Learning Outcomes
The proper performance of the management control function is critical to the success of an organization. After plans are set in place, management must execute a series of steps to ensure that the plans are carried out. The steps in the basic control process can be followed for almost any application, such as improving product quality, reducing waste, and increasing sales. The basic control process includes the following steps:
Consider a situation in which a fictional company, The XYZ Group, has suffered a decrease in the profits from its high-end sunglasses due to employee theft. Senior executives establish a plan to eliminate the occurrence of employee theft. It has been determined that the items are being stolen from the company warehouse. The executives establish a goal of zero thefts ($0) within a three-month period (Step 1). The company currently loses an average of $1,000 per month due to employee theft. To discourage the undesired behavior, XYZ installed cameras in the warehouse and placed locks on the cabinets where the most expensive sunglasses are stored. Only the warehouse managers have keys to these cabinets. After three months, XYZ managers contact the bookkeeper to get the sales and inventory figures for the past three-month period (Step 2). The managers then compare the figures with the previous period, taking into account orders for deliveries, returns, and defective merchandise (Step 3). It has been determined that the company lost $200 the first month, $300 the second month, and $200 the third month due to theft, which is an improvement but short of the goal. Managers then come up with suggestions for making adjustments to the control system (Step 4). XYZ senior executives approve of the suggestion to institute a zero-tolerance policy for employee theft. Now, if there is evidence that an employee has stolen a pair of sunglasses, that employee’s job will be terminated. The employee handbook is updated to include the change, and XYZ executives hold a meeting with all warehouse employees to communicate the policy change (Step 5). Timing of ControlsControls can be categorized according to the time in which a process or activity occurs. The controls related to time include feedback, proactive, and concurrent controls. Feedback control concerns the past. Proactive control anticipates future implications. Concurrent control concerns the present. FeedbackFeedback occurs after an activity or process is completed. It is reactive. For example, feedback control would involve evaluating a team’s progress by comparing the production standard to the actual production output. If the standard or goal is met, production continues. If not, adjustments can be made to the process or to the standard. An example of feedback control is when a sales goal is set, the sales team works to reach that goal for three months, and at the end of the three-month period, managers review the results and determine whether the sales goal was achieved. As part of the process, managers may also implement changes if the goal is not achieved. Three months after the changes are implemented, managers will review the new results to see whether the goal was achieved. The disadvantage of feedback control is that modifications can be made only after a process has already been completed or an action has taken place. A situation may have ended before managers are aware of any issues. Therefore, feedback control is more suited for processes, behaviors, or events that are repeated over time, rather than those that are not repeated. Proactive controlProactive control, also known as preliminary, preventive, or feed-forward control, involves anticipating trouble, rather than waiting for a poor outcome and reacting afterward. It is about prevention or intervention. An example of proactive control is when an engineer performs tests on the braking system of a prototype vehicle before the vehicle design is moved on to be mass produced. Proactive control looks forward to problems that could reasonably occur and devises methods to prevent the problems. It cannot control unforeseen and unlikely incidents, such as “acts of God.” Concurrent controlWith concurrent control, monitoring takes place during the process or activity. Concurrent control may be based on standards, rules, codes, and policies. One example of concurrent control is fleet tracking. Fleet tracking by GPS allows managers to monitor company vehicles. Managers can determine when vehicles reach their destinations and the speed in which they move between destinations. Managers are able to plan more efficient routes and alert drivers to change routes to avoid heavy traffic. It also discourages employees from running personal errands during work hours. In another example, Keen Media tries to reduce employee inefficiency by monitoring Internet activity. In accordance with company policy, employees keep a digital record of their activities during the workday. IT staff can also access employee computers to determine how much time is being spent on the Internet to conduct personal business and “surf the Web.” The following diagram shows the control process. Note that the production process is central, and the control process surrounds it.  The control process Contribute!Did you have an idea for improving this content? We’d love your input. Improve this pageLearn More
