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Some ideas on Moulding Motors, Inc. & Management Control

Management Control

Eric Weber

Moulding Motors, Inc. & Management Control Management Control Eric Weber ESTIMATORS ESTIMATORS VS. VS. BUYERS BUYERS

ESTIMATORS ESTIMATORS

VS. VS.
VS. VS.
Moulding Motors, Inc. & Management Control Management Control Eric Weber ESTIMATORS ESTIMATORS VS. VS. BUYERS BUYERS

BUYERS BUYERS

ESTIMATORS ESTIMATORS • • KNOW KNOW THE THE MKT MKT • ANALYZE • ANALYZE •

ESTIMATORS ESTIMATORS

• • KNOW KNOW THE THE MKT MKT • ANALYZE • ANALYZE • • REVISE
• • KNOW KNOW THE THE MKT 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

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)

BY THE ESTIMATORS (WITH GUARANTEED QUALITY AND AVAILABILITY) • NEGOTIATE NEGOTIATE • • WATCH-DOG WATCH-DOG •
• NEGOTIATE NEGOTIATE • • WATCH-DOG WATCH-DOG • • JUDGE • JUDGE ADDITIONAL FUNCTIONS:
• NEGOTIATE NEGOTIATE
• WATCH-DOG WATCH-DOG
• JUDGE
JUDGE
ADDITIONAL FUNCTIONS:

BASED ON THEIR WATCH-DOG

FUNCTION, THEY ASK FOR

REVISIONS WHEN THEY

CONSIDER THEM NECESSARY

ESTIMATORS ESTIMATORS

ESTIMATORS ESTIMATORS BUYERS BUYERS THE ESTIMATORS HAVE NO EX-ANTE IDEA OF WHICH PARTS ARE UP-TO-DATE WITHOUT

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)

(SAVE THE PARTS THAT ARE MOST LIKELY REVISED PERIODICALLY) THE BUYERS HAVE A FEEL FOR THE

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
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.

2) HAVE THEM DO WHAT THEY AR E REQUIRED TO DO WHILE AVOIDING COLLUSION. THIS REQUIRES
ESTIMATORS ESTIMATORS BUYERS BUYERS
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

OF EITHER UNIT WILL ALSO DISTORT THE CONTROL SYSTEM DEVIATIONS HAVE TO BE USED TO CHECK

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

THE INTERNAL CONSISTENCY OF THE TEAM. THEY MUST NOT THREATEN EITHER UNIT Some initial ideas about

Management Control: System and Process

S Y S T E M S

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.

P R O C E S S

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

OF STEPS BY WHICH THE AC TION OF CONTROL IS IMPLEMENTED. Management Control Process (i) •

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?

/ INDICATORS) • DETERMINE WHAT THE PARTICIP ANTS HAVE DONE AND WHY ( ANALYSIS ) •

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

/ ORGANIZATION / SYSTEM - CHANGE PEOPLE: INDIVIDUALS Some key questions (i) • HOW HAS THE

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?

BE USED? • IS THE SYSTEM CONSISTENT ? - WITH THE COMPANY GOALS AND STRATEGIES? -

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?

- DOES THE SYSTEM FORCE SHORT-TERM OPPORTUNISTIC BEHAVIOR? Some key questions (iii) IS THE SYSTEM BEING

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.

ORMANCE EVALUATION, THEN IT MAY BECOME A SYSTEM THAT THREATENS THAT IS, MANAGEMENT MAY HAVE “CORRUPTED”