BMGT - Executive Summary + HR Plan

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Control Process

Se�ng Objec�ves and Standards

A company’s standards define its prac�ces, while its objec�ves define what ac�ons the

company needs to take.

When crea�ng standards, it is important to consider a company’s

values, vision, and mission. Standards must reflect these perspec�ves

internally and externally.

When crea�ng a set of objec�ves, it is important for the organiza�on

to complete a self-evalua�on. A SWOT analysis is one example of

this.

One model of organizing objec�ves uses hierarchies; top-rank

objec�ve (TRO), second-rank objec�ve, third-rank objec�ve, etc.

These emphasize cri�cal success factors.

Managers must ensure goal congruency, or the compa�bility of

different goals with each other. Does goal A appear compa�ble with

goal B? Do they fit together to form a unified strategy?

Key Terms

SWOT analysis—(strengths, weaknesses, opportuni�es, threats); an

exercise organiza�ons use to understand their current status and

assess how to improve

standard—norm, conven�on, or requirement

Learning Resource

Key Points

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objec�ve—the goal of an organiza�on

Organiza�onal standards and objec�ves are important elements in any business plan because

they guide managerial decision making. To create reachable objec�ves, an organiza�on needs

to understand where it is, where it wants to go, and who it is compe�ng against. A company’s

standards define how it should act, while its objec�ves determine what ac�ons it will take.

Combining standards and objec�ves allows management to create a business strategy.

A company’s objec�ves help determine what inputs and outputs are needed to achieve

company goals. BRM stands for business rela�onship management.

Standards

Organiza�ons are like individuals: They have values, beliefs, and goals. They want to promote

a par�cular image, or a brand, to stakeholders. Before a company can create standards,

management needs to clarify the mission, values, and vision. If any of these are not complete

or correla�ve, management must redefine and rethink what the company stands for.

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Once mission, values, and vision are established, the organiza�on must set down standards

(both opera�onal and value-driven). These standards need to be enforceable and teachable,

and must be communicated clearly and simply. It is important that employees understand the

standards they are required to meet and the consequences of failing to live up to expecta�ons.

Without employee buy-in, the standards will be meaningless and will not be applied, so

management should focus a great deal of �me and effort ins�lling standards through

communica�on and observa�on.

Once standards are outlined and met by management and subordinates, the organiza�on can

begin to apply this opera�onal paradigm to a series of short-term and long-term objec�ves.

Objec�ves

A goal (or objec�ve) is the desired result that an organiza�on envisions, plans, and makes a

commitment to achieve. This can be a personal or organiza�onal end point for development.

Organiza�onally, goal management consists of recognizing or inferring goals for individual

team members, abandoning outdated goals, iden�fying and resolving conflic�ng goals, and

priori�zing goals for op�mal team collabora�on and effec�ve opera�ons.

Self-Evalua�on

In crea�ng objec�ves, it is important for the organiza�on to complete a self-evalua�on, usually

through tools like SWOT analysis (strength, weaknesses, opportuni�es, threats). A SWOT

analysis helps the company understand where it can achieve compe��ve advantage by

pinpoin�ng what it does well (strengths) and where the opportuni�es lie. Organiza�ons must

also be aware of what they have sacrificed to achieve their goals (i.e., weaknesses), and where

threats in the marketplace may reduce their ability to create profitability (threats). Objec�ves

must take compe��ve advantage into account; otherwise, the organiza�on lacks a value-

added proposi�on.

Timeline

Once the company has a good understanding of its strengths and weaknesses, management

can create a �meline of reachable objec�ves. It is important to create milestones for these

objec�ves and iden�fy which departments within the organiza�on will be responsible for each

one. Accountability and �me sensi�vity should be explicitly stated and rigorously followed.

The next ques�on is how to set objec�ves, and how to iden�fy and delineate the importance

of one objec�ve rela�ve to another.

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Objec�ve-Se�ng Approaches and Considera�ons

One model of organizing objec�ves uses hierarchies. The items listed may be organized in a

hierarchy of means and ends and numbered as follows: top-rank objec�ve (TRO), second-rank

objec�ve, third-rank objec�ve, and so on. From any rank in this hierarchy, the objec�ve in a

lower rank answers the ques�on how and the objec�ve in a higher rank answers the ques�on

why. The excep�on is the TRO: There is no answer to why—it is implicit.

People typically pursue several goals at once. Goal congruence refers to how well the goals

complement each other. Does goal A appear compa�ble with goal B? Do they fit together to

form a unified strategy? Goal hierarchy nests goals within other compa�ble goals.

Another useful approach is having short-term, medium-term, and long-term goals. In this

model, one can expect to a�ain short-term goals fairly easily: they stand just slightly out of

reach. At the other extreme, long-term goals appear very difficult—almost impossible to a�ain.

Using one goal as a stepping-stone to another involves goal sequencing: Achieve the easy

short-term goals, then step up to the medium-term, and finally the long-term goals. Goal

sequencing can create a goal stairway.

Measuring Organiza�onal Performance

Managers must consistently update performance reports to monitor progress and measure

opera�onal success.

Measuring performance is a vital part of assessing the value of

employee and management ac�vi�es.

Performance should be measured based on an employee’s overall

impact, cost efficiency, effec�veness, and ability to implement best

prac�ces.

Organiza�onal performance based on internal objec�ves and

external compe��on should be measured using the metrics of

margins, growth, market share, and customer sa�sfac�on.

Key Terms

Key Points

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performance—the act of carrying into execu�on or ac�on;

achievement; accomplishment

benchmark—standard by which something is evaluated or measured

best prac�ces―a method or technique that has consistently shown results superior to those achieved with other means and is therefore

used as a benchmark

Managers must do more than simply set objec�ves. They must consistently monitor

opera�ons to ensure feasibility and provide guidance to get failing opera�ons back on track.

Tools for this kind of management include budge�ng, determining effec�ve management

strategies, finding areas that need improvement, and determining poten�al areas for

collabora�on.

Measuring performance is a vital part of assessing the value of employee and management

ac�vi�es. Performance measurement provides useful insights for conduc�ng annual reviews of

managers and employees and is also important for understanding how a company is

performing compared with its compe�tors. This requires two types of measurement: individual

(employee) evalua�ons and organiza�on evalua�ons.

Employee Evalua�ons

Employee performance evalua�ons should be done on a quarterly, semiannual, or annual basis.

This ensures that everyone in the organiza�on understands when the next evalua�on will take

place, gives the company regular measures of performance, and provides opportuni�es to take

correc�ve ac�on, if needed, in a �mely manner.

Tools to Measure Employee Performance

There are many different performance measurement tools available, such as organiza�onal and

employee performance evalua�ons. Some are included as part of enterprise systems and some

are standalone programs. Developing performance metrics usually follows a process of

establishing cri�cal processes and customer requirements

iden�fying specific, quan�fiable outputs of work

establishing targets that results can be scored against

Some a�ributes to consider in assessing employee and management quality include

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Effec�veness. Did the organiza�on produce the required results?

Cost-effec�veness. When outcomes are divided by input, how efficient was the

organiza�on’s performance?

Impact. What value did the organiza�on provide?

Best prac�ces. In the context of evalua�ng internal opera�ons (comparing core

processes to effec�veness and efficiency standards), how does current performance

compare to benchmarks of past performance, performance in the industry, and poli�cal

expecta�ons?

Organiza�onal Evalua�ons

For organiza�onal informa�on, the focus is on the outcomes of the agency’s performance, but

input, output, process, and benchmarks are also important in crea�ng a compara�ve

framework for analysis. Outcomes should be directly related to the public purpose of the

organiza�on.

Tools to Measure Organiza�onal Performance

While there is a wide variety of perspec�ves on controlling performance, each more or less

appropriate depending on the objec�ves and industry, a few key metrics exist:

Margins. Organiza�ons se�ng objec�ves must carefully consider expected margins and

ensure that they stay in the black (i.e., do not incur losses). Measuring profitability

margins indicates the cents-per-dollar the organiza�on makes by inves�ng in opera�ons.

Growth. Raw revenue growth is also important, as it indicates expansion and poten�al

economies of scale and scope.

Market share. Generally described as a percentage, this indicates success rela�ve to the

compe��on. Higher market share means a deeper brand awareness.

Customer sa�sfac�on and reten�on. It is much cheaper to keep exis�ng customers than

to find new ones. Customer reten�on underlines brand loyalty and product quality.

Analyzing the Organiza�on’s Results

When comparing results, looking inward for historical trends and outward for compe��ve

trends are both important.

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Compare results against a history of similar trends to establish a

basis for analysis.

If the performance measurement is for a new ini�a�ve or process,

management should conduct research to determine if there is an

industry standard already in place for it.

If results far exceeded expecta�ons, then the goals or standards may

be set too low. The converse may also be true—expecta�ons may

have been unrealis�c, so no targets were met. Both process and

strategy must be considered in char�ng a new course and future

objec�ves.

Key Term

problem solving—using generic or ad hoc methods in an orderly

manner to resolve issues

When comparing results, it is important for an organiza�on to look inward at historical trends

and outward against compe��ve trends. It is important to make sure that the people

responsible for implementa�on understand the standards and consider them achievable.

Measuring the long-term success or failure of objec�ves is in part a process of evalua�ng the

standards governing an opera�on. Using this benchmark, management can reconsider

objec�ves in the context of standards set, ensuring that they are both parallel and effec�ve.

Internal Data

Compare results against a history of similar trends to establish a basis for analysis.

Accountants track organiza�onal accounts to meet legal and shareholder requirements, and

they track spending for opera�onal assessment. Accoun�ng records can provide a historical

backdrop to outline what the organiza�on has accomplished in the past. This applies the

benefits of hindsight to current results and future projec�ons.

External Data

Key Points

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It is also important to conduct compe��ve research to determine who else in the market is

performing the same processes. If the performance measurement is for a new ini�a�ve,

management should conduct research to determine if there is an industry standard already in

place for the process. A new technology or research area, however, requires comparison with

the organiza�on’s own financial objec�ves or quality standards.

There are many metrics and methods for iden�fying industry standards, par�cularly for

publicly traded companies. Public companies must release annual and quarterly reports, which

serve as useful benchmarks for incumbents in the same industry (or new entrants). Overall

industry metrics and averages are also available, although the organiza�on may want to hire or

contract analysts for external data collec�on and research.

Using the Results

If results aren’t what the company expected or they fall below expected norms, it is important

to determine the root cause. It may be that the objec�ves weren’t realis�c, or that more

resources are needed to meet goals. Outside factors might have contributed to poor

performance. The internal and external informa�on discussed previously will help pinpoint the

root causes so correc�ons can be made.

If results far exceed expecta�ons, it may mean that the goals or standards were set too low.

The process should be reexamined and objec�ves increased to ensure the company is

compe��ve. Compe��ve analysis is o�en helpful in se�ng realis�c but challenging goals for

management, employees, or produc�on.

Taking Correc�ve Ac�on

Taking correc�ve ac�on requires iden�fying the problem and implemen�ng a poten�al

solu�on.

Managers need to understand the factors that contribute to a

problem and how it impacts key processes; they must then figure out

a workable solu�on.

Step one in the problem-solving process is iden�fying the problem,

which can be hard to dis�nguish from its symptoms.

Key Points

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Once the problem is iden�fied, the manager must decide what

correc�ve ac�on to take. In many ways, iden�fying and solving a

problem (the control process) is a process, not a silver bullet.

Organiza�ons may decide to discuss a problem and poten�al

solu�ons with stakeholders.

Key Terms

dichotomies—two elements, o�en mutually exclusive, that stand in

juxtaposi�on to one another

tacit—not derived from formal principles of reasoning; based on

induc�on rather than deduc�on

Taking correc�ve ac�on is one of the three essen�al elements of the control process. If results

of the control process don’t meet company standards, then the process needs to be revamped

to meet organiza�onal goals.

Managers as Problem Solvers

One key aspect of taking correc�ve ac�on is problem solving. Managers must understand

what factors are contribu�ng to a problem and how it impacts key processes. Then they must

figure out a workable solu�on. Once the solu�on is plo�ed, it is important to determine how

best to implement it. This problem-solving process is the central considera�on for effec�ve

correc�ve ac�on.

Iden�fying the Problem

Step one in the problem-solving process is iden�fying the problem, which can be hard to

dis�nguish from its symptoms. Gathering informa�on and measuring each process carefully is

prerequisite to pinpoin�ng the problem and taking the proper correc�ve ac�on.

Common Mistakes

A�empts at correc�ve ac�on are o�en unsuccessful because of issues in the problem-solving

process. These issues may include not having enough informa�on to isolate the real problem,

or a decision maker with a stake in the process who may not want to admit that his or her

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department made an error. Another reason why a decision-making process may result in an

incorrect solu�on is that the decision maker was not properly trained to analyze a problem.

Outlining the Correc�ve Ac�on Method

Once the problem is iden�fied, and a method of correc�ve ac�on is determined, it needs to be

implemented quickly. A map of clear checkpoints and deadlines assigned to individuals

facilitates this. Steps of the control process can vary greatly depending on the issue being

addressed, but in all cases it should be clear how the correc�ve ac�ons will lead to the desired

results.

Next, schedule an analysis of the solu�on’s effec�veness. This way, if the correc�ve ac�on

doesn’t create the expected results, further ac�on can be taken before the organiza�on falls

even further behind in mee�ng its goals. Organiza�ons may decide to discuss a problem and

poten�al solu�ons with stakeholders. It is useful to have some con�ngency plans in place, as

employees, customers, or vendors may have unique perspec�ves on the problem or

informa�on that management lacks. Their perspec�ves and informa�on can lead to a more

effec�ve solu�on.

Licenses and A�ribu�ons

Control Process (h�ps://courses.lumenlearning.com/boundless-management/chapter/control-

process/) from Boundless Management by Lumen Learning, originally published by

Boundless.com, is available under a Crea�ve Commons A�ribu�on-ShareAlike 4.0

Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/) license. UMUC has modified

this work and it is available under the original license.

© 2019 University of Maryland University College

All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of

informa�on located at external sites.

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Types of Control

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Strategic, Tactical, and Operational Control

Organizational control involves using strategy, tactics, and operational oversight to monitor and improve company processes.

LEARNING OBJECTIVES

Illustrate the varying levels of control utilized by organizations, notably strategic, tactical and operational strategy

KEY TAKEAWAYS

Key Points

Organizations are built with the goal of profitability through processes in mind. The organizational control approach incorporates goals and the strategy used to reach them.

Strategic management is a level of managerial activity below setting goals and above tactics. Strategic management provides overall direction to an enterprise.

A tactic is a method intended to fulfill a specific objective in the context of an overall plan.

Operational control regulates day-to-day output relative to schedules, specifications, and costs.

Good managers have a broad vision of the process, a series of embedded tactics for efficiency and/or differentiation, and a careful operational control for cost control.

Key Terms

operational planning: The process of linking strategic goals and objectives to tactical goals and objectives.

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efficient: Making good, thorough, or careful use of resources; not under- or over- consuming. Making good use of time or energy.

vision: An ideal or goal toward which one aspires.

Control

Organizations are built with the goal of profitability through processes in mind. The organizational control approach incorporates goals and the strategy used to reach them. These strategies and tactics are developed with the foresight of specific operational objectives, such as market share, return on investments, earnings, and cash flow. As a result, organizational control consists primarily of reviewing and evaluating overall performance against the strategies, tactics, and operations used to define the organization itself. Tactics for organizational control are developed based on existing goals and strategies to establish specific objectives in the context of an overall strategic plan. Organizational control is essentially a benchmark, moving the company toward optimal levels of operation.

Example of management levels: The Government Business Reference Model shown here illustrates three levels of control: strategic (purpose), tactical (mechanisms), and operational (operations support). Strategic control includes policy-forming and -enforcing bodies such as the Department of Homeland Security and law enforcement; tactical control includes direct services such as financial assistance and credit and insurance companies; and operational control includes oversight bodies, revenue collection, and resource allocation.

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Strategy

Strategic management provides overall direction to the enterprise. Strategy formulation requires examining where the company is now, deciding where it should go, and determining how to get it there. Strategic assessment involves situation analysis, self-evaluation, and competitor analysis, both internal and external, micro-environmental and macro-environmental.

Objectives are determined by the results of the strategic assessment. These objectives should run parallel on a timeline, some short-term and others long-term. This involves crafting vision statements (long-term projections for the future), mission statements (describing the organization’s role in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives. These objectives should suggest a strategic plan that provides details (tactics) for achieving these objectives.

Tactics

Strategy involves the future vision of the business; tactics involve the actual steps needed to achieve that vision. For example, a marketing strategy for a motel might be to develop a business package targeting travel agents that includes an e-commerce solution. Tactics are practical steps for implementing strategy. Other tactics for the travel-agent strategy might include:

building a list of local travel agents

preparing a business incentive scheme

outlining how they can use the motel website to make reservations and keep up-to-date

personally visiting the agents to follow up

monitoring the response to determine if the sales target is met

One can see from this that strategy always comes first, followed by tactics. For example, a value- based commitment to environmentally responsible hospitality could be reflected strategically by working toward Green Globe certification and tactically by incorporating energy efficient appliances in the motel retrofit.

Operational Control

Operational control regulates the day-to-day output relative to schedules, specifications, and costs. Are product and service output high-quality and delivered on time? Are inventories of raw materials,

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goods-in-process, and finished products being purchased and produced in the desired quantities? Are the costs associated with the transformation process in line with cost estimates? Is the information needed in the transformation process available in the right form and at the right time? Is the energy resource being used efficiently?

Operational control can be a very big job, requiring substantial overhead for management, data collection, and operational improvement. The idea behind operational control is streamlining the process to minimize costs and work as quickly and efficiently as possible.

Feedback, Concurrent Control, and Feedforward

Bureaucratic control uses formal systems to influence employee behavior and help an organization achieve its goals.

LEARNING OBJECTIVES

Define bureaucratic control and its potential advantages within an organization

KEY TAKEAWAYS

Key Points

Bureaucratic control empowers individuals relative to their position within the organizational hierarchy. For example, the chief executive officer of an organization has more power than a line manager.

It is applied via systems of standardized rules, methods, and verification procedures.

Control helps shape the behavior of divisions, functions, and individuals.

Advantages of bureaucratic control include efficient decision-making, standardized operating procedures, and usage of best practices.

Disadvantages include discouragement of creativity and innovation; dissatisfaction among employees; high employee turnover rate; and difficulty adopting to changing

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conditions in the marketplace, industry, or legal environment.

Key Terms

bureaucracy: Structure and regulations in place to control activity. Usually in large organizations and government operations.

hierarchy: An arrangement of items in which the items are represented as being “above,” “below,” or “at the same level as” in relation to each other.

Bureaucratic Control, An Overview

What Is Bureaucratic Control?

Bureaucratic control is the use of formal systems of rules, roles, records, and rewards to influence, monitor, and assess employee performance.

Rules set the requirements for behavior and define work methods.

Roles assign responsibilities and establish levels of authority.

Records document activities and verify outcomes.

Rewards provide incentives for achievement and recognize performance relative to goals or

standards.

Organizations use these systems when their size and complexity make more informal practices based solely on interpersonal communication and relationships impractical, unreliable, and ineffective. Bureaucratic controls are intended to help an organization achieve its goals by shaping how employees perform, creating accountability for outcomes, tracking actual performance, and correcting behavior when necessary.

Advantage of Bureaucratic Control

The biggest advantage of bureaucratic control is that it creates a command and control cycle for the business leadership. Decision-making is streamlined when fewer individuals are involved. Since standards and best practices are usually highlighted during decision-making, bureaucratic control makes an entire organization more efficient.