1 1 2 Control ◦ The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations The Purpose of Control ◦ To ensure that activities are completed in ways that lead to accomplishment of organizational goals 2 3 Market Control ◦ Emphasizes the use of external market mechanisms to establish the standards used in the control system Bureaucratic Control ◦ Emphasizes organizational authority and relies on rules, regulations, procedures, and policies Clan Control ◦ Regulates behaviour by shared values, norms, traditions, rituals, and beliefs of the firm’s culture 3 4 4 Understandability Flexibility Strategic Placemen t Strategic Placemen t Reasonabl e Criteria Reasonabl e Criteria Effective Control System Effective Control System Timelines s Multiple Criteria Multiple Criteria Correctiv e Action Correctiv e Action Accuracy Economy Emphasis on Exception s Emphasis on Exception s 5 5 6 The final link in management functions: ◦ Planning Controls let managers know whether their goals and plans are on target and what future actions to take ◦ Empowering employees Control systems provide managers with information and feedback on employee performance ◦ Protecting the workplace Controls enhance physical security and help minimize workplace disruptions 6 7 7 Leading Motivation Leadership Communication Individualand Group Behaviour Planning Goals Objectives Strategies Plans Organizing Structure HumanResource Management Controlling Standards Measurements Comparison Actions 8 The Process of Control 1.Measuring actual performance 2.Comparing actual performance against a standard 3.Taking action to correct deviations or inadequate standards 8 9 9 GOALS Organizational Divisional Departmental Individual Measuring Actual Performance Comparing Actual Performance Against Standard Taking Managerial Action Step 1 Step 3 Step 2 10 How: Sources of Information ◦ Personal observations ◦ Statistical reports ◦ Oral reports ◦ Written reports What: Control Criteria ◦ Employees Satisfaction Turnover Absenteeism ◦ Budgets Costs Output Sales 10 11 11 12 Determining the degree of variation between actual performance and the standard ◦ Significance of variation is determined by: The acceptable range of variation from the standard (forecast or budget) The size (large or small) and direction (over or under) of the variation from the standard 12 13 13 14 Courses of Action ◦ “Doing nothing” Only if deviation is insignificant ◦ Correcting actual (current) performance Immediate or basic corrective action ◦ Revising the standard Determine whether the standard is realistic, fair, and achievable 14 15 15 16 What Is Performance? ◦ The end result of an activity What Is Organizational Performance? ◦ The accumulated end results of all of the organization’s work processes and activities Designing strategies, work processes, and work activities Coordinating the work of employees 16 17 Organizational Productivity ◦ The overall output of goods and/or services divided by the inputs needed to generate that output ◦ Ultimately, a measure of how efficiently employees do their work 17 18 Organizational Effectiveness (cont’d) ◦ Measuring how appropriate organizational goals are and how well the organization is achieving its goals Systems resource model: Is organization efficient in acquiring scarce and valued resources? The process model: Is organization efficient in converting inputs to outputs? The multiple constituencies model: Is organization effective in meeting each constituencies’ needs? 18 19 Industry Rankings ◦ Many different lists exist to rank organizations. Some examples: Report on Business Magazine’s Top 1000; Canada’s Power Book Report on Business Magazine’s 50 Best Companies To Work For in Canada Profit’s 100: Canada’s Fastest Growing Companies 19 20 Feedforward Control ◦ Prevents anticipated problems before they occur Building in quality through design Requiring suppliers conform to ISO 9002 Concurrent Control ◦ Monitoring while activity is in progress Direct supervision: management by walking around 20 21 Feedback Control ◦ Takes place after an activity is done Corrective action is after-the-fact, when the problem has already occurred ◦ Advantages Feedback provides managers with information on the effectiveness of their planning efforts Feedback enhances employee motivation by providing them with information on how well they are doing 21 22 22 InputOutput Feedforward Control Concurrent Control Feedback Control Processes Anticipates problems Corrects problems as they happen Corrects problems after they occur 23 Traditional Controls ◦ Ratio analysis Liquidity Leverage Activity Profitability ◦ Budget analysis Quantitative standards Deviations Other Measures ◦ Economic value added (EVA) ◦ Market value added (MVA) 23 24 Balanced Scorecard ◦ A measurement tool that uses goals set by managers in four areas to measure a company’s performance: Financial Customer Internal processes People/innovation/growth assets 24 25 Management Information Systems (MIS) ◦ A system used to provide management with needed information on a regular basis Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names) Information: data that has been analyzed and organized such that it has value and relevance to managers 25 26 Benchmarking ◦ The search for the best practices among competitors or noncompetitors that lead to their superior performance ◦ A control tool for identifying and measuring specific performance gaps and areas for improvement 26 27 Cross-cultural Issues ◦ The use of technology to increase direct corporate control of local operations ◦ Legal constraints on corrective actions in foreign countries ◦ Difficulty with the comparability of data collected from operations in different countries 27 28 Workplace Concerns ◦ Privacy versus monitoring: E-mail, telephone, computer, and Internet usage can all be monitored ◦ Employee theft The unauthorized taking of company property by employees for their personal use ◦ Violence Anger, rage, and violence in the workplace is affecting employee productivity 28 29 29 Internet use 54.7% Telephone use 44.0% E-mail messages 38.1% Computer files 30.8% Job performance using video cameras 14.6% Phone conversations 11.5% Voice-mail messages 6.8% Source: Based on S. McElvoy, “E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69. 30 30 Witnessed yelling or other verbal abuse42% Yelled at co-workers themselves29% Cried over work-related issues23% Seen someone purposely damage machines or furniture14% Seen physical violence in the workplace10% Struck a co-worker2% Source: Integra Realty Resources, October-November Survey of Adults 18 and Over, in “Desk Rage.” BusinessWeek, November 20, 2000, p. 12. |
Is the process of monitoring activities to ensure that they are being accomplished as planned and correcting any significant deviations?
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