Management Control System

UNIT I Management Control System:

Basic concepts - Nature and scope of Management Control

Control environment – Concept of goals and strategies. - Behavioral considerations.

Basic Concepts

The word control suggests the operations of checking, testing, regulation, verification, or adjustment. As a management function, control is the process of taking the necessary preventive or corrective actions to ensure that organization’s mission and objectives are accomplished as effectively and efficiently as possible. Objectives are yardsticks against which actual performance can be measured.

The management process is completed when effective controlling has been accomplished. Controlling is concerned with

1) comparing events with plans and

2) making necessary corrections where events have deviated or are expected to deviate from plans.

But the word 'control' in an organizational context has traditionally been used interchangeably with 'financial control'.

It is very closely associated with terms such as 'budgets', 'variances', and 'audits', and in a broader sense, with 'rigidity', 'bureaucracy', 'imposed by management', and 'preserving the status quo‘.

In short, Managerial control is a process directed toward ensuring that performance of operations and personnel adheres to plans.

Managerial control is a process that evaluates performance and takes corrective action when performance differs significance and takes corrective action when performance differs significantly from plans. With managerial control, any deviations from forecasts, objectives, or plans can be located early and corrected with minimum difficulty.

In this study, Management Control Systems, we take an integrated approach to performance and compliance. We look at organizations as open systems where people in different functional areas use resources to perform a variety of activities that result in outputs and outcomes that satisfy stakeholders and realize the organization's objectives, while complying with the law and adhering to ethical principles.

Therefore, to ensure that the organization achieves its objectives, management control has to address all its sub-systems. Management control thus has four broad objectives - effectiveness, efficiency, disclosure, and compliance. 

Scope of Management Control

Batol and Martin” Controlling is the management function aimed at regulating organizational activities so that actual performance conforms to expected organizational standards or goals.”

In management parlance, 'control' traditionally refers to the activities of establishing standards of performance, evaluating actual performance against these standards, and implementing corrective actions to accomplish organizational objectives.

In the complex and extremely dynamic modern business environment, management control systems are useful in fulfilling the needs of effectiveness, efficiency, and adaptive learning. Management control is broadly concerned with the attainment of goals and implementation of strategies.

The basic control process based on the cybernetic approach comprises the following steps:

1. Determining areas to control,

2. Establishing standards,

3. Measuring performance,

4. Comparing performance against standards,

5. Rewarding good performance and/or taking corrective action when necessary,

6. Adjusting standards and measures when necessary. 

According to Norbert Weiner, "cybernetics is the study of the entire field of control and communication theory, whether in the machine or the animal." 

Management by Objectives (MBO), a concept propounded by Peter F. Drucker in 1954, is a specific application of the cybernetic process of management control. In MBO, goals/objectives (which should be Specific, Measurable, Achievable, Realistic, and Time-Specific) are set jointly by the supervisor and the subordinate.

The MBO process consists of six steps: developing overall organizational objectives in key result areas; establishing specific goals for sub-units and individuals; formulating action plans while identifying possible problem areas; implementing self-direction and self-control among managers and subordinates; conducting a periodic review of plans; and appraising the performance of subordinates while allowing them sufficient autonomy to implement plans. 

Based on the object of control, management controls have been classified into action controls, results controls, and personnel/cultural controls. Action controls are aimed directly at the actions which take place at different levels of an organization.

Results controls focus on the consequences of actions taken rather than on the actions themselves. Personnel/cultural controls influence the people and the organizational culture, with the expectation that the right people in the right culture will perform the right actions that will ultimately yield the desired results. 

Nature of Controlling:

1. Managerial process

2. Application of planning

3. Measurement of planning

4. Comparing planning

5. Measuring deviations of planning

6. Taking corrective actions

7. Continuity

8. All pervasiveness

9. Final step

10. Basis of planning.

The Purpose of Control:

The management function of controlling serves a number of purposes and these are:

Adapting to Environmental Change

Limiting the Accumulation of Error

Coping with Organizational Complexity

Minimizing Costs.

Adapting to Environmental Change:

In today’s and turbulent business environment, all organizations must contend with change. If managers could establish goals and achieve them simultaneously, control would not be needed. But between the time a goal is established and the time it is reached, many events in the organization and its environment can disrupt movement toward the goal-or even to change the goal itself. A properly designed control system can help managers anticipate, monitor, and respond to changing circumstances.

Limiting Accumulation of Error:

Small mistakes and errors do not often inflict serious damage to the financial health of an organization. Over time, however, small errors may accumulate and become very serious. For example, Whistler Corporation, a large radar manufacturer once faced with such rapidly escalating demand that it is essentially stopped worrying about quality. The defect rate rose from 4 percent to 9 percent to 15 percent, and eventually reached 25 percent. One day, a manager realized that

one hundred of the firm’s 250 employees were spending all their time fixing defective units and that $ 2 million worth of inventory was awaiting repair.