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Disadvantages of Bureaucratic Control

One disadvantage of bureaucratic control is that it may discourage creativity and innovation by making an organization more standardized and less flexible. Business leadership may be versatile in some organizations, but it is not possible for a few individuals to generate all possible ideas or plans. This means that bureaucratic control can narrow the scope of possible ideas and plans. Another disadvantage is that the front- line employees may feel unappreciated and dissatisfied because they are not allowed to present their ideas; this can lead to heavy employee turnover. Often organizations with strict bureaucratic control find themselves less able to adapt to changes in the marketplace, their industry, or the legal environment.

General

Captain A Captain B Captain C

Sergeant BSergeant A

Private A Private B

Colonel BColonel A

Bureaucratic control: An example of a bureaucratic feedback system is the military, with its strict hierarchy and clear chain of command.

Conclusion

Though bureaucratic organizational structures may seem less desirable than flatter structures, they are necessary at times. While software development may benefit from a more autonomous structure, for example, other industries benefit from the tight controls and tall hierarchies of bureaucratic control.

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Internal and External Control

Control uses information from the past and present and projections for the future to create effective control processes.

LEARNING OBJECTIVES

Diagram the control process of feedback, concurrent control, and feedforward within the organizational control context

KEY TAKEAWAYS

Key Points

Feedback is a process in which information about the past or the present is used to influence the present or future.

Concurrent control is active engagement in a current process where observations are made in real time.

Feedforward refers to giving a control impact to a subordinate or an organization from which you are expecting an output. It is predictive because it is given before any deliberate change in output occurs.

Monitoring and controlling is a set of processes implemented to monitor project execution to discover and solve problems or potential problems in a timely manner.

Key Terms

feedforward: To respond in advance.

concurrent: Happening at the same time; simultaneous.

feedback: Critical assessment on information produced.

In management terms, control means setting standards, measuring actual performance, and taking

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Feedback: ‘Feedback’ exists between two parts when each affects the other. (W.R. Ashby, “An introduction to cybernetics”, 1956)

Example of the information feedback process: This image shows how data, information, and feedback flow throughout a management strategy.

corrective action. Control involves making observations about past and present control functions to make assessments of future outputs. These are called feedback, concurrent control, and feedforward, respectively.

Feedback

Feedback is a process in which information about the past or the present is used to influence the present or future. As part of a chain of cause-and-effect that forms a circuit or loop, actions are said to “feed back” into themselves.

Feedback helps an organization seeking to improve its performance make the necessary adjustments. Feedback serves as motivation for many people in the workplace. When employees receive negative or positive feedback, they decide how to apply it in their daily work. Feedback for the system as a whole also provides common points of discussion for management and allows for a holistic appraisal of how processes can be improved.

Concurrent Control

Concurrent control is active engagement in a current process where observations are made in real time. A set of processes are implemented to monitor project execution to discover and solve problems or potential problems in a timely manner. Picture a floor manager actively measuring each component of the operation with a checklist to identify issues as they occur.

Feedforward

Feedforward is a management and communication term that refers to giving a control impact to an employee or an organization from which you are expecting an output. Feedforward is not just pre-

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feedback, because feedback is always based on measuring an output and sending feedback on that output. Pre-feedback given without measuring output may be understood as a confirmation or just an acknowledgment of control command. Feedforward is predictive in nature. Picture an analyst statistically measuring the quality and quantity of a given output based on information gathering.

Internal and External

The control process can be hindered by internal and external constraints that require contingency thinking.

LEARNING OBJECTIVES

Examine the external and internal control constraints that may limit efficiency in the control process

KEY TAKEAWAYS

Key Points

All processes are susceptible to constraints; the theory of constraints (TOC) postulates that “the chain is only as strong as its weakest link.”

TOC asserts that throughput would be infinite if there were no constraints within a process. Therefore, constraints are a constant consideration for management control.

Internal constraints include people, policy, and equipment issues, which can actively reduce the efficiency of specific process flows.

External constraints include resource scarcity, contracts (i.e., suppliers or employees), and legalities.

Key Terms

control: Influence or authority over someone or something.

throughput: The movement of inputs and outputs through a production process.

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Theory of Constraints

All processes are susceptible to constraints; the theory of constraints (TOC) postulates that “the chain is only as strong as its weakest link.” Because systems are interdependent, it makes sense that an entire set of processes within an operational paradigm can be made vulnerable to failure by a single process that is struggling.

TOC assumes that throughput, operational expense, and inventory are the three central inputs in a given system. TOC relies on the assumption that there is always room for improvement in these inputs–after all, if there was nothing preventing the system from achieving higher throughput, throughput would be infinite.

This means that any time organizations encounter substantial internal or external constraints, it is the role of management to create a strategy to circumvent them. Since throughput is never infinite, this is an ongoing process.

Internal Constraints

At the organizational level, internal control objectives concern the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. With this in mind, we can summarize internal constraints as any one or any combination of the following:

Equipment: The way equipment is used limits the ability of the system to produce more salable

goods/services.

People: Lack of skilled people limits the system; mental models also cause negative behaviors

that become constraints.

Policy: A written or unwritten policy prevents the system from making more goods/services.

The list of potential internal constraints is long: employees may not have the proper skills to use specific types of equipment, policy may organize the processes in an imperfect manner, equipment may depreciate faster than expected, employees may be absent or inefficient, policy may limit resource allocation to inventory and warehousing, etc. Internal constraints are a constant concern for

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the managers who must try to minimize them by continually optimizing the system. For example, if employees lack specific skills, management may want to refine its hiring policies.

Internal control system: This flowchart illustrates how an internal control system can be integrated into the production process: mid-level managers of one department can monitor and QA other departments’ output.

External Constraints

In their attempts to maximize existing profits, business managers must consider both the short- and long-term implications of decisions made within the firm and the various external constraints that could limit the firm’s ability to achieve its organizational goals. These constraints can be organized into three categories:

Scarcity

Contracts

Legalities

The first external constraint, resource scarcity, refers to the limited availability of essential inputs (including skilled labor), key raw materials, energy, specialized machinery and equipment, warehouse

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space, and other resources. Moreover, managers often face constraints on plant capacity that are exacerbated by limited investment funds available for expansion or modernization.

Contractual obligations also constrain managerial decisions. Labor contracts, for example, may constrain managers’ flexibility in worker scheduling and work assignments. Labor contracts may also restrict the number of workers employed at any time, thereby establishing a floor for minimum labor costs.

Finally, laws and regulations have to be observed. Legal restrictions can constrain production and marketing decisions. Examples of laws and regulations that limit managerial flexibility include: minimum wage, health and safety standards, fuel efficiency requirements, anti-pollution regulations, and fair pricing and marketing practices.

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Bureaucratic and Quality Control Tools and Techniques

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Bureaucratic Control

The quality control cycle improves processes through a continuous cycle of planning, doing, checking, and acting.

LEARNING OBJECTIVES

Use the four central components of the quality control cycle as a quality control (QC) tool

KEY TAKEAWAYS

Key Points

The quality control cycle is a repeating cycle that evolves around the production process. In the PDCA model, this incorporates four elements: Plan, Do, Check, and Act.

This process is essential for products developed through continuous production.

The quality control cycle does not stop after a process has been improved. Once a product is updated, the cycle begins again for the updated product, which is subjected to the same rigorous quality control process.

Key Terms

PDCA: The cycle of Plan-Do-Check-Act, four-step problem solving process typically used in quality control.

continuous improvement: An ongoing effort to make products, services, or processes better.

quality control: An activity, such as inspection or testing, introduced into an industrial or business process to ensure sound processes and products.

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The Quality Control Life Cycle

The quality control life cycle is an ongoing cycle of planning, monitoring, assessing, comparing, correcting, and improving products or processes. It is designed to improve the quality of a product or process through continuous reinvention. Quality control is used to develop systems that ensure that the goods and services customers receive meet or exceed their expectations.

Quality control both verifies the delivery of good quality and identifies gaps and failures that need to be addressed within the process. Ultimately, it is a process that continuously evolves within the production process.

PDCA (Plan, Do, Check, Act)

PDCA (plan–do–check–act or plan–do–check–adjust) is a four-step management method used in business to control and continuously improve processes and products. It is also known as the Deming circle/cycle/wheel, Shewhart cycle, control circle/cycle, or plan–do–study–act (PDSA). Another version of this PDCA cycle is OPDCA. The added “O” stands for observation or, as some versions say, “Grasp the current condition.”

PDCA cycle: Plan, Do, Check, Act

The Four Steps

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1. Plan: In this step of the quality control cycle, a business establishes the objectives and

processes necessary to deliver results in accordance with the expected output (the target or

goals).

2. Do: In this step, a business implements the plan, executes the process, and makes the product.

It also collects data for charting and analysis to be used in the following “check” and “act” steps.

3. Check: A business then compares the actual result against the expected result to find any

differences.

4. Act/Adjust: After comparing results, a business takes corrective actions on any significant

differences between actual and expected results. In this step, the business analyzes the

differences to determine their root causes, then determines where to apply changes that will

improve the process or product.

It is important to keep in mind that this quality control process is continuous and specifically designed to improve the quality of business processes on an ongoing basis. The theory underlying this is the scientific method, where observations are made and hypotheses generated, which are then tested in the next cycle.

The Quality Control Cycle

Quality control is used to evaluate and address the quality of the goods a business provides.

LEARNING OBJECTIVES

Describe effective quality control processes as they are employed in the business environment

KEY TAKEAWAYS

Key Points

Quality control is used to evaluate an organization ‘s products or services.

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Standards of quality need to be established first, using a set of quality criteria created by the manufacturer or by the requirements of the client/customer.

Quality assurance is preventive and process-oriented while quality control is reactive and product-oriented.

Quality control emphasizes process, control, competence, and personal integrity.

Quality control is very important to increasing customer satisfaction and the success of the overall business.

Key Terms

quality control: A procedure or set of procedures intended to ensure that goods adhere to a defined set of soundness criteria or meet the requirements of the client or customer.

quality: The degree to which a man-made object or system is free from bugs and flaws, as opposed to scope of functions or quantity of items.

locus of control: A theory in personality psychology referring to the extent to which individuals believe that they can effect or dictate how events affect them.

Quality control is a business procedure used to assess the quality of a company’s products or services against benchmarks determined by the company, industry standards, or clients/customers. Quality control includes inspecting a product before it enters the marketplace to make sure it is defect-free.

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Quality Checking: A U.S. Navy Aviation Electrician’s Mate performs a maintenance check during the course of his duties.

Quality Control (QC) and Quality Assurance (QA)

Quality control and quality assurance have different purposes. Quality control emphasizes product testing to discover defects and report them to management, which decides how to respond (by delaying the product release date, for example). Quality assurance attempts to improve and stabilize production to prevent defects. In this way, QA is preventive and process-oriented while QC is reactive and product-oriented.

Guidelines for Quality Control

To maintain an effective quality control program, a business must follow these important guidelines:

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Decide on a specific standard for the product or service.

Determine the extent of quality service actions.

Collect real-world data to improve product quality and adjust the QC process.

Submit the result to management. If the percentage of defective products is too high,

management should take corrective action to improve quality.

Most importantly, a quality control process should be an ongoing process.

Three Major Aspects of Quality Control

1. Elements, like controls, job management, defined and well-managed processes, performance

and integrity criteria, and identification of records.

2. Competence, such as knowledge, skills, experience, and qualifications.

3. Soft elements, such as personnel integrity, confidence, organizational culture, motivation, team

spirit, and quality relationships. Deficiency in any of these three aspects increases the risk of

inferior products or services getting to market. Quality control is one of the most important

procedures for any business because it lowers that risk of customer or client dissatisfaction and

prevents losses for the business.

Total Quality Management (TQM)

Total quality management (TQM) is the continuous management of quality in all aspects of an organization.

LEARNING OBJECTIVES

Employ the total quality management (TQM) perspective to identify how to improve quality and efficiency on a continuous basis

KEY TAKEAWAYS

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Key Points

TQM asserts that quality improvement never ends. Quality is a strategic advantage to an organization, and zero defects is the quality goal that minimizes total quality costs.

TQM is rooted in the belief that preventing defects is cheaper than fixing them. In other words, total quality costs are minimized when managers strive to reach zero defects in the organization.

The seven basic elements of TQM are: customer focus, continuous improvement, employee empowerment, quality tools, product design, process management, and supplier quality.

There are several awards for outstanding TQM, such as the Malcolm Baldrige Award and the ISO 9000 award.

Key Terms

TQM: Total Quality Management; a process improvement method that promotes the importance of quality improvement on a continuous basis.

Quality management is the study of improving the quality of a company’s products and services. Total quality management (TQM) promotes the importance of improving quality on a continuous basis. TQM asserts that quality improvement is a consistent source of strategic advantage because it eliminates waste and creates higher consistency. TQM involves all levels of staff and management as well as facilities, equipment, labor, supplies, customers, policies, and procedures.

Cost-Benefit Analysis

An important basis for justifying TQM is its impact on total quality costs. TQM is rooted in the belief that preventing defects is cheaper than fixing them. In other words, total quality costs are minimized when managers strive to reach zero defects in the organization.

The four major types of quality costs include:

Prevention costs are costs created from the effort to reduce poor quality. For instance, a

company may train its employees to do an effective job the first time or conduct preventive

maintenance on its equipment.

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Appraisal costs include costs associated with conducting quality audits and the inspection and

testing of raw materials, work-in-process, and finished goods.

Internal failure costs include the lost productivity and waste associated with having to scrap or

rework a product.

Finally, external failure costs occur when the defect occurs after the product has reached the

customer. This is the most expensive category of quality cost as it results in returns, repairs,

warranty claims, and potentially lost business.

The Seven Basic Elements of TQM

These seven elements of TQM are:

1. Customer focus: Identifying customer needs and measuring customer satisfaction are key first

steps for any business. Managing quality begins with delivering precisely what the customer

wants.

2. Continuous improvement: There is no perfect system. Process improvements must be

continuous. Constantly identifying and improving on processes to increase quality and/or lower

costs is a primary responsibility of operations teams.

3. Employee empowerment: Employees are observers: ensuring familiarity with the individual

components and the broader process as a whole is integral in empowering effective operations

professionals.

4. Quality tools: Quality tools are mostly model-based (i.e., flowcharts, cause and effect diagrams,

scatter plots, etc.) and involve manipulating output data to identify weaknesses and/or areas for

improvement.

5. Product design: Design and delivery of a product is also an evolving process where product

design can substantially impact costs and customer satisfaction. Operations professionals are in

an ideal position to suggest design changes that will improve quality.

6. Process management: This is often seen as a the heart of TQM because improving the process

itself is a goal everyone in operations should be working towards all the time. Simple process

improvements like enhancing the organization of inputs or the design of the plant can have

enormous cost implications.

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7. Supplier quality: Finally, most companies are also customers. This means that many of the

inputs for a given good will be coming in as goods themselves. Who organizations buy from

significantly impacts costs and quality. This makes supplier management is a complex and

highly relevant component of TQM.

All of these elements emphasize the importance of improving quality by empowering employees, providing adequate training, and building a continuous organizational culture of improvement. The idea here is to improve while continuing to fulfill customer needs through effective use of internal resources and process management.

Quality Awards Associated with TQM

There are several quality awards and standards for organizations to strive towards. Most of the organizations involved in these programs see them as tools to help improve their quality processes and move toward implementing successful TQM. Two examples are:

The Malcolm Baldrige Award is a United States quality award that covers an extensive list of

criteria evaluated by independent judges. In many cases, organizations use the Baldrige criteria

as a guide for their internal quality efforts rather than competing directly for the award.

The International Organization for Standardization (ISO) sponsors a certification process for

organizations that seek to learn and adopt superior methods for quality practice (ISO 9000) and

environmentally responsible products and methods of production (ISO 14000). These

certifications are increasingly used by organizations of all sizes to compete more effectively in a

global marketplace due to the wide acceptance of ISO certification as a criterion for supplier

selection.

The RATER Model

RATER is a service quality framework that highlights five important business areas customers use to analyze strength or weaknesses.

LEARNING OBJECTIVES

Apply Gap Analysis to the RATER model to measure current and potential performance

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KEY TAKEAWAYS

Key Points

RATER assumes that customers evaluate a firm’s service quality by comparing their perceptions with their expectations.

RATER highlights the five areas of a business: Reliability, Assurance, Tangibles, Empathy, and Responsiveness. Gap analysis of RATER results measures the difference between perception and expectation.

RATER allows businesses to improve an individual service variable by analyzing customer data.

Key Terms

SERVQUAL: SERVQUAL or the RATER model is a service quality framework.

Gap Analysis: A tool that helps organizations compare actual performance with potential performance. The thought process is: “Where are we now and where do we want to be?”

reliability: The quality of being dependable or trustworthy.

The RATER model is a service quality framework. It was created by professors Valarie Zeithaml, A. Parasuraman, and Leonard Berry, who introduced the framework in their 1990 book Delivering Quality Service. The model highlights five areas that customers generally consider important when they use a service, and focuses on differentiating between customer experience and expectation.

Five Areas of RATER

Reliability: did the company provide the promised service consistently, accurately, and on a

timely basis?

Assurance: do the knowledge, skills, and credibility of the employees inspire trust and

confidence?

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Delivering Quality Service: A book by Valarie Zeithaml, A. Parasuraman, and Leonard Berry

Tangibles: are the physical aspects of the service (offices,

equipment, or employees) appealing?

Empathy: is there a good relationship between employees and

customers?

Responsiveness: does the company provide fast, high-quality

service to customers?

By measuring the quality ratings for these five areas, a business can improve areas that are lagging. RATER uses a multidimensional approach to pinpoint service shortcomings, which helps a business understand why they are happening and how to correct them.

Gap Analysis

Gap Analysis can be applied to each of the five RATER areas. Gap Analysis is a tool that helps companies compare actual performance with potential performance. The five gaps that organizations should measure, manage, and minimize are:

Gap 1: The management perception gap, or the difference between the service customers

expect and management’s perception of customer expectations. If management thinks

customers expect one level of service when they really expect another, this indicates that

management does not fully understand the market.

Gap 2: The quality specification gap. This is the difference between management perception and

the company’s actual specification of customer experience.

Gap 3: The service delivery gap. This is the difference between customer-driven service design

and standards and service delivery.

Gap 4: The market communication gap. This is the gap between the experience that customers

are promised and the experience they actually have.

Gap 5: The perceived service quality gap. This is the gap between a customer’s expectation of a

service and their perception of the service they received.

Addressing gaps is the ultimate goal of this process because the deviation between customer expectations and actual quality is where quality control and process improvements take place.

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Total Quality Management Techniques

Six sigma, JIT, Pareto analysis, and the Five Whys technique are all approaches that can be used to improve overall quality.

LEARNING OBJECTIVES

Classify the different methods of TQM available to organizations and leaders

KEY TAKEAWAYS

Key Points

Total Quality Management ( TQM ) is an integrative management philosophy for continuous improvement of the quality of an organization ‘s products and processes in order to meet or exceed customer expectations.

Six Sigma focuses on improving the quality of process outputs by identifying and removing the causes of defects while minimizing the variability in manufacturing and business processes.

Just-in-Time is a production strategy for improving return on investment by reducing in-process inventory and associated carrying costs.

Pareto Analysis is a statistical technique used to identify a limited number of tasks that combine to produce a significant overall effect.

Five Whys is a question-asking technique used to explore the cause-and-effect relationships underlying a particular problem.

Key Terms

Pareto Analysis: A statistical technique that is used to select a limited number of tasks that produce significant overall effect.

Six Sigma: A process improvement method that focuses on statistical methods to reduce the number of defects in a process.

