control system in management

7/31/2019 Control system in Management

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Control is checking current performance against predetermined standards contained inthe plans, with a view to ensuring adequate progress and satisfactory performance.

A control system is necessary in any organization in which the activities of differentdivisions, departments, sections, and so on need to be coordinated and controlled. Mostcontrol systems are past-action-oriented and consequently are inefficient or fail. Forexample, there is little an employee can do today to correct the results of actionscompleted two weeks ago.Management control systems are basically the methods of collecting information that

are used to guide and direct the behavior of staff members and management in order toachieve a company's goals. A management control system may use a variety of

techniques to evaluate various areas to improve performance and productivity.

A changing environment requires changes in the management control system

Clearly communicate the organizations goals.

Ensure that every manager and employee understands the specific actionsrequired of him/her to achieve organizational goals.

Communicate the results of actions across the organization.

Ensure that the management control system adjusts to changes in theenvironment.

Control system is necessary in every organization to ensure that everything is going

properly. Every manager, therefore, should have an effective and adequate control

system to assist him in making sure that events conform to plans. However, control

does not work automatically, but it requires certain design while the basic principles


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involved in designing a control system in an organization requires some specific design.

In this tailoring of control system, there are certain requirements which should be kept in

mind:

1. Reflecting organizational needs:

All control systems and techniques should reflect the job they are to perform.There may be several control techniques which have general applicability, such

as budgeting, costing etc. However, it should not be assumed that these may be

utilized in all situations. The managers should choose an appropriate tool for

control which helps him in controlling actions according to plans.

2. Promptness in reporting deviations:

The success of a thermostat lies in the fact that it points the deviation promptly

and takes corrective actions immediately. Similarly, an ideal control system

detects deviations promptly and informs the manager concerned to take timely

actions. This is done through designing good appraisal and information system.

3. Focus on future:

Control should be forward looking. Though many of the controls are

instantaneous, they must focus attention as to how future actions can be

conformed to plans. In fact the control system should be such that it provides aid

in planning process. This is done in 2 ways; it draws situations where new

planning is needed, and it provides some of the data upon which plans can be

based.

4. Pointing up exceptions at critical points:

Control should point exception at critical points and suggest whether action is to

be taken for deviation or not. Some deviations in the organizations have no

impact while others, thought very little in quantity, may have great significance.

The control on exception requires that a manager should take corrective action

where there is exceptional deviation.

5. Objective:

The control should be objective, definite and determinable in a clear and positive

way. The standards of measurement should be quantified as far as possible. If

they are not quantifiable, such as, training effectiveness, etc., they must be

determinable and verifiable.


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6. Economical:

Control should be economical and must be worth its costs. Economy is related,

since the benefits vary with the importance of the activity, the size of the

operation, the expense that might be incurred in the absence of control and the

contribution the control system can make. If tailored to the job and the size of the

enterprise, control is economical.

7. Simple:

Control system must be simple and understandable so that all managers can use

it effectively. Control techniques which are complicated such as complex

mathematical formula, charts, graphs, advanced statistical methods and other

techniques failed to communicate the meaning of there control data to he

managers who use them.

8. Reflecting Organization Pattern:

The control system should reflect organizational pattern by focusing attentions on

positions in organization structure through which deviations are corrected.

Organization structure, a principle vehicle for coordinating the work of people, is

also a major means of maintaining control. Thus, in every area of control, it is not

enough to know that things are doing wrong unless it is known where in the

organization structure the deviations are occurring. This enables managers to fix

up responsibility and to take corrective actions.

9. Avoid obsolescence:

A good control system should be so arrange that it will avoid all obsolescence as

and when they take place. All such majors and arrangements will die down as

soon as they become useless and no more beneficial to organization.

10. Seek rapid feedback:

Rapid feedback of a control system ensures supply of information rapidly least it

should become out of date or the system becomes out of control.

11. Seek employ commitment:

Control system should be so devised to seek understanding, promote

participation and develop a supportive employee attitude. The design of control

system should be such that it aims at motivating people by fulfilling their needs.


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12. Indicate corrective action:

A good control system must show the way to corrective action. An adequate

system should disclose where failure is occurring, who is responsible for them,

and what should be done about them. The action to be taken by manager may

be either:

Review of plans and goals and changes therein on the basis of this review,

Or

Change in the assignment of tasks, or

Change in the existing techniques for direction and control, or

Change in the organization structure, or

Making provisions for new facilities.