Had the company adequately controlled quality as it responded to increased demand, the problem would have never reached such proportion.

Coping with Organizational Complexity:

When a firm purchases only one raw material, produces one product, has a simple organization design, and enjoys constant demand for its product, its managers can maintain control with a very basic and simple system. But a business that produces many products from myriad raw materials and has a large market area, a complicated organization design, and many competitors needs a sophisticated system to maintain adequate control.

Minimizing Costs:

When it is practiced effectively, control can also help reduce costs and boost output. For example, Georgia-Pacific Corporation, a large wood products company, learned of a new technology that could be used to make thinner blades for its saws. The firm’s control system was used to calculate the amount of wood that could be saved from each cut made by the thinner blades relative to the costs used to replace the existing blades. the results have been impressive- the wood that is saved by the new blades each year fills eight hundred railcars.

Importance of Controlling:

Accountability: The need for controlling the activities of individuals and organizations is at the heart of the basic concept of accountability. For organization members who have been assigned specific responsibilities to be held accountable, they must know exactly what their responsibilities are how their performance will be evaluated, and the standards of effective performance it be used as criteria in the evaluation process. Accountability is virtually impossible without some type of controlling process. And without the ability to require accountability, managers face significant problems in delegating authority to subordinates.

Rapidity of Change: A second factor in increasing the importance of controlling is the rapidity of change. The fast pace at which environmental and other factors change requires a constant evaluation and reevaluation of the organization’s strategic and tactical plans. Controlling systems must be established to assist managers in directing changes that have significant impact on organization activities.

Complexity of today’s organization: A third factor is the growing complexity of today’s organizations. Large, multi-product, geographically dispersed organizations require consistent and appropriately applied control systems to measure effectiveness. The movement toward decentralized organization structures in many firms also calls for effective methods of controlling performance.

Mistakes: Another important reason for the development and implementation of controlling systems is that people make mistakes. In some instances, the mistake is a significant one.

Effectively designed control systems should be capable of identifying a wrong decision, forecast, or order so that corrective action can be taken to minimize the damage. Control systems should not be viewed as blame allocator or as device for finger pointing but as early warning systems to spot deviations from organization objectives.

Its fundamental purpose is to ensure that the achievement of organization objectives. The terms “reconciliation”, “integration”, and “balance”, are as descriptive of the controlling process as are, “error-free”, “Zero-defects, “ “preventive, “ and “corrective.”

Types of Controlling:

Management can implement controls before an activity commences, while the activity is going on, or after the activity has been completed. The three respective types of control based on timing are feedforward, concurrent, and feedback.

To get things done in an efficient manner the system requires constant monitoring and adjustment to control for deviations from standards. Managers can implement controls before the activity begins, during the time the activity is going on, and after the activity has been completed. The first type is called feed forward control, the second is concurrent control, and the last is feedback control. Diagram

Input-------------------------------------Process- -------------------------------- Output

Feedforward control Concurrent Control Feedback Control

(Anticipates problems (Corrects problems as they happen) (Corrects problems after they occur)

Feed forward Control:

The most desirable type of control –feedf orward control-prevents anticipated problems since it takes place in advance of the actual activity.

Feedforward control focuses on the regulation of inputs (human, material, and financial resources that flow into the organization) to ensure that they meet the standards necessary for the transformation process.

McDonald’s opened its first restaurant in Moscow, it sent company quality experts to help Russian farmers learn techniques for growing high quality potatoes and bakers to teach .

Airlines companies frequently use this type of control process for the maintenance of their aircraft.

Therefore it can be said that It’s future directed or preventive in a manner.Carpenters have their own instructive version of feedforward control: “measure twice, cut one”. Indeed, an ounce of prevention is better than a pound of cure.The key to feedforward controls, therefore, is taking managerial action before a problem occurs. Feedforward controls are desirable because they allow managers to prevent problems rather then having to correct them later after the damage (such as poor-quality

products, lost customers, lost revenue, and so forth) has already been done. Unfortunately, these controls require timely and accurate information that is often difficult to get.

Feedforward control also is sometimes called

preliminary control, precontrol, preventive control, or steering control.

Concurrent Controls:

Concurrent control takes place while an activity is in progress. It involves the regulation of ongoing activities that are part of transformation process to ensure that they conform to organizational standards.This type of control is normally termed as real-time control because it deals with the present rather than the future or past. Concurrent control involves monitoring and adjusting ongoing activities and processes to ensure compliance with standards. Concurrent controls, as its name implies, takes place while an activity is in progress.When control is enacted while the work is being performed, management can correct problems before they become costly.

