control Cycle
The steps in the control cycle are noted below, with explanations for each step:
Establish standards. In this step, management defines the expected level of performance or behavior through policies, procedures, and measurable goals. These standards serve as benchmarks for evaluating actual performance. They must be specific, realistic, and aligned with organizational objectives to be effective.
Measure performance. Performance is measured by collecting and analyzing data on actual operations, employee behavior, or system outputs. This step often involves reports, audits, or monitoring tools to assess how closely actual performance aligns with the established standards. Timely and accurate data is essential for effective measurement.
Compare performance to standards. The actual results are compared against the established standards to identify any deviations or gaps. This comparison helps determine whether goals are being met or if corrective action is needed. It is a key step in evaluating the effectiveness of controls and operational efficiency.
Take corrective action. If deviations are identified, management must implement corrective actions to address the causes of the discrepancies. This may include revising procedures, retraining staff, or strengthening controls. Timely corrective action helps ensure that operations stay aligned with organizational goals and mitigates potential risks.
Monitor and review. The entire control process must be regularly reviewed to ensure it remains effective and relevant. Continuous monitoring allows for the detection of emerging risks, shifts in business conditions, or changes in regulations. Feedback from this step informs future adjustments and helps maintain a robust control environment.
When to Use the Control Cycle
The control cycle works best for process flows, since they tend to change less than business models - that is, there will still be a need to pay suppliers, issue invoices, ship goods, and so forth, irrespective of changes in the business model. Given the higher stability level of processes, you can continually work through the steps in the control cycle to make processes more efficient, while also more closely monitoring risks.
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Example of the Control Cycle
Bland Corporation has an inventory tracking system in place for which the inventory accuracy level is relatively low. In order to improve the accuracy of the inventory records, management decides to use the control cycle. This begins with an examination of cycle count results, where they find that inventory withdrawals are not being recorded in the database in a timely manner. They decide to institute bar code scanning in the warehouse, so that all transactions are recorded in real time. This takes $200,000 and four months of work. After the project is complete, management reviews the most recent cycle counting results again, and finds that inventory accuracy has improved by 12%. However, this analysis finds that some bar code labels in the warehouse are being damaged by materials handling equipment, so the next enhancement is to put protective tape over the labels. The next cycle counting review finds that this action eliminates the damaged bar code problem, and improves inventory record accuracy by another 4%. Thus, ongoing use of the control cycle gradually enhances the targeted process.