The System and Process of Controlling

The System and Process of The System and Process of Controll ingControll ing   

What is Controlling?What is Controlling?► Controll ingControll ing is the measurement and correction of performance in is the measurement and correction of performance in

order to make sure that enterprise objectives and the plans devised to order to make sure that enterprise objectives and the plans devised to attain them are being accomplished attain them are being accomplished

► Bureaucratic or formal ControlBureaucratic or formal Control Use of formal rules, standards, hierarchy, legitimate authority – tasks are Use of formal rules, standards, hierarchy, legitimate authority – tasks are

certain and workers are independentcertain and workers are independent► Market ControlMarket Control

Use of price, competition, profit centres exchange relationship- tangible Use of price, competition, profit centres exchange relationship- tangible outputs can be identified market can be developed between partiesoutputs can be identified market can be developed between parties

► Clan ControlClan Control Involves culture, shared values, beliefs, expectations and trust- no one best Involves culture, shared values, beliefs, expectations and trust- no one best

way to do and employees are empowered to make decisionsway to do and employees are empowered to make decisionsPlanning and controlling are closely related Planning and controlling are closely related

Features of controllingFeatures of controlling

►Positive forcePositive force►Continuous processContinuous process►Forward lookingForward looking►UniversalUniversal►DynamicDynamic►Goal-orientedGoal-oriented►Key to control based on planningKey to control based on planning

Importance of controllingImportance of controlling

►Achievement of goalsAchievement of goals►Execution and revision of plansExecution and revision of plans►Brings order and disciplineBrings order and discipline►Facilitates decentralization of authorityFacilitates decentralization of authority►Promotes coordinationPromotes coordination►Coping with uncertainty and changeCoping with uncertainty and change

Limitations of controllingLimitations of controlling

►Enterprise has very little control over Enterprise has very little control over external influencesexternal influences

►Employees do not like to be watched and Employees do not like to be watched and offer resistanceoffer resistance

►Setting control points is not easySetting control points is not easy► It is expensive and takes time and effortIt is expensive and takes time and effort►Many areas defy measurement in Many areas defy measurement in

quantitative termsquantitative terms

The Basic Control ProcessThe Basic Control Process

► The The basic control processbasic control process involves three steps: involves three steps: establishing standards, establishing standards, measurement of actual performancemeasurement of actual performance comparing performance against the standards, and comparing performance against the standards, and correcting variations from standards and planscorrecting variations from standards and plans

► Standards are criteria of performanceStandards are criteria of performance

Resistance to control Resistance to control

►Over-controlOver-control► Inappropriate controlsInappropriate controls►Unachievable standardsUnachievable standards►Unpredictable standardsUnpredictable standards►Rewards for efficiencyRewards for efficiency►Uncontrollable variablesUncontrollable variables

Overcoming resistance to controlOvercoming resistance to control

►Employee participationEmployee participation►Justifiable controlsJustifiable controls►Precise and understandable standards Precise and understandable standards ►Realistic standardsRealistic standards►Timely communication of findingsTimely communication of findings►Accurate findingsAccurate findings►Assuring supportAssuring support►Positive reinforcementPositive reinforcement

Characteristics of effective control Characteristics of effective control systemsystem

► Suitable Suitable ► SimpleSimple► SelectiveSelective► Sound and economicalSound and economical► FlexibleFlexible► Forward-lookingForward-looking► ReasonableReasonable► ObjectiveObjective► Responsibility for failuresResponsibility for failures► Acceptable Acceptable

Dimensions of ControlDimensions of Control

► Principle of Crit ical-Point ControlPrinciple of Crit ical-Point Control ► Strategic control comprises systematic monitoring at Strategic control comprises systematic monitoring at

strategic control points as well as modifying the strategic control points as well as modifying the organization's strategy on the basis of this evaluation organization's strategy on the basis of this evaluation

► Effective control requires attention to those factors critical Effective control requires attention to those factors critical to evaluating performance against plansto evaluating performance against plans