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JIT: Just-in-Time; to perform an operation (usually compiling).

Total Quality Management (TQM) is an integrative management philosophy for continuous improvement of the quality of an organization’s products and processes in order to meet or exceed customer expectations. There are several TMQ strategies used to improve business management systems. Considering the practices of TQM as discussed in six empirical studies, Cua, McKone, and Schroeder (2001) identified the nine most common TQM practices as:

1. Cross-functional product design

2. Process management

3. Supplier quality management

4. Customer involvement

5. Information and feedback

6. Committed leadership

7. Strategic planning

8. Cross-functional training

9. Employee involvement

The following sections describe some other important and widely used techniques that drew inspiration from TQM in their focus on quality and control.

Six Sigma

Six Sigma drew inspiration from the quality improvement methodologies of preceding decades, including quality control, TQM, and Zero Defects. It focuses on improving the quality of process outputs by identifying and removing the causes of defects while minimizing the variability in manufacturing and business processes Like TQM, the Six Sigma philosophy asserts that achieving sustained quality improvement requires commitment from the entire organization, particularly top-level management.

Just-in-Time ( JIT )

The Just-in-Time (JIT) method is a production strategy for improving business return on investment by

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Six Sigma: The Six Sigma management philosophy drew inspiration from the quality improvement methodologies of preceding decades, including TQM.

reducing in-process inventory and associated carrying costs. JIT focuses on continuous improvement to maximize an organization’s return on investment, quality, and efficiency. The JIT inventory system focuses on having “the right material, at the right time, at the right place, and in the exact amount” and defines inventory as a cost factor.

JIT programs often include a focus on Total Quality Control. For example, when a process or parts quality problem surfaces on Toyota’s production line, the entire production line is slowed or even stopped while the problem is dealt with. JIT must be organization-wide and consistent.

Pareto Analysis

Pareto analysis is a statistical technique used to select a limited number of tasks that produce significant overall effect. It uses the Pareto principle: most problems have a few key causes. Pareto analysis also concludes that 80% of the result can be generated by focusing on 20% of the key work.

Five Whys

The Five Whys is a question-asking technique used to explore the cause-and-effect relationships underlying a particular problem. The primary goal of the technique is to determine the root cause of a defect or problem, which points toward a process that is not working well or does not exist. The technique was originally developed by Sakichi Toyoda and was used by Toyota Motor Corporation as it evolved its manufacturing methodologies. It is now used within Kaizen (continuous improvement), lean manufacturing, and Six Sigma.

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Financial and Project Management Tools of Control

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Gantt Charts

Gantt charts display the duration of steps in a project and are used by project managers to track the time and sequence of each step.

LEARNING OBJECTIVES

Compare the advantages and disadvantages of utilizing a Gantt chart to illustrate a project schedule

KEY TAKEAWAYS

Key Points

Gantt charts illustrate the start and finish dates of the terminal and summary elements of a project. Gantt charts also display the expected duration of each stage of a project as well as the expected order of each stage.

The axes of a Gantt chart include the duration (weeks, months, and so on) of each step of the project and descriptions of each step. Gantt charts can also show the completion rate of the project steps that are currently underway.

Gantt charts help communicate the goals and objectives of projects, their timeline, and the expectations project managers have for completion rates for the project.

Although a Gantt chart is useful and valuable for small projects that fit on a single sheet or screen, they can become too large and unruly for projects with very large numbers of activities.

Key Terms

project management: The discipline of planning, organizing, securing, managing, leading, and controlling resources to achieve specific goals.

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A Gantt chart is a type of bar chart developed by Henry Gantt to illustrate a project schedule. Gantt charts show the start and finish dates of the terminal and summary elements of a project. Gantt charts also display the expected duration of each stage of a project as well as the expected order of each stage.

The axes of a Gantt chart include the duration (weeks, months, and so on) of each step of the project and descriptions of each step. Gantt charts can also show the completion rate of project steps that are currently underway.

Gantt charts are used in many types of projects, including technical projects and simple projects. Today they are commonly used, but when they were first introduced Gantt charts were revolutionary.

Relevance to Management

Gantt charts are especially useful for management professionals because they display multiple steps and active components simultaneously. Management is tasked with understanding a wide variety of processes at any given instant and allocating resources or adjusting policy based upon this understanding. Gantt charts enable real-time tracking of each phase of a given project (or series of projects), and allow managers to quickly update and communicate broad arrays of information chronologically.

Advantages Of Gantt Charts

Gantt charts can be used to show the current schedule status using percent-complete shadings and a vertical “TODAY” line. Because they are so commonly used, Gantt charts can be used and understood by audiences around the world.

Gantt charts also help communicate the goals and objectives of projects, their timeline, and the expectations project managers have for completion rates for the project. They serve as a communication device among team members to discuss the goals of the project and make realistically appraisals of the current timeline. Thus they provide a useful visualization of strategy in action.

Disadvantages Of Gantt Charts

Although a Gantt chart is useful and valuable for small projects that fit on a single sheet or screen, they can become too large and unruly for projects with a large number of concurrent activities. Larger Gantt charts may not be suitable for most computer displays.

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Because Gantt charts focus primarily on schedule management, they represent only one of the triple constraints for project management (cost, time, and scope–Gantt charts show only time). Moreover, since Gantt charts do not convey the size of a project or the relative size of work elements, the magnitude of steps behind schedule can be easily mis-communicated. If two projects are the same number of days behind schedule, the larger project has a larger effect on resource utilization, but this difference is not expressed on a Gantt chart.

Construction of Gantt Charts

In the following example there are seven tasks labeled A through G . Some tasks can be done concurrently (A and B) while others cannot be done until the predecessor task is complete (Ccannot begin until A is complete).

Additionally, each task has three time estimates: the optimistic time estimate (O), the most likely or normal time estimate (M), and the pessimistic time estimate (P). The X axis displays the expected duration of the project and the bars show how much time each step of the project is expected to take as well as when the step will take place in relation to the rest of the project.

Gantt chart: Gantt charts are used in project management scheduling.

CPM and PERT Charts

CPM and PERT are charts used to determine the sequence and maximum and minimum timing of activities in a project.

LEARNING OBJECTIVES

Outline business processes within project management utilizing the critical path method

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(CPM) as a control function and diagram projects within project management using the program evaluation review technique (PERT) chart

KEY TAKEAWAYS

Key Points

CPM diagrams each step of a project(s). This includes a list of tasks and the time (duration) that each task should take to complete, and the sequence of and dependencies between tasks.

CPM uses task sequence and timing information to lay out the longest path of planned activities to the end of the project and give a time window during which the step should be completed to keep it from interfering with later steps.

A PERT chart is a diagram for CPM that represents tasks with an arrow diagram. PERT charts are more simplistic than CPM charts because they simply show the sequence and timing of each step in the project.

CPM/PERT charts are useful in determining where potential delays may occur in a project and deciding the sequence of tasks. This helps project managers organize tasks and ensure that time is managed appropriately at each stage of the project.

The cumulative process of transforming various independent efforts into an interdependent value -added proposition is often complex; CPM/PERT charts allow project managers to visualize tasks chronologically.

Key Terms

Critical Path: In a CPM diagram, the longest time period that any series of tasks will take. This amount of time becomes the maximum amount of time needed to complete the project.

The critical path method (CPM) is a project modeling technique that was developed in the late 1950s by Morgan R. Walker and James E. Kelley, Jr. CPM is commonly used for projects in construction, aerospace and defense, software development, research projects, product development, engineering, and plant maintenance. It is particularly useful for projects that have interdependent steps and/or processes.

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PERT chart: A PERT chart shows the timing of a project.

CPM Inputs

CPM diagrams each step of a project(s). This includes a list of tasks and the time (duration) that each task should take to complete, and the sequence of and dependencies between tasks (such as “Step A has to be finished before moving to step B”). CPM uses task sequence and timing information to lay out the longest path of planned activities to the end of the project and give a time window during which the step should be completed to keep it from interfering with later steps.

Project managers can glean a lot of information about the timing of the project by following the pathways created in the CPM diagram between the different steps. They can determine which tasks need to be completed first and how much time can be spent on those tasks before they delay other parts of the project.

The Critical Path

Managers can also use CPM to determine which set of tasks is likely to take the longest. For example, if Step A has to be completed before Step B, which has to be completed before moving to Step C, but Steps D, E, and F can all be completed independent of each other, Steps A, B and C form the longest series of tasks in the project.

The longest series of tasks in a project is referred to as the “critical path;” in this case, it would be A–>C. The critical path is the sequence of project network tasks that combine for the longest overall duration. The critical path also tells the project manager the shortest possible time period in which the project can be completed since the timing of the project will be dependent on the completion of critical path tasks.

PERT Chart

A PERT chart (program evaluation review technique) is diagram for CPM that represents tasks with an arrow diagram. PERT charts are more simplistic than CPM charts because they simply show the timing of each step of the project and the sequence of steps.

Standard CPM charts are more complex than PERT charts because they illustrate the sequence of

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CPM Chart: A CPM chart is similar to a PERT chart but includes more detail about the latest and earliest possible times at which each stage of the project must be completed. The earliest possible time (in green) are calculated by determining the earliest start times of all activities on the critical path before that activity. The latest possible times (in blue) are calculated by adding all of the latest possible times of the activities before the critical path. In this CPM chart, the critical path is A-B-C-D-E since that pathway takes the most time to complete of any of the other potential pathways available. The total float time (lime green), or TF, represents the amount of time flexibility a task has between start and end times.

steps and place a diagram around each step that shows the earliest and latest possible time that each task in the project can be completed.

Managerial Implications

CPM/PERT charts are useful in determining where potential delays may occur in a project and deciding the sequence of tasks. This helps project managers organize tasks and ensure that time is managed appropriately at each stage of the project.

Project managers are master multitaskers, capable of seeing the forest of the long-term agenda through the trees of short-term objectives. The cumulative process of transforming various independent efforts into an interdependent value-added proposition is often complex; CPM/PERT charts allow project managers to visualize tasks chronologically. This time component is critical because understanding the prerequisites for each stage of development minimizes delays and ensures ideal resource allocation.

Finally, the concept of a critical path is integral to the usefulness of the model. Identifying which task grouping will determine the overall length of the project allows proper prioritization and enables deadlines to be shortened through increased effort in specific areas. This makes it easier for the project manager to effectively add value by reducing lead times.

Financial and Budgetary Controls

Financial and budget controls help ensure project success by controlling (and giving visibility to) input resources and output returns.

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LEARNING OBJECTIVES

Use effective budgeting techniques and financial projections to maximize the potential success and control project objectives

KEY TAKEAWAYS

Key Points

Determining the cost of a project is one of the most important initial steps for a project manager (PM). Financial and budgetary controls are critical tools in this process.

Some tools that project managers can use to control finances and budgeting include payback period and other financial forecasting calculations, as well as budgeting techniques like variance analysis.

One way to determine whether the budgeting plan is being adhered to is to compare the budget allotted for a certain period of time with the actual amount of money spent during that time. This is called a variance analysis.

Financial forecasting calculations include basic payback periods and net profit values (NPVs) which calculate the period of time required for the return on an investment to repay the sum of the original investment.

It is important for a project manager to conduct these financial forecasting calculations and budgeting controls to identify budgetary constraints well before costs are incurred.

Key Terms

Variance analysis: The difference between a budgeted, planned, or standard amount and the actual amount incurred/sold. This difference can be computed for both costs and revenues.

Why Managers Use Budgetary Controls

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Determining the cost of a project is one of the most important initial steps for a project manager. If a project manager cannot stay within a controlled budget, they may not have the funds to complete the project. The budget and financial plan is typically created during the initial stage of project development. Costs and resources should be set during the initiation stage to adequately plan and allocate costs.

Some tools that project managers can use to control finances and budget include payback period and other financial forecasting calculations, and budgeting techniques, including variance analysis. These tools are critically important for project managers who need to control resources to ensure project completion. If resources are mismanaged, the project will be characterized by sunk costs (i.e., investments that procure no returns).

Budgeting Techniques

Budgeting involves determining how much money will be needed to complete a project and the timeframe for spending it. The budget may be determined on an annual or monthly basis depending on how long the project is projected to run. An important part of budgeting is setting a plan that can be followed over the course of the project.

Example Budget Plan: Budget plans can be used to project incomes and expenses over the span of several months.

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One way to determine whether the budgeting plan is being adhered to is to compare the budget allotted for a certain period of time with the actual amount of money spent during that time. This is called a variance analysis. A variance is the difference between a budgeted, planned, or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues to show a project manager whether they are adhering to the project budget.

Financial Forecasting Calculations

Financial forecasting calculations, such as payback periods, calculate the period of time required for the return on an investment to repay the sum of the original investment. For example, a $1,000 investment that returned $500 per year would have a two-year payback period. Payback period intuitively measures how long something takes to “pay for itself.” All things being equal, shorter payback periods are preferable to longer payback periods. Payback period is widely used because it is a simple and clear measure.

Payback period is limited by the fact that it does not include the time value of money; that is, people prefer to receive money sooner rather than later. Net present value (NPV) is a financial forecasting calculation that does include the time value of money. It determines the “current value” of a sum of money on an annual (or monthly) basis, the value that cash paid out years from now would have if it was paid out today. This is a complex financial forecasting model that derives real rate of return using interest and inflation to localize currency chronologically.

Both payback period and NPV can be used in project management in order to determine how much profit a project will bring in and when. It is important for a project manager to conduct these financial forecasting calculations and budgeting controls to identify budgetary constraints well before costs are incurred and to secure funding from top management. Once a project receives funding, the project manager will need to use budgeting controls such as variance analysis in order to stay within the budget and ensure the success of the project.

Project Management Audits

Project management audits are used to determine and control the quality, completion, and timing of a project.

LEARNING OBJECTIVES

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Identify how project managers can use the common accounting concept of audits to achieve optimal levels of control and efficiency

KEY TAKEAWAYS

Key Points

In project management and quality management, managers audit the steps and/or processes of a project systematically or randomly to ensure that it is meeting estimated completion and quality standards.

An internal audit in project management is usually more or less like a check-up: it assesses the current state of a project and prescribes actions that will increase its success.

A regulatory audit is an external verification that a project is compliant with regulations and standards.

It is important to monitor how an audit is conducted so that employees or project team members don’t perceive it as a sign that the project manager does not trust them to complete their work.

Project managers benefit from periodic auditing in two broad ways: collecting performance data and ensuring managerial presence in various phases of the project.

Key Terms

Best practice: A method or technique that has consistently shown better results than others, and is used as a benchmark.

The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product.

Project Management Audits

This usually refers to audits in accounting, but similar concepts also exist in project management and

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Auditing and Communicating to a Project Team: When auditing a project, the project manager needs to be clear that the project team does not become suspicious or feel threatened by it.

quality management, as the auditing of steps and processes in a project systematically or randomly to insure that the project is meeting estimated completion and quality standards.

Like a project management audit, a quality audit is an external verification that a project is compliant with regulations and standard. A system of quality audits verifies the effectiveness of a quality management system. To benefit the organization, quality auditing should highlight areas of good practice and provide evidence of conformance (positive feedback) as well as report non-conformance and corrective actions (negative feedback).

Types of Audits

An internal audit in project management is usually more or less like a check-up: it assesses the current state of a project and prescribes actions that will increase its success. Audits in project management also include regulatory audits to provide external verification that a project is compliant with regulations and standards. Best practices of auditing dictate that a regulatory audit must be accurate, objective, and independent while providing oversight and assurance to the organization.

Why Project Managers Audit

Audits generally provide a good understanding of how a project is running and how in/effectively the project team is. Project managers benefit from periodic auditing in two broad ways. First, managers gain tangible data about specific components of the process performance and a good handle on how the project is aligning with long-term objectives. Second, auditing ensures that employees and contractors are aware of managerial presence (which motivates better performance) and show support for various elements of the project.

It is important, however, to monitor how an audit is conducted so that employees or project team members don’t perceive it as a sign that the project manager does not trust them to complete their work. If team members are aware that an audit is coming, or if they have discussed the possibility with the project manager, they may be more open to the idea. If an audit comes as a surprise, it can create lack of trust and suspicion between the project manager and their team. It is important to consider interpersonal factors before conducting an audit of a project.

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Project Management Inventory

A key component of project management is controlling inventory trajectories and quantities to reduce costs and maximize returns.

LEARNING OBJECTIVES

Discuss the importance of inventory management in maximizing utilization and achieving strong performance metrics

KEY TAKEAWAYS

Key Points

PMs are constantly using inputs to generate outputs in standard operational processes, which necessitates a number of potentially costly inventory components.

PMs strive to control the timing of inventory, the uncertainty of demand and supply availability, and overall economies of scale.

A PM should leverage various technologies to better gather real-time inventory data. This could include RFID tags, bar codes, QR codes, and inventory management software integration.

Key Terms

QR Code: Black modules (square dots) arranged in a square grid on a white background that can be read and processed by an imaging device (such as a camera).

RFID Tag: Wireless tags with electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects.

An important consideration when determining how to best manage a project is inventory. Project

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managers (PMs) must manage all resource inputs for a given project; how they approach this can increase or reduce costs dramatically. From a project management standpoint, it is essential to track current inventory and create a process for managing inventory flow.

Why Track Inventory?

PMs are constantly using inputs to generate outputs in standard operational processes, which necessitates a number of potentially costly inventory components. For example, if a given project involves perishables (such as food), there is a definite time limit on product value –once perishables spoil, their product value is zero. Careful chronological and quantity-based inventory questions must be answered to create a process flow that ensures the value of the goods being sold. In short, there are three general reasons to manage inventory:

Time – Time lags in the supply chain at every stage from supplier to user require PMs to

maintain certain amounts of inventory to use in this lead time.

Uncertainty – Inventories are maintained as buffers to meet uncertainties in demand, supply, and

movements of goods.

Economies of scale – The ideal condition of “one unit at a time at a place where a user needs it,

when he needs it” tends to incur a lot of logistical costs that result in bulk buying, transporting,

and storing the goods.

Since inventory tends to get overstocked and is typically not well-managed, there may be a multitude of supplies that no one is using. PMs can use a number of inventory management techniques to cut costs and streamline operations and ensure that optimal quantities are bought, stored and distributed.

Inventory Management Tools

Technology has dramatically changed the inventory management process. PMs can use technology to track real-time inventory statistics. A number of recent technological developments in inventory management include:

RFID Tags – RFID (radio-frequency identification) tags are used to track the locations of various

items, from components in an automobile assembly line to boxes of cereal shipped from a

manufacturing plant to the grocery store. These little tags communicate vast arrays of location

data to inform timing processes and ensure proper inventory levels.

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QR Codes – QR codes originated in logistics but have become popular in marketing as well. In

the 1990s, QR codes were used for rapid component scanning linked to computer data systems

to paint clear pictures of inventory process flows.

Bar Codes – Like QR codes, bar codes are used to scan inventory information into a computer

data system. When you purchase an item at a store, the bar code is scanned so that the

manufacturer’s inventory system can remove that item from their list of inventoried goods

(transferring it to the income statement as revenue).

Inventory Management Software – Each of the devices listed above requires a logistics software

package capable of streamlining all of this data into a meaningful view of the supply chain.

Inventory management control systems are the heart of inventory management for PMs because

they provide information output to be manipulated, analyzed, and assessed to better

understanding the inventory process.

RFID tree: This image illustrates the information flow of RFIDs, which is then streamlined into large data streams for PMs to track.

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QR code example: Above is a description of a QR code, along with the data implications of various visual aspects of the image (which are processed and reported via software). Different components of the code reflect position, alignment, and timing.