Quality control charts used by organization is a good example of concurrent control.

The best -known form of concurrent control is direct supervision. When a manager directly oversee the actions of employees, the manager can concurrently monitor their actions and correct problems as they occur. Although. Obviously, there’s some delay between the activity and the manager’s corrective response, the delay is minimum. Problems can usually be addressed before much resource waste or damage has been done.

Since concurrent control involves rgulating ongoing tasks, it requires a through understanding of the specific tasks involved and their relationship to the desired and product. Concurrent control sometimes is called screening or yes-no control, because it often involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on products or services. For example, while typing a document computer automatically alerts the typist about the mistakes.

Feedback Control:

The most popular type of control relies on feedback. The control takes place after the activity is done. For instance, the audited balance sheet of a company shows the financial scenario of the corporation for the last year.

This type of control focuses on the outputs of the organization after transformation is complete. Sometimes called postaction or output control, fulfils a number of important functions. For one thing, it often is used when feedforward and concurrent controls are not feasible or are to costly. Sometimes, feedback is the only viable type of control available. Moreover, feedback has two advantages over feedforward and concurrent control. First, feedback provides managers with meaningful information on how effective its planning effort was. If feedback indicates little variance between standard and actual performance, this is evidence that planning was generally on target. If the deviation is great, a manager can use this information when formulating new plans to make them more effective. Second, feedback

control can enhance employees motivation. The major drawback of this type of control is that, the time the manager has the information and if there is significant problem the damage is already done. But for many activities, feedback control fulfils a number important functions.

Multiple Controls

Feedforward, concurrent, and feedback control methods are not mutually exclusive. Rather, they usually are combined into an multiple control systems. Managers design control systems to define standards of performance and acquire information feedback at strategic control points.

Strategic control points are those activities that are especially important for achieving strategic objectives. When organizations do not have multiple control systems that focus on strategic control points, they often can experience difficulties that cause managers to reevaluate their control processes.

Regardless of whether the organization focuses control on inputs, production, or outputs, another choice must be made between different approaches tor control. There are three control approaches regarding the mechanisms managers will use to implement controls: market control, bureaucratic control, and clan control.

Market Control

Market control involves the use of price competition to evaluate output. Managers compare profits and prices to determine the efficiency of their organization. In order to use market control, there must be a reasonable level of competition in the goods or service area and it must be possible to specify requirements clearly.

Market control is non appropriate in controlling functional departments, unless the price for services is set through competition and its representative of the true value of provided services.

Bureaucratic Control

Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms to influence employee behavior and assess performance. Bureaucratic control can be used when behavior can be controlled with market or price mechanisms.

Clan Control

Clan control represents cultural values almost the opposite of bureaucratic control. Clan control relies on values, beliefs, corporate culture, shared norms, and informal relationships to regulate employee behaviors and facilitate the reaching of organizational goals.

Organization that use clan control require trust among their employees. Given minimal direction and standards, employees are assumed to perform well - indeed, they participate in setting standards and designing the control systems.

Characteristics of Effective Control Systems:

Control systems vary from one organization to the next.

Different types of controls are used to address the specific needs of different departments, activities, or organizations. To be effective, however, they all should possess a number of common characteristics:

Understandability

Match the activity under consideration

Capable of registering deviations quickly

Flexibility

Economical

Indicate corrective action

Difficult to manipulate

Timeliness

Management Control SystemManagement Planning & Control System

As a part of a planning for management control, followings are the steps to be taken viz..

1. Setting Performance standard

2. Compare actual with planned standards

3. Evaluate results, give feed back and coach

4. Take corrective actions

During the control process one has to consider behavioral response of employees to control system.

The above schematic shows the important interrelationships between planning and control. As you can see, the control process does not begin after the entire planning process ends, as most managers believe.

Engineering in the human factors

The global economy has caused managers throughout industry to take a close look at their often disappointing accomplishment, as well as the declining performance, of their employees. In consequence, they have placed great stress on improving productivity usually by cutting costs and increasing controls.

The short-term benefits of such crisis management have improved productivity and profits, but unless the human side of control is carefully considered, it is quite likely that productivity and profits will decline again to even lower levels in the long term.

Why management control systems fail

A control system is necessary in any organization in which the activities of different divisions, departments, sections, and so on need to be coordinated and controlled. Most control systems are past-action-oriented and consequently are inefficient or fail. For example, there is little an employee can do today to correct the results of actions completed two weeks ago.

