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Controlling as a

Management Function

Controlling

A process of monitoringperformance and taking action to

ensure desired results.

It sees to it that the right thingshappen, in the right ways, and at

the right time.

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Controlling as a

Management Function

Controlling

Done well, it ensures that theoverall directions of individuals

and groups are consistent with

short and long range plans.

It helps ensure that objectives andaccomplishments are consistent

with one another throughout an

organization.

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Controlling as a

Management Function

Controlling

It helps maintain compliance withessential organizational rules and

policies.

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Characteristics of Good

Control

Accuracy

Timeliness

Flexibility

Cost-

effectiveness

Understandability

Realistic

Acceptable to

those who will

enforce

decisions

Control at all

levels

Balance

between

objectivity and

subjectivity

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Controlling as a

Management Function

Cybernetic Control System

One that is self-contained in itsperformance monitoring and

correction capabilities.

(thermostat)

The control process practiced inorganizations is not cybernetic,

but it does follow similar

principles.

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The Control Process

Establish objectives and

standards.

Measure actual performance.

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.

Performance objectives are

defined and the standards for

measuring them are set.

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Establish Objectives and

Standards

There are two types of standards:

Output Standards - measuresperformance results in terms of

quantity, quality, cost, or time.

Input Standards - measures workefforts that go into a performance

task.

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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)

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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)

Types of Standards

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Good Standards

Based on approved plans

Measurable

Considerate of human factors

Comparable and reasonable

Indicative of expected work

performance

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Question

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

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.

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Comparing Results with

Objectives and Standards

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

How do I compare with

myself over the years

External Benchmarking

How do I compare with my

peers in industry

Benchmarking is a method of defining

performance standards in relation to a set

of references

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Internal Benchmarking

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

Compare companys performance withthose 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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External Benchmarking

(contd)

(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 modelgenerally applicable to many

business/engineering activities

(6) Balanced Scorecard forwardlooking and non-financial versus past

orientation of financial metrics only

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Examples of

Benchmarking Metrics

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

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Taking Corrective Action

Taking any action necessary to

correct or improve things.

Management-by-Exception focuses

managerial attention on substantial

differences between actual and

desired performance.

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Taking Corrective Action

Management-by Exception cansave 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

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Reasons for Performance

Deficiencies

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

The Best Controls in Organizations

are

Strategic and results oriented

Understandable

Encourage self-control

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Effective Controls

The Best Controls in Organizations

are

Timely and exception oriented

Positive in nature

Fair and objective

Flexible

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Types of Control

Preliminary

Sometimes called the

feedforward controls, they are

accomplished before a work

activity begins.

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

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.

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Types of Control

Postaction

Sometimes called feedback

controls, they take place after

an action is completed. They

focus on end results, as opposed

to inputs and activities.

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Types of Controls

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

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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Types of Control

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

Management Processes

Strategy and objectives

Policies and procedures

Selection and training

Performance appraisal

Job design and work structures

Performance modeling, norms, andorganization culture

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Organizational Control

Systems

Compensation and Benefits

Attract talented people andretain them.

Motivate people to exertmaximum effort in their work.

Recognize the value of theirperformance contributions.

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Organizational Control

Systems

Employee Discipline

Discipline is defined as influencingbehavior through reprimand.

Progressive Discipline tiesreprimand to the severity and

frequency of the employeesinfractions.

Positive Discipline tries to involvepeople more positively and directly

in making decisions to improve their

behavior.

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The Hot Stove Rule

Immediate

Focus on

activity not

personality

Consistent

Informative

Occur in a

supportive

setting

Support

realistic rules

To be Effective Discipline Should be:

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Organizational Control

Systems

Information and Financial

Activity-based costing - the truecost of all products and services.

Economic value added - examinethe value added by all activities.

Understand the implication of keyfinancial measures of (ratios)

organizational performance

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Operations Management

and Control

Purchasing

Economic Order Quantityautomatic reorder points

Just-In-Time Scheduling

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Operations Management

and Control

Project Management

Program Evaluation and ReviewTechnique (PERT) - Identifies and

controls the many separate events

in complex projects.

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Operations Management

and Control

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.