Break-Even Analysis

Break-even analysis can determine the minimum amount a company needs to sell in order to cover its costs with no gains or losses.

LEARNING OBJECTIVES

Employ a break-even analysis and derive a break-even point when analyzing a business initiative or project

KEY TAKEAWAYS

Key Points

In economics and business, the break-even point (BEP) represents the point at which there is no net loss or gain because costs and revenue are equal.

BEP, in the control sense, is a feasibility model for continuing an existing operation or opening a new one.

Break-even analysis represents the minimum quantity a company needs to sell to cover costs like rent, building expenses, utilities, and other aspects of day-to-day operations.

As long as a business can cover the minimum costs, it is “breaking even” and can remain in business without turning a profit.

Break-even analysis lets companies compare their production or sales numbers with the minimum they need to achieve in order to stay in business.

Key Terms

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fixed costs: Business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month.

Break-Even Point

In economics and business, the break-even point (BEP) is when costs (or expenses) and revenues are equal: there is no net loss or gain and the business has “broken even” by earning back its costs.

Identifying BEP

Break-even analysis determines the minimum quantity a company needs to sell in order to cover its minimum costs, including rent, building expenses, utilities, and the operational costs of running day-to- day operations. As long as a business can cover its minimum costs, it is “breaking even” and can remain in business even if it is not turning a profit.

For example: a business selling tables has a BEP of 200 tables per month. If the company sells fewer than 200 tables each month, it loses money; if it sells more, it makes a profit. Business leaders use this information to determine whether or not they will produce and sell 200 tables per month and proceed based on that analysis. If they estimate they cannot sell that many, they can reduce their fixed costs (renegotiating rent, keeping phone bills or other expenses down), reduce variable costs (paying less for materials per item produced, usually by finding a new supplier), or raise the price of their tables. Any of these approaches would lower the break-even point; the company might only need to sell 150 tables per month and pay its fixed costs if it can cover or alter them through other means.

A break-even analysis is typically depicted by a graph showing the midpoint between profit and loss with the axes as units sold and price of goods sold. The graph shows when sales can cover fixed costs so the company will be able to stay in business in the short-term. Over a longer period of time, other factors can come into play, like changes in rent or quantity sold, or other competitors entering the market.

Project Managers and Break-Even Analysis

Break-even analysis lets companies compare their production or sales with the minimum point (the break-even point) they need to achieve in order to stay in business. Typically, companies want to produce above BEP in order to make a profit and will adjust their output level to surpass the break-

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Sales

Total Costs

Profit

Loss

Units

$ Break-Even Point

Break-even analysis: Break-even points can be determined based on sales and total costs. The point is found at the number of units where loss and sales are equal.

even point.

Because they are in charge of specific process flows, understanding BEP and how to lower it through operational efficiency is central to the responsibilities of a project manager (PM). When making financial projections or pitching a new line of goods, the PM must estimate BEP and how they can exceed it in a given market. BEP, in this sense, is a feasibility model for either continuing an existing operation or opening a new one.

Ratio Analysis

Ratio analysis is a useful tool for benchmarking the financial and operational efficiency of a project

compared with other projects.

LEARNING OBJECTIVES

Recognize the importance of ratios and ratio analysis in financial assessment and project control

KEY TAKEAWAYS

Key Points

In project management, ratio analysis may evaluate the efficiency of the project and how well the project managers are controlling resources.

Financial ratios in the corporate setting usually come from a company’s balance sheet and income statement. These can include profitability ratios, efficiency ratios, activity ratios, and debt ratios. They can be applied to individual projects as well.

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Ratios used to determine a project’s health include operating margins, profitability margins, efficiency ratios, and debt.

Project managers should consider these ratios in relation to past, present, and future projects, making sure that they are investing in a project that will produce the best value for their dollar.

The goal of any organization is profits, and ratio analysis allows organizations to see where dollars are being invested and the results on that investment in terms of profitability percentage.

Key Terms

benchmark: When a manager compares metrics such as quality, time, and cost across an industry and against competitors.

Ratio analysis is used in finance and accounting to determine how a company is performing financially compared with other companies; efficiency and other production metrics may also be assessed. In project management, a ratio analysis may be related to the efficiency of a project and how well the project managers are controlling resources.

Financial Ratios

Financial ratios in the corporate setting usually come from a company’s balance sheet and income statement. These can include profitability ratios, efficiency ratios, activity ratios, and debt ratios. These are typically used to determine a company’s financial health relative to industry benchmarks, but they can also be used to maintain financial control of specific projects by assessing their financial health.

Ratios used to determine a project’s health include operating margins, profitability margins, efficiency ratios, and debt. Operating margin and total margin calculate the revenue a project is producing over expenses (a profitable output ratio). Operating margin considers only operating revenues and expenses (such as salaries, utilities, supplies) while total margin considers all revenues and expenses. There are many smaller ratios built into these broader operating margins as well, including output per employee, inventory turnover, and specific cost components in comparison with one another.

Other efficiency ratios that the project management team may consider include staff productivity levels, the number of activities completed in a set period, and expenses in relation to productivity.

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Operating margin formula: The operating margin is found by dividing net operating income by total revenue.

Application to Control

All of these ratios give the project manager a better sense of the health of the project. Project managers should consider these ratios in relation to past, present, and future projects, making sure that they are investing in a project that will produce the best value for their dollar.

The goal of process control is increased efficiency; ratio analysis uses a wide variety of point in similar projects as benchmarks to denote where efficiency can be enhanced, and underlines differences in profitability and efficiency that may sway resource allocation for the organization in the future.

The goal of any organization is profits, and ratio analysis allows organizations to see where dollars are being invested and the results on that investment in terms of profitability percentage. Project managers must justify their projects in this context to appease managerial concerns and considerations; thus ratio analysis is also useful in ensuring the viability and likelihood of renewal for a given project.

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Scorecard Management

A balanced scorecard is a device that managers use to convey performance across a range of

relevant strategic criteria.

Criteria are generally a mix of financial and non-financial indicators:

Measures of success and failure differ according to the type of

indicator.

The balanced scorecard represents performance using pictographs.

Its original design was a table broken up into sec�ons, or

perspec�ves, that generally included financial, customer, internal

business processes, and learning and growth.

A balanced scorecard aggregates performance within a single

framework. It should convey performance to stakeholders simply and

quickly.

This visual tool gets each of the moving parts in an organiza�on on

the same page to ensure con�nuity and synergy between func�onal

aspects.

Key Terms

key performance indicator (KPI)—an industry term for a type of

performance measurement, usually used by an organiza�on to

evaluate its success

strategic management—the art and science of formula�ng,

implemen�ng, and evalua�ng cross-func�onal decisions that will

enable an organiza�on to achieve its objec�ves

Learning Resource

Key Points

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Balanced Scorecard

Balanced Scorecard

Each perspec�ve on the scorecard is a reminder of the a�ributes needed for an effec�ve

scorecard. The financial, customer, innova�on, and internal perspec�ves all come together to

form an organiza�on’s vision and strategy.

A balanced scorecard is a semi-standardized strategic management tool used to track, monitor,

update, and improve key performance indicators (KPI) within an organiza�on. These variables

are generally a mix of financial and non-financial indicators that allow managers to be�er

control strategic opera�onal, financial, and commercial outcomes. The balanced scorecard is

among the most popular management tools for tracking organiza�onal performance.

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Created in 1987 by Art Schneiderman, an execu�ve at the semiconductor firm Analog

Devices, the balanced scorecard is an adapta�on of early performance measurement

techniques developed in complex pos�ndustrial corpora�ons in the United States and Europe.

Balanced Scorecard Perspec�ves

The balanced scorecard represents performance using pictographs. Its original design was a

table broken up into sec�ons, or perspec�ves, that generally included financial, customer,

internal business processes, and learning and growth. Each perspec�ve included a set of five

to six measures that could be compiled into a score.

The four perspec�ves are as follows:

Financial. This sec�on is about iden�fying a few relevant high-level financial measures

that help companies answer the ques�on “How do we look to shareholders?”

Customer. This sec�on is about iden�fying measures that answer the ques�on “How do

customers perceive us?”

Internal business processes. This sec�on is about iden�fying measures that answer the

ques�on “What must we excel at?”

Learning and growth. This sec�on is about iden�fying measures that answer the

ques�on “How can we con�nue to improve and create value?”

Managerial Use of the Scorecard

As organiza�onal acceptance of performance management tools grew throughout the 1990s,

the balanced scorecard evolved to include a host of other variables and considera�ons, most

significantly at the intersec�on of performance and strategy.

Corporate strategic objec�ves were added to jus�fy focusing on certain perspec�ves,

effec�vely absorbing the original framework into a more comprehensive strategic planning

exercise. Today, this second-genera�on balanced scorecard is o�en referred to as a strategy

map.

Managers generally use it to iden�fy areas of the organiza�on that need be�er alignment and

control within the broader organiza�onal vision and strategy. The balanced scorecard gets

each of the moving parts in an organiza�on on the same page to ensure con�nuity and

synergy between func�ons.

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Visual Scorecards

The visual scorecard is a graphic analogy of the balanced scorecard framework and a key visual

link between performance and strategy.

If the balanced scorecard is the whole process of developing

perspec�ve, measures, and targets, then the visual scorecard is the

graphic depic�on of those interac�ons.

Although classically depicted as major perspec�ves encircling the

organiza�on‘s overall vision or strategy, there is no widely accepted

format for the visual scorecard. Any format that effec�vely

communicates performance to stakeholders will work.

Managers rely on the visual scorecard to quickly diagnose posi�ve or

nega�ve performance throughout an organiza�on.

Key Term

strategy mapping—an ar�cula�on of organiza�onal perspec�ves and

key goals

Balanced Scorecard Illustrated

A balanced scorecard is the sum of all relevant inputs; the visual scorecard is the graphic

representa�on of findings or results. Think of the visual scorecard as a tool for presen�ng data

to managers or board members at an organiza�onal strategy mee�ng.

The image above represents the classic visual scorecard, in which perspec�ves of strategic

importance are organized around a higher-level vision or strategy. The visual scorecard does

not always have to be in this format; it may appear as a matrix or a series or matrices that

cross-reference issues of strategic importance with objec�ves or measures within the major

perspec�ves.

Key Points

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The cyclical visual scorecard with four components (financial, internal, innova�on, and

customer) is a very common design that successfully bridges performance and strategy. Recent

design enhancements to visual scorecards include the use of red (danger), yellow (cau�on), and

green (safe) color schemes to reflect various performance a�ributes. An abundance of red

immediately sends a signal to managers that serious improvement is needed to sa�sfy

organiza�onal targets. Similarly, the presence of green indicates that the targets are being met

or exceeded.

Why Use Visual Scorecards?

A good visual scorecard clearly conveys areas of strength, weakness, success, or deficiency to

all stakeholders. Visual scorecards make the data in balanced scorecards instantly readable.

When communica�ng business processes to stakeholders, managers are o�en tempted to rely

on jargon and detail-oriented descrip�ons of strategy and process. The visual scorecard gives

stakeholders a clear understanding that jargon and business-speak may not. It is primarily a

communica�on tool.

Scorecard Measurement

Balanced scorecard measurements require extensive data collec�on and are essen�al in

valida�ng scorecard outputs.

The balanced scorecard ul�mately helps managers choose measures

and targets. If these aspects of the scorecard are not well-selected

then the results will be neither useful nor reliable.

Scorecard design is also cri�cal. If managers decide that a balanced

scorecard should include performance measurements from the

perspec�ve of the customer, then an objec�ve of success must be

defined for the actual performance data to be effec�ve.

Gap analysis is a tool that helps companies compare actual

performance with poten�al performance. Two ques�ons are central:

“Where are we?” and “Where do we want to be?”

Key Points

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Coupled with well-designed and well-thought-out dimensions for the

scorecard itself, gap analysis is very useful in assessing organiza�onal

health.

Key Terms

ex ante—beforehand or in advance of

gap analysis—tool that helps organiza�ons compare actual

performance with poten�al performance. It answers the ques�on:

“Where are we now and where do we want to be?”

ex post—a�er the fact

Scorecard Design and Feedback

The balanced scorecard is ul�mately about choosing measures and targets. For example, a

company can find a measure to inform about a par�cular objec�ve within the customer

perspec�ve rather than one for customers in general. This gives the scorecard more prac�cal

value.

Useful measurement feedback from a balanced scorecard is also essen�al. This means that

careful considera�on is required when interpre�ng measurements. For example, if managers

decide that a balanced scorecard should include performance measurements from the

perspec�ve of the customer, then they must define par�cular objec�ves of success, such as

customer reten�on longevity, repeat sales, or customer willingness to recommend a product

or service. These concrete objec�ves allow the actual performance data to resonate and

generate meaningful results.

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A balanced scorecard should include specific details, like the units on a tape measure, so that

the scorecard can yield useful results.

Gap Analysis

Gap analysis is a tool that helps companies compare actual performance with poten�al

performance. At its core are two ques�ons: “Where are we?” and “Where do we want to be?”

If a company or organiza�on does not make the best use of exis�ng resources, or forgoes

investment in capital or technology, it may produce or perform below its poten�al. Gap

analysis can be conducted from the following four perspec�ves:

organiza�onal

business direc�on

business processes

informa�on technology

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Gap analysis lends itself to the measurement aspect of the balanced scorecard, ensuring that

maximum value may be derived from the exercise. It enables management to look carefully at

each objec�ve through the lens of the four perspec�ves and iden�fy efficacy or room for

improvement. Coupled with well-designed and well-thought-out dimensions for the scorecard

itself, gap analysis is very useful in assessing organiza�onal health.

It is important to note that there are no hard-and-fast rules about defining measures and

targets within a balanced scorecard. For example, financial measures can be defined as

discrete values in the context of accoun�ng ra�os, and con�nuous values in the context of

dollar figures. What is important is that data is appropriately analyzed within the context of

the targets and performance goals of the organiza�on.

Licenses and A�ribu�ons

Scorecard Management (h�ps://courses.lumenlearning.com/boundless-

management/chapter/scorecard-management/) from Boundless Management by Lumen

Learning, originally published by Boundless.com, is available under a Crea�ve Commons

A�ribu�on-ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/)

license. UMUC has modified this work and it is available under the original license.

© 2019 University of Maryland University College

All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of

informa�on located at external sites.

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Managing Control

Elements of Managing Control

The key elements of a control process include a characteris�c to be tested, sensors,

compara�ve standards, and implementa�on.

A significant part of a manager’s job is to control the processes

involved in successfully opera�ng a business. This control process

consists of key elements that management must be aware of before

designing control systems.

Because organiza�onal systems are large and complex, it is virtually

impossible to control every aspect of their opera�on. Controllers

can, however, determine the key condi�ons or characteris�cs of

output, and monitor them.

A�er determining a condi�on(s), managers must integrate various

communica�ons and data-collec�ng sensors that procure and pass

informa�on from the system to management.

Informa�on should be collected and interpreted in a �mely and

accurate way by management, and then benchmarked against

previously stated organiza�onal or compe��ve standards.

Finally, a�er collec�ng data and comparing it with desired standards,

an implementa�on strategy for altera�ons can be integrated into the

exis�ng process.

While each of the key elements is a stand-alone component of the

process, value is derived from the integra�on of the moving parts.

Learning Resource

Key Points

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Key Term

procure—to acquire or obtain

A significant part of a manager’s job is to control the processes in the successful opera�on of a

business. This control process consists of key elements that management must be aware of

before designing control systems. While each control system is unique because it is based on

the process being observed, the key elements should be factored in wherever applicable.

These include the characteris�c or condi�on being controlled, the sensor, the comparator, and

the ac�vator.

The Key Elements of Control

While each of the following key elements is a stand-alone component of the process, value is

derived by integra�ng the moving parts. Controllers and project managers must recognize and

assess each element, and the rela�onships between them.

Condi�on or Characteris�c

Because organiza�onal systems are large and complex, it is virtually impossible to control

every aspect of their opera�on with rigid control mechanisms. Controllers can, however,

determine the key condi�ons or characteris�cs of output and monitor them. For example, if an

organiza�on focuses on quality and durability, then the control factors should be tes�ng the

consistency of quality and the overall durability in the outputs of the system.

Sensor

A�er determining a condi�on(s), managers must integrate the various communica�ons and

data-collec�ng sensors that procure and pass informa�on from the system to management.

This can be done using various logis�cs tools (barcodes, data manipula�on so�ware, etc.) to

provide the controller a source of accurate and �mely informa�on relevant to the overall

performance of the process. It is important that the communica�on is carefully worded, as

miscommunica�on and misinterpreta�on of data can lead to costly mistakes.

Comparison with Standards

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Informa�on should be collected and interpreted in a �mely and accurate way by management,

and then benchmarked against previously stated organiza�onal or compe��ve standards. At

this point, devia�ons from the expected outcomes and/or desired results can be noted and

implementa�on discussed. If the system is too far outside of controlled standards to have a

viable solu�on, the project may be shut down.

Implementor

Finally, a�er collec�ng data and comparing it with desired standards, an implementa�on

strategy for altera�ons can be integrated into the exis�ng process. This is o�en referred to as

a series of correc�ve ac�ons that address and test issues with the process in the next control

cycle.

As implied above, this process is itera�ve. As long as there are outputs being produced and

inputs being consumed, the organiza�on will conduct produc�vity assessments in a control

func�on to improve the overall efficiency of the organiza�on. The key components of any

control sequence will underline these four elements.

Barriers to Managing Control

Barriers to managing control include lack of resources, inaccurate measurements, improper

informa�on flow, and incorrect analyses.

Managing control is essen�al to making sure that a process or system

is running effec�vely within an organiza�on.

A lack of resources can inhibit a company’s ability to manage control.

Resources that can improve managing control include trained staff,

sta�s�cal so�ware, and accurate measurement systems.

Inaccurate measurement while managing control can occur for a

number of different reasons. It can be avoided by having accurate

measurement systems and appropriately trained staff.

The �me lag in informa�on flow can misdirect management to

problems at the wrong �me in the sequence.

Key Points

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Analyzing data from a measurement to determine how to improve

and be�er manage control of the system can also be a barrier.

Key Term

scarcity—an inadequate amount of something; shortage

Managing control is essen�al to ensuring that a process or system is running effec�vely within

an organiza�on. There are some�mes barriers to tes�ng, measuring, communica�ng, or

observing how effec�vely a system or process is running. These barriers can reduce the

efficacy of the organiza�on, not only in the process being controlled but also in the controlling

process. Barriers to organiza�onal control can include scarcity of resources, inaccurate

measurements of the process, improper informa�on flow, and incorrect analyses.

Resource Scarcity

Managing control typically requires a number of resources. These resources include

supervisory staff, skilled specialists, tools to measure control of the system, and o�en complex

sta�s�cal so�ware and other tracking technologies. A lack of any (or all) of these crucial inputs

can dras�cally reduce the ability of the control team to collect and communicate its findings.

This underfunding of the control system creates resource scarcity for the process.

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Managing Control

Because there is necessarily a delay between measuring data, analyzing

it, iden�fying a problem, and ul�mately implemen�ng a solu�on,

solu�ons may be implemented a�er a problem is no longer relevant. The

graph shows that output is already improving before the solu�on for the

prior dip in output is implemented. Timely discovery and repor�ng of

measurements helps minimize this problem of delay in informa�on flow.

Inaccurate Measurement

Inaccurate measurement while managing control can happen for a number of reasons,

including

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inaccurate measuring devices

staff misunderstanding of the measurement process

inaccurate or misleading measurement processes

lack of staff training to determine how to measure the control process

These issues can result in inaccurate measurements, which can make the control process more

of a danger than an asset to the evolu�on of the process. All measurement tests need to be

tested themselves; an understanding of best prac�ces in taking measurements is cri�cal in

project management.

