Some ideas on Moulding Motors, Inc.

& Management Control

Management Control
Eric Weber

ESTIMATORS ESTIMATORS

VS. VS.

BUYERS BUYERS

ESTIMATORS ESTIMATORS

KNOW THE MKT KNOW THE MKT ANALYZE ANALYZE REVISE REVISE

IN-DEPTH KNOWLEDGE OF THE EXTERNAL MARKET REGARDING THE DETAILED STEPS (ESPECIALLY MATERIALS AND LABOR) REQUIRED FOR THE PRODUCTION OF PARTS

==> MICRO VIEW

OBJECTIVE:
BEST ESTIMATE OF ENTIRE PART BY ESTIMATING THE DETAIL STEPS REQUIRED FOR ITS PRODUCTION

==> TARGET PRICE

BUYERS BUYERS

NEGOTIATE NEGOTIATE WATCH-DOG WATCH-DOG JUDGE JUDGE

IN-DEPTH KNOWLEDGE OF THE EXTERNAL MARKET AS A WHOLE TENDENCIES, LEVELS OF QUALITY, SERVICE...

==> MACRO VIEW

OBJECTIVES:
GET BEST PRICE OF PARTS WITHIN TARGET PRICES SET BY THE ESTIMATORS (WITH GUARANTEED QUALITY AND AVAILABILITY)

ADDITIONAL FUNCTIONS:
BASED ON THEIR WATCH-DOG FUNCTION, THEY ASK FOR REVISIONS WHEN THEY CONSIDER THEM NECESSARY

ESTIMATORS ESTIMATORS

BUYERS BUYERS

THE ESTIMATORS HAVE NO EX-ANTE IDEA OF WHICH PARTS ARE UP-TO-DATE WITHOUT GOING THROUGH THE WHOLE ESTIMATION PROCESS. ==> THEY DEPEND ON THE BUYERS TO POINT OUT WHICH ONES NEED REVISION (SAVE THE PARTS THAT ARE MOST LIKELY REVISED PERIODICALLY)

THE BUYERS HAVE A FEEL FOR THE GENERAL DIRECTION OF THE MARKET, BUT DO NOT KNOW THE TENDENCIES OF THE DETAILED STEPS, NOR HOW TO ESTIMATE THEM ==> THEY DEPEND ON THE ESTIMATORS TO ANALYZE THE DETAILS OF THE PARTS AND COME UP WITH A FINE-TUNED ESTIMATE WHICH IS THE SUM OF THE STEPS

ESTIMATORS ESTIMATORS

BUYERS BUYERS

OBJECTIVE OF THESE TWO DEPARTMENTS AS A TEAM:

CONTROL SUPPLIER COSTS

SET-UP INCENTIVES TO:
1) AVOID COMPETITION TO THE POINT THAT TEAM WORK REQUIRED TO ATTAIN DEPARTMENTAL GOAL IS COMPROMISED 2) HAVE THEM DO WHAT THEY ARE REQUIRED TO DO WHILE AVOIDING COLLUSION. THIS REQUIRES SOME HEALTHY COMPETITION.

ESTIMATORS ESTIMATORS

BUYERS BUYERS

TRYING TO DETERMINE WHO IS RIGHT EVERY TIME A DEVIATION OCCURS WILL DISTORT THE INCENTIVES REQUIRED FOR COLLABORATION AS A TEAM USING THE DEVIATIONS TO EVALUATE PERFORMANCE OF EITHER UNIT WILL ALSO DISTORT THE CONTROL SYSTEM

DEVIATIONS HAVE TO BE USED TO CHECK THE INTERNAL CONSISTENCY OF THE TEAM. THEY MUST NOT THREATEN EITHER UNIT

Some initial ideas about Management Control

Management Control: System and Process

SYSTEMS
SET OF RULES AND PROCEDURES THAT REGULATE WHAT PEOPLE OR ORGANIZATIONAL UNITS DO, AIMED AT HELPING / ASSURING THAT COMPANY GOALS AND OBJECTIVES ARE MET. SOME RULES WILL INDICATE THE PATH TO FOLLOW, SOME WILL COORDINATE RELATIONSHIPS AMONG PEOPLE / UNITS, WHILE OTHERS WILL MOTIVATE INDIVIDUALS OR UNITS TO ALIGN THEIR INCENTIVES / OBJECTIVES WITH THOSE OF THE ORGANIZATION.

PROCESS
SEQUENCE OF STEPS BY WHICH THE ACTION OF CONTROL IS IMPLEMENTED.

Management Control Process (i)

CLARIFY WHO-IS-WHO: RESPONSIBILITIES SPECIFY HOW MISSION, OBJECTIVES, RULES AND PROCEDURES APPLY DETERMINE WHAT HAS HAPPENED (MEASUREMENT / INDICATORS) DETERMINE WHAT THE PARTICIPANTS HAVE DONE AND WHY (ANALYSIS) IS BEHAVIOR ADEQUATELY MEASURED?

Management Control Process (ii)

WHAT JUDGMENTS HAVE BEEN MADE? WHY? HOW? BY WHOM?

WHAT CORRECTIVE ACTIONS NEED TO BE TAKEN? (FEEDBACK)

WHAT NEEDS TO BE CHANGED? - CHANGE OBJECTIVES: STRATEGY / STRATEGIC PLANS - CHANGE RULES AND TOOLS: STRUCTURE / ORGANIZATION / SYSTEM - CHANGE PEOPLE: INDIVIDUALS

Some key questions (i)

HOW

HAS THE SYSTEM BEEN DESIGNED?

- ARE RESPONSIBILITIES DEFINED? (WHO-IS-WHO) - IS WHAT IS EXPECTED OF EVERY PARTICIPANT CLEARLY DEFINED? - HAVE THE INDICATORS THAT WILL BE MEASURED BEEN SPECIFIED? - IS IT CLEAR HOW THESE INDICATORS WILL BE USED?

IS

THE SYSTEM CONSISTENT?

- WITH THE COMPANY GOALS AND STRATEGIES? - WITH COMPANY RULES AND POLICIES?

Some key questions (ii)

DOES

THE SYSTEM HELP TO ACHIEVE THE GOALS AND OBJECTIVES?

DO

DESIGN CONTRADICTIONS EXIST?

- ARE PERSONAL INCENTIVES ALIGNED WITH CORPORATE OBJECTIVES? - DOES THE SYSTEM FORCE UNWANTED BEHAVIOR? - DOES THE SYSTEM FORCE SHORT-TERM OPPORTUNISTIC BEHAVIOR?

Some key questions (iii)

IS THE SYSTEM BEING USED FOR WHAT IS WAS DESIGNED FOR?
1) BUSINESS PROCESS CONTROL 2) TO CHECK INTERNAL CONSISTENCY OF FUNCTION 3) PERFORMANCE EVALUATION NOTE THAT IF A MANAGEMENT CONTROL SYSTEM HAS BEEN DESIGNED FOR 1) OR 2), BUT IT IS BEING USED (INCORRECTLY) FOR PERFORMANCE EVALUATION, THEN IT MAY BECOME A SYSTEM THAT THREATENS... THAT IS, MANAGEMENT MAY HAVE CORRUPTED THE SYSTEM.