Controlling

Merve MartYiğit Emre Özaltın

Müge Özvarol

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Manager’s Challenge The Meaning of Control Organizational Control Focus Feedback Control Model Financial Control The Changing Philosophy of Control Total Quality Management Trends in Quality and Financial Control Innovative Control Systems for Turbulent

Times

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Rochester Independent Practice Association a medical group fear of uncaring doctors are becoming more common

as cost pressures put greater demands on doctors to see more patients.

something must be done to boost doctors’ communication skills and improve the overall quality of patient care.

?? Advice about using control systems and strategies to improve the quality of the doctor-patient interaction.

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Organizational control refers to the systematic process of regulating organizational activities to make the consistent with the expectations established in plans, targets,and standards of performance.

Organizational control is the process of assigning, evaluating, and regulating resources on an ongoing basis to accomplish an organizational goal.

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Effectively controlling an organization requires information about performance standards and actual performance, as well as actions taken to correct any deviations from the standards.

To effectively control, managers need to decide what information is essential, how they will obtain that information and share it with employees, and how they can and should respond it.

Lack of effective control Enron Red Cross and Spherion in 2005’s Hurricane Katrina

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Controls make plans effective. Controls make sure that organizational activities

are consistent. Controls provide feedback on project status. Controls aid in decision making.

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Control can focus on events before,during, or after a process. a local automobile dealer

Three types of control i. Feedforward control Sometimes called preliminary or preventive control

ii. Concurrent control

iii. Feedback control Also called post-action or output control

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Anticipates problems

Solves problems as they happen

Solves problems after

they occur

Concurrent control

Feedback control

Feedforward control

Focu

s is on

inputsongoing

processes outputs

Focu

s is on

Focu

s is on

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Control that attempts to identify and prevent deviations before they occur.

Focus is on human material financial resources

Purpose is to ensure that they meet the standards necessary for the transformation process.

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Feedforward controls are evident in the selection and hiring of new employees. The problems at Spherion and the Red Cross Brookside Gables – an assisted living center

Another type of feedforward control is forecasting trends in environment and managing risk. A.T. Kearney – a consulting company Liz Claiborne – a fashion company

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Monitors ongoing employee activities to ensure they are consistent with performance standards.

Concurrent control assesses current work activities, relies on performance standards, and includes rules and regulations for guiding employee tasks and behaviors.

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Technology advancements are adding to the possibilities for concurrent control in services. Retail stores, such as Beall’s, Sunglass Hut Trucking companies, such as Schneider National, Covenant

Since concurrent control involves regulating ongoing tasks, it requires a through understanding of the specific tasks involved and their relationship to the desired and product.

It involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on products or service.

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Focuses on the outputs of the organization after transformation is complete. Schools in Kentucky

Feedback control has two advantages:i. Feedback provides managers with meaningful

information on how effective its planing effort was. Little variance between standards and actual

performance : planning was generally on target. Great deviation : plans are not effective.

ii. Feedback control can enhance employees motivation .

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The major drawback : the time the manager has the information and if there is significant problem, the damage is already done.

Many feedback controls focus on financial measurement budgeting : a form of feedback control because

managers monitor whether they have operated within their budget targets and make adjustments accordingly.

Most organizations have outside audits of their financial records. The U.S. government and Iraq

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To determine whether performance meets established standards

Key steps in the feedback control model : 1. Establish standards of performance2. Measure actual performance3. Compare performance to standards4. Take corrective action

eBay

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If

Inadequate

If Adequate

Adjust Standards Adjust Performance

Feedback

Establish Strategic Goals

1. Establish standards of performance.

2. Measure actual performance.

3. Compare performance to standards.

4. Take corrective action.

4. Do nothing or provide reinforcement.

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Budgetary control is the process of setting targets for an organization’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.

Budgets are reports that list planned and actual expenditures for cash, assets, raw material, and other resources.

Responsibility center is defined as any organizational department or unit under the supervision of a single person who is responsible for its activity.

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Includes anticipated and actual expenses for each responsility center and for the total organization.

Actual expenses > budgeted amounts the need for managers to identify whether a problem

exists and take corrective action if needed.

Actual expenses < budgeted amounts exceptional efficiency or possibly the failure to meet

some other standards.

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Lists forecasted and actual revenues of the organization.

Actual revenue > budgeted amount : require determining whether the organization can

obtain the necessary resources to meet the higher-than-expected demand for its products or services.

Actual revenue < budgeted amount: signal a need to investigate the problem to see whether

the organization can improve revenues.

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Estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organization has sufficient cash to meet its obligations.

Cash budget shows the level of funds flowing through the organization and the nature of cash disbursement.

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Lists planned investments in major assests, such as buildings, heavy machinery, often involving expenditures more than one year.

Necessary to plan the impact of expenditures on cash flow and profitability.

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Top-down budgeting middle and lower-level managers set departmental

budget targets. Done in accordance with overall company revenues and

expenditures specified by top executives.

Bottom-up budgeting Lower-level managers anticipate their departments’

resource needs. Budget request pass up to top manager for approval.

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Helps to understand how well the organization is performing financially

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Balance sheet : show the firm’s financial position with respect to assets and liabilities

Income statement : summarizes the firm’s financial performance for a given time interval.

Owners’ equity : difference between assets and liabilities is the company’s net worth in stock and retained

earnings

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Assets : what the company own Current Assets(Cash , receivables…) Fixed(Land , buildings…)

Liabilities : firms debts Current debt Long –term debt

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A manager needs to be able to evaluate financial reports that compare the organization’s performance with earlier data or industry norms.