Informa�on Flow Issues

A par�cularly complex barrier to offset is informa�on flow. Informa�on is collected at one

point in the process and analyzed contextually at another. This �me lag in informa�on flow

can misdirect management to problems at the wrong �me in the sequence (see Oscilla�on and

Feedback graph above). Ensuring �mely discovery and repor�ng of measurements mi�gates

this risk.

Even with adequate resources to manage control and accurate measurement and informa�on

flow, barriers to analyzing data can s�ll appear. These can be introduced by human error or

so�ware error. It is useful to think sta�s�cally: A good manager will consider a 99 percent

confidence interval that a given process is underperforming as sufficient evidence to take

ac�on to improve it, even though the 1 in 100 may not be significant. Even one failure out of

one hundred adds up in an organiza�on with thousands of processes to monitor.

A lack of resources, inaccurate measurements, informa�on flow errors, and incorrect analyses

can all result in significant barriers to managing control of a process or system. Managers

should be aware of these barriers and do their best to avoid them through training and

accuracy.

Licenses and A�ribu�ons

Managing Control (h�ps://courses.lumenlearning.com/boundless-

management/chapter/managing-control/) from Boundless Management by Lumen Learning,

originally published by Boundless.com, is available under a Crea�ve Commons A�ribu�on-

ShareAlike 4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/) license. UMUC

has modified this work and it is available under the original license.

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All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of

informa�on located at external sites.

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Managing Productivity

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Defining Productivity

In control management productivity is defined as the overall efficiency and output of a given operational system.

LEARNING OBJECTIVES

Define productivity in the context of management and control

KEY TAKEAWAYS

Key Points

Productivity is defined as a total output per one unit of a total input. In control management, productivity is a measure of how efficiently a process runs and how effectively it uses resources.

At the plant level, common input statistics are monetary units, weights or volumes of raw or semi-finished materials, kilowatt hours of power, and worker hours.

Output is simply the rate of which goods are being produced and readied for sale. Managing production levels is part of the control process.

Productivity growth is important to a business because it controls the real income means needed to meet obligations to customers, suppliers, workers, shareholders, and governments (taxes and regulation).

Key Terms

input: Something fed into a process with the intention of it shaping or affecting the outputs of that process.

productivity: The rate at which goods or services are produced by a standard population of workers.

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Productivity

Productivity–a ratio of production output to the input required to produce it–is one measure of production efficiency. Productivity is defined as a total output per one unit of a total input. Control management must implement control processes to maintain or improve productivity.

Inputs

At the plant level, common input statistics are monetary units, weights or volumes of raw or semi- finished materials, kilowatt hours of power, and worker hours. These are tracked as sets of partial productivity, such as kilowatt-hours per ton or yield (weight of output divided by weight of input), both of which are used in the chemical, refining, wood pulp, and other process industries. Quality statistics like defect rates are tracked in the same way. Summary reports are routinely issued to various departments and department managers are held accountable for managing inputs in their respective areas.

Outputs

Output is simply the rate of which goods are being produced and readied for sale. Managing production levels is part of the control process–management teams must predict demand to avoid market saturation.

From the control manager’s point of view, more outputs from the inputs describe above is a step in the right direction. Finding ways to streamline internal operations to minimize cost, limit resource use, and optimize performance (quality) is the control manager’s central responsibility. Productivity in producing outputs, in short, can determine a control manager’s success or failure.

Productivity and the Firm

Productivity growth is important to a firm because more real income means the firm can meet its obligations to customers, suppliers, workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the marketplace.

Productivity is one of the main concerns of business management and engineering. Practically all companies have established procedures for collecting, analyzing, and reporting productivity data. The accounting department typically has the overall responsibility of collecting, organizing, and storing data generated by various departments.

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Improving Productivity

Many companies have formal programs for improving productivity via existing control systems. Companies are constantly looking for ways to improve quality, reduce downtime, and increase inputs of labor, materials, energy, and purchased services. Simple changes to operating methods or processes can increase productivity (think Henry Ford’s assembly line). The biggest gains often come from adopting new technologies or concepts, which requires capital expenditures for new equipment, computers, or software.

Textile manufacturing: During the Industrial Revolution, productivity increased with the implementation of the assembly line.

The Importance of Productivity

Productivity is the ratio of total output to one unit of total input; high productivity means larger capital gains.

LEARNING OBJECTIVES

Illustrate the critical importance of assessing and managing productivity in the control

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process

KEY TAKEAWAYS

Key Points

Productivity is a measure of the efficiency of production. High productivity can lead to greater profits for businesses and greater income for individuals.

The control managers in a given organization are tasked with maximizing productivity through process-oriented observations and improvements.

Five main processes affect productivity: real process, income distribution, production process, monetary process, and market value.

For businesses, productivity growth is important because providing more goods and services to consumers translates to higher profits.

Key Terms

microeconomic: Relating to the decision-making behavior of individual households and firms that must allocate limited resources. Typically, it applies to markets where goods or services are bought and sold.

ratio: A number representing a comparison between two things.

macroeconomic: Relating to the entire economy, including growth rate, money and credit, the total amount of goods and services produced, total income earned, the general behavior of prices, and more.

Definition of Productivity

Productivity is a measure of the efficiency of production. It is a ratio of actual output (production) to what is required to produce it ( inputs ). Productivity is measured as a total output per one unit of a total input. Control managers in a given organization are concerned with maximizing productivity through process-oriented observations and improvements.

For businesses, productivity growth is important because providing more goods and services to

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consumers translates to higher profits. As productivity increases, an organization can turn resources into revenues, paying stakeholders and retaining cash flows for future growth and expansion. Productivity leads to competitiveness and potentially competitive advantages.

Productivity Gains: Wheat production has increased as the productivity gains improve, particularly since the 1980s.

Processes that Affect Productivity

A producer can be broken down five main processes, each with a logic, objectives, theory, and key figures of its own. The main processes of a company are:

Real process

Income distribution process

Production process

Monetary process

Market value process

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Controllers in an organization are responsible for understanding each of these elements. Real process and production process are often seen as focal points in efficiency, but monetary concerns and market value are also very important. For example, Starbucks must regularly buy a huge volume of coffee beans. Those coffee beans are vulnerable to plant diseases and other factors that could make them scarce. The price of coffee beans in dollars is therefore an enormous monetary risk for the company because resource scarcity could raise its expenses exponentially. Its controllers must hedge against these risks.

Real process – Real process generates the production output from input. It can be described by

the production function. This refers to a series of events in production in which inputs of different

quality and quantity are combined into products of different quality and quantity. Products can be

physical goods, immaterial services, or combinations of both.

Income distribution – Income distribution process refers to a series of events in which the unit

prices of constant-quality products and inputs change, causing an alteration in the income

distribution among those participating in the exchange. The magnitude of the change in income

distribution is directly proportionate to the change in the price of the outputs and inputs and to

their quantities. For example, productivity gains are distribute to customers as lower prices,

which may lead to higher sales revenues. Productivity gains can also be distributed to

employees in the form of higher wages.

Production process – Production process is the real process and the income distribution

process. Profitability is both a result and a criterion of business success. Profitability of

production is the share of the real process result that the owner has been able to retain in the

income distribution process (profits earned). Factors describing the production process are the

components of profitability, which are revenues and expenses.

Monetary and market value processes – Monetary process refers to financing a business and

the inputs of production. Market value process refers to a series of events in which investors

determine the market value of the company in the investment markets.

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Human Resource Development

Human resource development (HRD) is the central framework for how a company leverages an

effec�ve human resources department to empower employees with the skills for current and

future success. The human resources department’s responsibility for employee development is

primarily in the areas of training, educa�onal ini�a�ves, performance evalua�on, and

management development. Through these prac�ces, human resource managers can

significantly improve the poten�al of each employee, opening new career pathways by

expanding upon an employee’s skill set.

This is achieved through two specific human resource objec�ves: training and development

(TD) and organiza�onal development (OD). Training and development is primarily

individualis�c and focused on ensuring that employees develop throughout their careers to

capture more opportunity.

Organiza�onal development must be balanced with individual development to ensure that the

company itself leverages human resources to maximum efficiency. Depending too heavily

upon TD may result in an organiza�on incapable of capitalizing on employee skills, while

focusing too much on OD will generate a company culture averse to professional

development. Therefore, human resources departments are central to empowering employees

to take successful career paths while maintaining an organiza�onal balance.

Core Func�ons of Human Resource Management

(h�ps://courses.lumenlearning.com/boundless-management/chapter/core-func�ons-of-

human-resource-management/) from Boundless Management by Lumen Learning, originally

published by Boundless.com, is available under a Crea�ve Commons A�ribu�on-ShareAlike

4.0 Interna�onal (h�ps://crea�vecommons.org/licenses/by-sa/4.0/) license. UMUC has

modified this work and it is available under the original license.

© 2019 University of Maryland University College

Learning Resource

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All links to external sites were verified at the �me of publica�on. UMUC is not responsible for the validity or integrity of

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Purpose of Human Resource Management

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The Mission of Human Resource Management

Human resource management’s mission is to coordinate people within an organization to achieve the organization’s goals.

LEARNING OBJECTIVES

Demonstrate the mission of human resource management, in both the broader organizational perspective and the narrower individual one

KEY TAKEAWAYS

Key Points

Human resource management (HRM) views people as organizational assets and internal customers and works to create job satisfaction and employee efficiency and effectiveness.

HRM concentrates on internal sources of competitive advantage. It regards people as an organization ‘s most important asset.

The department of human resources (HR) communicates with employees and adapts the organization’s culture and structure to their needs—for example, in negotiating with unions or re-engineering processes.

HR leads the employment life cycle, from attracting and hiring the right employees to facilitating performance reviews and eventually processing terminations.

Key Terms

human capital: The stock of competencies, knowledge, and social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

asset: Any component, model, process, or framework of value that can be leveraged or reused.

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Human resources: People are assets for an organization.

Human resource management (HRM) is the coordination of an organization’s people to achieve specific business objectives, fulfill staffing needs, and maintain employee satisfaction. HRM accomplishes this through the use of people, processes, and technology that focus on the internal parts of the organization rather than on the external environment. HRM draws from many diverse fields—such as psychology, business management, process management, information technology, statistical analysis, sociology, and anthropology—to achieve these objectives.

People as a Resource

HRM concentrates on internal sources of competitive advantage. It regards people as the most important single asset of the organization. HRM is proactive in its relationship with people and seeks to enhance organizational performance in its relationship with them. HR professionals emphasize the quantitative, calculative, and strategic aspects of managing the human resource in a systematic way. It also manages communication, motivation, and leadership between people in the organization.

General HRM Functions

Aligning human resources and business goals

Re-engineering organization processes

Listening and responding to employees to

maintain high job-satisfaction levels

Managing transformation and change

Staffing (i.e., hiring and firing) and training

Understanding and integrating labor laws and ethics

Organizational Level

At the macro level, HR is in charge of overseeing organizational leadership and culture. It also

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ensures compliance with employment and labor laws, which differ by geography, and often oversees health, safety, and security.

In circumstances where employees desire, and/or are legally authorized to hold, a collective bargaining agreement, the human resources department will typically also serve as the company’s primary liaison with the employees’ representatives (usually a labor union).

HR professionals engage in lobbying efforts, usually through industry representatives, with governmental agencies such as the United States Department of Labor and the National Labor Relations Board to further their priorities.

Employee Level

On an individual level, HR’s mission is to manage the employee experience during the employment life cycle. It is first charged with attracting the right employees. It then must select the best employees through the recruitment process. HR then onboards new hires and oversees their training and development during their tenure with the organization.

HR assesses talent through the use of performance appraisals and then rewards them accordingly. HR may sometimes administer payroll and employee benefits, although such activities are now often outsourced, with HR playing a more strategic role.

Finally, HR is involved in employee terminations—including resignations, performance-related dismissals, and layoffs.

Human Resource Planning

Human resource planning identifies the competencies an organization needs to fulfill its goals and acquires the appropriate people.

LEARNING OBJECTIVES

Express the way in which planning, evaluation and improvement can create competency relative to developing human resources

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KEY TAKEAWAYS

Key Points

The human resource planning process identifies organizational goals and matches them with the competencies employees need to achieve those goals.

Human resource planning serves as a link between human resource management and the overall strategic plan of an organization.

A plan is made to either develop necessary competencies from within the organization or hire new people who already have them.

The plans and strategies for fulfilling human resource needs are continually evaluated and improved, and the acquired resources are continuously developed.

Key Terms

competency: The ability to perform some task.

Human resource planning is the process of systematically forecasting both the future demand for and supply of employees and the deployment of their skills with respect to the strategic objectives of the organization. Human resource planning is a process that identifies current and future human resource needs for an organization, based on the goals and objectives set by upper management. It responds to the importance of business strategy and planning in order to ensure the availability and supply of people—in both number and quality. Human resource planning serves as a link between human resource management and the overall strategic plan of an organization.

Planning Process

The planning processes is loosely about determining what will be accomplished within a given time frame, along with the numbers and types of human resources that will be needed to achieve the defined business goals. This is typically accomplished by defining competencies that are required by workers to achieve business goals, matching people with these competencies to the right tasks, and assessing the overall process for progress and improvement.

In this way, human resources professionals need to understand each and every task within the organization, as well as the skills and competencies required of the individuals who carry out those

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Planning: Organizations gain an advantage by planning the implementation of their people.

tasks. When appropriate, human resource managers may note experience and/or competency gaps or the need to create new roles or hire new individuals to ensure proper functioning.

Planning to Develop Competencies

Competency-based management supports the integration of human resource planning with business planning by allowing organizations to assess the current human resource capacity based on employees’ current skills and abilities. These skills and abilities are measured against

those needed to achieve the vision, mission, and business goals of the organization. If the available people lack necessary competencies, the organization plans how it will develop them.

Targeted human resource strategies, plans, and programs work to address these gaps in the organization’s workforce through:

Targeted hiring/staffing

Employee learning and education

Career development

Succession management

Evaluation and Improvement

These strategies and programs are monitored and evaluated on a regular basis to ensure that they are moving the organization in the desired direction, including closing employee-competency gaps. Corrections are then made as needed to the broader human resource planning process. It is a constantly evolving planning process for human resource professionals.

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Legal Structure

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Legislation Protecting against Discrimination

Discrimination—treating specific groups of people unequally—is unethical behavior and is prohibited by several pieces of U.S. legislation.

LEARNING OBJECTIVES

Outline the legislative framework in the United States that actively protects employees against discrimination in the workplace

KEY TAKEAWAYS

Key Points

The Civil Rights Act of 1964, in Titles VII and VIII, protects people from discrimination in regard to employment and housing, respectively.

The Violence Against Women Act strengthened both the ability to prosecute crimes committed against women and the degree of punishment for those crimes.

The Equal Pay Act attempts to abolish the practice of paying employees of one sex less than employees of the opposite sex.

Key Terms

discrimination: Distinct treatment of an individual or group to their disadvantage; treatment or consideration based on class or category rather than individual merit; partiality; prejudice; bigotry.

Discrimination is the prejudicial treatment of an individual based on his or her membership—or perceived membership—in a certain group or category. It can involve someone acting or behaving in a certain way toward a certain group of people, or it can involve a person or institution restricting

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Protesting discrimination: Various laws protect people from discrimination.

members of one group from opportunities or privileges that are available to another group. Several pieces of legislation protect groups and individuals from discrimination in the United States.

Human resource professionals are actively tasked with ensuring adherence to these laws and with upholding ethical standards in the workplace. Human resources departments collaborate substantially with legal departments in larger organizations, as the contractual and legal components of the hiring and firing process are inherently complex.

The Civil Rights Act

The Civil Rights Act of 1964 is a piece of legislation in the United States that outlawed major forms of discrimination against women, as well as racial, ethnic, national, and religious minorities. It ended unequal application of voter-registration requirements and racial segregation in schools, at the workplace, and in facilities that served the general public.

Title VII

Title VII of the Civil Rights Act of 1964 prohibits discrimination by covered employers on the basis of race, color, religion, sex, or national origin. Title VII applies to and covers an employer “who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or

preceding calendar year.” Title VII does not apply to employers with fewer than 14 employees. Title VII also prohibits discrimination against an individual because of his or her association with another individual of a particular race, color, religion, sex, or national origin. An employer cannot discriminate against a person because of his interracial association with another, such as by an interracial marriage.

The Violence Against Women Act

The Violence Against Women Act of 1994 (VAWA) is a United States federal law that initially provided 1.6 billion dollars toward investigation and prosecution of violent crimes against women, imposed automatic and mandatory restitution on those convicted, and allowed civil redress in cases

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prosecutors chose to leave unprosecuted. VAWA also established the Office on Violence Against Women within the Department of Justice.

The Equal Pay Act

The Equal Pay Act of 1963 is a United States federal law amending the Fair Labor Standards Act; it is aimed at abolishing wage disparity based on sex. The law provides that no employer may discriminate between employees on the basis of sex by paying wages to employees of one sex lower than employees of the opposite sex for equal work, the performance of which requires equal skill, effort, and responsibility, and which is performed under similar working conditions. Exceptions are made where payment is aligned to:

A seniority system

A merit system

A system that measures earnings by quantity or quality of production

A differential based on any other factor other than sex

Labor Laws

Labor laws encompass various types of government mandates that define the relationship between an employee and employer.

LEARNING OBJECTIVES

Apply the complex legal requirements of labor laws to the employment contract and negotiation process.

KEY TAKEAWAYS

Key Points

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Labor laws are divided into those that concern unions (collective labor) and those that concern the contract between employee and employer (individual labor).

Labor laws define minimum acceptable employment standards and the function of the employment contract.

Labor laws arose from workers’ demands for better working conditions and the simultaneous demands of employers to restrict the powers of workers’ organizations and to keep labor costs low.

The basic feature of labor law is that the rights and obligations between the worker and the employer are mediated through the employment contract.

Key Terms

mediate: To resolve differences, or to bring about a settlement, between conflicting parties.

Fair Labor Standards Act: A federal statute of the United States that sets standards for wages and hours worked by employees.

Context of Labor Laws

Labor law is the body of laws, administrative rulings, and precedents that address the legal rights and restrictions pertaining to workers and employers. It mediates many aspects of the relationship between trade unions, employers, and employees. Labor laws will differ substantially from country to country (and from state to state domestically), so human-resources professionals must be region- specific in their consideration of specific cases.

Categories of Labor Law

There are two broad categories of labor law:

1. Collective labor law concerns the relationship between employee, employer, and union.

2. Individual labor law concerns the relationship between employee and employer, as defined

through the contract for work.

Employment Standards

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Both types of labor law define employment standards. Employment standards are social norms (and in some cases also technical standards) for the minimum socially acceptable conditions under which employees or contractors will work. Government agencies enforce employment standards codified by labor law. These standards include concepts like minimum wage, health and safety regulations, equality, and other protections against abuse.

image

Federal minimum wage in the U.S.: Though there is a minimum hourly wage in the U.S., the value of that minimum wage has decreased over time as the wage fails to adjust with inflation. In the 1960s and 1970s the federal minimum wage was equivalent to about 9 dollars in 2013, while the 2013 federal minimum wage was 7 dollars.

Laws Shaped by Different Interests

Labor laws arose from workers’ demands for better working conditions and the right to organize (or,

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alternatively, the right to work without joining a labor union) and the simultaneous demands of employers to restrict the powers of workers’ organizations and to keep labor costs low. Employers’ costs can increase due to workers organizing to achieve higher wages, or as a result of laws imposing costly requirements (such as health and safety) or restrictions on their free choice of whom to hire. Workers’ organizations, such as labor unions, can also transcend purely industrial disputes and gain political power.

