Chapter 7: Controlling PDF

CHAPTER SEVEN THE CONTROLLIGN FUNCTION MEANING  Controlling is the process through which managers assure that actual activities conform to planned activities.  Controlling is the process of regulating organizational activities so that actual performance conf...

CHAPTER SEVEN THE CONTROLLIGN FUNCTION MEANING  Controlling is the process through which managers assure that actual activities conform to planned activities.  Controlling is the process of regulating organizational activities so that actual performance conforms to expected organizational standards and goals.  It is checking current performance against predetermined standards contained in the plans. IMPORTANCE OF CONTROLLING All the good planning efforts and brilliant ideas in the world do little good if a firm has no system of managing control. Control, therefore, is an essential part of effective organizational management. Specifically, control helps an organization adapt to changing conditions, limit magnification of errors and provide the means to monitor performance. Adapting to changing conditions: in today’s dynamic and unpredictable business environment, control plays a crucial role than ever. A properly designed control system allows managers to effectively anticipate, monitor, and respond to often constantly changing conditions.  Limiting the magnification of errors: generally, a small error or mistake does not adversely affect organizational operation. However, a small error/mistake left uncorrected (perhaps one undetected as a result of a lack of control) may be magnified with the progress of time, eventually harming the whole organization. Another purpose of controlling is to determine whether people and the various parts of an organization are on target, achieving the progress toward their objectives that they planned to achieve. Planning chooses goals and maps out the necessary strategy and tactics. Controlling attempts to prevent failure (and to promote success) by providing the means to monitor the performances of individuals, departments, divisions, and the entire organization. The controlling process is closely associated with the other three functions of management: planning, organizing and leading. It builds most directly on the planning function by providing the means for monitoring and making adjustment in performance so that plan can be realized. Still, controlling also supports the organizing and leading functions by helping ensure those resources are channeled toward organizational objectives. A combination of well-planned objectives, strong organization, capable direction and motivation has little probability of success unless there exists an adequate system of control. Planning, organizing, staffing and directing must be monitored to maintain their effectiveness and efficiency. THE CONTROLLING PROCESS Although control systems must be tailored to specific situations, such systems generally follow the same basic process. The controlling process has five major steps. 1. Determine Areas to Control The first major step in the control process is determining the major areas to control, i.e. identify critical control points. Critical control points include all the areas of an CHAPTER 7: CONTROLLING 1 organization's operations that directly affect the success of its key operations, areas where failures can not be tolerated, and costs in time and money are greatest. Managers must make choices because it is expensive and virtually impossible to control every aspect of an organization’s activities. In addition, employees often resent having their every move controlled. Managers usually base their major controls on the organizational goals and objectives developed during the planning process. 2. Establishing Standards Standards are units of measurements established by management to serve as benchmarks for comparing performance levels. They spell out specific criteria for evaluating performance and related employee behaviors. The exact nature of the standards to be used depends on what is being monitored. Standards, if possible, must be  Specific and quantitative as much as possible.  Flexible to adopt the changes that may occur over the future.  Challenging and should aim for improvement over past performance. Generally, standards serve three major purposes related to employee behavior. For one thing, standards enable employees to understand what is expected and how their work will be evaluated. This helps employees do an effective job. For another, standards provide a basis for detecting job difficulties related to personal limitations of organization members. Such limitation can be based on a lack of ability, training, or experience or on any other job-related deficiency that prevents an individual from performing properly on the job. Timely identification of deficiencies makes it possible to take corrective action before the difficulties become serious and possibly irresolvable. Finally, standards help reduce the potential negative effects of goal incongruence. Goal incongruence is a condition in which there are major incompatibilities between goals of an organization member and those of the organization. Such incompatibilities can occur for a variety of reasons, such as lack of support for organizational objectives (e.g. an employee views the job as temporary and attempts to do the minimum), and often result in behaviors that are incompatible with reaching organizational goals. One common manifestation of goal incongruence is employee theft, which includes wasting an organization's resources, as well as taking equipment, materials and money. There are three types of standards: performance standards, corollary standards and standards of conduct.  Performance standards deal with quality, quantity, cost and time.  Corollary standards support a given level of performance. These include minimum personnel requirements and adequate physical resources, such as when a company knows it will need at least five hundred workers and well-equipped factory to produce a certain number of terminals.  Standards of conduct are moral and ethical criteria that shape the behavioral climate of the work place. They originate from law, custom and religious beliefs. Examples of standards: Producing 800,000 units per year, increasing market share by 20%, cutting costs by 15%, answering all customer complaints within 24 hours. 