Master in Industrial Management Course: MANAGEMENT CONTROL Chapter 1: Key Ideas for Management Control

SUMMARY The Value and Measurement of Performance The expectations for Performance The Implications in the Management Control Models The Role of Management Control The Users of Management Control The Instruments of Management Control

Value and Performance Measures Top Managers as performance agents To MANAGE means to lead and motivate all members of the organization to achieve the best performance at several levels

Managers need to have relevant, timely and reliable information. Value and Performance Measures ... BUT TO ACHIEVE IT Managers need to have relevant, timely and reliable information.

Value and Performance Measures RELEVANT INFORMATION ... IT’S THE ONE THAT: Shows how the organization creates value for its multiple stakeholders, through performance metrics in multiple perspectives

To know who are their stakeholders and what are their expectations Value and Performance Measures A GUIDELINE FOR THE CREATION OF VALUE TAKE IN CONSIDERATION: To know the MISSION (Reason for existing/ of Being) of the Organization To know who are their stakeholders and what are their expectations

Value and Performance Measures EXPECTATIONS OF VALUE: SHAREHOLDER: financial results. CLIENTS: satisfaction, ... EMPLOYEES: Motivation, wellness, participation, ... MANAGERS: efficiency, effectiveness, recognition, ... STATE: social contributions (taxes, employment, ...) CREDITORS/SUPPLIERS: fulfilling of commitments. etc. ….

Value and Performance Measures TRADITIONALLY the VALUE ... Has been seen mainly in a financial perspective, so: Information emphasis in economic and financial indicators System of rewards and incentives based on financial results, etc ... Resulting in: Limited models targeted only for one of its multiple stakeholders: SHAREHOLDERS

Value and Performance Measures SO, THERE IS A NEED TO: TO ALIGN THE EXPECTATIONS OF THE MULTIPLE PARTIES IN THE ORGANIZATION And, therefore: TO ADOPT METRICS THAT ALLOW MONITORING THE MULTIPLE PERSPECTIVES OF PERFORMANCE

The dimensions of the SPM (Systems of Performance Monitoring) KEY ASPECTS OF PERFORMANCE To align individual actions with organizational actions To select only what is critical to the entity To have an integrated view of the results and developed activities To confront the fulfilled with the planned, using consistent metrics and an integrated vision To concentrate efforts on "value drivers"

Performance of organizations The dimensions of the SPM BUSINESS MARKET (Systems of Performance Monitoring) TO PROVIDE METRICS IN MULTIPLE DIMENSIONS: BUSINESS Performance of organizations MARKET PEOPLE PROCESSES

Implications in Information Management Systems (IMS) TO THIS END, IT WILL PROVIDE: FINANCIAL INFORMATION NON FINANCIAL INFORMATION

INTEREST OF FINANCIAL METRICS Implications in Information Management Systems (IMS) INTEREST OF FINANCIAL METRICS To have in consideration the principle that: TO DECIDE ABOUT THE USE OF MEANS OR RESOURCES FINANCIAL IMPLICATIONS HAS

Implications in Information Management Systems (IMS) BUSINESS PERSPECTIVE FINANCIAL INFORMATION: WHICH PRODUCTS AND SERVICES CONTRIBUTE MORE TO GET VALUE? WHAT ARE THE COST OF PRODUCTS AND SERVICES, AND WHAT ARE THE BENEFITS?

Implications in Information Management Systems (IMS) FINANCIAL Information and BUSINESS perspective : Need to segment the financial information of organization by "Business / Products / Services" Examples: Analysis of Results (or costs) by: Business Areas Products / Services Projects / Programs / Initiatives Works Shops , etc.

Implications in Information Management Systems (IMS) MARKET PERSPECTIVE HOW TO FACE OUR CLIENTS / USERS?

Implications in Information Management Systems (ISM) FINANCIAL Information and MARKET perspective: Management accounting system oriented to the "internal costs“ loss relevance, in favour of a management accounting concerned to find out external costs or results (market, distribution channel, customer, etc.). Examples: Analysis of PROFITABILITY by: Markets (ex: countries / regions, professional / public) Customers or Categories of customers (ex: client x; companies) Distribution channels (ex: retail / big supermarkets)

PROCESSES PERSPECTIVE Implications in Information Management Systems (IMS) PROCESSES PERSPECTIVE WHICH PROCESSES GENERATE VALUE?

Implications in Information Management Systems (IMS) FINANCIAL Information and PROCESSES perspective: : Recognize that the Organization is a sequence of processes and activities, from which depends their results; Examples: To Know the COST of “What is made”: Processes (ex: purchasing) Activities (ex: revealing an exam) Resources used (ex: use of vehicles)

PEOPLE PERSPECTIVE (Organizational Development) Implications in Information Management Systems (IMS) PEOPLE PERSPECTIVE (Organizational Development) IS THERE ABILITY TO INNOVATE AND GROW IN A SUSTAINABLE WAY?

Implications in Information Management Systems (IMS) FINANCIAL information and perspective from PEOPLE : To recognize that are the people who generate good and bad results, so it should emphasize the aspects of organizational behaviour, motivation, models of evaluation of performance and systems of bonus and incentives; Example: To charge for RESULTS: Responsibility Centres (Cri, CC, etc) Team Seller, etc.

NON-FINANCIAL INFORMATION Implications in Information Management Systems (IMS) NON-FINANCIAL INFORMATION Must have in consideration: NON-FINANCIAL INFORMATION REFLECTS THE POSSIBILITY OF IMPACTS ON ECONOMIC AND FINANCIAL FUTURE VALUE FINANCIAL INFORMATION REPORTS PAST ECONOMIC AND FINANCIAL VALUES WHILE

IMPLICATIONS of Information in SMP (System of Monitoring Performance) Implications in Information Management Systems (IMS) IMPLICATIONS of Information in SMP (System of Monitoring Performance) Increase on the relevance of technical tools like ‘tableaux de bord’ or ‘balanced scorecard’; Use of several physical indicators (waiting time, complaints, satisfaction levels, number of rejections, implementation deadlines, etc.); Introduces indicators about business environment (external factors that affect performance); Greater adherence of SMP to the monitoring of the goals and actions of the responsible.

Management Control must answer these Multiple Perspectives Its principles are: Orientation for people; Emphasis on performance evaluation; Relevance of "tableaux de bord; More action, less information; Diversified goals; The managers are the players; The future as a basis for the decision.

SO, WHAT IS MAMAGEMENT CONTROL?

WHO IS IT FOR? Clients: MANAGERS TopM INTERMEDIATE HIERARCHY OPERATING MANAGERS

Role of Managers TopM. STATEGIC MANAGEMENT INTERMEDIATE HIERARCHY OPERATING MANAGERS

Role of Managers (cont) TopM. INTERMEDIATE HIERARCHY OPERATIONAL MANAGEMENT OPERATING MANAGERS

THE ROLE OF MANAGEMENT CONTROL STATEGIC MANAGEMENT MANAGEMENT CONTROL OPERATIONAL MANAGEMENT

The three categories of tools: Instruments of Management Control The three categories of tools: Steering tools Tools for guiding the behavior Dialogue tools

Steering instruments Medium term operational plan Budget Strategy Medium term operational plan Budget Tableaux de bord Budgetary Control

Instruments of Behaviour Orientation Responsibility centers Criteria for evaluating the financial performance Internal Transfer Pricing

Dialogue Instruments Negotiation of goals Negotiation of means P E R A T I N L Negotiation of means Analysis and interpretation of results Negotiation of corrective actions CONTROLLER