Management can implement controls before an activity commences, while the activity isgoing on, or after the activity has been completed. The three respective types of controlbased on timing are feed forward, concurrent, and feedback.

a. Feed forward Control System:

Feed forward control focuses on the regulation of inputs (human, material, andfinancial resources that flow into the organization) to ensure that they meet the

standards necessary for the transformation process.

Feed forward controls are desirable because they allow management to preventproblems rather than having to cure them later. Unfortunately, these controlsrequire timely and accurate information that is often difficult to develop. Feedforward control also is sometimes called preliminary control, pre-control,preventive control, or steering control.

However, some authors use term "steering control" as separate types of control.This types of controls are designed to detect deviation some standard or goal toallow correction to be made before a particular sequence of actions is completed.

Feedforward Control

Feedforward control focuses on the regulation of inputs (human, material, andfinancial resources that flow into the organization) to ensure that they meet thestandards necessary for the transformation process.

Feedforward controls are desirable because they allow management to preventproblems rather than having to cure them later. Unfortunately, these controls


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require timely and accurate information that is often difficult to develop.Feedforward control also is sometimes called preliminary control, pre-control,preventive control, or steering control.

However, some authors use term "steering control" as separate types of control.

These types of controls are designed to detect deviation some standard or goalto allow correction to be made before a particular sequence of actions iscompleted.

b. Concurrent Control System:

Concurrent control takes place while an activity is in progress. It involves theregulation of ongoing activities that are part of transformation process to ensurethat they conform to organizational standards. Concurrent control is designed toensure that employee work activities produce the correct results.Since concurrent control involves regulating ongoing tasks, it requires a through

understanding of the specific tasks involved and their relationship to the desiredand product.Concurrent control sometimes is called screening or yes-no control, because itoften involves checkpoints at which determinations are made about whether tocontinue progress, take corrective action, or stop work altogether on products orservices.Concurrent control takes place while an activity is in progress. It involves theregulation of ongoing activities that are part of transformation process to ensurethat they conform to organizational standards. Concurrent control is designed toensure that employee work activities produce the correct results.Since concurrent control involves regulating ongoing tasks, it requires a throughunderstanding of the specific tasks involved and their relationship to the desiredand product.Concurrent control sometimes is called screening or yes-no control, because itoften involves checkpoints at which determinations are made about whether tocontinue progress, take corrective action, or stop work altogether on products orservices.

c. Feedback Control System:

This type of control focuses on the outputs of the organization aftertransformation is complete. Sometimes called post action or output control, fulfilsa number of important functions. For one thing, it often is used when feedforwardand concurrent controls are not feasible or are too costly.Sometimes, feedback is the only viable type of control available. Moreover,feedback has two advantages over feedforward and concurrent control. First,feedback provides managers with meaningful information on how effective itsplanning effort was. If feedback indicates little variance between standard andactual performance, this is evidence that planning was generally on target.If the deviation is great, a manager can use this information when formulating


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new plans to make them more effective. Second, feedback control can enhanceemployees motivation.The major drawback of this type of control is that, the time the manager has theinformation and if there is significant problem the damage is already done. But formany activities, feedback control fulfils number important functions. This type of

control focuses on the outputs of the organization after transformation iscomplete. Sometimes called post action or output control, fulfils a number ofimportant functions. For one thing, it often is used when feedforward andconcurrent controls are not feasible or are too costly.Sometimes, feedback is the only viable type of control available. Moreover,feedback has two advantages over feedforward and concurrent control. First,feedback provides managers with meaningful information on how effective itsplanning effort was. If feedback indicates little variance between standard andactual performance, this is evidence that planning was generally on target.If the deviation is great, a manager can use this information when formulatingnew plans to make them more effective. Second, feedback control can enhance

employees motivation.The major drawback of this type of control is that, the time the manager has theinformation and if there is significant problem the damage is already done. But formany activities, feedback control fulfils a number important functions.

