Effective Control MANAGEMENT FUNCTIONCONTROLLING Definition of Controlling as

Effective Control MANAGEMENT FUNCTION-CONTROLLING

Definition of Controlling as a Management Function : 1 Controlling as a Management Function Controlling : The process of ensuring that actual activities conform to planned activities.

Steps in the Control Process • 1. Establish standards and methods for measuring performance- goals and objectives established during planning process must be clear. Precisely worded, measurable objectives are easy to communicate and translate into standards and methods that can be used to measure performance. Easy of communicating precisely worded goals and objectives is important for control since some people are assigned planning roles and others control roles.

Eg of step 1 • Service industries: standards and measurements might include amount of time customers have to wait in line at a bank, amount of time they have to wait before a telephone is answered. • In an industrial enterprise, standards and measurements include sales and production targets, work attendance goals, waste products produced and recycled and safety records.

Step 2 • 2. Measure Performance: it is an ongoing repetitive process. Frequency of measurements depends upon the type of activity being measured. • Eg: in a manufacturing plant level of gas particles in the air could be continuously monitored for safety. • Eg: long term expansion objectives maybe reviewed by top management only once or twice a year.

Step 3 Determine whether performance matches the standard-in many ways this is the easiest step. The complexities have been dealt by the previous 2 steps. Here we compare measured results with the established targets or standards previously set. If performance matches the standards managers may assume that everything is under control.

Step 4 • Take corrective action: this step is necessary if performance falls short of standards and the analysis indicates action is required. The corrective action could involve a change in one or more activities of the organization’s operations. • Eg: franchise owner/manager might discover that more counter workers are needed to meet the 5 minute customer waiting standard set by Mc. Donald’s

Why control is needed? 1. to create better quality: (TQM total quality management) leads to dramatic improvements in control. Process flaws are spotted and the process is corrected to drive out mistakes. Employees are empowered to inspect and improve their own work. Total quality management changes many attitudes about and approaches to effective control

Why control is needed? • 2. to cope with change: change is an inevitable part of any organization’s environment. Markets shift. Competitors often from around the world offer new products and services that capture the public imagination. New materials and technologies emerge. Government regulations are enacted or amended. The control function helps managers in responding to resulting threats or opportunities, by helping managers detect changes that are affecting their organization’s products and services.

Why control is needed? 3. To create faster cycles: to speed up the cycle involved in creating and delivering new products and services to customers. Today’s customers expect not only speed but customized products and services.

Why control is needed? 4. To add value: trying to match a competitor’s every move can be both expensive and counterproductive. Instead an organization’s main objective should be to “add value” to its product or service so that customers will buy it in preference to a competitor’s offering.

Why control is needed? 5. to facilitate delegation and teamwork: the contemporary trend towards participative management increases the need to delegate authority and encourage employees to work together as teams.

Standards used in Functional areas to gauge performance (KRAs) Production Quality Quantity Cost Individual Job Performance

Standards used in Functional areas to gauge performance (KRAs) Marketing Sales volume Sales expense Advertising expenditures Individual sales person’s performance

Standards used in Functional areas to gauge performance (KRAs) Personnel Management Labor relations Labor turnover Labor absenteeism

Standards used in Functional areas to gauge performance (KRAs) Finance and Accounting Capital expenditures Inventories Flow of capital Liquidity

Designing Control Systems • Managers face a number of challenges in designing control systems that provide accurate feedback in a timely, economical fashion that is acceptable to organizational members. It suggests that what needs to be controlled and how often progress needs to be measured. • Trying to control too many elements of operations too strictly can annoy and demoralize employees, frustrate their managers and waste valuable time, energy and resources.

Designing Control Systems • Furthermore managers may focus on easy-to- measure factors such as the number of people served in a restaurant, and ignore harder-to-measure factors, such as diner satisfaction. Yet diner satisfaction could be more important in the long run than the number of people served in a given period. • Most of these problems can be avoided by an analysis that identifies key performance areas and strategic control points.

Designing Control Systems • Identifying key performance areas or key result areas ( KRAs): are those aspects of the organization or unit that must function effectively for the entire unit or organization to succeed. • These areas usually involve major organizational activities or groups of related activities that occur throughout the organization or unit.

Designing Control Systems In today’s organizations many KRAs are cross functional. An organization might define KRAs for a team focused on customer service in terms of the customer’s response to a satisfaction survey.

Identifying Strategic Control Points In addition to KRAs it is also important to determine the critical points in the system where monitoring or information collecting should occur. Once such strategic control points can be located the amount of information that has to be gathered and evaluated can be reduced considerably.

The most important and useful method of strategic control points is to focus on the most significant elements in a given operation. Usually only a small percentage of the activities, events, individuals or objects in a given operation will account for a high proportion of the expense or problems that managers will have to face.

For eg: 10% of a manufacturer’s products may well yield 60% of its sales, 2 % of an organization’s employees may account for 80% of its employee grievances.

Another useful consideration is the identification of places where change occurs in a productive process. For eg: in an organization’s system for filling customer orders, a change occurs when the purchase order becomes an invoice, when an inventory item becomes an item to be shipped. Since errors are more likely to be made when such changes occur, monitoring change points is usually a highly effective way to control an operation.

Types of Control Preliminary Sometimes called the feedforward controls, they are accomplished before a work activity begins. They make sure that proper directions are set and that the right resources are available to accomplish them.

Types of Control Concurrent Focus on what happens during the work process. Sometimes called steering controls, they monitor ongoing operations and activities to make sure that things are being done correctly.

Types of Control Postaction Sometimes called feedback controls, they take place after an action is completed. They focus on end results, as opposed to inputs and activities.

Types of Control Managers have two broad options with respect to control. They can rely on people to exercise self-control (internal) over their own behavior. Alternatively, managers can take direct action (external) to control the behavior of others.

Types of Control Internal Controls Allows motivated individuals to exercise self-control in fulfilling job expectations. The potential for self-control is enhanced when capable people have clear performance objectives and proper resource support.

Types of Control External Controls It occurs through personal supervision and the use of formal administrative systems. Performance appraisal systems, compensation and benefit systems, employee discipline systems, and management-byobjectives.

Characteristics of Effective Control System 1. Controls need to focus on appropriate activities – Effective controls must focus on critical factors that affect both the individual’s and the organization’s abilities to achieve objectives. 2. Controls should be timely – Information needed for comparisons and control purposes needs to be in the management’s hands in order to make effective corrective action. Delays in generating, gathering or disseminating information can prolong the occurrence and extent of deviation.

3. Controls must be cost effective – The benefit of using appropriate should be worth their cost of installation and operation. Too much control can be worse than too little. The key is to provide appropriate for the situation and provide savings greater that the costs involved. 4. Controls should be accurate and concise – Controls must provide information about operations and people in sufficient quality and quantity to enable managers to make meaningful comparisons to operations standards. As with control, too much information can be as bad as too little.

5. Controls should be accepted by the people they affect – Controls and their applicability to specific situations should be communicated clearly to those responsible for implementing them and to those who will be governed by them.

Control Techniques Besides budgets, there are other accounting and financial concepts and techniques which are used as control devices. This include responsibility accounting, cost accounting, standard cost approach, direct costing, and ratio analysis. This position of the financial study gauges the projects profitability, liquidity, cash solvency, and growth overtime