3. Measuring Actual Performance CHAPTER 7: CONTROLLING 2 Once standards are determined, the next step is measuring performance. For a given standard, a manager must decide both how to measure actual performance and how often to do so. 4. Comparing Performance against Standards This is a step where comparison is made between the “what is” and the “what should be.” Managers often base their comparisons on information provided in reports (oral and written) that summarize planned versus actual results, and by working around work areas and observing conditions, a practice sometimes referred to as Management by Wondering Around (MBWA). The purpose of comparing actual performance against intended performance is, of course, to determine if corrective action is needed. Consequently, the comparison result may show that the actual performance exceeds (positive deviation), meets (zero deviation), or falls below (negative deviation) expectations (standards). Accordingly, if performance fulfills expectations (meets standards), no control problem exists. However, if performance exceeds or fails to meet expectations, further investigation is required to determine the cause. Performance that exceeds expectations may mean either superior talent or inappropriately set standards. Performance that fails to meet expectation may likely mean inappropriately set standards, poor talent or improper use of resources. The key question in both cases will be, “How much variation from standards is acceptable before action is taken?” The answer to this question will lead to the development of ranges defining upper and lower limits. And performance outside of acceptable range servers as a red flag calling for taking the necessary corrective action. The managerial principle of exception states that control is enhanced by concentrating on exceptions, or significant deviations from the expected result or standard. Therefore, in comparing performance with standards managers need to direct attention to the exception, and by doing so, managers can save time and effort. 5. Taking Corrective Action (on time) The corrective action to be taken depends up on the type of deviation that exists. When performance exactly meets (deviation of zero) or exceeds (positive deviation) the standards set, usually no corrective action is necessary. However, managers do need to consider recognizing the positive performance. The type of recognition given can vary from a verbal “well done” for a routine achievement to more substantial rewards, such as bonuses, training opportunities, or pay raises, for major achievements or consistently good work. Yet, favorable deviations should be examined to understand such success. When standards are not meet, managers must carefully assess the reason why and take corrective action. During this evaluation, managers often personally check the standards and the related performance measures to determine whether these are still realistic. Sometimes, managers may conclude that the standards are, in fact, inappropriate-usually because of changing conditions-and that corrective action to meet standards is therefore not desirable. More often, though, corrective actions are needed to reach standards. The standards may have been based on historical data which may be inappropriate to current conditions. In such instances, the past is a poor basis on which to predict the future. Similarly, the use of comparative standards may prove to be problematic since no two organizations are alike. CHAPTER 7: CONTROLLING 3 In taking corrective actions, managers must carefully avoid two types of errors: taking corrective action when no action is warranted and failing to take corrective action when it is clearly needed. TYPES OF CONTROLLING In addition to determining the areas they want to control, managers need to consider the types of controls that they wish to use. Based on the time period in which control is applied in relation to the operation being performed, or the stage of productive cycle in which controlling is carried out, there are three basic types of controls: preventive, concurrent, and feedback. Thus, an organization’s performance can be monitored and controlled at three points: before, during, or after an activity is completed. 1. Preventive/Steering/ Preliminary / Input Control Preventive control focuses on the regulation of inputs to ensure that they meet the standards necessary for the transformation process. It attempts to monitor the quality and/or quantity of resources (financial, physical, human and information) before they become part of the system. Preventive control is future oriented and takes place before the operation begins. It focuses on prevention in order to preclude later serious difficulties in the production process - its aim is to prevent problems before they arise. Nevertheless, since preventive control can’t cover every possible contingency, other type of controls may also be needed. E.g. Entrance exams for colleges and universities, policies, rules, procedures, proper selection and training of employees, inspecting raw materials, the implementation of induction and orientation programs-save trial and error cost, frustration of employee. Preventive control comes from an old saying “A gram of prevention is worth a kg of cure.” 2. Concurrent/Screening/ Yes-No/Checking Control Concurrent control involves the regulation of ongoing activities that are part of the transformational process to ensure that they conform to organizational standards. It is designed to detect and anticipate deviations from standards at various points throughout the processes, i.e. the controlling is carried out during the actual transformation process. The emphasis here is on identifying difficulties in the productive process that could result in faulty outputs. Because concurrent controls involve the monitoring of ongoing activities, they are the only controls that can cope with contingencies (unexpected events) that cannot be anticipated. When contingencies arise involving activities in a transformation process, a yes/no decision is required. That is, decision must be made whether to continue as before or follow an alternative course, or take corrective action, or stop work altogether. In this way, concurrent controls allow adjustments to be made while work is being done. E.g. On the job training, on the spot observation, exams, tests, quizzes. 