► Examples of critical-point standardsExamples of critical-point standards (1) physical standards, (2) cost standards, (3) capital (1) physical standards, (2) cost standards, (3) capital

standards, (4) revenue standards, (5) program standards, (4) revenue standards, (5) program standards, (6) intangible standards, (7) goals as standards, (6) intangible standards, (7) goals as standards, and (8) strategic plans as control points for standards, and (8) strategic plans as control points for strategic controlstrategic control

Dimensions of ControlDimensions of Control

► Management by Exception (MBE)Management by Exception (MBE)► It triesIt tries to focus attention on exceptionally serious to focus attention on exceptionally serious

deviations from the plans and standardsdeviations from the plans and standards Saves timeSaves time Identifies critical problem areasIdentifies critical problem areas Stimulates communicationStimulates communication Reduces the frequency of decision-makingReduces the frequency of decision-making Leads to concentration of efforts on important thingsLeads to concentration of efforts on important things Makes more use of knowledge and dataMakes more use of knowledge and data

What is Benchmarking?What is Benchmarking?

►Benchmarking is an approach for setting Benchmarking is an approach for setting goals and productivity measures based on goals and productivity measures based on best-industry practicesbest-industry practices

►Three types of benchmarking: Three types of benchmarking: strategic, strategic, operational, and operational, and managementmanagement

Control as a Feedback SystemControl as a Feedback System

►Management control is usually perceived as Management control is usually perceived as a feedback system similar to that which a feedback system similar to that which operates in the common household operates in the common household thermostatthermostat

► Real‑Time Information and ControlReal‑Time Information and Control Real‑time information is information about what Real‑time information is information about what

is happening while it is happeningis happening while it is happening

Feedforward ControlFeedforward Control

► What managers need for effective control is a What managers need for effective control is a system that will tell them potential problems, giving system that will tell them potential problems, giving them time to take corrective action before them time to take corrective action before problems occurproblems occur

► Feedforward systems monitor inputs into a Feedforward systems monitor inputs into a process to ascertain if the inputs are as planned; if process to ascertain if the inputs are as planned; if they are not, the inputs or the process is changed they are not, the inputs or the process is changed in order to obtain the desired resultsin order to obtain the desired results

Comparison of Simple Feedback and Comparison of Simple Feedback and Feedforward Systems.Feedforward Systems.

Requirements for Feedforward ControlRequirements for Feedforward Control 1.1. Make a thorough and careful analysis of the planning and Make a thorough and careful analysis of the planning and

control system, and identify the more important input control system, and identify the more important input variablesvariables

2.2. Develop a model of the systemDevelop a model of the system3.3. Take care to keep the model up to date; in other words, the Take care to keep the model up to date; in other words, the

model should be reviewed regularly to see whether the input model should be reviewed regularly to see whether the input variables identified and their interrelationships continue to variables identified and their interrelationships continue to represent realitiesrepresent realities

4.4. Collect data on input variables regularly, and put them into Collect data on input variables regularly, and put them into the systemthe system

5.5. Regularly assess the variations of actual input data from Regularly assess the variations of actual input data from planned‑for inputs, and evaluate the impact on the expected planned‑for inputs, and evaluate the impact on the expected end resultend result

6.6.  Take action Take action

CONTROL OF OVERALL CONTROL OF OVERALL PERFORMANCEPERFORMANCE

►As overall planning is applied to enterprise, As overall planning is applied to enterprise, in the same way overall control is appliedin the same way overall control is applied

►Decentralization of authority Decentralization of authority ►Measuring total effortsMeasuring total efforts►Financial controls have to be tailored to the Financial controls have to be tailored to the

specific needsspecific needs

PROFIT AND LOSS CONTROLPROFIT AND LOSS CONTROL

►Profit and Loss controls are used in Profit and Loss controls are used in departments and divisions where each has departments and divisions where each has to make a profitto make a profit

►But high cost of accounting and paper But high cost of accounting and paper transactions give rise to limitations. Though transactions give rise to limitations. Though computer technology has made things computer technology has made things easiereasier