The state of labor law at any one time is therefore both a product and a component of struggles between different interests in society. As both parties (i.e., employees and employers) are motivated by their own best interests (in a capitalistic view), labor laws are there to define the rules of engagement.

The Employment Contract

The basic feature of labor law is that the rights and obligations between the worker and the employer are mediated through the employment contract. This has been the case since the collapse of feudalism and is the core reality of modern economic relations. Many terms and conditions of the contract are implied by legislation or common law to protect employees and facilitate a fluid labor market.

For instance, in the U.S. a majority of state laws allow for employment to be “at will,” meaning the employer can terminate an employee from a position for any reason, barring one that violates the law, such as discrimination. This provision allows fluidity in the labor market, because it allows firms to hire an employee without the concern that they may then be unable to terminate the employment if it later becomes apparent that the employee is not a good fit.

Key Pieces of Legislation

The Fair Labor Standards Act of 1938 set the maximum standard work week to 44 hours. In

1950, this was reduced to 40 hours.

The National Labor Relations Act, enacted in 1935 as part of the New Deal legislation,

guarantees workers the right to form unions and engage in collective bargaining.

The Age Discrimination in Employment Act of 1967 prohibits employment discrimination based

on age with respect to employees 40 years of age or older.

Title VII of the Civil Rights Act is the principal federal statute with regard to employment

discrimination. It prohibits employment discrimination on the basis of race or color, religion, sex,

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and national origin, by public and private employers, labor organizations, training programs, and

employment agencies. Title VII also prohibits retaliation against any person for opposing any

practice forbidden by the law, or for making a charge, testifying, assisting, or participating in a

proceeding under the law.

The Civil Rights Act of 1991 expanded the damages available to Title VII cases and granted Title

VII plaintiffs the right to jury trial.

Unions

Unionization is the process of workers forming a union, which is an organization to further the workers’ shared interests.

LEARNING OBJECTIVES

Describe the function of a labor union in the larger legal perspective of human resource management

KEY TAKEAWAYS

Key Points

Workers form a union by getting 30% of employees to sign petition cards, then submitting the request to the National Labor Relations Board.

The labor union acts as the employees’ representative in collective bargaining with the employer.

Unions undertake other activities as well, such as political lobbying, providing benefits to members, and organizing industrial action.

Unions may organize a particular section of skilled workers, a cross-section of workers from various trades, or all workers within a particular industry.

Key Terms

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Unionization: Unions mobilize workers to achieve shared goals.

negotiate: To arrange or settle something by mutual agreement.

Human resource professionals deal with the employees of an organization and, therefore, the unions as well. Unions, as groups of employees interested in bargaining for specific rights and/or contractual benefits, are the responsibility of human resource professionals. Just as individual employees negotiate with human resources, so too do groups of employees.

Forming a Union

A labor union is an organization of workers who have banded together to achieve common goals. The current method for workers to form a union in a particular workplace in the United States is a sign-up followed by an election process. At least 30% of employees must sign petition cards requesting a union. The petition cards must then be submitted to the National Labor Relations Board (NLRB), which verifies them and orders a secret-ballot election to elect union representatives.

Two exceptions exist. If over 50% of the employees sign an authorization card requesting a union, the employer can voluntarily choose to waive the secret-ballot election process and just recognize the union. The other exception is a last resort—it allows the NLRB to order an employer to recognize a union if over 50% have signed cards and the employer has engaged in unfair labor practices, making a fair election unlikely.

The Function of a Union

The labor union, through its leadership, bargains with the employer on behalf of union members and negotiates labor contracts (collective bargaining) with employers. The most common purpose of unions is to defend conditions of employment that benefit their members or negotiate for better conditions. This may include negotiating the terms of the following:

Wages

Work rules

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Complaint procedures

Rules governing hiring

Firing and promotion of workers

Benefits

Workplace safety and policies

The agreements negotiated by the union leaders are binding on the union members and the employer, as well as, in some cases, non-member workers.

Union Activities

Aside from collective bargaining, union activities vary, but may include the following:

Provision of benefits to members—the provision of professional training, legal advice, and

representation for members is a benefit of union membership.

Industrial action—unions may enforce strikes or resistance to lockouts to further members’

goals.

Political activity—unions may promote legislation favorable to their members or to workers as a

whole. To this end they may pursue campaigns, undertake lobbying, and financially support

individual candidates or parties for public office.

Organizational Structures of Unions

Unions may organize a particular section of skilled workers, a cross-section of workers from various trades, or all workers within a particular industry. These unions are often divided into locals and united in national federations. These federations themselves sometimes affiliate with internationals, such as the International Trade Union Confederation.

Collective Bargaining

Collective bargaining is negotiation between unions and employers to come to an agreement on the conditions of employment.

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LEARNING OBJECTIVES

Outline the conditions and negotiation process between groups of employees (unions) and employers in the human resource frame

KEY TAKEAWAYS

Key Points

Collective bargaining is used to win terms of pay, benefits, and hours beneficial to employees.

The negotiations result in a collective agreement, which must be approved by the employees. If it is, the agreement becomes the union contract.

Workers’ ability to collectively bargain is established by the National Labor Relations Act of 1953.

Key Terms

arbitration: A process in which two or more parties use an adjudicator in order to resolve a dispute.

In collective bargaining, the process of negotiation between employees and employers, employees attempt to achieve employment conditions that serve their shared interests. Employees are commonly represented by the union to which they belong. The collective agreements reached by these negotiations attempt to establish:

Wages

Working hours

Training

Health and safety

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Reaching agreement through negotiation: Unions negotiate on behalf of employees.

Overtime

Grievance mechanisms

Rights to participate in workplace or company affairs

Process of Negotiation

1. At a workplace where a majority of

workers have voted for union

representation, a committee of employees

and union representatives negotiate a

contract with the management regarding

wages, hours, benefits, and other terms

and conditions of employment, such as

protection from termination of employment

without just cause. Individual negotiation is

prohibited.

2. Once the workers’ committee and management have agreed on a contract, it is then voted on by

all workers at the workplace. If approved, the contract is usually in force for a fixed term of years,

and when that term is up, it is renegotiated between employees and management.

3. Sometimes there are disputes over the union contract; this often occurs in cases of workers

being fired without just cause in a union workplace. These disputes then go to arbitration, which

is similar to an informal court hearing. A neutral arbitrator makes a ruling as to whether the

termination was unjust and whether other contract breaches occurred. If so, the arbitrator will

order that the breach be corrected or remedied in some way.

Collective Agreement

The union may negotiate a specific agreement with a single employer, or it may negotiate with a group of businesses to reach an industry-wide agreement. A collective agreement functions as a labor contract between an employer and one or more unions. Collective bargaining consists of the process of negotiation between representatives of a union and employers (generally represented by management) in respect to the terms and conditions of employment, such as wages, hours of work, working conditions, grievance procedures, and the rights and responsibilities of trade unions. The

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parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA).

Legislation Regulating Collective Bargaining

In the United States, the National Labor Relations Act of 1953 covers most collective agreements in the private sector. This act makes it illegal for employers to discriminate, spy on, harass, or terminate the employment of workers because of their union membership. It also makes it illegal for employers to retaliate against employees who engage in organizing campaigns or form company unions or to refuse to engage in collective bargaining with the union that represents their employees. It is also illegal to require any employee to join a union as a condition of employment. Unions are also exempt from antitrust law, in the hope that members may collectively fix a higher price for their labor.

Employee Compensation and Benefits

Compensation and benefits is the subdiscipline of human resources that deals with employees’ remuneration.

LEARNING OBJECTIVES

Outline the strategies employed by human resources to compensate employees with pay and benefits

KEY TAKEAWAYS

Key Points

Compensation and benefits (C&B) encompass the rewards an organization gives to employees in exchange for the work they do.

There are four types of C&B: guaranteed pay, variable pay, benefits, and equity- based compensation.

Many factors external to the organization affect employees’ remuneration. These include union influence, the state of the economy, and business competition.

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Key Terms

remuneration: Something given in exchange for goods or services rendered.

Compensation and benefits (C&B) is a subdiscipline of human resources that is focused on policy making for employee compensation and benefits. As part of any employment agreement, employees are compensated for services rendered in a predetermined and equitable fashion.

Compensation and Benefit Types

Employee compensation and benefits can be divided into four general categories:

Cash reward: The ability to reward employees with cash and other incentives is a source of organizational power.

1. Guaranteed pay—Monetary compensation paid by an employer to an employee based on

employee/employer agreements. The most common form of guaranteed pay is the basic salary.

2. Variable pay—Monetary compensation paid by an employer to an employee on a discretionary

basis. It is often contingent on performance or results achieved. The most common forms are

bonuses and sales incentives.

3. Benefits—Programs an employer uses to supplement employees’ compensation, such as paid

time off, medical insurance, and a company car.

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4. Equity-based compensation—A plan that uses the company’s shares as compensation. The

most common example is stock options.

Guaranteed Pay

The basic element of guaranteed pay is the base salary, paid based on an hourly, daily, weekly, biweekly, or monthly rate. The base salary is typically used by employees for ongoing consumption.

Many countries dictate the minimum base salary by stipulating a minimum wage. Individual skills and the level of experience of employees give rise to differentiation in income levels within the job-based pay structure. In addition to base salary, there are other pay elements that are paid based solely on employee/employer relations.

Variable Pay

Variable pay is contingent on discretion, employee performance, or results achieved. There are different types of variable-pay plans, such as bonus schemes, sales incentives (commission), and overtime pay.

For example, a variable-pay plan might be that a salesperson receives 50% of every dollar they bring in up to a certain amount of revenue. Beyond this amount, they then bump up to a higher percentage for every dollar they bring. Typically, this type of plan is based on an annual period of time requiring a “resetting” each year back to the starting point of 50%. Sometimes this type of plan is administered so that the sales person never resets and never falls down to a lower level.

Benefits

There is a wide variety of employee benefits, such as paid time off, different types of insurance (life insurance, medical/dental insurance, and work disability insurance), pension plans, and a company car. A benefit plan is designed to address a specific need and is often not offered in the form of cash. Many countries dictate different minimum benefits, such as minimum paid time off, employer’s pension contribution, and sick pay.

Equity-Based Compensation

Equity-based compensation is a compensation plan that uses the employer’s shares as employee compensation. The most common form is stock options. Employers use additional vehicles such as

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restricted stock, restricted-stock units, employee stock-purchase plan, and stock-appreciation rights. The classic objectives of equity-based compensation plans are retention, attraction of new hires, and aligning employees’ and shareholders ‘ interests. Simply put, ownership of the company drives better performance through personal value creation.

Affecting Factors

Many internal and external factors affect C&B, including:

Business objectives

Labor unions

Internal equity (the idea of compensating employees in similar jobs, and for similar performance,

in a similar way)

Organizational culture and organizational structure

State of the economy

The relevant labor market and/or industry

Labor and tax laws

Occupational Health and Safety

Occupational safety and health (OSH) is used to protect people in the workplace and create human resource policies that adhere to the law.

LEARNING OBJECTIVES

Apply the concepts of occupational health and safety (OSH) to the legal structure within human resource management

KEY TAKEAWAYS

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Key Points

Occupational safety and health is an interdisciplinary practice that is justified on moral, legal, and financial grounds.

Its main objectives include keeping workers safe, making workplaces safe, and cultivating corporate cultures that value health, safety, and employee well-being.

The government agencies that study and regulate health and safety are the National Institute for Occupational Safety and Health (NIOSH) and the Occupational Safety and Health Administration (OSHA).

Key Terms

interdisciplinary: Relating to one or more fields of study; of a field that crosses traditional boundaries between academic disciplines or schools of thought as new needs and professions emerge.

Occupational safety and health (OSH) is an interdisciplinary area concerned with protecting the safety, health, and welfare of people engaged in work. The goal of occupational safety and health programs is to foster a safe and healthy work environment. OSH may also protect coworkers, family members, employers, customers, and any other individuals who might be affected by the workplace environment. While OSH is generally inward looking, there are also significant concerns regarding the safety of, and/or environmental impact on, surrounding communities as well.

Importance and Objectives

Occupational safety and health can be important for moral, legal, and financial reasons. Moral obligations involve the protection of an employee’s life and health. There is also a legal aspect in that there are laws that protect workers’ safety and health and that can help them be compensated for violations. In financial terms, OSH can reduce employee injury- and illness-related costs, including medical care, sick leave, and disability-benefit costs. High levels of corporate responsibility also lead to employees, customers, and other stakeholders trusting the company more, improving job satisfaction, brand image, and community relationships.

The main focus of OSH is on three different objectives:

Maintenance and promotion of workers’ health and working capacity

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Health and safety warnings: Workers should be aware of workplace hazards. Image from: www.complianceandsafety.com.

Improvement of the working environment to make it

safer and healthier

Development of work organizations and cultures

that support health and safety at the workplace

Interdisciplinary Connections

OSH may involve interactions among many subject areas, including:

Occupational medicine

Occupational hygiene

Public health

Safety engineering

Industrial engineering

Chemistry

Health physics

Ergonomics

Occupational health psychology

The basic premise behind these interactions is ensuring the health and safety of all employees. While physical health is usually the focus here, it is important to note that mental, emotional, and environmental health are relevant to this field as well.

Government Agencies

In the United States, the Occupational Safety and Health Act of 1970 created both the National Institute for Occupational Safety and Health (NIOSH) and the Occupational Safety and Health Administration (OSHA). OSHA, part of the U.S. Department of Labor, is responsible for developing and enforcing workplace safety and health regulations. NIOSH, part of the U.S. Department of Health and Human Services, is focused on research, information, education, and training in occupational safety and health.

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Core Functions of Human Resource Management

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Employee Recruitment

Recruitment is the process of identifying an organizational gap and attracting, evaluating, and hiring employees to fill that role.

LEARNING OBJECTIVES

Recognize the four phases in the recruitment process and the various strategies for executing them

KEY TAKEAWAYS

Key Points

Recruitment is the process of attracting, evaluating, and hiring employees for an organization.

The recruitment process includes four steps: job analysis, sourcing, screening and selection, and onboarding.

There are various recruitment approaches, such as relying on in-house personnel, outsourcing, employment agencies, executive search firms, social media, and recruitment services on the Internet.

With a global marketplace for prospective employees, and the enormity of data and applications supplied via the Internet, HR professionals are challenged with filtering vast streams of data to find the best fit.

Key Terms

recruitment: The process of recruiting employees.

Recruitment is the process of attracting, screening, and selecting employees for an organization. The

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different stages of recruitment are: job analysis, sourcing, screening and selection, and onboarding.

The Four Stages

1. Job analysis involves determining the different aspects of a job through, for example, job

description and job specification. The former describes the tasks that are required for the job,

while the latter describes the requirements that a person needs to do that job.

2. Sourcing involves using several strategies to attract or identify candidates. Sourcing can be

done by internal or external advertisement. Advertisement can be done via local or national

newspapers, specialist recruitment media, professional publications, window advertisements, job

centers, or the Internet.

3. Screening and selection is the process of assessing the employees who apply for the job. The

assessment is conducted to understand the relevant skills, knowledge, aptitude, qualifications,

and educational or job-related experience of potential employees. Methods of screening include

evaluating resumes and job applications, interviewing, and job-related or behavioral testing.

4. After screening and selection, the best candidate is selected. Onboarding is the process of

helping new employees become productive members of an organization. A well-planned

introduction helps new employees quickly become fully operational.

Recruitment Approaches

There are many recruitment approaches as well. Approaches, in this context, refers to strategies or methods of executing the recruitment process. As recruitment is a complex and data-heavy process, particularly considering the global economy and Internet job boards, the supply of applications and interest can be quite overwhelming. These strategies assist in simplifying the process for HR professionals:

In-house personnel may manage the recruitment process. At larger companies, human

resources professionals may be in charge of the task. In the smallest organizations, recruitment

may be left to line managers.

Outsourcing of recruitment to an external provider may be the solution for some businesses.

Employment agencies are also used to recruit talent. They maintain a pool of potential

employees and place them based on the requirements of the employer.

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Executive search firms are used for executive and professional positions. These firms use

advertising and networking as a method to find the best fit.

Internet job boards and job search engines are commonly used to communicate job postings.

Social media is also playing a vital role in recruitment in this century.

Social networking, whereby websites such as LinkedIn enable employers and prospective

employees to interact and share information, is perhaps the most recent trend in recruitment.

Online Recruiting: Monster.com is a popular job board for people seeking employment.

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Employee Selection

Selection is the process—based on filtering techniques that ensure added value—of choosing a qualified candidate for a position.

LEARNING OBJECTIVES

Break down the human resource selection process as organizations pursue new employee talent

KEY TAKEAWAYS

Key Points

Selection is the process of selecting a qualified person who can successfully do a job and deliver valuable contributions to the organization.

A selection system should depend on job analysis. This ensures that the selection criteria are job related and will provide meaningful organizational value.

The requirements for a selection system are knowledge, skills, abilities, and other characteristics (KSAOs).

Personnel-selection systems employ evidence-based practices to determine the most qualified candidates, which can include both new candidates and individuals within the organization.

Two major factors determine the quality of job candidates: predictor validity and selection ratio.

Key Terms

Selection Ratio: A value that indicates the selectivity of a organization on a scale of 0 to 1.

validity: A quality that indicates the degree to which a measurement reflects the underlying construct—that is, how well it measures what it purports to measure.

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Predictor Cutoff: A limit distinguishing between passing and failing scores on a selection test—people with scores above it are hired or further considered while those with scores below it are not.

Selection is the process of choosing a qualified person for specific role who can successfully deliver valuable contributions to the organization. The term selection can be applied to many aspects of the process, such as recruitment, hiring, and acculturation. However, it most commonly refers to the selection of workers. A selection system should depend on job analysis. This ensures that the selection criteria are job related and propose value additions for the organization.

Selection Requirements

The requirements for a selection system are knowledge, skills, abilities, and other characteristics, collectively known as KSAOs. Personnel-selection systems employ evidence-based practices to determine the most qualified candidates, which can include both new candidates and individuals within the organization.

Common selection tools include ability tests (cognitive, physical, or psychomotor), knowledge tests, personality tests, structured interviews, the systematic collection of biographical data, and work samples. Development and implementation of such screening methods is sometimes done by human resources departments. Some organizations may hire consultants or firms that specialize in developing personnel-selection systems rather than developing them internally.

Metrics

Two major factors determining the quality of a newly hired employee are predictor validity and selection ratio. The predictor cutoff is a limit distinguishing between passing and failing scores on a selection test—people with scores above it are hired or further considered while those with scores below it are not. This cutoff can be a very useful hiring tool, but it is only valuable if it is actually predictive of the type of performance the hiring managers are seeking.

The selection ratio (SR) is the number of job openings (n) divided by the number of job applicants (N). When the SR is equal to 1, the use of any selection device has little meaning, but this is not often the case as there are usually more applicants than job openings. As N increases, the quality of hires is likely to also increase: if you have 500 applicants for 3 job openings, you will likely find people with higher-quality work among those 500 than if you had only 5 applicants for the same 3 job openings.

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image

SAT score averages: SAT scores used as university admissions criteria are a good example of the use of predictor cutoff. Some universities will not admit students below a certain SAT (or ACT, GMAT, etc.) score. Employers use a similar method with different metrics to filter high volume applications.

Employee Orientation

Orientation tactics exist to provide new employees enough information to adjust, resulting in satisfaction and effectiveness in their role.

