Dr. Clive Vlieland-Boddy Management Control Systems Dr. Clive Vlieland-Boddy

The Functions of Management Strategy Evaluation Forecasting Planning – Choosing goals and deciding how to achieve them Acting – carry out plan Controlling – evaluating results by comparing the actual results to the plan. You work for Baskin Robins – one of its goals is to increase operating income How do you do it? Incr sales price Incr sales volume Lower costs The accounting system, by tracking costs, helps managers evaluate performance Feedback

“What gets measured happens” Control Systems “What gets measured happens” What is important to know about the control process? What are some organizational control systems and techniques?

Control Systems Controlling is one of the four management functions. Control begins with objectives and standards. Control measures actual performance. Control compares results with objectives and standards. Control takes corrective action as needed. Control focuses on work inputs, throughputs, and outputs. It should ensure Goal Congruence.

Control Systems Controlling The process of measuring performance and taking action to ensure desired results The sooner you can take corrective action, the easier it will be to correct the problem.

Measures work efforts that go into a performance task Control Systems Output Standard Measures performance results in terms of quantity, quality, cost, or time. Input Standard Measures work efforts that go into a performance task Input standards include material, labor and overhead in the form of administrative and operating costs.

Types Of Control Systems Management By Exception Focuses attention on substantial differences between desired and actual performance Feedforward Controls Ensure the right directions are set and the right resource inputs are available (Benchmarking) Concurrent Controls Ensure the right things are being done as part of work-flow operations(Day to Day) Feedback Controls Ensure that final results are up to desired standards There is also the principal of Management By Sufficiency. It focuses on large important items even if they are on track.

Types Of Control Systems As previously mentioned, it is usually a whole lot less expensive to solve problems before they occur.

Organizational Control Systems and Techniques Control focuses on work inputs, throughputs, and outputs. Management by objectives integrates planning and controlling. Employee discipline is a form of managerial control. Quality control is a foundation for Total Quality Management. Purchasing and inventory controls help save costs. Breakeven analysis shows where revenues will equal costs. As with planning, there are many different types of control systems. It is important to decide how much effort you want to put into controlling a particular activity.

Management By Objectives MBO (Management By Objectives) A process of joint objective setting between superior and subordinate It is important to have regular (monthly) reviews. Once or twice a year is not enough to stay on track.

Quality Control Quality Control is essential. Customer acquisition costs are high and therefore retention is vital. Quality is what customers want. Yes pricing is important but rubbish products are a waste of time. Total Quality Management (TQM) commits to quality objectives, continuous improvement, and doing things right the first time. A Quality Circle is a small group that meets regularly to discuss ways of improving work quality. TQM applies to the entire organization. It is not limited to manufacturing.

4 Absolutes of Quality Control Quality means conformance to standards. Workers must know exactly what performance standards they are expected to meet. Quality comes from defect prevention, not defect correction. Leadership, training, and discipline must prevent defects in the first place. Quality as a performance standard must mean defect-free work. The only acceptable quality standard is perfect work. Quality saves money. Doing things right the first time saves the cost of correcting poor work, and helps retain customers.

Purchasing And Inventory Controls Purchasing Control. Buying what is needed at the right quality, at a good price, and for on-time delivery. Supply Chain Management. Uses information technology to link suppliers and purchasers in cost efficient ways. Inventory Control. Ensures that inventory is enough to meet immediate needs. Economic Order Quantity. Places new orders when inventory levels fall to predetermined points. Just-in-time Scheduling. Routes materials to workstations just in time for use. These are all tools used by operations managers to run efficient and effective production lines.

Learning Objective 1 Describe the relationship of management control systems to organizational goals.

Management Control Systems This is a logical integration of techniques for gathering and using information. Planning and control Motivating Evaluating

Setting Goals, Objectives, & Performance Measures Top management develops organization-wide goals, measures, & targets. They also identify the critical processes needed to achieve the goals. Top management and critical process managers develop key success factors and performance measures. They also identify specific objectives. Critical process managers and lower-level managers develop specific performance measures for each objective.

