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7 KEEPING THINGS IN CHECK Controls and the Control Process

Starting Point

Go to www.wiley.com/college/Lombardi to assess your knowledge of the basics of the control process. Determine where you need to concentrate your effort.

What You’ll Learn in This Chapter ▲ Four steps of the control process ▲ Characteristics of effective controls ▲ Three main types of controls ▲ Specific control techniques for discipline, information, and finances ▲ Operational control strategies, including purchasing, inventory, and quality ▲ Ways to successfully manage by objectives (MBO) ▲ Traits of internal control and self-management

After Studying This Chapter, You’ll Be Able To ▲ Practice the control process ▲ Compare internal and external controls ▲ Differentiate among discipline, information, and financial controls ▲ Examine the three aspects of operational controls ▲ Apply management by objective techniques

Goals and Outcomes ▲ Master the terminology and tools related to controls and the control process ▲ Explain how control fits with other management-process responsibilities ▲ Recognize common ethical dilemmas and responses ▲ Contrast the three main types of controls ▲ Use controls to assess performance, improve processes, and boost quality ▲ Choose appropriate controls to manage employees, schedules, budgets and quality ▲ Design effective control processes ▲ Evaluate the effectiveness of controls and control processes

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INTRODUCTION Control plays a positive and necessary role in the management process. By regularly following the four-step control process, managers can make their departments more effective and productive. The three categories of controls can be utilized to monitor employee discipline, manage schedules, and enforce bud- gets. Controls are particularly useful and important in discussions of purchas- ing, inventory, and quality. Management by objectives is a classic control-based tool that encourages internal control and self-management.

7.1 Understanding the Control Process

As section 1.5 points out, controlling—the process of measuring performance and taking action to ensure desired results—is a basic function for health care managers, on par with organizing, planning, and leading. The purpose of con- trolling is straightforward—to make sure that plans are fulfilled and that actual performance meets or surpasses objectives.

▲ Planning sets the directions and allocates resources. ▲ Organizing brings people and material resources together in working

combinations. ▲ Leading inspires people to best utilize these resources. ▲ Controlling checks that the right things happen, in the right way, and at

the right time. It helps ensure that the performance contributions of indi- viduals and groups are consistent with strategic and operational plans. It helps ensure that performance accomplishments throughout an organiza- tion are well integrated in means–ends fashion. And it helps ensure that people comply with organizational policies and procedures.

Figure 7-1 shows how controlling fits in with the rest of the management process.

Controlling– to ensure results

Organizing– to create structures

Leading– to inspire effort

Planning– to set the direction

• Measure performance • Take corrective action

The role of controlling in the management process.

Figure 7-1

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7.1.1 STEP 1: ESTABLISHING OBJECTIVES AND STANDARDS 189

The control process, as shown in Figure 7-2, involves four steps: estab- lishing objectives and standards, measuring actual performance, comparing results with objectives and standards, and taking corrective action as needed.

7.1.1 Step 1: Establishing Objectives and Standards

The control process begins when performance objectives and standards are set through planning (see section 6.3 for more on the planning process). The objec- tives provide the performance targets, and the standards provide the yardstick for assessing actual accomplishments.

Two types of standards can be used for this purpose:

▲ Output standards measure results in terms of performance quantity, quality, cost, or time. Examples include percentage error rate, dollar deviation from budgeted expenditures, and the number of patients serviced in a time period.

▲ Input standards, by contrast, measure effort in terms of the amount of work expended in task performance. They are used in situations where out- puts are difficult or expensive to measure. Examples include conformance

Step 1:

Establish performance objectives and

standards

Step 2:

Measure actual

performance

Step 3:

Compare actual performance with

objectives and standards

Step 4:

Take necessary

action

The Control Process

Four steps in management control.

Figure 7-2

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190 KEEPING THINGS IN CHECK

to rules and procedures, efficiency in the use of resources, and work attendance or punctuality.

7.1.2 Step 2: Measuring Actual Performance

The second step of the control process is to measure actual performance. The measurement must be accurate enough to spot significant differences between what is really taking place and what was originally planned. A common failure in health care organizations is an unwillingness or inability to rigorously mea- sure performance. Often, this involves reluctance by managers to specifically assess the accomplishments of other people at work. Yet without measurement, effective control is not possible. Managers need to get comfortable with the act of measurement, and they need to be consistent in doing it.