Steering controls, on the other hand, are future-oriented and allow adjustments to be made to get back on course before the control period ends. They therefore establish a more motivating climate for the employee

What's more, although many standards or controls are simply estimates of what should occur if certain assumptions are correct, they take on a precision in today's control systems that leaves little or no margin for error. Managers would be better off establishing a range rather than a precise number and changing standards as time passes and assumptions prove erroneous. This would be fairer and would positively motivate employees. There are three fundamental beliefs underlying most successful control systems.

• First, planning and control are the two most closely interrelated management functions.

• Second, the human side of the control process needs to be stressed as much as, if not more than, the tasks or 'numbers crunching' side.

• Finally, evaluating, coaching, and rewarding are more effective in the long term than measuring, comparing, and pressuring or penalizing

Lesson 3

Scope Change Management: Keeping Projects on TrackIn project management, the term scope has two distinct uses: Project Scope and Product Scope.

Project Scope "The work that needs to be accomplished to deliver a product, service, or result with the specified features and functions." 

Product Scope "The features and functions that characterize a product, service, or result." 

Notice that Project Scope is more work-oriented, (the hows,) while Product Scope is more oriented toward functional requirements. (the what.)

If requirements are not completely defined and described and if there is no effective change control in a project, scope or requirement creep may ensue.

Scope Control Management

Scope should be clearly defined as part of the Project Definition.

Much of the work at that time is directed at agreeing the optimum definition of the project - both in terms of its deliverables and in terms of how it will operate. This scope definition will form the

baseline against which potential changes are assessed and against which the project's performance is measured.

In defining how the project will operate, the Project Manager should try to influence those factors that could lead to subsequent scope change. The importance of a sound Project Definition should be emphasized. Make clear the dangers and potential costs of subsequent changes of direction, but, equally, encourage the leadership to allow change where that would be beneficial. In the dynamic world of business, rapid change is the norm.

All participants should understand that the later in the project that a change is addressed, the greater the likely impact in terms of costs, risks, and timescale.

It is wise to surface potential changes as early as possible. The change control process should make it easy to do so.

Scope of Control Process Control Environment

The Scope Control Process

The scope control process has two key pans. First, it controls changes to a project’s scope. Secondly it assure that all scope changes are process by the described Change Control Process. A scope change is any alteration affecting the agreed upon project scope detailed within the Work Breakdown Structure. Scope Control is is a part of the monitoring and controlling process group.

Project Manager need to evaluate the effect a proposed change can have on a project . Before beginning to analyze the proposed change. the following inputs are needed.

Project Scope Statement

The Project Scope Statement is the document capturing the project scope including the major deliverables

Work Breakdown Structure

The WBS details the scope of the project and the project scope baseline. The WEB is used to determine which work packages could be affected by the change

WBS dictionary

The WBS Dictionary defines the statement of work, milestones, and a unique identifier for each component. The WBS dictionary also helps to define the project’s scope baseline is analyzed to determine how a proposed Change affects deliverables.

Project Scope Management Plan

The Project Scope Management Plan describes how the scope will be controlled and how changes to the project scope will be managed. The Scope stability section indicates the anticipated variation to scope.

Performance reports

Performance reports provide information on project status, completed deliverables, and work progress. Unsatisfactory project performance can lead to requests to reduce scope or to perform corrective actions.

Approved change requests

Approved change requests are requests used within the Scope Control process to expand or reduce the project scope. Only changes processed according to the agreed procedures are authorized and implemented. These changes often impact cost, time, and quality.

Work performance information

Work performance information provides information on the status of changes to the project scope including the status of deliverables and implementation status for change requests, corrective actions, preventive actions, and defect repairs. Since the need for change is going to occur, there are some tools and techniques that can be utilized to control scope changes. The tools and techniques used in the Scope Control process are:

Configuration management system

The configuration management system is a subsystem of the project management information system. It is a collection of documented procedures used to identify and document any changes to the characteristics of a product, and to record and report each change and its implementation status. This system also includes a method for validating approved changes.

Change control system

The change control system is critical because it contains formal procedures that outline how project deliverables and documentation should be managed and changed. The system contains the formal process for submitting, reviewing, tracking, and authorizing proposed changes. The change control system is integrated with the systems in place that control project scope. Often, a change control system is the subset of a configuration management system.

Variance analysis

To control your project, you need measurements that help you identify whether your project is on the right track. Variance analysis uses information from the project performance reports to assess any possible variations. This technique involves identifying variance- specifically, the difference between what is expected and what is created, and why those differences occurred. Project managers then use this information to decide whether any corrective actions are required.

Re-planning

Re-planning must be performed when the proposed scope changes are significant enough to affect existing project documents. A changes is considered significant if documents remain unrevised becomes useless as the project progress.

The quickest way to loose control of a project is the occurrence of arbitrary changes. By controlling changes, project manager can get everyone working towards the same goal delivering project on time and within budget.

