establishing controls

7

Keeping Things in Check

Controls and the Control Process

Learning Objectives

After Studying This Chapter, Students Should Be Able To

· Understand the elements of control, measurement tools, and corrective steps

· Differentiate among the types of controls utilized within an organization

· Employ control strategies for effective management

· Identify which control processes are effective in an operational setting

· Describe an integrated planning process

Chapter Summary

Chapter 7 focuses on maintaining control by becoming adept at utilizing various control techniques and processes.

Components of the Control Process

There are four basic components of the control process:

1. Planning: Sets the directions and allocates resources.

2. Organizing: Brings people and material resources together in working combinations.

3. Leading: Inspires people to best utilize these resources.

4. Controlling : Checks that the right things happen, in the right way, and at the right time.

Objectives and Standards

· Objectives provide the performance targets.

· Output standards measure results in terms of performance quantity, quality, cost, or time.

· Input standards measure effort in terms of the amount of work expended in task performance.

Measurement Tools

Managers are able to not only adopt measurement tools by which success can be determined, but they also can use historical comparison (historical information), relative comparison (comparing to performances of others), or engineering comparison (comparing to scientific standards as a means of evaluating performance).

Corrective Action

The last step in the control process is to take any action necessary to correct or improve future performance. Management by exception can be used to direct action on problems requiring more urgent attention.

Effective Controls

The best managers, by contrast, are proactive and positive in applying the control process to full advantage. Effective controls in organizations share the following characteristics:

· Controls are understandable: They support decision making by presenting data in understandable terms; they do not involve complex reports and hard-to-understand statistics.

· Controls encourage self-control: They allow for mutual trust, good communication and participation among everyone involved.

· Controls are timely and exception-oriented: They report deviations quickly, lending insight into why a performance gap exists and what you can do to correct it.

· Controls are positive in nature: They emphasize their contribution to development, change, and systems improvement; they deemphasize their role in penalties and reprimands.

· Controls are fair and objective: They are considered impartial and accurate by everyone; they are respected for one fundamental purpose—performance enhancement.

· Controls are flexible: They leave room for individual judgment and can be modified to fit new circumstances as they arise.

Types of Control

A variety of control strategies and techniques are examined. Control systems such as:

· Feed forward controls, or those that are accomplished before a work activity begins.

· Concurrent controls, which focus on what actually happens during the work process.

· Feedback controls, which take place after work is completed.

Management Control

Managers maintain control by:

· Setting objectives by way of clear understanding of what is being sought.

· Setting policies and procedures to guide behavior.

· Learning from past experience.

· Matching employee selection with ongoing training.

· Conducting performance appraisals to enhance productivity.

· Maintaining appropriate job design and work structure.

· Establishing performance norms.

· Establishing an organizational culture.

Information and Financial Controls

No control process would be complete without a discussion of the fiscal implications and how management understanding of the fiscal vitality is important to success.

· Liquidity ratios such as acid test and current ratios.

· Leverage ratios such as debt ratio and times interest earned.

· Asset management ratios such as inventory turnover and total asset turnover.

· Profitability ratios such as net margin and return on investment.

Inventory Control

· Economic order quantity (EOQ) is a quantitative method of inventory control that involves ordering a fixed number of items every time an inventory level falls to a predetermined point.

· Just-in-time JIT) scheduling reduces costs and improves workflow by scheduling items to arrive just in time to be used.

· Quality control involves checking processes, materials, products, and services to ensure that they meet high standards.

Management Philosophies

The chapter discusses two types of management philosophy:

· Six Sigma: a collection of rigorous, systematic control tools; strives to identify and prevent “defects.”

· Management by objectives (MBO): useful technique that helps to integrate planning and controlling.

Key Terms

Asset management The ability to use resources efficiently and operate at minimum cost.

Concurrent controls Controls that focus on what actually happens during the work process, also called steering controls.

Controlling The process of measuring performance and taking action to ensure desired results; a basic function for health care managers.

Control process A four-step method for measuring performance.

Discipline The act of influencing behavior through reprimand.

Engineering comparison Comparison that uses standards set scientifically through such methods as time and motion studies.

EOQ A quantitative method of inventory control that involves ordering a fixed number of items every time an inventory level falls to a predetermined point. Stands for economic order quantity.

External control Attempting to control the behavior of others through personal supervision or formal administrative systems.

Feedback controls Controls that take place after work is completed, also called postaction controls.

Feed forward controls Controls that are accomplished before a work activity begins, also called preliminary controls.

Historical comparison Comparison that uses past performance as a standard for evaluating current performance.

Improvement objectives MBO goals that document intentions for improving performance in a specific way and with respect to a specific factor.

Input standards Control measurements that focus on the amount of work expended in task performance.

Internal control Allowing motivated individuals and groups to exercise self-discipline in fulfilling job expectations.

JIT scheduling A Japanese model for industrial productivity, JIT systems try to reduce costs and improve workflow by scheduling items to arrive just in time to be used. Stands for just-in-time scheduling.

Leverage The ability to earn more in returns than the cost of debt.

Liquidity The ability to generate cash to pay bills.

Management by exception The practice of giving priority attention to situations that show the greatest need for action.

MBO A structured process of regular communication in which a supervisor and subordinate jointly set performance objectives for the subordinate and review results accomplished. Stands for management by objectives.

Operations management The portion of management duties that emphasizes utilizing people, resources, and technology to the best advantage.

Opportunity situation Actual performance is above the standard.

Output standards Control measurement results that focus on performance quantity, quality, cost, or time.

Personal development objectives MBO goals that pertain to personal growth activities, often those resulting in expanded job knowledge or skills.

Problem situation Actual performance is below the standard.

Profitability The ability to earn revenues greater than costs.

Progressive discipline A discipline system in which reprimands are tied to the severity and frequency of misbehavior.

Quality control Checking processes, materials, products, and services to ensure that they meet high standards.

Relative comparison Comparison that uses the performance achievements of other people, work units, or organizations as evaluation benchmarks.

Six Sigma A collection of rigorous, systematic control tools that uses information and statistical analysis to measure and improve an organization’s performance, practices, and systems.