7.1.3 Step 3: Comparing Results with Objectives and Standards

Step three in the control process is to compare measured performance with objectives and standards. This establishes whether or not any corrective actions are needed. The control equation summarizes this step:

▲ Need for Action � Desired Performance � Actual Performance

You can apply the control equation in an historical comparison that uses past performance as a standard for evaluating current performance.1 Or you can rely on a relative comparison that uses the performance achievements of other peo- ple, work units, or organizations as evaluation benchmarks. Or you rely on an

F O R E X A M P L E

Behavioral Standards for Customer Service at Durham Regional Hospital In 2004, employees and managers at Durham Regional Hospital (www. durhamregional.org) determined that customer-service excellence was one of the facility’s greatest strengths and established output standards for customer services. A committee defined seven core customer service behavioral cate- gories, including greetings, telephone behavior, and patient respect. In each behavior category, the committee then listed specific actions or activities that were consistent with outstanding customer service. All employees received training on the behavioral standards and signed formal agreements to abide by the standards. To review the seven categories of behavior standards, visit www.durhamregional.org/team/customerservice.

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7.1.5 SETTING UP EFFECTIVE CONTROLS 191

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

7.1.4 Step 4: Taking Corrective Action

The last step in the control process is to take any action necessary to correct or improve future performance. Step four allows for a judicious use of management by exception—the practice of giving priority attention to situations that show the greatest need for action. This approach can save valuable time, energy, and other resources, while allowing all efforts to be concentrated on the areas of greatest need.

You may encounter two types of exceptions:

▲ In a problem situation, actual performance is below the standard. As a manager, you seek to understand the reasons for this type of performance deficiency and then take corrective action to restore performance to the desired level.

▲ In an opportunity situation, actual performance is above the standard. As a manager, you also need to understand the reasons for this extraordi- nary performance and allow for action to continue operating at a higher accomplishment level in the future.

7.1.5 Setting up Effective Controls

One of the problems with the control process is that many managers are too busy and /or unwilling to follow it. Many managers make a decision, take action, and then forget about it as they go on to other tasks. There is no follow-up to make sure things go according to plan.

The best managers, by contrast, are proactive and positive in applying the control process to full advantage. Rather than simply assuming things are going right, they make sure that everything works out as intended.

Effective controls in organizations share the following characteristics:

▲ Controls are strategic and results-oriented. The controls support strategic plans and focus on significant activities that make a real difference to the organization.

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

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

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

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

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

▲ Controls are flexible. They leave room for individual judgment and can be modified to fit new circumstances as they arise.2

7.2 Types of Controls

Health care managers utilize three major types of managerial controls—feedfor- ward, concurrent, and feedback control.3 Shown in Figure 7-3, each is relevant to a different aspect of the organization’s activities. Each has an important role to play in the quest for long-term productivity and high performance.

Feedforward Controls

Work inputs

Ensure the right directions are set and the right resource

inputs are available

Concurrent Controls

Work throughputs

Ensure the right things are being done as part

of workflow operations

Feedback Controls

Work outputs

Ensure that final results are up to desired standards

Three types of controls: feedforward, concurrent, and feedback control.

Figure 7-3

• Identify and define control, control process, output standards, input standards, and management by exception.

• Describe the four steps of the control process.

• Compare output standards and input standards.

• Differentiate among historical, relative, and engineering comparisons.

• Explain problem situations and opportunity situations.

• List characteristics of effective controls.

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7.2.3 FEEDBACK CONTROLS 193

7.2.1 Feedforward Controls

The controls that are accomplished before a work activity begins are called feed- forward controls, or preliminary controls. These controls ensure that objectives are clear, that proper directions are established, and that the right resources are available to accomplish them. By making sure that the stage is properly set for high performance, feedforward controls are preventive in nature. They help elim- inate later problems by asking an important but often neglected question: What needs to be done before we begin?

In a student health clinic, for example, preliminary control of examination materials and patient forms play major roles in ensuring the clinic runs smoothly and well. Nurses are responsible for checking on a daily basis that all reusable and disposable tools are stocked and organized; front desk assistants preassem- ble clipboards that include all necessary patient forms that will be completed during each patient visit.

7.2.2 Concurrent Controls

The controls that focus on what actually happens during the work process are called concurrent controls, or steering controls. These controls monitor ongoing operations and activities as they take place to make sure things are being done according to plan. In a sense, concurrent controls ask the key question, Now that we’ve started, what can we do to improve things before we finish?

Consider the student health clinic again. Nurse-practitioners, serving as shift leaders, can provide concurrent control through direct supervision of medical assistants who interact directly with the student-patients. The nurse- practitioners can constantly observe what is taking place in multiple examina- tion rooms and can help out with exams as needed. The nurse-practitioners can intervene immediately when something is not done right and help correct things on the spot.

7.2.3 Feedback Controls

The controls that take place after work is completed are called feedback con- trols, or postaction controls. These controls focus on the results achieved rather than on work inputs and activities. They ask the question, Now that we are fin- ished, how well did we do?

A student-health clinic can, for example, send out confidential surveys to students that ask them to assess their experiences. Similarly, a final exam grade tells you how well you performed—after the course is over. A budget summary informs managers of any cost overruns—after a project is completed. In these and other similar cases, the feedback gained is most useful for improving things in the future.