LEARNING OBJECTIVES

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Define orientation and onboarding from a human resources perspective, with a focus on the socialization model

KEY TAKEAWAYS

Key Points

Employee orientation, also commonly referred to as onboarding or organizational socialization, is the process by which an employee acquires the necessary skills, knowledge, behaviors, and contacts to effectively transition into a new organization (or role within the organization).

A good way to envision this process is through understanding the organizational socialization model.

Employee characteristics, new employee tactics, and organizational tactics are the three inputs that begin the orientation process.

With a combination of the above three inputs, employees should move through the adjustment phase as they acclimate to the new professional environment, making important contacts and further understanding their role.

The goal of effectively orienting the employee for success is twofold: minimize turnover while maximizing satisfaction.

Some critics of orientation processes stipulate that sometimes the extensive onboarding process can confuse the employees relative to their role, though in most environments onboarding is considered a strong investment.

Key Terms

onboarding: The process of bringing a new employee into the organization, incorporating training and orientation.

extroversion: Concern with, or an orientation toward, others, or what is outside oneself; behavior expressing such an orientation; the definitive characteristic of an extrovert.

Employee orientation, also commonly referred to as onboarding or organizational socialization, is the

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process by which an employee acquires the necessary skills, knowledge, behaviors, and contacts to effectively transition into a new organization (or role within the organization).

Orientation is a reasonably broad process, generally carried out by the human resources department, that may incorporate lectures, videos, meetings, computer-based programs, team-building exercises, and mentoring. The underlying goal of incorporating these varying onboarding tactics is to provide the employee enough information to adjust, ultimately resulting in satisfaction and effectiveness as a new employee (or an existing employee in a new role).

Organizational Socialization Model

A good way to envision this process is through understanding the organizational socialization model. This chart highlights the process of moving the employee through the adjustment stage to the desired outcome:

Organizational socialization model: A model of onboarding (adapted from Bauer & Erdogan, 2011).

New Employee Characteristics—Though this segment of the model overlaps with other human

resource initiatives (such as recruitment and talent management), the characteristics of a new

employee are central to the strategies used as the employee moves through the orientation

process. Characteristics that are particularly useful in this process are extroversion, curiosity,

experience, proactiveness, and openness.

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New Employee Tactics—The goal for the employee is to acquire knowledge and build

relationships. Relationships in particular are central to understanding company culture.

Organizational Tactics—The organization should similarly seek to emphasize relationship

building and the communication of knowledge, particularly organizational knowledge that will be

useful for the employee when navigating the company. The company should also use many of

the resources mentioned above (videos, lectures, team-building exercises) to complement the

process.

Adjustment—With a combination of the above three inputs, employees should move through the

adjustment phase as they acclimate to the new professional environment. This should focus

primarily on knowledge of the company culture and co-workers, along with increased clarity as to

how they fit within the organizational framework (i.e., their role).

Outcomes—The goal of effectively orienting the employee for success is twofold: minimize

turnover while maximizing satisfaction. The cost of bringing new employees into the mix is

substantial, and as a result, high turnover rates are a significant threat to most companies.

Ensuring that the onboarding process is effective significantly reduces this risk. Additionally,

achieving high levels of employee satisfaction is a substantial competitive advantage, as

satisfied employees are motivated and efficient.

Criticisms

The desired outcome of an onboarding process is fairly straightforward—ensuring that new employees are well-equipped to succeed in their new professional environment. However, some critics of orientation processes claim that sometimes extensive onboarding can confuse new employees with regard to their role, as most of their time is spent in company-wide learning, as opposed to role-centric learning. While this criticism may be true in some contexts, it can be offset through a more role- specific onboarding process. It is generally acknowledged that orientation strategies generate positive outcomes and returns on investment.

Employee Development

A core function of human resource management is development—training efforts to improve personal, group, or organizational effectiveness.

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LEARNING OBJECTIVES

Describe the basic premises behind the development process, as conducted by human resource management professionals

KEY TAKEAWAYS

Key Points

For overall organizational success, it is crucial to develop employees through training, education, and development.

Employee development focuses on providing and honing skills relevant to employees’ current and future jobs as well as future activities of the organization.

Talent development refers to an organization’s ability to align strategic training and career opportunities for employees.

Key Terms

human resource development: Training, organization, and career-development efforts to improve individual, group, and organizational effectiveness.

training: Organizational activity aimed at bettering the performance of individuals and groups in organizational settings.

stakeholder: A person or organization with a legitimate interest in a given situation, action, or enterprise.

Employee development helps organizations succeed through helping employees grow. Human resource development consists of training, organization, and career-development efforts to improve individual, group, and organizational effectiveness.

Development Stakeholders

There are several categories of stakeholders that are helpful in understanding employee development:

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An astronaut in training.: An Example of Training

sponsors, managers and supervisors, participants, and facilitators. The sponsors of employee development are senior managers. Senior management invests in employees in a top-down manner, hoping to develop talent internally to reduce turnover, increase efficiency, and acquire human resource value. Line managers or direct supervisors are responsible for coaching employees and for employee performance and are therefore much more directly involved in the actual process. The participants are the people who actually go through the employee development, and also benefit significantly from effective development. The facilitators are human resource management staff, who usually hire specialists in a given field to provide hands-on instruction.

Each of these stakeholder groups has its own agendas and motivations, which can cause conflict with the agendas and motivations of other stakeholder groups. Human resource professionals should focus on aligning the interests of every stakeholder in the development process to capture mutual value.

Talent Development

Talent development refers to an organization’s ability to align strategic training and career opportunities for employees. Talent development, part of human resource development, is the process of changing an organization, its employees, and its stakeholders, using planned and unplanned learning, in order to achieve and maintain a competitive advantage for the organization.

What this essentially means is that human resources departments, in addition to their other responsibilities of job design, hiring, training, and employee interaction, are also tasked with helping others improve their career opportunities. This process requires investment in growing talent. It is often more economical in the long run to improve on existing employee skill sets, as opposed to

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investing in new employees. Therefore, talent development is a trade-off by which human resources departments can effectively save money through avoiding the opportunity costs of new employees.

Employee Career-Path Management

Career-path management requires human resource management to actively manage employee skills in pursuit of successful professional careers.

LEARNING OBJECTIVES

Examine the dimensions and considerations involved in outlining an employee’s professional development

KEY TAKEAWAYS

Key Points

Career-path development includes structured planning and active management of an employee’s professional career.

There is a classification system, with minor variations, in the managerial process of career-path management.

Human resource development underlines the importance of human resources in empowering employees to advance their careers through training and development initiatives.

Human resource development requires human resource managers to identify employee potential and expand upon it, and to ensure that the company utilizes these talented employees to capture value.

The first step of career management is setting goals, which requires employees to be aware of career opportunities along with their own talents and abilities.

Key Terms

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empower: To give someone more confidence and/or strength to do something, often by enabling them to increase control over their own life or situation.

Career Management: The structured planning and development of a employee’s professional career.

Career-path management refers to the structured planning and active management of an employee’s professional career. The results of successful career planning are personal fulfillment, a work and life balance, goal achievement, and financial security. A career encompasses the changes or modifications in employment through advancement during the foreseeable future. There are many definitions by management scholars of the stages in the managerial process. The following classification system (with minor variations) is widely used:

Development of overall goals and objectives

Development of a strategy

Development of the specific means (policies, rules, procedures, and activities) to implement the

strategy

Systematic evaluation of the progress toward achievement of the selected goals and objectives

to modify the strategy, if necessary

Human Resource Development

Human resource development (HRD) is the central framework for the way in which a company leverages an effective human resources department to empower employees with the skills for current and future success. The responsibility of the human resources department in regard to employee development primarily pertains to varying forms of training, educational initiatives, performance evaluation, and management development. Through employing these practices, human resource managers can significantly improve the potential of each employee, opening new career-path venues by expanding upon an employee’s skill set.

This is achieved through two specific human resource objectives: training and development (TD) and organizational development (OD). Training and development, as stated above, is primarily individualistic in nature and focused on ensuring that employees develop throughout their careers to capture more opportunity.

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Organizational development must be balanced during this process, ensuring that the company itself is leveraging these evolving human resources to maximum efficiency. Depending too heavily upon TD may result in an organization incapable of capitalizing on employee skills, while focusing too much on OD will generate a company culture adverse to professional development. Therefore, human resources departments are central to empowering employees to take successful career paths while maintaining an organizational balance.

Some Dimensions of Career Management

The first step of career management is setting goals. Before doing so the person must be aware of career opportunities and should also know his or her own talents and abilities. The time horizon for the achievement of the selected goals or objectives—short-term, intermediate, or long-term—will have a major influence on their formulation.

Short-term goals (one or two years) are usually specific and limited in scope. Short-term goals

are easier to formulate. They must be achievable and relate to long-term career goals.

Intermediate goals (three to 20 years) tend to be less specific and more open-ended than short-

term goals. Both intermediate and long-term goals are more difficult to formulate than short-term

goals because there are so many unknowns about the future.

Long-term goals (over 20 years) are the most fluid of all. Lack of both life experience and

knowledge about potential opportunities and pitfalls makes the formulation of long-term goals

and objectives very difficult. Long-term goals and objectives may, however, be easily modified as

additional information is received without a great loss of career efforts, because experience and

knowledge transfer from one career to another.

Other Focuses of Career Management

The modern nature of work means that individuals may now (more than in the past) have to revisit the process of making career choices and decisions more frequently. Managing “boundless” careers refers to skills needed by workers whose employment is beyond the boundaries of a single organization, a work style common among, for example, artists and designers. As employers take less responsibility, employees need to take control of their own development to maintain and enhance their employability.

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Promotion: A promotion often comes through effective career-path management.

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Employee Evaluation and Management, in Detail

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Evaluating Employee Performance

Performance evaluation is the process of assessing an employee’s job performance and productivity over a specified period of time.

LEARNING OBJECTIVES

Explain the human resource responsibility of evaluating employee performance, focusing specifically on the various available methods

KEY TAKEAWAYS

Key Points

Evaluating performance is the process of assessing an employee’s job performance and productivity.

Performance assessments can create benefits for management and employees through improving performance, but can also be a stressful, so they must be carefully implemented.

The assessment is conducted utilizing previously established criteria that align with the goals of the organization and the specific responsibilities of the employee being evaluated.

There are many methods of performance evaluation, such as objective production, personnel, and judgmental evaluation.

Effective use of performance-evaluation systems includes the selection of the best evaluation method(s) and effective delivery. The outcomes of performance evaluation can include employee raises or promotions, as well as employee improvement through identifying weaknesses.

Key Terms

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Performance evaluation: The process of assessing an employee’s job performance and productivity.

Performance evaluation, or performance appraisal (PA), is the process of assessing an employee’s job performance and productivity. The assessment is conducted based on previously established criteria that align with the goals of the organization.

Various employee attributes can be assessed during this process, including organizational-citizenship behavior, accomplishments, strengths and weaknesses, and potential for future improvement. The management of performance plays a vital role in the success or failure of the organization, as human resources are a significant investment that must provide meaningful returns. An ineffective performance-evaluation system can create high turnover and reduce employee productivity.

Pros and Cons of Performance Appraisals

Benefits of the PA system include increased employee effectiveness, higher likelihood of improved employee performance, the prompting of feedback, enhanced communication between employers and employees, fostering of trust, promotion of goal setting, and assessment of educational and other training needs. Detriments of the PA system include the possible hindrance of quality control, stress for both employees and management, errors in judgment, legal issues arising from improper evaluations, and the implementation of inappropriate performance goals.

Performance appraisal is situated at both the individual employee level and the organizational level because human resources (HR) conducts evaluations of individuals in light of organizational goals with the object of improving achievement of these goals. HR relies on a strong performance- management policy; a proper PA should be able to educate employees on the organization, its goals, and its expectations in legal ways. This means that antidiscrimination laws and other employment laws need to shape the PA policy.

Methods of Performance Evaluation

There are various ways human resource professionals can approach assessing performance, though integrating various perspectives (i.e., collecting the most differentiated data) will paint the clearest picture. Some examples include:

Objective production: Under this method, direct data is used to evaluate the performance of an

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employee. This often relates to simple and quantifiable data points, such as sales figures, production numbers, etc. However, one drawback of this process is that the variability in performance can be due to factors outside employees’ control. Also, the quantity of production does not necessarily indicate the quality of the products. Still, this data reflects performance to some extent.

Personnel: This is the method of recording the withdrawal behavior of employees, such as absences. This personnel data usually is not a comprehensive reflection of an employee’s performance and is best complemented with other metrics.

Judgmental evaluation:One of the primary drawbacks of employee performance evaluation is the tendency for positive feedback despite negative behavior. That is, often people are nice enough to provide good evaluations for work that isn’t up to par. Judgmental evaluations focus on benchmarks to more accurately promote constructive criticism (through relative scales). A few examples include:

Graphic rating scale: Graphic rating scales are the most commonly used performance-evaluation

system. Typically, the raters use a 5 to 7 point scale to rate employees’ productivity.

Employee-comparison methods: Rather than subordinates being judged against pre-established

criteria, they are compared with one another. This method eliminates central-tendency and

leniency errors but still allows for halo-effect errors to occur.

Behavioral checklists and scales: Behaviors are more definite than traits. Supervisors record

behaviors that they judge to be job-performance relevant, and they keep a running tally of good

and bad behaviors and evaluate the performance of employees based on their judgement.

Peer and Self Assessments

Often, peer assessments and self-assessments are used to paint a clearer image of performance. Managers are often less aware of employee efficacy than team members or other peers. In self- assessments employees have the right to underline what they think their performance is, and why certain metrics may be misleading. Peer assessments and self-assessments are useful in capturing this data:

Peer assessments: members of a group evaluate and appraise the performance of their fellow

group members.

Self-assessments: in self-assessments, individuals assess and evaluate their own behavior and

job performance.

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360-degree feedback: 360-degree feedback includes multiple evaluations of employees; it often

integrates assessments from superiors and peers, as well as self-assessments. This is the ideal

situation.

A manager rating an employee.: Rating an Employee

Structuring Employee Feedback

Effective feedback is structured in a way that provides actionable conclusions to motivate employee growth through objective assessments.

LEARNING OBJECTIVES

Explore the various formats and structures for providing feedback

KEY TAKEAWAYS

Key Points

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Providing feedback involves a wide variety of biases and subjectivity, and as a result it benefits from structure and strategy.

A common and traditional method for looking at performance via objective production involves using simple metrics that indicate efficiency (such as sales numbers).

Another common practice is managerial evaluations using behavioral checklists, graphic rating scales, and comparison among employees.

360 degree feedback utilizes managers, subordinates, colleagues, and self- assessments to paint or more rounded picture of performance.

Start-Stop-Continue is an actionable and simple model that emphasizes direct feedback on how a given colleague can improve performance via straight-forward observations and suggestions for growth.

Key Terms

subjectivity: Judgments based on opinions and intuitions, and therefore not necessarily predicated in logic or reason.

Why Structure Feedback?

Employee and manager feedback is one of the more sensitive issues in a workplace, and can be greatly enhanced by careful planning and critical thinking about how to objectively, equitably, and efficiently discuss employee outcomes and assessments.

As a result, structuring feedback strategically can be a great benefit to both managers and employees. There are a wide variety of models and structures for providing employee feedback. A few of the more useful structures for feedback are listed below.

Feedback Structures

Objective Production

The simplest of feedback mechanisms, this essentially looks at basic performance methods such as output, sales, volume, profitability, or other concrete and objective methods of overall productivity. As a structural option for feedback delivery, there are some pros and cons to this method. It works well in jobs where data is readily available and objective, but not so well in jobs relying on more ambiguous

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metrics. It is also quite impersonal, and can result in employees feeling like ‘just another gear in the machine’.

Judgment Evaluation

A much less objective approach would be various formats of judgment evaluation. All this really means is that an individual or group of individuals will assess the performance of a given employee, and provide this feedback directly (often in the form of a scale or model). As a result of the potential subjectivity, it is best to provide training to ensure consistency and informed assessment.

Some assessment formats include:

Graphic Rating Scales: On some sort of relative scale (usually 1-5 or 1-7), employees are

assessed on specific characteristics, accomplishments and behaviors. This is a useful method to

observe improvements over time.

Employee Comparison Models: Two of the main culprits of subjectivity are leniency error and

central-tendency error (judging to favorably and judging everyone the same respectively). To

avoid these, management could be asked to directly compare various employees. This does

incur halo effect errors, however.

Behavioral Checklists and Scales: Certain behaviors can have positive or negative implications,

and monitoring specific key behaviors over a given time frame can be a useful feedback

structure as well.

360 Degree Feedback

While managerial feedback is important, it is also important to balance this with the perspectives of colleagues, subordinates, and those of the individual being assessed (self assessment). In this model, all work groups and implications of a given individual’s work decisions can be assessed from various perspectives. Compared to a static top-down feedback structure, 360 degree feedback has significant advantages in accuracy, objectivity and equality.

Start-Stop-Continue

Often simplicity excels in implementing feedback, and the Start-Stop-Continue model is just about as simple as it gets. Agile teams and flat organizational structures focus on peer assessments that

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leverage models such as this (often coupled with some basic rating scales) to assess employees with the goal of personal growth. This is done using three points of commentary:

Start: What tasks, habits, and/or behaviors should the employee begin doing to improve?

Stop: What should a given employee discontinue doing to improve performance?

Continue: What does the employee excel in doing, and should continue?

The key advantage of this structure is the simplicity of it. Employees have immediate feedback that they can actually act on right away.

Conclusion

While there are countless opinions and models to utilize in structuring feedback, managers should keep in mind that the purpose of feedback is growth and improvement. Any model selected should result in actionable conclusions the employee can use to improve.

Employee Pay Decisions

Making pay decisions can be a function of HR; payroll surveys and internal measures can help determine what is appropriate.

LEARNING OBJECTIVES

Analyze the various methodologies used by HRM to measure, benchmark, and ultimately devise appropriate pay strategies

KEY TAKEAWAYS

Key Points

Techniques that assist payroll professionals in making their pay decisions include external measures such as benchmarking (salary surveys) and ongoing reporting

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that constitute a market survey approach.

Internal measures such as projections, simulations, predictive modeling, or the use of pay grades look to the needs of the organization, and the relative value of tasks within it, to make pay decisions.

Variable systems like pay for performance create a policy line that connects job pay and job evaluation points.

Key Terms

benchmarking: A technique that allows a manager to compare metrics, such as quality, time, and cost, across an industry and against competitors.

predictive modeling: Predictive modelling is the process by which a model is created or chosen to try to best predict the probability of an outcome.

Pay decisions refer to the methods used by human resources and payroll professionals to choose the pay scales of employees. Techniques that assist payroll professionals in making their pay decisions include:

External measures such as benchmarking (salary surveys) and ongoing reporting that constitute

a market survey approach.

Internal measures such as projections, simulations, and predictive modeling or the use of pay

grades use an organization’s needs to assess the relative value of tasks within it.

Variable systems like pay-for-performance create a policy line that connects job pay and job

evaluation points.

Benchmarking

Benchmarking is when an organization compares its own pay practices and job functions against those of its competitors. Obvious cautionary points in the use of these kinds of salary surveys include the inclusion of only appropriately similar peers in the comparison, the inclusion of only appropriately similar jobs in the comparison, and accurately weigh and combining rates of pay when multiple surveys are used.

There are two types of salary surveys that can be used in benchmarking: labor market comparisons and product market comparisons. Labor market comparisons are best when employee recruitment

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Measuring up: Managers benchmark the metrics of their company against those of industry competitors.

and retention is a major concern for the employer and when recruiting costs are a significant expense. Product market comparisons are more salient when labor expenses make up a major share of the employer’s total expenses, when product demand is very fluid, when the labor supply is relatively steady, and/or when employee skills are specific to the product market in question.

