CONTROL
Correction & Prevention
CONTROL
• A process of management which is all pervasive
• Closely associated with planning
• Helps in prevention and correction
• Is to be looked at positively
• It is a means – not the end!
• Helps manage complex operations/people/machines
• Helps in decentralisation
• Helps in creating a positive psychological impact
Quality/Quantity Control -- Financial Control -- Performance Control
RESISTANCE TO CONTROL
• Inaccurate/Inappropriate controls
• Excessive controls
• Extreme standards
• Fear of accountability
• Unpredictable standards
Delay in work
Change in attitude
Leads to displaced behaviour
Controlling – The process
• Identify Key areas
Define
Scope
• Scientific, Simple, Achievable
• Flexible
Set
Standard • E.g. Costs, Quality, Revenue, Time
• Through observation, performance reports, sampling
Measure
• Scenario 1 – Actual Performance >= Set standard
Compare • Scenario 2 – Actual Performance < Set Standard
• Immediate
Correctio • Permanent
n
Principles of Control
• Detect and correct deviations
• Feedforward to ensure no further deviation
• Set responsibility
• Prevent Deviation
• Organisation specific
• Adherence to standard
• Flexible
• Management by Exception
Defining an Acceptable Range of Variation
EXHIBIT 13.3
Copyright © 2004 Prentice Hall, Inc. All
13–7
rights reserved.
Contingency
Factors in
the Design
of Control
Systems
Control Technique: The Budget
• Better standards of • Overspending
performance • Inflexibility
• Facilitates planning & • Hampers
Co-ordination innovation
• Facilitates delegation • Based on past
• Optimum use of view
resources
• Ensures control
Control Technique: The Budget
Operating Financial
Budget Budget
Expense Budget
Capital Expenditure
Fixed - Variable - Discretionary
Revenue Budget Cash Budget
Balance Sheet Budget
Profit Budget Assets, Liabilities, debt equity
ratio
Zero Based Budgeting – top down/bottom up
Nonfinancial Control of
Performance Measures Quality
Four categories:
• Control of Quality 1. prevention
• Control of Cycle Time 2. appraisal
3. internal failure
• Control of Productivity
4. external failure
Total quality management (TQM) focuses on all areas of
business
Balanced
Scorecard Financial
Strength
Customer Organizational
Satisfaction Learning
Business Process
Improvement
Control Techniques
Management
MIS Audit
(Accurate & relevant (Internal/External)
info)
Ratio Analysis
Responsibility
Network Techniques
Accounting (PERT – Optimistic/Most
(Cost/Revenue/Profit/Invest Likely/Pessimistic Time
ment) & CPM – time and cost estimate
Balanced
Scorecard Economic Value
Finance/Customer/Inter
nal Process/People Added
(=PAT – Cost of Capital)
The Future of Management Control Systems
• A changing environment requires changes in the management control
system
Organizational
Four key Goals
factors must
be monitored Organizational Responsibility
at all times Structure Centres
Performance
Measurement
Important factors to keep in mind:
• Individuals will generally behave in their own self-interest
• Design systems so that individuals pursuing their own self-interest will also achieve
the organization's objectives
• Best benchmark for evaluating current performance is expected or budgeted
performance
• Nonfinancial performance is just as important as financial performance
• Periodically review the success of the management control system
• Learn from your and your competitors' mistakes