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7.3 Control Strategies

Health care managers have two broad options with respect to control. First, they can rely on people to exercise self-control. This strategy of internal control allows motivated individuals and groups to exercise self-discipline in fulfilling job expec- tations.4 Second, managers can take direct action to control the behavior of others. This is a strategy of external control that occurs through personal supervision and the use of formal administrative systems.

Each component in an organization’s control systems should contribute to maintaining predictably high levels of performance. At the same time that inter- nal control is encouraged and supported, external control should be appropri- ate and rigorous.

Health care organizations with effective controls typically use both strategies to good advantage, but more progressive workplaces seem to have a renewed emphasis on internal and self-controls. This is consistent with trends toward more participation, empowerment, and employee involvement.

7.3.1 Management Process Controls

The discipline of the management process itself facilitates control.

F O R E X A M P L E

Emergency Room Excellence The emergency room at Robert Wood Johnson University Hospital Hamil- ton (www.rwjhamilton.org) is a state-of-the-art and award-winning facility that utilizes numerous control processes to establish, measure, and ensure its 15/30 guarantee. The guarantee promises that all emergency room patients see a nurse within 15 minutes and a physician within 30 minutes, or the hospital pays the emergency room bill. To achieve the guarantee, the hos- pital instituted a PromptCare facility to focus on the needs of non-life-threat- ening ER patients. The Emergency Department also upgraded its patient tracking and documentation system to not only obtain medical information quickly, but also to measure and compare performance results.

• Identify and define feedforward control, concurrent control, and feedback control.

• Compare and contrast the three types of controls.

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7.3.2 EMPLOYEE DISCIPLINE SYSTEMS 195

During planning,

▲ control via strategy and objectives occurs when work behaviors are initially directed toward appropriate end results. When performance goals are clearly set and understood, lack of performance (because of poor direction in one’s work) is less likely to occur;

▲ control via policies and procedures operates in similar ways. To the extent that good policies and procedures exist to guide behavior, an organization’s members are more likely to act uniformly on important matters;

▲ control via learning occurs when past experience is systematically considered and incorporated into future strategies, objectives, policies, and procedures.

Management control is also facilitated by good organizing:

▲ Control by selection and training occurs when capable people are hired and given the ongoing training needed to perform their jobs at high levels of accomplishment. The closer the match between individual skills and job requirements, the less need there is for external control and the greater the opportunity for internal control.

▲ Control via performance appraisal occurs when individual performance is assessed and evaluated to ensure high performance results. This also helps to identify areas where training and development are needed.

▲ Control via job design and work structures operates in a similar fashion, putting people in jobs designed to best fit their talents. When all jobs are well coordinated in workflows and operations, this structures activities and adds substantially to control.

Leadership contributes to control through performance modeling. This occurs as leaders set the examples so that workers have good models to follow in their job activities.

▲ Control by performance norms occurs when team or group members share commitments to high performance standards and reinforce one another’s efforts to meet them.

▲ Control via organization culture occurs in a similar fashion when core values add a shared sense of meaning and add purpose throughout the organization.

7.3.2 Employee Discipline Systems

Absenteeism, tardiness, sloppy work. The list of possible misbehaviors in the work- place can go on to even more extreme actions: falsifying records, sexual harass- ment, embezzlement, and more. All are examples of behaviors that can and should be formally addressed in employee discipline systems. Discipline is the act of

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influencing behavior through reprimand. Ideally, the use of discipline in manage- rial control is handled in a fair, consistent, and systematic way.

Progressive discipline ties reprimands to the severity and frequency of mis- behavior. Under such a system, penalties for employees vary according to how significant the inappropriate behavior is and how often it occurs. The goal is to achieve compliance with organizational expectations through the least extreme reprimand possible.

However, the system should still be strict and rigorous. For example, the progressive discipline guidelines of one hospital state, “The level of disciplinary action shall increase with the level of severity of behavior engaged in and based on whether the conduct is of a repetitive nature.” In this particular case, the ulti- mate penalty of discharge is reserved for the most severe behaviors (for exam- ple, any felony crime) or for continual infractions of a less severe nature (being continually late for work and failing to respond to a series of written reprimands and suspensions).

7.3.3 Information and Financial Controls

The pressure is ever present today for all health care organizations to use their resources (human, financial, capital, and more) well and to perform with maxi- mum efficiency.

For control purposes, health care managers need to generally understand the following important financial aspects of organizational performance:

▲ Liquidity: The ability to generate cash to pay bills. ▲ Leverage: The ability to earn more in returns than the cost of debt.