Within the benchmarking process, the job category and range of pay rates within it are important to the payroll professional. Certain key jobs are very common to organizations in a given field and have a relatively stable set of

duties. As a result, key jobs are useful in benchmarking since they allow for more accurate comparison across many organizations. Non-key jobs are unique to their organizations and are therefore not useful in benchmarking. Job content is far more important than job title in this context, although it is easy to confuse content for title. Range of pay rates refers to the variety in pay rates that workers in one job area might receive.

Salary Surveys

The use of salary surveys demands credible survey sources with multiple participating organizations. Organizations responding to a given survey must be similar to the organization using that survey. Close attention to job function is also crucial; it is inappropriate to match and compare salaries based on job title alone.

Internal Measures

Benchmarking uses external measures to make internal pay decisions. Internal measures are also available in most cases, and include the use of analytic techniques such as projections, simulations, and predictive modeling in the pay decision-making process. External and internal measures have very different focuses. External measures ask the market what any given individual should be paid. Internal measures correlate pay decisions to potential organizational benefits.

Pay Grade System

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A pay grade system is simply tiered levels of pay based on position, experience, and seniority. Using a pay grade system has its own risks that should be backed by strongly predictive internal measures because 0nce pay grades are in place, the cost of changing and updating them is significant. This can lead to stagnation in an organization’s pay scale system.

Connected to this problem is the fact that an existing pay scale can reward skill sets that were highly useful to the organization in the past more than skill sets that are currently needed. Projections, simulations, and predictive modeling assist in counteracting these issues, as they make use of an organization’s own internal data to ensure that assessments of value and need are accurate.

Pay for Performance Systems

Variable pay decision systems like pay-for-performance are designed to motivate employees and ensure intra-organizational cooperation. When designing this kind of system, the first thing to assess is the personnel goals of the organization (as this kind of system can be tailored significantly). Interacting with managers across departments can help payroll professionals understand what is most important to the various areas of the organization at any given time.

Merit and incentive pay programs are common forms of pay-for-performance systems. Promotions based on performance rather than set time periods are also critical to pay-for-performance schemes.

Incentive Systems for Employees

Human resources professionals assess organizational and employee needs to identify the ideal incentive systems for collaborative success.

LEARNING OBJECTIVES

Describe the purpose of an incentive system and learn how human resources professionals can assess organizational needs to select the best one

KEY TAKEAWAYS

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Carrot and stick: Incentive systems should use the carrot (reward) as opposed to the stick

Key Points

Human resources (HR) professionals are tasked with using employee and organizational objectives to identify and implement the best employee incentive programs.

To be effective, incentive systems must address employee skills and motivation, acknowledgement of employee successes, a clearly-defined set of goals, and a means for assessing progress. Employee effort increases as workers perceive that they are achieving set goals.

Recognizing which incentive systems are most appropriate for an organization is a primary challenge for HR professionals.

An incentive system is a business management tool that introduces a structured motivation system to promote desired employee behaviors. Human resources (HR) professionals are tasked with using employee and organizational objectives to identify and implement the best employee incentive programs.

How Incentives Improve Performance

To be effective, incentive systems must address employee skills and motivation, acknowledgement of employee successes, a clearly-defined set of goals, and a means for assessing progress. These systems must also be tailored to the needs of the organization. Incentive systems are often implemented to prevent and overcome poor performance, failure to meet organizational goals, poor morale, increased turnover, and the stress of increased demands on employees.

Incentive systems are grounded in the idea that employee effort increases as workers perceive that they are making progress towards reaching set goals. A successful system promotes full employee participation by offering a wide array of rewards and keeping employees motivated to participate.

The Role of Human Resources

Incentive systems only work when they are closely tailored to the goals of the organization. The system’s goals must be challenging but attainable, or employees will not be motivated

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(punishment) to motivate employees.

to participate. It’s counter-intuitive, but research has shown that monetary rewards are ineffective incentives. One incumbent risk of incentive systems is the moral hazard of encouraging individuals to achieve their own goals and specific targets rather than improving upon organizational performance as a whole.

Human resources departments must identify the core culture of the organization and create incentives that match it. For example, a company built on innovation must inspire risk-taking without any guarantees of success. This means performance incentives and metrics may be relatively useless (and most likely damaging) to executing the core organizational goals. Instead, HR could provide incentives like telecommuting or the freedom to devote a percentage of each work day to independent projects (Google does this).

At the other end of the spectrum, Walmart promotes rigidly controlled operational efficiency. To reduce employee errors, an incentives system could reward efficiency. The most consistent truck drivers, for example, could receive a reward for their clockwork performance.

Employee Benefits Management

Employee benefits are non-wage compensations designed to provide employees with extra economic security.

LEARNING OBJECTIVES

Break down employee reimbursement to describe a variety of direct and indirect benefits captured by the employee from human resource management

KEY TAKEAWAYS

Key Points

These critical benefits ensure that employees have access to health insurance, retirement capital, disability compensation, sick leave and vacation time, profit

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sharing, educational funding, day care, and other forms of specialized benefits.

The human resources department is the area of an organization responsible for organizing, implementing, and managing employee benefits across the company.

Benefits and compensation are at the center of HR operations and play a central role in both the financial capacity and talent management of any institution.

In most developed nations there are laws that govern benefits and agencies that enforce them. HR is also tasked with understanding the benefits that employees have a legal right to and implementing them properly.

Key Terms

Compensation: What is expected in return for providing a product or service.

profit sharing: A system in which some of the profit of an enterprise are divided among the workers, giving them an incentive for profits without an equity interest.

Employee benefits are non-wage compensations designed to provide employees with extra economic security. These benefits ensure that employees have access to health insurance, retirement capital, disability compensation, sick leave and vacation time, profit sharing, educational funding, day care, and other forms of specialized benefits. Receiving these benefits along with one’s salary is fairly standard in full-time professional employment.

Human Resource Responsibilities

The human resources department is the area of an organization responsible for organizing, implementing, and managing employee benefits across the company. Human resources (HR) has a wide range of responsibilities, including hiring, training, assessment, and compensation across the company. Benefits and compensation, however, lay at the center of HR operations and play a central role in both the financial capacity and talent management of any institution.

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HR responsibilities: Human resources departments carry out many services, including data management, service efficiency, and employee services.

Human resources contribute to the overall employee experience across the span of an employee’s time with the company. Benefits play an important role in maintaining high levels of satisfaction. Employee satisfaction is often overlooked in favor of customer satisfaction, but is just as critical to a healthy business. As a result, HR has a critical task in maintaining high levels of employee satisfaction to ensure maximum operational efficiency.

Benefits provided by the company, particularly retirement investing and health insurance, ensure that employees feel taken care of and secure in return for their investment of time and effort. The safety net provided and maintained by the company is a strong motivator of employee loyalty and satisfaction.

Legal Concerns

In most developed nations there are laws that govern benefits and agencies to enforce them. HR is also tasked with understanding the benefits that employees have a legal right to and implementing them properly. The Employee Benefits Security Administration (EBSA) is the agency in the United States responsible for administering, regulating, and enforcing many of these benefits. HR also works closely with the legal department to understand and provide the benefits required by each country they operate in.

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HR is a central element of any successful business because it maintains the most valuable investment of any business: its people. Employee satisfaction and compensation help companies achieve high efficiency and strong performance from their employees by administering the appropriate level of compensation and benefits.

Employee Promotions

A promotion is the advancement of an employee’s rank, salary, duties, and/or designation within an organization.

LEARNING OBJECTIVES

Evaluate human resources’ role in creating promotion opportunities to motivate employees and develop upwards mobility within an organization

KEY TAKEAWAYS

Key Points

A promotion is the advancement of an employee’s rank, salary, duties, and/or designation within an organization.

Promotions can also carry increases in benefits, privileges, and prestige, although in some cases the promotion changes designation only.

The number of safeguards in place against unfair practices in promotion depends on the public or private nature of the organization.

Key Terms

Designation: A distinguishing name or title.

A promotion is the advancement of an employee’s rank, salary, duties and/or designation within an

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organization. Promotions are often a result of good employee performance and/or loyalty (usually via seniority). The opposite of a promotion is a demotion.

The Role of Human Resources

Prior to promoting someone, the human resources department of an organization must ascertain whether the employee in question can manage the increase in responsibilities that accompanies the new role. If not, additional training may be required to prepare the individual for their new organizational role.

Incentives of Being Promoted

Internal promotions carry incentives that motivate employee efficacy and ambition. Human resources can manage internal promotional opportunities and benefits to increase employee engagement. A promotion might involve a higher designation. This means that the more senior position has a different title. An example would be a promotion from office manager to regional manager. A promotion can (and often does) mean an increase in salary. The amount of the raise varies widely from industry to industry and from organization to organization within a given industry.

Promotions can also carry increases in benefits, privileges, and prestige, although in some cases only the title changes. In very hierarchical organizations, like the military, the change in rank alone is significant and brings with it new responsibilities. In the nonprofit sector pay increases are modest, so the prestige of a promotion is one of its main benefits. In the private sector, promotion can include substantial salary increases, benefit increases, stock options, and various “perks,” such as a bigger office or executive parking.

Safeguards and Systematic Equity

Generally speaking, there are more procedural safeguards against preferential treatment in the public sector as compared with the private sector, where senior managers enjoy broad discretion in making promotions. Review of promotion decisions and mandates to document such decisions in personnel files protect against discrimination, bias, and preferential treatment. It is critical for human resources professionals to understand and describe why a given promotion is occurring, justifying it both quantitatively and qualitatively.

Employee Transfers

Transfers take place in response to goals, needs, talent, or employee requests; HR evaluates and

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executes transfers.

LEARNING OBJECTIVES

Identify when it is appropriate to consider strategic or unexpected interdepartmental transfers within a human resources frame

KEY TAKEAWAYS

Key Points

Transfers can occur for a number of different reasons and can be initiated by employees or managers. Types of employee transfers include: strategic transfers, necessity transfers, and talent/ management transfers.

A strategic transfer takes place when an organization is trying to grow a specific segment of its operations, and needs experienced and trusted individuals to pioneer this process.

A necessity transfer takes place when there is a demand for employees in a different department of the organization, where a specific skill set is scarce.

A talent transfer usually moves an employee from their original department after it becomes clear that their skill set is more suited to another department.

Key Terms

strategic: Of or pertaining to strategy.

Scarcity: An inadequate amount of something; a shortage.

necessity: The quality or state of being required or unavoidable.

Evaluating and executing employee transfers is an essential function of human resources management. Transfers can be horizontal, between departments within an organization, or vertical, from one level in the organization to another, either up or down. It is useful to view promotions and

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demotions as vertical and transfers as horizontal (though they can be vertical as well, to a certain extent). Transfers can occur for many different reasons; they can be driven by employees or managers. Types of employee transfers include: strategic transfers, necessity transfers, and talent/management transfers.

Strategic Transfers

A strategic transfer may take place when an organization is trying to grow a specific segment of its business. For example, if a car maker wants to strategically grow its quality department to meet the goal of building safer cars, it may want to train additional staff for a transfer to the quality department. It is also highly useful to have a few experienced employees who understand the company better than new employees guide the trajectory of the new project.

Necessity Transfers

A necessity transfer may take place when there is a demand for employees in a department of the organization where a specific skill set is scarce. This may happen because of layoffs, a change in company strategy, or a scarcity of a certain type of employee. A necessity transfer usually includes an incentive, like a raise, to give employees an incentive to put in the training the transfer will require.

A manager rating an employee.: Rating an Employee

Talent Transfers

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A talent transfer usually moves employees from their original department after it becomes clear that their skill set is more suited to another department. It is predicated on the original department’s ability to absorb the loss of that employee as well as the level of need in the new department. Talent transfers are more likely to be initiated by employees who perceive that they can contribute more to a new department.

Finally, employees may also request transfers in an organization for a number of different reasons (i.e., family or personal requirement, location requirements, change in interest, and working with different people). The important component from a human resources perspective is making sure that the employee’s concerns are legitimate and insuring that the transfer will be beneficial for the organization by assessing the employee’s fit in the proposed transfer location. Making sure that employees are working where they have the best fit promotes higher efficiency and synergy.

Employee Discipline

Organizations must create strong, clear disciplinary policies; all disciplinary actions should be well documented and fairly applied.

LEARNING OBJECTIVES

Assess the advantages and disadvantages of the methods outlined to discipline employees in the workplace

KEY TAKEAWAYS

Key Points

Corrective discipline and progressive discipline are the two most common disciplinary systems.

Progressive discipline provides a general series of steps to complete. Corrective discipline allows managers to tailor disciplinary action to fit different situations.

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Documentation is crucial in employee discipline to protect employee rights and prevent legal action.

There are four main kinds of discipline in the workplace for employee failures and poor conduct: verbal counseling, written warning, suspension, and termination. Other less common forms of discipline include demotion, transfer, and withholding of bonuses.

Key Terms

Progressive discipline: Provides general steps that must be completed for all infractions.

Corrective discipline: A corrective discipline system allows managers to tailor disciplinary action to fit different situations.

Employee discipline problems can be minimized by ensuring that organizational policies are clearly communicated to employees. Consequences for violating organizational policies must be clearly communicated so that employees know and understand them. Organizations must create strong, clear disciplinary policies and enforce them when needed. In addition, organizations must prohibit discrimination and harassment by creating clear and detailed written policies.

Types of Discipline

Corrective discipline and progressive discipline are the two most common disciplinary systems in the workplace:

First, progressive discipline sets forth clear but general steps that must be completed for all

infractions. This limits the disciplinary actions that can be taken against an employee by

referencing the employee’s prior disciplinary history. This system has the advantage of

eliminating most disparate treatment claims, since everyone receives the same disciplinary

steps regardless of other factors.

Second, corrective discipline allows managers more flexibility and permits the manager to tailor

disciplinary action to fit different situations. This flexibility does not remove the onus on the

manager and the organization at large to ensure that similar cases are treated equally. Review

of disciplinary actions falls to the HR department to ensure that employees experience no

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image

Termination: This cartoon shows a professor being terminated from university employment. Termination is the last of disciplinary options.

disparate treatment. This is key to avoiding legal charges of inequitable treatment: HR has a

very important organizational role in preventing long-term issues and potentially high costs.

Documentation of Discipline

Documentation is crucial in cases of employee discipline. If an employee is penalized or fired for an infraction that the organization cannot document, s/h might file–and win—a wrongful termination suit. This is particularly true when performance appraisals are not detailed enough.

A lack of consistency in disciplinary procedures is equally dangerous for organizations. If employees receive different disciplinary responses to the same infraction, the organization can be found liable for discrimination even when none was intended. Aggravating and mitigating factors should be considered and documented in each situation. This means that all disciplinary procedures must be well-documented and fairly applied.

Methods of Discipline

There are four main methods of discipline for employee failures and poor conduct: verbal counseling, written warning, suspension, and termination. Other less common forms of discipline include demotion, transfer, and withholding of bonuses.

Verbal counseling is typically the first

response to an infraction. A verbal warning

must be administered to the employee in

private and as objectively as possible. The

presence of one management-level

witness, preferably an HR professional, is

recommende. Any verbal counseling must

be documented in writing in the

employee’s personnel file.

A written warning is usually the next level

of discipline and typically follows a verbal

warning. After the employee has received

a written warning and has had time to

review it, there should be a private

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meeting between the manager and the

employee and a witness (and the employee’s representative if s/he has one). Disciplined

employees should sign the written warning to show that they received it, and should be informed

that signing the warning does not indicate that they agree with it. Should the employee refuse to

sign, the witness can sign to acknowledge that they observed the meeting and the employee’s

refusal to sign.

The next form of discipline is typically suspension. This is usually unpaid and varies in length.

Paid suspensions can function in practice as inadvertent rewards for disciplinary infractions and

should be avoided. Whether the suspension leads automatically to termination upon the next

infraction is up to the employer. Generally if there are multiple suspensions they should increase

in length and ultimately result in termination. Whatever procedure an organization adopts, it

should be clear about the next step, whether suspension or termination. All of this must be

documented in writing.

Termination is the last disciplinary step. Before taking this step a manager should review

employee files to ensure that this is an appropriate step and that similar action has been taken in

similar circumstances before. Some behavior should automatically give rise to termination

regardless of context. Violence and threatened violence, drug or alcohol use in the workplace,

bringing weapons onto organization property, ignoring safety regulations, stealing, falsifying

documents, and abandoning a job (no call, no show for three consecutive days) are all grounds

for immediate termination. Any other course of action puts the organization and other employees

at risk.

Employee Dismissal

Dismissal is the involuntary termination of an employee due to incompetence, poor job performance, or violation of policy.

LEARNING OBJECTIVES

Discuss the common reasons and justifications for employee dismissal from the human resources management perspective

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KEY TAKEAWAYS

Key Points

Common reasons for dismissal include absenteeism, “time theft” offenses (i.e., improper use of breaks), incompetence, and poor job performance.

Gross misconduct offenses, such as violence, serious negligence, repeated insubordination, fraud in the job application process (whenever it is discovered), harassment of co-workers, or drug use at work are grounds for immediate dismissal.

At times, even off-the-clock behavior can impact employment and result in a dismissal.

Under typical circumstances, dismissal is the last step in a chain of disciplinary actions.

Human resources are mediators, who must maintain objective perspectives in assessing the validity of reasoning behind any and all employee terminations.

Key Terms

gross misconduct: Violence, serious negligence, repeated insubordination, fraud in the job application process, harassment of co-workers or drug use in the workplace.

Dismissal is the involuntary termination of an employee. It is colloquially referred to as being “fired.” Dismissal implies employee fault, although this is not always the case. In most states, an employee can be fired for any reason or no reason at all, as long as they are not fired for a prohibited reason. Indeed, most dismissals are a by-product of economic conditions or organizational failure beyond the individual employee’s control (i.e., layoffs).

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U.S. unemployment, 1995-2012: Layoffs, particularly during recessions, are a common reason for employee dismissal. The recessions of 2001 and 2008 were both followed with drops in U.S. employment.

Reasons for Dismissal

Common reasons for dismissal include absenteeism, “time theft” offenses (i.e., improper use of breaks), incompetence, or poor job performance. Gross misconduct offenses, such as violence, serious negligence, repeated insubordination, fraud in the job application process (whenever it is discovered), harassment of co-workers, or drug use at work are grounds for immediate dismissal.

At times, even off-the-clock behavior can impact employment and result in a dismissal. For example, if an employee is convicted of driving while under the influence, s/he will not be able to keep a job that requires driving. Other offenses, even if unrelated to job performance, can be seen as a sign of unreliability on the part of the employee and can result in dismissal. Similarly, employees often represent organizations outside of work. It is bad PR for an organization’s employees to be in trouble outside of work.

The Role of Human Resources

Dismissal is almost always the last step in a chain of disciplinary actions. Most workplaces recognize some sequence of disciplinary consequences, starting with verbal counseling, moving to written warnings and suspension, usually without pay.

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In extreme circumstances, however, employees can be summarily dismissed. Regardless of the circumstances of the dismissal, organizations must document all infractions carefully and be consistent in their application of disciplinary measures including dismissal. Organizations that dismiss some employees for a particular infraction but not others leave themselves open to legal liability, even in right-to-work states.

Human resources departments are tasked with managing this process, and must ensure complete coordination of company policy with state or federal law. If the dismissal is seen as harassment-based or founded in discrimination, the organization’s unethical acts will have significant legal ramifications and costs. Human resources professionals are mediators who must remain objective when assessing possible employee termination.