1/26/2015

Controlling as a
Management Function

Controlling as a
Management Function

Controlling

Controlling
Done well, it ensures that the
overall directions of individuals
and groups are consistent with
short and long range plans.

A
process
of
monitoring
performance and taking action to
ensure desired results.
It sees to it that the right things
happen, in the right ways, and at
the right time.

It helps ensure that objectives and

accomplishments are consistent
with one another throughout an
organization.

Controlling as a
Management Function

Characteristics of Good
Control

Controlling
It helps maintain compliance with
essential organizational rules and
policies.

Accuracy

Timeliness

Flexibility

Costeffectiveness

Understandability

Realistic

Acceptable to
those who will
enforce
decisions

Control at all
levels
Balance
between
objectivity and
subjectivity

Controlling as a
Management Function

The Control Process

Cybernetic Control System

One that is self-contained in its

performance
monitoring
and
correction
capabilities.
(thermostat)

Establish objectives and

standards.

Measure actual performance.

The control process practiced in

organizations is not cybernetic,
but
it
does
follow
similar
principles.

Compare results with objectives

and standards.

Take necessary action.

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Establish Objectives and

Standards

The control process begins with

planning and the establishment
of performance objectives.

Establish Objectives and

Standards

There are two types of standards:

Output Standards
measures
performance results in terms of
quantity, quality, cost, or time.

Performance
objectives
are
defined and the standards for
measuring them are set.

Input Standards - measures work

efforts that go into a performance
task.

Types of Standards

Types of Standards

Technical Standards (product first

pass success rate, product unit cost,
mean time between failure (MTBF)
for equipment, hurtle rate, sales per
employee, ROE, etc.)

Historical Standards (own metrics in

the past - internal benchmarking)

Planning Standards (cost leadership

target, sales revenue, profitability)

Market Standards (market share,

time to market, EPS expected by
Wall Street, order processing cost,
customer inquiry response time external benchmarking)
Other
Standards
(OSHA,
environmental quality, EEO, ISO
certification,
self-imposed
performance metrics)

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Good Standards

Based on approved plans

Measurable

Considerate of human factors

Comparable and reasonable

Indicative of expected work

performance

Question

11

The company has decided for an

average annual salary raise of 8%,
although the current inflation rate
runs at 10%. Each engineering
manager may decide on the best way
to distribute the salary increase to
his/her staff. If everyone gets an
increase of 8%, then there will be no
differentiation between good and
poor performers. What should you do
as the engineering manager?
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Measuring Actual
Performance

Comparing Results with

Objectives and Standards

Measurements
must
be
accurate
enough
to
spot
deviations
or
variances
between what really occurs and
what is most desired.

Without measurement, effective

control is not possible.

The comparison of actual performance

with desired performance establishes
the need for action.
Ways of making such comparisons
include:
Historical / Relative / Engineering
Benchmarking

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Benchmarking

Internal Benchmarking

Benchmarking is a method of defining

performance standards in relation to a set
of references
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Compare current year performance

metrics with those in past years to
indicate performance improvement
(annual reports)
Short-term goal setting based on
internal benchmarking may create a
false sense of corporate wellbeing absent external benchmarking

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External Benchmarking
(contd)

External Benchmarking

Compare companys performance with

those of peers in the same industry
(1) Financial ratios, (2) Performance
metrics - Time to market, order
processing efficiency, quality control,
unit product cost, etc., (3) Best
practices - tried-and-true methods of
achieving useful results, (4) Critical
success
factors
conditions
for
achieving success in specific areas
based on accumulated learning,
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(5)
Target
pricing
surveying
marketplace to define going prices for
competitive
products,
subtracting
desirable margin and setting product
cost target for product development Innovation
under
duress
model
generally
applicable
to
many
business/engineering activities
(6) Balanced Scorecard forward
looking and non-financial versus past
orientation of financial metrics only
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Examples of
Benchmarking Metrics

Taking Corrective Action

Financial Ratios:
ROI, ROA,
ROS, Debt to Equity Ratio,
Inventory turns, Number of units
produced per employee, number
of units produced per hour,
sales per employees, profit per
unit, breakeven volume

Taking any action necessary

correct or improve things.

to

Management-by-Exception
focuses
managerial attention on substantial
differences between actual and
desired performance.

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Reasons for Performance

Deficiencies

Taking Corrective Action

Management-by
Exception
can
save the managers time, energy,
and
other
resources,
and
concentrates efforts on areas
showing the greatest need.

There are two types of exceptions:

Problems - below standard

Opportunities - above standard

Dont Know - Lack

definition of
performance
standards, lack of
feedback
Cant Do - Lack
skills and/or
aptitude
Dont Care - Lack
the proper work
attitude

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Effective Controls

Effective Controls

The Best Controls in Organizations

The Best Controls in Organizations

are

are

Strategic and results oriented

Timely and exception oriented

Understandable

Positive in nature

Encourage self-control

Fair and objective

Flexible

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Types of Control

Types of Control

Preliminary

Sometimes
called
the
feedforward controls, they are
accomplished before a work
activity begins.

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.

They make sure that proper

directions are set and that the
right resources are available to
accomplish them.
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Types of Control

Types of Controls

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

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.

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Types of Control

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.
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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-by-objectives.

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Organizational Control
Systems

Organizational Control
Systems

Management Processes

Strategy and objectives

Compensation and Benefits

Attract talented
retain them.

Policies and procedures

people

and

Motivate
people
to
exert
maximum effort in their work.

Selection and training

Performance appraisal

Recognize the value of their

performance contributions.

Job design and work structures

Performance modeling, norms, and
organization culture
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Organizational Control
Systems

The Hot Stove Rule

Employee Discipline
Discipline is defined as influencing
behavior through reprimand.
Progressive
Discipline
ties
reprimand to the severity and
frequency
of
the
employees
infractions.
Positive Discipline tries to involve
people more positively and directly
in making decisions to improve their
behavior.

To be Effective Discipline Should be:

Immediate
Focus on
activity not
personality
Consistent

Informative
Occur in a
supportive
setting
Support
realistic rules

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Organizational Control
Systems

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Operations Management
and Control

Information and Financial

Activity-based costing - the true
cost of all products and services.
Economic value added - examine
the value added by all activities.
Understand the implication of key
financial measures of (ratios)
organizational performance

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Purchasing
Economic Order Quantity
automatic reorder points

Just-In-Time Scheduling

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Operations Management
and Control

Project Management

Operations Management
and Control

Program Evaluation and Review

Technique (PERT) - Identifies and
controls the many separate events
in complex projects.

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Statistical Quality Control

Based on the establishment of
upper and lower control limits,
that can be graphically and
statistically monitored to ensure
that products meet standards.

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