F O R E X A M P L E

“Hot Stove” Rules of Discipline According to classic management author Douglas McGregor,5 one way for managers to develop a consistent approach to disciplinary situations is to apply the “Hot Stove” rules, which begin with a simple rule: “When a stove is hot, don’t touch it.” When this rule is violated, you get burned— immediately, consistently, but usually not beyond the possibility of repair. By extension, reprimands should be immediate (a hot stove burns quickly). Reprimands should be directed toward someone’s actions, not their person- ality (a hot stove doesn’t hold grudges, doesn’t try to humiliate people, and doesn’t accept excuses). Reprimands should be consistently applied (a hot stove burns anyone who touches it, and it does so every time). Reprimands should occur in a supportive setting (a hot stove conveys warmth but also operates with the inflexible rule of “don’t touch”).

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7.3.3 INFORMATION AND FINANCIAL CONTROLS 197

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

▲ Profitability: The ability to earn revenues greater than costs.

These financial aspects of organizational performance are typically assessed using a variety of financial ratios. Upper managers often use the ratios to initially set goals, while middle and lower management use the ratios to track actual per- formance. Ratios are also useful for historical comparisons within the firm or in external benchmarking relative to industry performance.

A number of popular financial ratios are listed here along with up ( ) and down ( ), which indicate the preferred directions for these ratios to develop over time.

▲ Liquidity ratios: Current ratio � Current assets/current liabilities Acid test � (Current assets � inventory)/current liabilities

▲ Leverage ratios: Debt ratio � Total debts/total assets Times interest earned � Profits before interest and taxes/total interest

▲ Asset management ratios: Inventory turnover � Sales/average inventory Total asset turnover � Sales/total assets

▲ Profitability ratios: Net margin � Net profit after taxes/sales Return on investment (ROI) � Net profit after taxes/total assets↑

↑

↑ ↑

↑ ↓

↑ ↑

↓ ↑

• Identify and define internal control, external control, discipline, progressive discipline, and financial ratios.

• Compare internal and external controls.

• Explain how control fits with the other three components of the management process.

• Discuss characters of effective controls for employee discipline.

• Contrast the tools and techniques of discipline, reprimand, and progressive discipline.

• Explain ways to apply controls to information and financial topics.

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7.4 Managing and Controlling Operations

Control is an essential part of operations management, the portion of manage- ment duties that emphasizes utilizing people, resources, and technology to the best advantage. Among the important aspects of operations management today, purchasing control, inventory control, and, of course, quality control, deserve special attention.

7.4.1 Purchasing Control

Everywhere in today’s economy—including throughout the health care industry— the rising costs of materials seem to be a fact of life. Controlling these costs through efficient purchasing management is an important productivity tool. Like an individual, a thrifty organization must be concerned about how much it pays for what it buys.

To leverage buying power, many health care organizations now have central- ized purchasing to allow buying in volume. Additionally, many health care orga- nizations now commit to only a small number of suppliers with whom they can negotiate special contracts, gain quality assurances, and get preferred service.

Although first-time health care managers typically have limited ability to con- trol purchasing processes, savvy managers pay attention to the costs associated with any material purchased regularly and try to find the lowest cost, highest quality, and best service possible. Often by sharing purchasing control informa- tion with supervising managers and upper management, health care managers can identify significant cost-savings opportunities for their organizations.

7.4.2 Inventory Control

Health care organizations maintain inventories of materials, tools, supplies, equipment, and more. Organizations use their inventories to smooth out peri- ods of excess or undercapacity and meet periods of unusual demand. But because inventories represent costs, they must be well managed. Many health care orga- nizations, particularly those with clinical operations, try to maintain a 4- to 6-week on-hand supply of essential tools and materials.

Some health care inventory controls are quantitative and even computerized. For example, the economic order quantity (EOQ) is a quantitative method of inventory control that involves ordering a fixed number of items every time an inventory level falls to a predetermined point. When this point is reached, a deci- sion is automatically made (often now by computer) to place a standard order. The objective is always to have new inventory arrive just as old inventory runs out. This minimizes the total cost of the inventory.

Another approach to inventory control is just-in-time scheduling ( JIT). Made popular by Japanese industrial productivity, JIT systems are beginning to receive consideration in some cutting-edge health care organizations. JIT systems

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7.4.3 QUALITY CONTROL 199

try to reduce costs and improve workflow by scheduling items to arrive just in time to be used. JIT systems minimize storage costs, often reduce costs, and can maximize the use of space and improve the quality of results. However, finding ways to appropriately adapt JIT systems to health care settings will be an ongo- ing challenge for many years to come.

7.4.3 Quality Control

In the context of managerial control systems, quality control involves checking processes, materials, products, and services to ensure that they meet high stan- dards. Quality control encompasses all aspects of an organization’s operations— from the selection of materials and supplies right down to the last task performed as part of a specific service or product.

Although health care organizations rarely have as statistically rigid quality-control plans as automobile parts manufacturers, for example, most health care organiza- tions have detailed processes and procedures in place in which supervising man- agers or peers evaluate a random sampling of files or charts on an established (often daily or weekly) schedule. At many health care organizations, especially those with clinical operations, managers typically observe and evaluate staff in hands-on activities, such as patient interactions, examinations, laboratory proce- dures, and so on.