Liquidity RatioThe organization’s ability to meet its current debts

Activity Ratio The organization’s internal performance respect to

key activities defined by management

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Profitability Ratio Firm’s profit in terms of a source of profits

Leverage Ratio

Firm’s debt

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Bureaucratic The use of rules, policies, hiearchy of authority, reward

systems, and other formal devices to influence employee behavior and assess performance.

Decentralised The use of organizational culture, group norms, and a

focus on goals, rather than rules and procedures, to foster compliance with organizational goals

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Bureaucratic Control Decentralized Control

Uses detailed rules and procedures formal control systems

Limited use of rules,relies on values, group and self control, selection and socialiation

Top-down autorty, formal hierarchy, position power.

Flexieble authority, falt structure, expert power, everyone monitors quality

Task related job descriptions;measurable standarts define minimum performance

Results-based job descriptions;Emphasis on goals to be achieved

Emphasis on extrinsic rewards(pay, benefits,status)

Extrinsic and intrinsic rewards(meaningful work, opportunities for growth)

Rewards given for meeting individual performance standards

Rewards individual and team; emphasis on equity across employees

Limited formalized employee participation

Broad employee participation

An organizationwide commitment to infusing quality into every activity through continuous improvement

Japanese companies first used.

In the 1980s American managers start to interest in TQM.

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Quality Circles A group of 6 to 12 employees who meet regulary to

discuss and solve problems affecting the quality of their work

Benchmarking The continuous process of measurşng products,

services, and practices against major competitors or industry leaders

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Six Sigma A quality control approach that emphasizes a relentless

pursuit of higher qulality and lower costs.

Reduced Cycle Time To steps taken to complete a company process

Continues improvement

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TQM does not always work

Six sigma principles might not be appropriate for all organizational problems

Many contingencies can influence the success of TQM program

Quality circles = more beneficial when challenging jobs

TQM more successful = enriches jobs + improves motivation

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Positive Factors

Negative Factors

Tasks make high skill demands on employees

Management expectations are unrealisticlly high

TQM serves to enrich jobs and motivate employees

Middle managers are dissatisfed about loss of authority

Problem-solving skills are improved for all employees

Workers are dissatisfied with other aspects of organizational life

Participation and teamwork are used to tackle significant problems

Union leaders are left out QC discussions

Continuous improvement is a way of life

Managers wait for big, dramatic innovations

International Quality Standards

New Financial Control Systems1. Economic Value-Added2. Market Value-Added3. Activity-Based Costing

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ISO 9000, is a set of international standards for quality management systems established by the International Organization for Standardization in 1987 and revised in late 2000.

The main objective is to evaluate and compare companies on a global basis.

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A control system that measures performance in terms of after-tax profits minus the cost of capital invested in tangible assets.

Aim of using EVA:

1. Run the business more efficiently

2. Satisfy customers

3. Reward shareholders

4. Make more cost-effective decisions.

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MVA measures the stock market’s estimate of the value of a company’s past and expected capital investment projects.

MVA and EVA goes hand-in-hand with eachother in general.

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A measurement which allocates the costs across business processes.

It provides;

1. More accurate costs for various products

2. Evaluate the costs of activities that add value or not add value.

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Open Book Management

Balanced Scorecard

New Workplace Concerns

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Sharing financial information and results with the employees in the organization.

Goal of Open-book Management is to get every employee thinking and acting like a business owner.

Results from;

1. Need for active participation2. Need for commitment to goals3. Importance of teamwork

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It allows employees;

To see the financial situation of the company How his/her individual actions fits into the big

picture and affects the financial future of the organization.

To see the interdependence and importance of each function.

To be more willing to take action in the entire team or function, if they are rewarded accordingly.

The higher the opacity index, the more confidential the financial figures and the managers are less willing to share the info with employees.

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Country Opacity Index

China 87

Russia 84

Indonesia 75

Turkey 74

South Korea 73

Romania 71

Poland 64

India 64

Argentina 61

Taiwan 61

Japan 60

Italy 48

Mexico 48

United Kingdom 38

United States 36

Singapore 29

Source: The Opacity Index, http://www.opacity-index.com accessed on July 22, 2004

* International

Financial >>> * Markets Measurements >>> *

Customers* Statistical Reports >>> *

Employees

Balanced Scorecard is a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.

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Financial

Customers Internal Business Processes

Learning and Growth

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Do actions contribute to

improving financial performance?

Do internal Activities and Processes add Values for Customers and

Shareholders?

Are we learning changing, and

improving?

How well do we serve our customers?

Targets      

Measures      

Outcomes      

Initiatives      

Targets      

Measures      

Outcomes      

Initiatives      

Targets      

Measures      

Outcomes      

Initiatives      

MissionAnd

Goals

Targets      

Measures      

Outcomes      

Initiatives      

The Scorecard has become the core management control system for many organizations today. Such as;

The Drawback of this system is that the simplicity of the system may couse the manager to underestimate the time and commitment that is needed for the approach to become a truly useful management control system.

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Financial Performance

Internal Business

Processes

Customer Services

Learning and Growth

Need for increasing control over companies

Corporate Governance is the system of governing an organization so the interests of corporate owners are protected.

Problems;1. Undercontrol2. Overcontrol

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Rochester Independent Practice Association

They needed objective feedback about how they were doing.

- Scientific methods to survey patient satisfaction.- Teaching communication skills to doctors.

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