CONTROLLING (MANAGING QUALITY AND PERFORMANCE) PRIMAN KATE MARANON KAT NG KRISTA TAMAYO

WHAT IS CONTROL? The systematic process of regulating organizational performance towards the attainment of goals.

WHAT IS CONTROL? ESTABLISHING STANDARDS at the time of planning MEASURING PERFORMANCE and comparing it to the set standards TAKING CORRECTIVE ACTION when any deviation is found “The essence of control is action which adjusts operations to predetermined standards, and its basis is information in the hands of managers.” by Douglas S. Sherwin

CONTROLLING IS GOAL-ORIENTED! It ensures that the resources of the organization are being used effectively and efficiently for the achievement of predetermined goals.

THE FUNDAMENTALS OF AN EFFECTIVE CONTROL SYSTEM Control The task of ensuring that planned activities are getting the desired results. All control systems try to influence behavior. Controlling involves setting a target (planning), measuring performance (evaluation), and taking corrective action (adjusting). Control also applies to monitoring every task—large and small— that is delegated.

MANAGEMENT AND THE CONTROL PROCESS

TYPES OF CONTROL

STEPS IN THE CONTROL PROCESS 1. MEASURING ACTUAL PERFORMANCE Personal observation, statistical reports, oral reports, and written reports Management by walking around (MBWA) 2. COMPARING ACTUALPERFORMANCE AGAINST A STANDARD Comparison to objective measures: budgets, standards, goals

STEPS IN THE CONTROL PROCESS 3. TAKING MANAGERIAL ACTION TO CORRECT DEVIATIONS OR INADEQUATE STANDARDS Immediate corrective action Correcting a problem at once to get performance back on track Basic corrective action Determining how and why performance has deviated and then correcting the source of deviation Revising the standard Adjusting the performance standard to reflect current and predicted future performance capabilities

THE CONTROL PROCESS

QUALITIES OF AN EFFECTIVE CONTROL SYSTEM Accurate Economical Understandable Strategically placed Involves multiple criteria Provides a reasonable criteria Timely Flexible Emphasizes the exception Involves a corrective action

APPROACHES TO MAINTAINING CONTROL The Traditional Control Process Step 1:Set a standard, target, or goal. Step 2:Measure actual performance against standards (observation and timing). Step 3: Take corrective action. The Commitment-Based Control Process Encouraging all employees to exercise ethical self-control (as they initiate process improvements and new ways of responding to customers’ needs.)

TWO BASIC CATEGORIES OF CONTROL SYSTEMS

EXAMPLES OF CONTROL STANDARDS

THE BASIC MANAGEMENT CONTROL SYSTEM Budget Formal financial expression of a manager’s plans. Capital Budget Shows the expenses for equipment with a life longer than one year. Operating Budget Shows the expected sales and/or expenses for each of the company’s departments for the planning period in question.

PERFORMANCE REPORTING Variances Differences between budgeted and actual amounts. Audit A systematic process of objectively obtaining and evaluating evidence of the firm’s performance, judging the accuracy and validity of the data, and communicating the results to interested users. Financial Ratio An arithmetic comparison of one financial measure to another, generally used to monitor and control financial performance.

FINANCIAL RESPONSIBILITY CENTERS Individuals or groups who are assigned the responsibility for a particular set of financial outputs and/or inputs. 3 TYPES: 1. Profit centers Responsibility centers whose managers are held accountable for profit. 2. Revenue centers Responsibility centers whose managers are held accountable for generating revenues, which is a financial measure of output. 3. Cost centers Groups which are supported through internal taxes on other groups; overhead functions.

OTHER DIAGNOSTIC FINANCIAL AND MANAGERIAL CONTROLS Activity-Based Costing (ABC) A method for allocating costs to products and services that takes all the product’s cost drivers into account when calculating the actual cost of each product or service.

CHOOSING STANDARDS AND MEASURES Organization focus on measuring and controlling financial performance, such as sales, revenue and profit. Managers recognize the need to also measure intangible aspects of performance to manage the value-creating activities of contemporary organizations.

It is a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors. Contains four major perspectives: a. Financial performance b. Customer service c. Business Process d. Potential for learning and growth BALANCED SCORECARD

All well-designed control systems involve the use of feedback to determine whether performance meets established standards. We will examine the steps in the feedback control model and how it applies to organizational budgeting. FEEDBACK CONTROL MODEL Establish Strategic Goals Feedback Adjust Standards Adjust Performance If Inadequate If Adequate Feedback 1. Establish standards of performance 2. Measure actual performance 3. Compare performance to standards 4. Do nothing or provide reinforcemen t 4. Take corrective action.

BUDGETING - Reports that list planned and actual expenditures - They highlight the variance between budgeted and actual amounts - They are created for all departments and divisions in an organization Responsibility Center – any organizational department or unit under the supervision of a single person who is responsible for its activity. Types of Budget Expense Budget Revenue Budget Cash Budget

BUDGETING Capital Budget – Top-Down Budgeting – budgets for the coming year are imposed on middle and lower level managers – Bottom-Up Budgeting – involves lower-level managers anticipating their department’s budget needs and passing them up to top management for approval

- Review performance and highlight potential problems - Managers need to be able to evaluate financial reports - Comparisons allow managers to see improvement and focus on competition FINANCIAL CONTROL

- Most common financial statements a. Balance Sheet b. Income Statement or Profit & Loss - Ratios and statistics highlight relationships between performance indicators such as asset, sales and inventory - Ratios are stated fractions or proportions - Most common financial ratios a. Liquidity Ratio b. Activity Ratio c. Profitability Ratio FINANCIAL CONTROL

Hierarchical Control Involves monitoring and influencing employee behaviour through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems and other formal mechanisms Decentralized Control The organization fosters compliance with organizational goals through the use of organizational culture, group norms, and a focus on goals rather than rules and procedures. Open-book management Allows employee to see for themselves the financial condition of the organization and encourages them to think and act like business owners.

TOTAL QUALITY MANAGEMENT (TQM) Total Quality Management (TQM) is a decentralized control philosophy Infuse quality into every activity in a company through continuous improvement Toyota is a good example of the results of TQM TQM became attractive in the 1980s because of its success in Japan

TQM TECHNIQUES Quality Circles Benchmarking Six Sigma Reduced Cycle Time Continuous Improvement

TRENDS IN QUALITY AND FINANCIAL CONTROL International Quality Standards New Financial Control Systems Economic Value-Added (EVA) Market Value-Added (MVA) Activity-Based Costing (ABC) Corporate Governance

CONTROLS AND CULTURAL DIFFERENCES Methods of controlling employee behavior and operations can be quite different in different countries Distance creates a tendency for formalized controls in the form of extensive, formal reports In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control Local laws may constrain the corrective actions that managers can take in foreign countries

THE DYSFUNCTIONAL SIDE OF CONTROL Unfocused controls Failure to achieve desired or intended results occur when control measures lack specificity Incomplete control measures Individuals or organizational units attempt to look good exclusively on control measures Inflexible or unreasonable control standards Controls and organizational goals will be ignored or manipulated