Because the delivery of appropriate health care services is, by necessity, quite individualized, not all service experience can be exactly the same. However, a staff member’s skills or abilities are typically evaluated against established crite- ria or expectations.

Often, quality-control evaluations and observations become part of employ- ees’ performance appraisals. See section 5.4 for more information on appraising employees.

F O R E X A M P L E

Award-Winning Quality The Malcolm Baldridge National Quality Awards (www.quality.nist.gov) are presented annually by the president of the United States to leading business, education, and health care organizations that make significant achievement in quality and performance excellence. To review health care-specific award cri- teria, comprehensive evaluative questions, and detailed profiles of past health care award winners, visit www.quality.nist.gov/HealthCare_Criteria.htm. By reviewing and answering these questions, any health care manager can find useful, proven ideas for establishing patient-focused programs with excep- tional quality-assurance procedures.

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7.5 Integrated Planning and Controlling

When planning is done well, control gets better—and vice versa. Without good planning, control lacks a framework for performance measurement. Without good control, planning lacks the follow-through needed to ensure results.

7.5.1 Six Sigma

Six Sigma is a collection of rigorous, systematic control tools that use informa- tion and statistical analysis to measure and improve an organization’s perfor- mance, practices and systems. Six Sigma strives to identify and prevent “defects”—perhaps a faulty car door hinge at an automobile assembly factory or an incorrectly administered dose of painkillers in a health care setting. By care- fully monitoring quality and performance, managers can anticipate potential defects, create effective solutions, and exceed expectations of all stakeholders.

Six Sigma techniques first appeared in the manufacturing sector—Motorola and General Electric were two earlier adopters and promoters of the techniques— and have been successfully adapted to health care settings in recent years. For more information about incorporating Six Sigma techniques within a health care organization, visit http://healthcare.isixsigma.com.

7.5.2 Management by Objectives

Management by objectives, or MBO, is a useful technique that helps to integrate planning and controlling. Formally defined, MBO is a structured process of regu- lar communication in which a supervisor and subordinate jointly set performance objectives for the subordinate and review results accomplished.6

• Identify and define operations management, economic order quantity, just-in-time scheduling, and quality control.

• Discuss the importance of purchasing control, inventory control, and quality control in the overall health of a health care organization.

• List ways that managers can make a positive impact on purchasing control.

• Compare and contrast economic order quantity and just-in-time scheduling as inventory control methods.

• Suggest ways that managers can exercise some degree of quality control in today’s health care workplace.

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7.5.3 STEPS TO SUCCESSFUL MBO 201

MBO requires a formal agreement between the supervisor and subordinate concerning

▲ the subordinate’s performance objectives for a given time period; ▲ plans through which the objectives will be accomplished; ▲ standards for measuring whether the objectives are accomplished; ▲ procedures for reviewing performance results.

Figure 7-4 shows MBO in a work team structure. Note that the team leader and team member jointly establish plans and jointly control results in any good MBO action framework. They agree on the high-priority performance objectives for the member along with a timetable for their accomplishment and the crite- ria to be used in evaluating results.

A major advantage of management by objectives is that the process clearly focuses a person’s work efforts on the most important tasks and objectives. Another is that it focuses a supervisor’s work efforts on areas of support that can truly help the individual meet the agreed-upon objectives.7

7.5.3 Steps to Successful MBO

The following process can help managers make MBO as successful as possible:

1. An individual lists key performance objectives for a time period, with target dates for accomplishing them.

2. The supervisor reviews objectives and discusses them with the employee; the supervisor documents the agreed-upon set of objectives.

3. The supervisor and subordinate meet regularly to review progress and make revisions or update objectives as needed.

Jointly control

• Reviewing results • Discussing implications • Renewing MBO cycle

Individually act

• Performing tasks (member) • Providing support (leader)

Jointly plan

• Setting objectives • Setting standards • Choosing actions

Team leader

Team member

and

An MBO framework for integrated planning and controlling in a work team.

Figure 7-4

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4. At a specified time, such as after 6 months, the individual prepares a “performance report” that lists major accomplishments and comments on discrepancies between expected and actual results.

5. The supervisor and subordinate discuss the self-appraisal, with an emphasis on its implications for future performance.

6. A new set of objectives is established for the next time period, as in Step 1, and the MBO cycle begins again.

Some things to avoid in MBO include tying the process to pay, focusing too much attention on only those objectives that are easily quantified, requiring excessive paperwork, and having supervisors simply tell subordinates their objectives.

7.5.4 Performance Objectives

Performance objectives are essential to the MBO process, and the ways objec- tives are specified and established influences how well MBO works. In many organizations, the MBO process emphasizes improvement and personal growth objectives, specifically.