After reviewing the changes, the scope control process has resulting output. The out put are :

Updates to the Project Scope Statement

Once changes have been approved, the Project Scope Statement needs to be updated. The Project Scope Statement is used to assess any future changes in scope.

Updates to the Work Breakdown Structure (WBS) and WBS dictionary

The Work Breakdown Structure and WBS dictionary need to be in alignment with all other planning documents, reflecting any approved changes in scope. This is because they are used to verify the work results as part of the project.  

Updates to the scope baseline

The scope baseline needs to be updated because it is used in all aspects of project management, including cost estimates and scheduling. 

Requested changes

Part of the Scope Control process involves dealing with changes. The Integrated Change Control process specifies how these should be handled. After changes have been processed, the approved changes will need to be implemented.

Recommended corrective actions

Some changes occur because of project performance issues. When these types of problems have been identified, corrective actions must be taken to ensure that project work aligns with the project plan.

Organizational process assets updates

To learn from variances that occur and hOW they are handled, the project manager should document the reasons behind the variances and corrective actions, and then update the database so that similar problems can be avoided in future projects

Project Management Plan updates

When changes affect baseline documents, the Project Management Plan needs to be revised. Changes to the Project Management Plan and related documents should follow the Integrated change control process. The affected documents can include cost base line and schedules.

Example Scope and Change Control Process

Any participant or other concerned party may raise Change Requests. The Project Office team and Project Manager will ensure they are captured and proactively manage them to conclusion.

An initial review should be made to examine the need for the change, how it could be achieved and what the consequences would be. The most appropriate member of the Project Team would normally perform this review. Based on those conclusions, the recommended action would be proposed. In this example, there are three possible courses for the approval of the change:

Minor changes within scope can be approved by the Project Manager.

Any change affecting an external sub-contractor would need to be reviewed with that contractor who would agree any necessary contract revisions or payments etc.

Changes of scope and contract revisions would require the approval of the Steering Committee (or it might have been a Change Control Board).

In making the decision, the Project Manager, Change Control Board or Steering Committee would be guided by the pre-established principles for making change decisions.

After the action is agreed the work is assigned for action by the Project Team and/or the external sub-contractor. When complete, the action would be reviewed and the Change Request closed. It is possible that the agreed action could have more than one stage. For example, it might be better to introduce a temporary solution so that the overall benefit from the project can be delivered, and then build a permanent solution after the system is live.

Managing Scope and Change Requests during the Project

Not all changes follow the approved process. Often team members will be persuaded to make a change without using the approved procedure where it seems necessary but minor. Although this can seem practical to those concerned, it represents a risk to the project. The Project Manager and Project Office team should be alert for uncontrolled changes. Where necessary, changes should be painlessly re-directed into the correct procedure.

The Change Control process will run continuously during the project, and potentially beyond that into live running. The Project Office team and the Project Manager will administer and control the process.

The status of the Change Request and its approval level should be tracked. In addition to the database of Change Requests, there would be logs and various management reports to allow the project leadership to track and control the changes. The Technical and administrative tracking of the actual changes would normally be made using the Configuration Management process.

At the End of the Phase

The Change Control process continues throughout the project, so no specific action is necessarily required at the end of each phase. Nevertheless, phase end is a good time to review the status of Change Requests, ensuring requests have been auctioned in a timely fashion within the phase, and, in particular, allowing for their impact in the detailed planning for the following phase. 

At the End of the Project

Some Change Requests may have been deferred for processing after the project is complete. This can be an easier option than disrupting the interrelated development and testing during the initial project. It might also be non-beneficial to delay the entire project to accommodate a change that could wait until benefit from the main functionality has been generated. At the end of the project, it is important that any outstanding actions are reviewed and the appropriate procedure is initiated to get them addressed. (It is easy to forget those promises after the project has finished.)

The Project Office should ensure all changes have been properly finalized. All Change Requests should either have been completed or passed onwards for subsequent processing. The permanent documentation and other deliverables (eg training) should have been updated to reflect the changes.

Change Requests may often reflect lessons to be learned for future projects. It is always worthwhile reviewing what can be learned and submitting any new knowledge or wisdom into the various knowledge repositories. Note, in particular, any situations where existing approaches or sample plans should be updated.

Why is Project Scope Change Management Important? In particular, there are four strong reasons why scope management must be a top priority for the successful project manager:

1.Cost: Scope change can affect work that has been already performed. This means rework costs for work that has already started or worse, been completed.

2.Schedule: With each scope change, precious project resources are diverted to activities that were not identified in the original project scope, leading to pressure on the project schedule. The project manager must also consider impact on the project’s critical path.