Requirements for Effective ControlsRequirements for Effective Controls

► Tailoring Controls to Plans and PositionsTailoring Controls to Plans and Positions ► Tailoring Controls to Individual ManagersTailoring Controls to Individual Managers ► Making Sure That Controls Point Up Exceptions Making Sure That Controls Point Up Exceptions

at Critical Pointsat Critical Points ► Seeking Objectivity of ControlsSeeking Objectivity of Controls ► Ensuring Flexibility of ControlsEnsuring Flexibility of Controls ► Fitting the Control System to the Organization Fitting the Control System to the Organization

CultureCulture ► Achieving Economy of ControlsAchieving Economy of Controls ► Establishing Controls that Lead to Corrective Establishing Controls that Lead to Corrective

ActionAction

What is Budgeting?What is Budgeting?

►Budgeting is the formulation of plans for a Budgeting is the formulation of plans for a given future period in numerical termsgiven future period in numerical terms

►Zero‑base budgeting is dividing Zero‑base budgeting is dividing enterprise programs into "packages" enterprise programs into "packages" composed of goals, activities, and composed of goals, activities, and needed resources and calculating the needed resources and calculating the costs for each package from the base costs for each package from the base zerozero

Information TechnologyInformation Technology

► DataData are the raw facts that may not be very are the raw facts that may not be very useful until they become useful until they become informationinformation, that is, , that is, after they are processed and become after they are processed and become meaningful and understandable by the receivermeaningful and understandable by the receiver

► The information system is defined as a formal The information system is defined as a formal system of gathering, processing, and dispersing system of gathering, processing, and dispersing information internal and external to the information internal and external to the enterprise in a timely, effective, and efficient enterprise in a timely, effective, and efficient manner manner

Challenges Created by Information Challenges Created by Information TechnologyTechnology

► Resistance to Computer UseResistance to Computer Use ► Speech Recognition DevicesSpeech Recognition Devices ► TelecommutingTelecommuting

Telecommuting means that a person can work at a computer Telecommuting means that a person can work at a computer terminal at home instead of commuting to workterminal at home instead of commuting to work

► Computer NetworksComputer Networks ► InternetInternet ► Other Types of NetworksOther Types of Networks

intranetintranet extranetextranet ► GroupwareGroupware

Groupware makes it possible to collaborate with others over Groupware makes it possible to collaborate with others over long distances at the same timelong distances at the same time

► Information SecurityInformation Security

CAD/CAMCAD/CAM

►CAD/CAMs help engineers design CAD/CAMs help engineers design products much more quickly than products much more quickly than they could with the traditional paper-they could with the traditional paper-and-pencil approachand-pencil approach

The Digital Economy, The Digital Economy, E-commerce, and M-commerceE-commerce, and M-commerce

The Emerging Digital Economy The Emerging Digital Economy Four Kinds of TransactionsFour Kinds of Transactions

Business to Consumers (B2C). Business to Consumers (B2C). Consumer to Business (C2B). Consumer to Business (C2B). Consumer to Consumer (C2C). Consumer to Consumer (C2C). Business to Business (B2B).Business to Business (B2B).

M-Commerce and Wireless M-Commerce and Wireless Communication Communication

Productivity, Operations Productivity, Operations Management, and Total Quality Management, and Total Quality

ManagementManagement

What is Productivity?What is Productivity?

►Productivity is the input-output ratio within a Productivity is the input-output ratio within a time period with due consideration for time period with due consideration for qualityquality

Production and Operations Management: Production and Operations Management: Manufacturing and ServiceManufacturing and Service

►Production management was the term used Production management was the term used to refer to those activities necessary to to refer to those activities necessary to manufacture productsmanufacture products

►Operations management refers to activities Operations management refers to activities necessary to produce and deliver a service necessary to produce and deliver a service as well as a physical productas well as a physical product

