Management Chapter 11

Managing Organisational Performance

Controlling in the Management Process

• Controlling is the process of measuring performance and taking corrective action as needed
• It is one of the four management functions, along with planning, organising, and leading
• The control process involves four steps:
  • Step 1: Setting objectives and standards
  • Step 2: Measuring actual performance
  • Step 3: Comparing results with objectives and standards
  • Step 4: Taking corrective action as needed

The Control Process

• Step 1: Setting objectives and standards
  • Setting objectives provides a standard against which results are compared
  • Metrics are measurement standards
  • Output standards measure results in terms of quantity, quality, cost, or time
  • Input standards measure the work efforts that go into the performance task
• Step 2: Measuring actual performance
  • Measurement is impossible without accurate and timely measurement
  • Document outcomes
• Step 3: Comparing results with objectives and standards
  • Reveals whether the organisation is performing below, at, or above plan
  • Control equation: Need for action = Desired performance - Actual performance
• Step 4: Taking corrective action as needed
  • Addresses any gap between desired and actual performance
  • Management by exception focuses attention on situations that show the greatest need

Types of Controls

• Feedforward controls: used before work begins to prevent problems
• Concurrent controls: used while work takes place to solve problems as they arise
• Feedback controls: used after work is complete to inform future work
• Internal controls: based on self-control by people in the workplace
  • Make tasks clear, establish purpose, and provide appropriate resources
• External controls: based on methods that structure situations to ensure outcomes
  • Bureaucratic control: involves policies, procedures, budgets, and supervision
  • Clan control: uses the organisation's culture to influence behaviour
  • Market control: the influence of market competition on organisational decisions

Managing by Objectives

• Integrates planning and controlling by team leaders and team members
• Involves setting performance objectives, planning how to achieve them, and reviewing performance outcomes
• How to write a good performance objective:
  • Clarify the target
  • Make it measurable
  • Define the timetable
  • Avoid the impossible
  • Add challenge
  • Don't overcomplicate

Control Tools and Techniques

• Project management controls: used to manage projects
  • Work breakdown structure: breaks large tasks into smaller ones and assigns them specific deliverables
  • Gantt charts: a visual display of the scheduling of tasks
  • CPM/PERT: breaks a project into a set of small subactivities and uses a network diagram to show timelines
• Operations management and control: focuses on using people, technology, and other resources to the best advantage
  • Quality control: uses total quality management (TQM), continuous improvement, and Six Sigma
  • Inventory control: uses just-in-time scheduling and economic order quantities
  • Purchasing control: uses centralised purchasing and supplier-purchaser partnerships
• Breakeven analysis: used to make informed what-if decisions
  • Breakeven point: the point at which revenues equal costs
  • Breakeven equation: Breakeven point = Fixed costs ÷ (Revenue - Variable costs)
• Financial control: uses financial ratios to measure performance
  • Liquidity measures: current ratio and quick ratio
  • Leverage measures: debt ratio
  • Asset management measures: asset turnover and inventory turnover
  • Profitability measures: net margin, return on assets (ROA), and return on equity (ROE)
• Balanced scorecard: measures overall organisational performance in four areas: financial, customers, internal processes, and innovation