3. Feedback/Post-Action/ Output Control As the name indicates post action control focuses on the end results of the process. It is regulation exercised after the product (goods or services) has been completed in order to ensure that the final output meets organizational goals and standards. The information derived is not used for corrective action on a project because it has been completed. The feedback control provides information for a manager to examine and apply to future activities that are similar to the present one. That is why it is called “historical results CHAPTER 7: CONTROLLING 4  guide future actions.” The purpose of feedback control is to help prevent mistakes in the future and also it can be used as a base for reward; and in cases where other (preliminary & concurrent) controls are too costly. E.g. Performance evaluation, financial statement analysis, final exams Fig 6.2 Major Control Types by Timing Controls Controls Control INPUTS TRANSFORMATION OUTPUTS Controls Controls Controls Preventive Control Concurrent Feedback Control Cybernetic and Non-cybernetic Controls A basic control process can be either cybernetic or non-cybernetic, depending on the degree to which human discretion is part of the system. A cybernetic control system is a self-regulating control system that, once it is put into operation, can automatically monitor the situation and take corrective action when necessary. E.g. computerized inventory system, a heating system controlled by a thermostat A non-cybernetic control system is a control system that relies on human discretion as a basic part of its process. CHARACTERISTICS OF AN EFFECTIVE CONTROL SYSTEM Controls may have many different characteristics, but some of the most important are: Future–Oriented To be effective, control systems need to help regulate future events, rather than fix blame for past events. A well designed control system focuses on letting managers know how work is progressing toward unit objectives, pinpointing unforeseen opportunities that might be developed – all aids to future action Multidimensional In most cases, control systems need to be multidimensional in order to capture the major relevant performance factors, such as, quality, quantity, overhead, etc. Economically Realistic/ Cost Effective The cost of implementing a control system should be less, or at most, equal to the benefits derived from the control system. The benefits received from controls should off-set their expenses. Accurate Since control systems provide the basis for future actions, accuracy is vital. Control data that are inaccurate may be worse than no control at all, since managers may make poor CHAPTER 7: CONTROLLING 5 decisions on the basis of faulty data they believe to be accurate. An inaccurate data from a control system can cause the organization to take action that will either fail to correct a problem or create a problem when none existent. Evaluating the accuracy of the information they receive is one of the most important control tasks that managers face. Acceptable to Organization Members Control systems operate best when they are accepted by the organization members who are affected by them. Otherwise, members may take actions to override and undermine controls; i.e. controls will not work unless people want them to. Too many, arbitrary, too few and too rigid controls often cause the satisfaction and motivation of employees to decline. Timely Control systems are designed to provide data on the state of a given production cycle or process as of a specific time. In order for managers and employees to respond promptly to irregularities, control systems must provide relevant information soon enough to allow corrective action before there are serious repercussions or consequences. Reliability and Validity Controls not only must be dependable (reliable), but also must measure what they intend to measure (must be valid). When controls can’t be relied on and are invalid, they are unlikely to be trusted and can lead to very bad consequences. Monitor able Another desirable characteristic of control system is that they can be monitored to ensure that they are performing as expected. One way of checking a control system is to deliberately insert an imperfection, such as a defective part, and then observe how long it takes the system to detect and report it to the correct individual. Organizationally Realistic The control system has to be compatible with organizational realities. All standards for performance must be realistic. Status differences between individuals have to be recognized. Individuals have to be able to see a relationship between performance levels they are asked to achieve and rewards that will follow. Flexible Just as organizations must be flexible to respond rapidly to changing environments, control systems need to be flexible enough to meet new or revised requirements. Accordingly, they should be designed so that they can be changed quickly to measure and report new information and track new endeavors. Focus on Critical Control Points Critical control points include all the areas of an organization’s operations that directly affect the success of its key operations. The focus should be on those areas where failures cannot be tolerated and where that costs in time and money are the greatest. Easy to Understand Complexity often means lack of understanding. The simpler the control, the easier it will be to understand and apply. Controls often become complex because more than one person is responsible for creating, implementing or interpreting them. Emphasis on Exception A good system of control should work on the exception principle, so that only important deviations are brought to the attention of management. In other words management does CHAPTER 7: CONTROLLING 6 not have to bother with activities that are running smoothly. This will ensure that managerial attention is directed towards error and not towards conformity. This would eliminate unnecessary and uneconomic supervision, marginally beneficial reporting and waste of managerial time. Over control versus Under control Since excessive amount of control can make the occurrence of dysfunctional aspects of control systems more likely, managers need to avoid over control. Overcontrol is the limiting of individual job autonomy to such a point that it seriously inhibits effective job performance. At the same time, managers need to avoid going too far in the other direction, which results in a situation of undercontrol. Undercontrol is the granting of autonomy to an employee to such a point that the organization loses its ability to direct the individual's efforts toward achieving organizational goals. Determining the appropriate amount of control that should exist in organizations is a significant management decision. With the appropriate amount of control, a manager can be reasonably certain that no major unpleasant surprises will occur and that employees will achieve organizational goals. CHAPTER 7: CONTROLLING 7