3.Quality: When not analyzed thoroughly, scope changes lead to quick fixes that can affect product quality.

4. Morale: Scope changes can cause a loss of control of the team’s planned work. Changing focus or direction to meet the change requests adversely impacts team morale.

When Scope is Not Managed What can happen when scope is not managed? These real-world examples illustrate the necessity of scope change management.

Case 1: Requirements documents are written and a project plan is created to produce a large Web-based product around core specifications. As the specifications are written and then reviewed, new faces are added to the committees and innocent statements emerge: “You know it will need to…”, “Now, come to think of it, …” and “By the way, …”. The specifications, written by several team members, begin undergoing rapid change. As a result of poor scope change management, the specifications contain conflicting and ambiguous statements. Integration issues arise, quality suffers and the cost rises. The project manager needed to recognize that the comments from the new faces were more than minor details, they were scope changes. It would be appropriate to call a scope management meeting with the stakeholders to review a consolidated list of the comments.

Case 2

A product selection project is undertaken based on an identified plan. In the initial project phase, the scope of user involvement is increased significantly and additional deliverables are identified. It is important to keep the project moving; therefore, the project schedule and budget are never revised, leading to significant delivery issues.Scope should have been defined and reviewed with all stakeholders at every phase of the project. When the scope was increased, it should have been accompanied by change requests and proper status reporting and accounting.

Case 3

A project manager identifies a set of scope points during the initial conversations with the stakeholders. At the project kickoff meeting attended by the stakeholders and the project team, the project manager identifies these scope points and achieves a consensus. Each project review meeting includes scope review as an agenda item.Project scope was clearly articulated and reinforced by a small set of statements. Requested scope changes were easily identified and brought to the attention of the stakeholders for consideration

Tips and TechniquesHere are helpful tips and techniques for keeping scope change on track:

1.Proactive Change Identification: Scope changes are waiting to happen, so the project manager should take an active role in identifying these changes with stakeholders. By being proactive, the project manager can incorporate the vital few changes that account for 80% of the stakeholders’ issues and concerns.

2.Sponsor Approval: Always get the sponsor’s approval and buy-in for the change request before authorizing any related work. If it is difficult to have the sponsor review every change, ask him/her to review a set of change requests. Alternatively, the change can be classified as routine or in need of further analysis.

3.Thorough Impact Analysis: It’s easy to conduct a superficial change impact analysis, however the repercussions are not very pleasant. An impact analysis needs to consider all the configuration items that will be affected by the change and associated costs.

4.Communicate Changes: In a large project team, changes can be overlooked if they are not communicated in a timely way. People like to know what they are working on and to be kept informed of project decisions. Proper team communications are essential to understanding and overcoming resistance to change.

5.Avoid Scope Creep: Scope creep occurs when changes are allowed without proper impact analysis, and without reviewing schedule and cost implications. This is common with repetitive minor incremental adjustments, where the project budget and schedule are not kept in sync with the effort involved for the changes. In this scenario, there is no way to avoid a runaway project syndrome. Scope creep is a symptom

of a process problem; the solution is to implement a process to track each change and control its implementation

Chapter 17 Just-in-Time and Lean SystemsGeneral Motor

An example of the use of JIT in General Motors is given below.

General Motors (GM) in the USA has (approximately) 1700 suppliers who ship to 31 assembly plants scattered throughout the continental USA. These shipments total about 30 million metric tons per day and GM spends about l,OOO million dollars a year in transport costs on these shipments (1990 figures).

JIT implies frequent, small, shipments. When GM moved to JIT there were simply too many (lightly loaded) trucks attempting to deliver to each assembly plant. GM's solution to this problem was to introduce consolidation centers at which full truckloads were consolidated from supplier deliveries.

This obviously involved deciding how many consolidation centers to have, where they should be, their size (capacity) and which suppliers should ship to which consolidation centers (suppliers can also still ship direct to assembly plants).

As of 1990 some 20% by weight of shipments go through consolidation centers and about 98% of suppliers ship at least one item through a consolidation centre. All this has been achieved without sacrificing the benefits of JIT.

Production control system involves

1. Reduce inventory cost

2. Right production at right time

There are two ways..