▲ Improvement objectives document intentions for improving performance in a specific way and with respect to a specific factor. An example is “to reduce patient complaints by 10%.”

▲ Personal development objectives pertain to personal growth activi- ties, often those resulting in expanded job knowledge or skills. An example is “to learn the latest version of a computer spreadsheet package.”

Effective MBO objectives are

▲ specific: targeting a key result to be accomplished; ▲ time-defined: identifying a specific date for achieving results; ▲ challenging: offering a realistic and attainable challenge; ▲ measurable: stating goals in quantitative terms, whenever possible.

One of the more difficult aspects of MBO relates to the last criterion—the need to state performance objectives in quantitative terms. Ideally, you can focus the agreement on a measurable end point—for example, “to reduce office sup- ply expenditures by 5% by the end of the fiscal year.”

But some jobs, particularly managerial ones, involve performance areas that are hard to quantify. Rather than abandon MBO in such cases, try to agree on performance objectives that are stated as verifiable work activities. The accom- plishment of the activities can then serve as an indicator of progress under the

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7.5.5 INTERNAL CONTROL AND SELF-MANAGEMENT 203

performance objective. An example is “to improve communications with my staff in the next 3 months by holding weekly team meetings.” Whereas it can be difficult to measure “improved communications,” you can fairly easily document whether the “weekly group meetings” have been held.

7.5.5 Internal Control and Self-Management

Simply defined, internal control is self-control. People who are motivated to take charge of their own behavior on the job are exercising internal control. Of course, people are more likely to do this when they participate in setting per- formance objectives and the standards of measurement. This, of course, is what the notion of management by objectives is all about. Given clear objectives to which they are committed, people are likely to manage themselves in pursuit of performance excellence.

Additionally, because MBO provides structure opportunities for people to participate in decisions that affect their work, the experience can be empower- ing and motivating. Because it creates enthusiasm to fulfill one’s performance obligations, MBO encourages self-management rather than external control.8

None of this advice is lost on today’s best health care managers. Although they may describe how they manage using differing language, many of the best managers utilize MBO concepts. If you want high performance from individual contributors, you must hire the best people, work with them to set challenging performance objectives, give them the best possible support, monitor their progress, and hold them accountable for results.

F O R E X A M P L E

MBO at University of Minnesota Hospitals In 1999, the Social Service Department of the University of Minnesota Hospitals (www.fairview-university.fairview.org) officially adopted an MBO-based employee evaluation system as part of ongoing appraisals and performance reviews. In addition to standard MBO techniques and procedures used throughout the business world, the University of Min- nesota program includes a statement of program philosophy and state- ment of essential program functions. Staff reaction to the system has been mixed, while hospital administration has been uniformly favorable. In the future, the MBO system will be integrated with a management infor- mation system.

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SUMMARY Controlling—the measuring of performance and taking action to ensure desired results—is a vital part of the management process. By establishing standards, measuring performance, comparing results, and taking corrective action, man- agers can improve the efficiency and productivity of their departments. Controls can be applied at three stages: before, during, and after an action. Establishing effective controls is critical to disciplining employees, as well as monitoring finan- cials, purchasing, inventory, and quality. Management by objectives is an integrated set of tools and techniques in which managers and employees set performance objectives, with the ultimate goal of developing internal control and self-man- agement in the workplace.

KEY TERMS Asset management The ability to use resources efficiently and oper-

ate at minimum cost.

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

Control equation Need for Action � Desired Performance � Actual Performance

• Identify and define management by objectives, improvement objectives, personal development objectives, and internal control.

• Describe the four critical parts of any management-by-objectives agreement.

• List the six steps of creating a management-by-objectives agreement.

• Compare improvement objectives to personal development objectives.

• Explain four characteristics of effective MBO objectives.

• Discuss the importance of internal control and self-management in the workplace.

S E L F - C H E C K

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KEY TERMS 205

Controlling The process of measuring performance and tak- ing action to ensure desired results; a basic func- tion for health care managers.

Control process A four-step method for measuring performance.

Discipline The act of influencing behavior through repri- mand.

Economic order quantity A quantitative method of inventory control that (EOQ) involves ordering a fixed number of items every

time an inventory level falls to a predetermined point.

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

External control Attempting to control the behavior of others through personal supervision or formal admin- istrative systems.

Feedback controls Controls that take place after work is com- pleted, also called postaction controls.

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

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

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

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

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

Just-in-time scheduling A Japanese model for industrial productivity, ( JIT) JIT systems try to reduce costs and improve

workflow by scheduling items to arrive just in time to be used.

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

Liquidity The ability to generate cash to pay bills.

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

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206 KEEPING THINGS IN CHECK

Management by objectives A structured process of regular communication (MBO) in which a supervisor and subordinate jointly set

performance objectives for the subordinate and review results accomplished.