Operations Management SystemsOperations Management Systems

Steps in Steps in Product and Production DesignProduct and Production Design 1.1. Create product ideas by searching for consumer Create product ideas by searching for consumer needs needs and screening the various alternativesand screening the various alternatives2.2. Select the product on the basis of various Select the product on the basis of various considerations, considerations, including data from market and including data from market and economic analyses, and economic analyses, and make a general feasibil i ty make a general feasibil i ty studystudy3.3. Prepare a preliminary design by evaluating various Prepare a preliminary design by evaluating various

alternatives, taking into consideration reliabil i ty, alternatives, taking into consideration reliabil i ty, quality, quality, and maintenance requirementsand maintenance requirements4.4. Reach a final decision by developing, testing, and Reach a final decision by developing, testing, and simulating simulating the processes to see if they workthe processes to see if they work5.5. Decide whether the enterprise's current facil i t ies are Decide whether the enterprise's current facil i t ies are

adequate or if new or modified facil i t ies are requiredadequate or if new or modified facil i t ies are required6.6. Select the process for producing the product; Select the process for producing the product; consider the consider the technology and the methods technology and the methods availableavailable7.7. After the product is designed, prepare the layout of After the product is designed, prepare the layout of the the facil i t ies to be used, plan the system of facil i t ies to be used, plan the system of production, and production, and schedule the various things that schedule the various things that must be donemust be done

Tools and Techniques for Improving Tools and Techniques for Improving ProductivityProductivity

► Inventory Planning and ControlInventory Planning and Control ► Just-in-Time Inventory SystemJust-in-Time Inventory System

In the just-in-time (JIT) inventory method, the In the just-in-time (JIT) inventory method, the supplier delivers the components and parts to the supplier delivers the components and parts to the production line "just in time" to be assembledproduction line "just in time" to be assembled

► OutsourcingOutsourcing Outsourcing means that production and operations Outsourcing means that production and operations

are contracted to outside vendors that have are contracted to outside vendors that have expertise in specific areasexpertise in specific areas

What is Operations Research?What is Operations Research?

►Operations research Operations research is the application of is the application of scientific methods to the study of scientific methods to the study of alternatives in a problem situation, with a alternatives in a problem situation, with a view to obtaining a quantitative basis for view to obtaining a quantitative basis for arriving at a best solutionarriving at a best solution

What is Value Engineering?What is Value Engineering?► Value engineering, is the process of analyzing the Value engineering, is the process of analyzing the

operations of the product or service, estimating the value of operations of the product or service, estimating the value of each operation, and attempting to improve that operation each operation, and attempting to improve that operation by trying to keep costs low at each step or partby trying to keep costs low at each step or part

► Work simplification is the process of obtaining the Work simplification is the process of obtaining the participation of workers in simplifying their workparticipation of workers in simplifying their work

► A quality circle (QC) is a group of people from the same A quality circle (QC) is a group of people from the same organizational area who meet regularly to solve problems organizational area who meet regularly to solve problems they experience at workthey experience at work

► Total quality management (TQM) is the organization's long-Total quality management (TQM) is the organization's long-term commitment to the continuous improvement of quality, term commitment to the continuous improvement of quality, throughout the organization and with the active throughout the organization and with the active participation of all members at all levels, to meet and participation of all members at all levels, to meet and exceed customer expectationsexceed customer expectations

Mass Production Versus Lean Mass Production Versus Lean Production Managerial PracticesProduction Managerial Practices

MASS PRODUCTIONMASS PRODUCTION► Sporadic and Sporadic and

inconsistent inconsistent improvementsimprovements

► Satisfied with “good Satisfied with “good enough”enough”

►   High inventory High inventory acceptableacceptable

► ““ Me” management with Me” management with emphasis on individual emphasis on individual performanceperformance

►   Workers considered the Workers considered the cause of poor qualitycause of poor quality

LEAN PRODUCTIONLEAN PRODUCTION►   Continuous Continuous

improvements (“kaizen”) improvements (“kaizen”) with strategic with strategic breakthroughsbreakthroughs

► Aim at zero defectsAim at zero defects► Just-in-time inventory Just-in-time inventory

systemsystem► ““ We” or team We” or team

managementmanagement► Everyone is the problem; Everyone is the problem;

especially managementespecially management