1 CE Management and Planning Diane Bishton – K229 Measurement & Control

2 In this lecture We will Emphasise that Planning, Monitoring & Control all come within the Management remit Introduce some control systems & procedures Consider a Stock Control example in detail Finish with an overview of Budgetary Control that gives a glimpse of how strategy & policy can finally be made clearer through the actual financial implications of corporate plans

3 Introduction Strategy & policy are all very well, but the bottom line is, that there is a bottom line People have to put grand plans into practice. How will they actually know that what they are doing is appropriate ?

4 The Control Function 3 aspects : Setting standards & targets Monitoring activities, comparing actual against target Taking action to improve Control needs : Timely inputs Rapid ways to evaluate target against actual Timely Output directed to the right place & in a form that can be understood & acted on

5 Examples of Control Systems Control Systems are very varied (some have already been seen in previous lectures) Organisation charts and manuals Delegation of work to subordinates PERT (Project Evaluation & Review Technique) Ratio Analysis Feedback & Feedforward MBO (Management By Objectives) Exception Reporting Budgetary Control Etc.

6 Stock Control Aims : to provide predetermined levels of service at minimum cost Functional requirements : Stock Recording Demand Forecasting Calculation of ROL (Reorder Level) & ROQ (Reorder Quantity) To ‘control’ stocks they first need to be classified. High usage or high value items need higher levels of control than low usage / obsolete / dead items

7 Using a Pareto Curve to Classify Stock Determine the Annual Usage Value (AUV) of each Item Rank the Items in descending order of AUV Determine the Cumulative Usage (i.e. the total of AUVs so far) Determine the Cumulative Usage as a percentage of total AUV Determine the Cumulative percentage of Items Plot the Cumulative Usage percentage against the Cumulative Items percentage

8 Example - shows stock Item AUVs Part No.Stock Value held (£000s)AUV (£000s)

9 Example - ranked AUVs Part No.AUV (£000s) Cum. AUV (£000s) Cum. AUV as % total AUV Cum. % of Items

10 Charted AUVs & ABC classification ABC A : top 10% items, first 60% usage B : next 30% items, next 30% usage C : last 60% items, lowest 10% usage

11 Some problems in Stock Control Matching Demand with Usage – storage, stock holding & lead times (to replenish stock) are key factors Any Trends & Seasonal Demands need to be identified. Highly dependent on adequate feedback mechanisms being in place & being used !

12 Some problems in Stock Control Stock holding is expensive - not just because of space requirements, but also keeping stock secure (theft, damage etc) & ‘turned around’ Demand forecasting & calculation of ROL & ROQ can be very inaccurate if done manually

13 Budgetary Control Budgets relate to Plans : by quantitatively specifying the organisation’s resource allocations, department responsibilities & project completion schedules They enable co-ordination and control by allowing delegation of authority to manage a budget They give an overall view of spending They limit spending They can be used for performance appraisal & MBO – can you ‘stay within your budget’ (& if you can’t, why not?)

14 Further References Bennett R (1999) Corporate Strategy 2e Chapter 19 Harlow UK: Pearson Education Ltd Stock Control and InventoryStock Control and Inventory advice from the gubmint Budgetary control