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

Opportunity situation Actual performance is above the standard.

Output standards Control measurement results that focus on per- formance quantity, quality, cost, or time.

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

knowledge or skills.

Problem situation Actual performance is below the standard.

Profitability The ability to earn revenues greater than costs.

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

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

Relative comparison Comparison that uses the performance achieve- ments of other people, work units, or organiza- tions as evaluation benchmarks.

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

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SUMMARY QUESTIONS 207

ASSESS YOUR UNDERSTANDING Go to www.wiley.com/college/Lombardi to evaluate your knowledge of the basics of the control process. Measure your learning by comparing pretest and post-test results.

Summary Questions

1. Controlling is an important part of the management process because it ensures that (a) the performance contributions of individuals and groups are

consistent with plans. (b) the right things happen in the right way and at the right time. (c) the performance accomplishments throughout the organization are

well integrated. (d) All of the above

2. The four steps of the controlling process are (a) monitoring progress, evaluating results, preparing plans, and

responding to change. (b) establishing standards, measuring performance, comparing results,

and taking corrective action. (c) eliminating error, establishing procedures, testing employees, and

evaluating teamwork. (d) identifying problems, brainstorming solutions, evaluating data, and

reporting results. 3. Many managers fail to get the most out of the controlling process

because they do not follow up on their decisions. True or false? 4. Feedforward controls are preventative in nature; they ensure that objec-

tives and directions are clear before work begins. True or false? 5. Which of the following is an example of a concurrent control?

(a) A manager posting a memo in the break room (b) A nurse evaluating a supply cabinet based on an inventory checklist (c) A manager monitoring a receptionist’s phone call with a patient (d) All staff receiving training in CPR, regardless of position

6. Anticipating that a nursing aide will need assistance moving a patient is an example of a feedback control. True or false?

7. Internal controls are based within the employee’s team or department, while external controls come from the larger organization. True or false?

8. The process of performance modeling makes the management process responsibilities of controlling and leading compatible. True or false?

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208 KEEPING THINGS IN CHECK

9. Which of the following is NOT a way to combine the control and organizing responsibilities of management? (a) Control via policies and procedures (b) Control by selection and training (c) Control via job design (d) Control via performance appraisal

10. Ratios are used to control financial aspects of an organization’s perfor- mance. An area that is appropriate for financial control is (a) leverage. (b) profitability. (c) liquidity. (d) all of the above.

11. An example of an effective purchasing control technique is (a) buying on margin, from alternative sources. (b) buying in volume, through a centralized purchasing department. (c) keeping inventory quantities limited, to avoid overstocking. (d) exchanging goods for services, with a focus on reciprocity.

12. The principle of economic order quantity involves ordering a set amount of an item any time inventory drops below a set point. True or false?

13. All of the following are possible quality-control measures except (a) a manager delivering a detailed performance appraisal to an

employee. (b) a manager randomly evaluating an employee’s paperwork. (c) a worker logging how many patients he or she worked with during a

shift. (d) a manager observing an employee’s work and providing immediate

feedback. 14. MBO objectives require a formal agreement between supervisor and

subordinate concerning schedules for completing tasks and tools for developing further skills. True or false?

15. The first step in establishing a successful MBO objective is to (a) identify obstacles for completing tasks, as well as available supporting

resources. (b) list key performance objectives for a time period with target dates for

accomplishing them. (c) discuss the process of self-appraisal with an emphasis on its implica-

tions for future performance. (d) None of the above

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REVIEW QUESTIONS 209

16. While an improvement objective focuses on bettering one’s performance in some specific way, a personal development object focuses on expand- ing job knowledge or skills. True or false?

17. Which of the following objectives meets all four critical criteria for an effective MBO objective? (a) To treat patients with respect and honesty (b) To meet with staff and listen to their concerns (c) To facilitate an off-site communication team planning to meet every

quarter (d) To be on time for meetings

Review Questions

1. The first step of the control process is to establish objectives and stan- dards. What are two types of standards?

2. Which type of performance standard focuses on the amount of work expended to complete a task?

3. In Step 3 of the control process, you compare results with objectives and standards. What are the three types of comparisons?

4. What type of control seeks to eliminate later problems by asking what needs to be planned before beginning?

5. A nurse manager notices that an RN is having difficulty administering a shot; the manager assists the RN, retraining him on procedure. What type of control is happening?

6. Rather than focusing on inputs and activities, feedback controls focus on what?

7. What types of controls are related to a manager’s leading responsibilities? 8. Progressive discipline bases reprimands on the severity and frequency of

the misbehavior. What is the overarching goal of progressive discipline? 9. When capable people are hired and given the ongoing training needed to

perform their jobs at high levels of accomplishment, what specific type of control is being utilized?

10. Control is an essential part of operations management. What three work- related aspects fall under the scope of operations management?