Produce – Advertise – Create Market and sale

Advertise – Create Market – Produce – Deliver

Concept of inventory theory

JIT

EOQ (Economic Order Quantity)

Kanban ( Material Requirement Planning)

JIT

Originated in Japan

Often said Japanese industry works — just·in-time,

Western industry works — just-in—case

JIT is also known as stockless production or lean production 

JIT philosophy means getting the right quantity of goods at the right place and the right time

JIT exceeds the concept of inventory reduction

JIT is an all-encompassing philosophy found on eliminating waste

Waste is anything that does not add value

A broad JIT view is one that encompasses the entire organization

Just-in-time or JIT. means producing goods and services exactly when they are needed. The underlying principle of JIT is one of continuous waste elimination and hence it is universally applicable. Obviously, the manner in which JIT principles are applied across different industries will vary For example, in process industries, potential applications of JIT philosophy would include implementation vendor development and JIT purchasing. Furthermore the fundamental concept behind JIT manufacturing is getting the right product to the right place at the right time. This is achieved by correctly timing the supply chain so that as soon as a batch is processed, there is a new batch waiting to be processed. A steady flow of unfinished goods through the various production levels eliminates the need for extra materials to be kept in storage. In addition, JIT also eliminates waste associated with labor and time.

JIT is key element in leading to lean production or lean system, which meant to turn higher productivity in an organization.

The push method is applicable when the production of the item begins in advance of customer needs. In push system, the emphasis shifts to using the information about customers, suppliers and production to mange materials flows. Batches of raw materials are planned to arrive at a factory about when needed to make batches or parts and sub-assemblies. These assemblies are made and delivered to final assembly about when needed and finished products are assembled and shipped about when needed by customers.

JIT system improves the quality of the responsibility of every worker and not just quality control inspectors, reduce scrap and rework, reduce cycle times, lower setup times, smoothen production flow, decrease inventory of raw materials, work-in-progress and finished goods, incur cost savings, force higher productivity, increase worker participation, attracts a more skilled workforce, makes organization and employees able and wiling to switch roles, reduces space requirements, and improves relationships with suppliers.

JIT is a means of raising productivity and lowering costs for manufacturing.  It relies on tightly scheduled and frequent deliveries of supplies to reduce inventory needs and costs. The main thrust of JIT is a ‘Quick Response Strategy’ to a swiftly changing market through organizational flexibility. JIT thus advocates the organizational ability to deliver high quality products, respond rapidly to changes in demand and be more cost-competitive.

Features

JIT originated in Japan, post WWII

Driven by a need survive after the devastation caused by the war

JIT gained worldwide prominence in the 1970s

Toyota Motor Co. developed JIT

Often termed “Lean Systems”

All waste must be eliminated- non value items

Broad view that entire organization must focus on the same goal - serving customers

JIT is built on simplicity- the simpler the better

Focuses on improving every operation- Continuous improvement - Kaizen

Visibility – all problems must be visible to be identified and solved

Flexibility to produce different models/features

Three Elements of JIT

Three Elements of JIT – continued

JIT manufacturing focuses on production system to achieve value-added manufacturing

TQM is an integrated effort designed to improve quality performance at every level

Respect for people rests on the philosophy that human resources are an essential part of JIT philosophy

JIT Manufacturing is a philosophy of value-added manufacturing

Achieved by

o Inventory reduction - exposes problemso Kanbans & pull production systems

o Small lots & quick setupso Uniform plant loadingo Flexible resourceso Efficient facility layouts

Jumbled flows, long cycles, difficult to schedule

Product focused cells, flexible equipment, high visibility, easy to schedule, short cycles

JIT and TQM- Partners

Build quality into all processes

Focus on continuous improvement - Kaizen

Quality at the source- sequential inspection

Jidoka (authority to stop line)

Poka-yoke (fail-safe all processes)

Preventive maintenance- scheduled

Work environment- everything in its place, a place for everything

Respect for People: The Role of Employees

Genuine and meaningful respect for associates

Willingness to develop cross-functional skills

JIT uses bottom-round management – consensus management by committees or teams

Actively engage in problem-solving (quality circles)

Everyone is empowered

Everyone is responsible for quality: understand both internal and external customer needs

Associates gather performance data

Team approaches used for problem-solving

Decisions made from bottom-up

Everyone is responsible for preventive maintenance

Supplier Relationships and JIT

Use single-source suppliers when possible

Build long-term relationships

Work together to certify processes

Co-locate facilities to reduce transport if possible

Stabilize delivery schedules

Share cost & other information

Early involvement during new product designs

Benefits of JIT

Reduction in inventories

Improved quality

Shorter lead times

Lower production costs

Increased productivity

Increased machine utilization

Greater flexibility

Implementing JIT

Starts with a company shared vision of where it is and where it wants to go

Management needs to create the right atmosphere

Implementation needs a designated “Champion”

Implement the sequence of following steps

Make quality improvements

Reorganize workplace

Reduce setup times

Reduce lot sizes & lead times

Implement layout changes

Cellular manufacturing & close proximity

Switch to pull production

Develop relationship with suppliers

Implementing JIT – continued

Reduce lot sizes & lead times

Implement layout changes

Cellular manufacturing & close proximity

Switch to pull production

Develop relationsship with suppliers

JIT in Services

Most of the JIT concepts apply equally to Service companies

Improved quality such as timeliness, service consistency, and courtesy

Uniform facility loading to provide better service responsiveness

Use of multifunction workers

Reduction in cycle time

Minimizing setup times and parallel processing

Workplace organization

Some Key Elements of JIT

1. Stabilize and level the MPS with uniform plant loading (hcijunka in Japanese): create a uniform load on all work centers through constant daily production (establish freeze windows to prevent changes in the production plan for some period of time) and mixed model assembly (produce roughly the same mix of products each day, using a repeating sequence if several are produced on the same line), Meet demand fluctuations through end-item inventory rather than through fluctuations in production level.