Organizational Goals Goals provide a long-term framework round which an organization will form its comprehensive plan for positioning itself in the market. Having evaluated the market place, the company needs to identify where it should be and in what direction it should go.

Key Success Factors Key success factors are characteristics that managers must achieve in order to drive the organization toward its goals.

Learning Objective 2 Use responsibility accounting to define an organizational sub-unit as a cost center, a profit center, or an investment center.

Identifying Responsibility Centers A responsibility center is a set of activities assigned to a manager, a group of managers, or other employees. System designers apply responsibility accounting to identify what part of the organization has responsibility for each action.

Identifying Responsibility Centers Cost centers Profit centers Investment centers

Learning Objective 3 Develop performance measures and use them to monitor the achievements of an organization.

Developing Performance Measures Good performance measures will… relate to the goals of the organization. balance long-term and short-term concerns. reflect the management of key actions and activities. be affected by actions of managers and employees. be readily understood by employees. be used in evaluating and rewarding key personnel. be reasonably objective and easily measured. be used consistently and regularly.

Monitoring and Reporting Results Feedback and learning are at the center of the management control system. At all points in the planning and control process, it is vital that effective communication exists among all levels of management and employees. All must buy into the plan. Accept their responsibilities but be rewarded for achievement.

A Successful Organization and Measures of Achievement FINANCIAL STRENGTH Product profitability EBIT CUSTOMER SATISFACTION Market share, Survey scores, Complaints BUSINESS PROCESS IMPROVEMENT Cycle time, Defects, Activity costs ORGANIZATIONAL LEARNING Training time, Turnover, Staff satisfaction score

Learning Objective 4 Explain the importance of evaluating performance and how it impacts motivation, goal congruence, and employee effort. How does it minimize RISK.

Goal Congruence, Managerial Effort, and Motivation Goal congruence is achieved when employees, working in their own perceived best interests, make decisions that help meet the overall goals of the organization. Managerial effort must accompany goal congruence. Risk Management is achieved by evaluation any departures from planned achievement.

Goal Congruence, Managerial Effort, and Motivation Managerial effort is exertion toward a goal or objective. Planning Supervising Thinking

Goal Congruence, Managerial Effort, and Motivation Motivation is a drive for some selected goal. It creates effort. It creates action toward that goal. Targets must be realistic but just achievable. Limits need to be pushed! No point in setting an easy goal.

Learning Objective 5 Appreciate the real benefits of Benchmarking (Target Setting) Why it is so important in Performance Management.

Types Process benchmarking Financial benchmarking Benchmarking from an investor perspective Performance benchmarking Product benchmarking Strategic benchmarking Functional benchmarking Best-in-class benchmarking Operational benchmarking

Prerequisites Will and commitment by all Link vision and strategic objectives Goals to becoming the best Openness to new ideas

MOTIVATE!!!! Prerequisites (cont.) Understanding of existing processes, products, services, practices, and customer needs Documented Processes Process analysis Research, communication, and team-building skills MOTIVATE!!!!

Obstacles Internal Focus Objective too broad Unrealistic timetables Poor team composition OK-in-class Improper emphasis Insensitivity to partners Limited top-management support

Rationale Global competition Current standing of company A best-in-class model Customers are better informed Support of total quality Maintain Goal Congruence. Maximize Core Competences

Benefits of benchmarking Fewer customer complaints Reduction of defects Reduction in service response time Reduction in defective incoming parts Reduction in inventory costs Reduction in labor costs Reduction in billing errors Enables Management by Exception.

Benefits of benchmarking Increase in customer satisfaction Increase in marketing productivity Increase in distribution productivity Increase in product reliability

Seven steps to benchmarking Identify what to benchmark Determine what to measure Identify who to benchmark Collect the data Analyze the data and determine the gap Set goals and develop an action plan Monitor the process

Summary of Benchmarking By setting realistic goals will make those involved work to achieve these. Always set them at a level where there is a requirement to work hard. Never set easy goals! Enables management to easily compare what was expected to happen to what actually happens. Enables Management by Exception.

I’m ready for some leisure time. Bye for now! I’m ready for some leisure time. Please ensure you Prepare for next session 41