11. Team leaders and department managers rarely have the ability to exercise high levels of purchasing control. What can managers at this level do to provide some level of purchasing control?

12. Every month, LPNs at a nursing care facility audit the contents of every resident’s storage closet and note the type and quantity of medical sup- plies. What type of control are the LPNs exercising?

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210 KEEPING THINGS IN CHECK

13. Just-in-time inventory control systems try to reduce costs and improve workflow by scheduling items to arrive just in time to be used. What are some benefits of just-in-time systems?

14. In order for an MBO objective to be effective, it must have what four critical characteristics?

15. Although management by objectives takes considerable work on the part of manager and employee, it has several advantages. What is an advan- tage of utilizing MBO?

16. In the MBO process, after an employee prepares a self-appraisal, what happens next?

Applying This Chapter

1. The manager of a small medical clinic adds several items to a checklist of exam-room preparation responsibilities after finding his staff inconsis- tently preparing rooms. What step of the control process is the manager enacting?

2. In an effort to establish controls, a new manager decides to spend one afternoon each week double-checking every chart his nursing care staff has completed for the previous week. In what ways is this attempt at control ineffective?

3. After each dialysis session, patients at Mayhaven Kidney Health Center are given evaluation postcards with five multiple-choice questions that they’re asked to complete and mail in. The postcards are an example of what type of potentially effective control?

4. The manager of a critical care unit has begun noticing inconsistencies in the charting methods of her nursing staff. What would be examples of an internal and an external control the manager could set up to improve charting?

5. Where in the day-to-day operations of a 100-bed nursing care facility might an economic order quantity system of inventory control be appropriate? Where would a just-in-time inventory control system be appropriate?

6. The medical billing center you manage institutes a new MBO-based performance objective that “customer service representatives will establish person-to-person contact with any caller within 30 seconds.” Does this objective meet all four requirements for MBO objectives?

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YOU TRY IT

Comparison as Part of the Control Process Comparing measured performance with objectives and standards (Step 3 in the control process) is critical to determining whether you need to take any corrective action. Evaluate your performance on an important re- cent exam you took, report you wrote, or presentation you gave. Consider the three types of comparisons as you evaluate your performance. From a historical com- parison standpoint, how does your performance compare with your previous performances on similar exams, reports, or presentations? From a relative comparison standpoint, how does your performance compare with performances of other students in your class? From an engineered comparison standpoint, how does your performance compare with standards established by your instructor or professor?

Feedforward Controls Apply feedforward controls the next time you have a challenging, upcoming event in your life. For example, taking a final exam, interviewing for a job, purchasing a car, or planning a wedding are all major events for which you can utilize feedforward controls before the actual event happens. Set the stage for high performance by asking yourself, What specifically is my goal? Are there any rules, regulations, or directions I need to know about ahead of time? What resources (financial, time, people) are available to me to help me meet by goal?

Job Descriptions as Control Tool Job descriptions can be effective managerial control tools (control by selection and training, as well as con- trol by job design and work structures). However, for job descriptions to be effective, they must be valid, cur- rent, and at least 80% reflective of the major duties of the position. Develop your ability to evaluate job de- scriptions by reviewing the job description for a job you have currently or had recently. You can locate job de- scriptions through your human resource department, online, and within company handbooks. To evaluate a job description, compile a top-10 list of the tasks you do on a regular basis, then assign the percentage of

time that you spend on each task in a typical workday. Next, assign to each task a weighted value between 1 and 100, according to its relative importance. Multiple the percentage of the time and the weighted value to determine the relative importance of each given task. Review the results of your relative importance list against the official job description to determine whether the description and the actualities of the job mesh.

Clear Standards, Improved Quality Control An important part of a successful, ongoing quality-control initiative is to have clear standards in place, against which you can compare your performance. Take your- self through a quality-control assessment by comparing your performance level as a postsecondary student with the performance standards for your state or institu- tion of higher education. Educational standards for your school are likely posted on the school’s Web site or within a student handbook. If you can’t find standards specifically for your school, visit the Web site http://Ed- Standards.org (http://edstandards.org/Standards.html), which offers a state-by-state overview of educational standards for students at all educational levels. Print out the standards that best relate to you and your educa- tion. How are you doing on each item related to your course of study? Rate yourself in each category of as- sessment, using a 0 to 100% score. Average your vari- ous scores to arrive at an overall level of quality score.

MBO-approved Goals? Take a moment and write down your goal or goals for the course you’re currently taking. What sort of grade do you want to achieve? What do you hope to learn through this course? Are there any skills you plan to learn, develop, or refine? What about the people you’re interacting with within the course—do you have any goals for these interactions? Write down your goal or goals and then consider the four critical characteristics for effective MBO objectives (section 7.5.3). Are your goals specific, time-defined, challenging, and measur- able? Revise your goals so each is specific, time- defined, challenging, and measurable.

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