2. Reduce or eliminate setup times: aim for single digit setup times (less than l0 minutes) Or ‘one touch ‘setup this can be done through better planning, process redesign, and product redesign.

A good example of the potential for improved setup times can be found in auto racing, where a NASCAR pit crew can change all four tires and put gas in the tank in under 20 seconds. (How long would it take you to change just one tire on your car'?). The pit crew’s efficiency is the result of a team effort using specialized equipment and a coordinated, well—rehearsed process.

3. Reduce lot sizes (manufacturing and purchase); reducing setup times allows economical production of smaller lots; close cooperation with suppliers is necessary to achieve reductions in order lot sizes for purchased items, since this will require more frequent deliveries.

Reduce lead times (production and delivery): production lead times can be reduced by moving work stations closer together, applying group technology and cellular manufacturing concepts, reducing queue length (reducing the number of jobs waiting to be processed at a given machine), and improving the coordination and cooperation between successive processes; delivery lead times can be reduced through close cooperation with suppliers, possibly by inducing suppliers to locate closer to the factory.

5. Preventive maintenance: use machine and worker idle time to maintain equipment and

prevent breakdowns.

6. Flexible work force: Workers are trained to operate several machines, to perform maintenance task, and to perform quality inspection. In general, JIT requires teams of competent, empowered employees

who have more responsibility for their own work. The Toyota Production System concept of “respect for people" contributes to a good relationship between workers and management

7. Require supplier quality assurance and implement a zero defects quality program; error lending to defective item must be eliminated, since there are no buffers of excess parts. A Quality at the source program must be Implemented to give Workers the personal responsibility for the quality of the work they do, and the authority to Stop production when something goes wrong. Techniques Such as "JIT lights “ ( to indicate line slowdowns or stoppages) and "tally boards" (to record and analyze causes of production stoppages and slowdowns to facilitate correcting them later) may be used.

8. Small-lot. (single unit) conveyance: use a control system such as a kanban (card) system (or other signaling system) to convey parts between work stations in small quantities (ideally, one unit at a time). In its largest sense, JIT is not the same thing as a kanban system and kanban system is not required to implement JIT , JIT is required to implement a kanban system and the two concepts are frequently equated with one another.

 KANBAN

Meaning : KANBAN is signal or communication system used to control the flow of items through the production process . It is said that Material Requirements Planning (MRP) = a PUSH system

The application of Just in Time (JIT) techniques to any process requires a concept that governs the receipt of required items so that production and other processes are not interrupted. Kanban is explained as a concept that allows the JIT materials process to be implemented and controlled.

Kanban is a concept which relates to obtaining materials or required items just in time for their introduction into the assembly or process only when they are required

The system of JIT or the just in time process was initiated by the Japanese firm Toyota in the 1940’s. Kanban is a system to signal a need for action. This can be done by cards (which is the traditional way) or by other devices that are used as markers, indicating the need to take action. Taiichi Ohno the man who conceptualized the JIT system says Kanban is the means to achieve JIT.

Toyota felt the need in the 1940’s to reduce costs by introducing proper inventory stocking techniques of required assembly parts. First, they studied supermarkets to understand how supermarkets ensure their shelves are always stocked with the materials that the customers want and in the required amount. Further analysis of Kanban explained that customers could always be assured of a constant supply of product and only pick up the number of items that they immediately required. Supermarket customers knew a future supply of wanted product would be available whenever desired. Toyota reasoned that if they could ensure this same supermarket guarantee of required parts for their assembly lines, there would be less of a need to maintain high inventories which in turn, drive up costs and storage requirements.

Kanban controls the rate of production by passing the demand for raw materials through a system of customer-store processes, which ensures that materials are received only when required. Toyota also maintained strict controls on defective products, which in turn, were disapproved to enter the process.

With Kanban, each process identifies only those products that are required for that exact process until that process is complete. Each subsequent process continues by only using products that are required for the next step of processing, and so on. Thus, production is equalized in all processes and stabilizes the production by fine tuning inventory demand and requirement processes.