The control process involves carefully collecting information about a system, process,person, or group of people in order to make necessary decisions about each. Managersset up control systems that consist of four key steps:

1. Establish standards to measure performance:Within an organization's overall strategic plan, managers define goals for organizationaldepartments in specific, operational terms that include standards of performance tocompare with organizational activities. Establishing performance standards are whenobjectives are set during the planning process. Its standard is a guideline established asthe basis for measurement. It is a precise, explicit statement of expected results from aproduct, service, machine, individual, or organizational unit. It is usually expressednumerically and is set for quality, quantity, and time (Plunkett, et al.). There are severalsub-controls in this step: time controls, material controls, equipment controls, costcontrols, and budget controls, financial controls, and operations controls (like total

quality management).Time controls: Itrelate to deadlines and time constraints.Material controls relate to inventory and material-yield controls.Equipment controls are built into the machinery, imposed on the operator toprotect the equipment or the process. Cost controls help ensure cost standardsare met. Employee performance controls focus on actions and behaviors ofindividuals and groups of employees. Examples include absences, tardiness,accidents, quality and quantity of work.


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Budgets control cost or expense related standards. They identify quantity ofmaterials used and units to be produced.Financial controls: It facilitate achieving the organization's profit motive. Onemethod of financial controls is budgets. Budgets allocate resources to importantactivities and provide supervisors with quantitative standards against which to

compare resource consumption. They become control tools by pointing outdeviations between the standard and actual consumption.Operations control methods assess how efficiently and effectively anorganization's transformation processes create goods and services. Methods oftransformation controls include Total Quality Management (TQM) statisticalprocess control and the inventory management control. Statistical processcontrol is the use of statistical methods and procedures to determine whetherproduction operations are being performed correctly, to detect any deviations,and to find and eliminate their causes. A control displays the results ofmeasurements over time and provides a visual means of determining whether aspecific process is staying within predefined limits. As long as the process

variables fall within the acceptable range, the system is in control. Measurementsoutside the limits are unacceptable or out of control. Improvements in qualityeliminate common causes of variation by adjusting the system or redesigning thesystem.

2.Measure actual performance:Most organizations prepare formal reports of performance measurements thatmanagers review regularly. These measurements should be related to the standards setin the first step of the control process. For example, if sales growth is a target, theorganization should have a means of gathering and reporting sales data.

3.Compare performance with the standards:This step compares actual activities to performance standards. When managers readcomputer reports or walk through their plants, they identify whether actual performancemeets, exceeds, or falls short of standards. Typically, performance reports simplify suchcomparison by placing the performance standards for the reporting period alongside theactual performance for the same period and by computing the variancethat is, thedifference between each actual amount and the associated standard.

4.Take corrective actions:Making changes as the activity is in progress is a form of corrective action. The realcorrection occurs when warnings raised by the forecasters or predictors are confirmed.The corrective action can be changing objectives, standards, plans, and the like, but itcan also be penalizing employees when the objectives, standards, and plans aredetermined to be appropriate and employees have not met them.However, there usually are several alternative corrective actions that can be taken andoften more than one will prove effective. The planning control system is not effective


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until corrective action is taken and this action begins a new planning-control cycle.

5.Feedback:Performance information that flows back to managers is known as feedback. The objectof any control system is to provide the required information through the process of

feedback so that future deviations can be corrected. For this purpose, the informationgathered through observation, reporting or inspection on going operations, has to beanalyzed and reviewed. The more prompt such review and feedback, the effective willbe the controlling, Sometimes, a forward looking control can even predict the probabledeviations well in advance and therefore preventive measure can be taken withoutwaiting for the actual negative event to occur.

Some of the tools and mechanisms devised by managers and others, over the years to

control specific aspects of activity and performance of an enterprise or work units, anddiscussed here in some brief. These are:1. Direct supervision and observation.2. Budgetery Control.3. Financial Statement.4. Break-Even analysis.5. Management Information System.6. Management Audit.7. Control By Return.8. Self Control.

1. Direct supervision and observation:Much of the control in an organization or work unit is attempted through directsupervision and observation by managers and supervisors. Through personnel - on thespot overseeing and observation, managers examine whether the members of the workunit performs as per plans, schedule and work norms and whether they abide by thepolicies, procedures and rules. The regular presence of the manager on the work spotand his keen involvement with the progress of the work have an important controllinginfluence over the performance and behavior of subordinates. Personal supervision andobservation is likely to inject a measure of work discipline among the subordinates apartfrom providing an opportunity to the supervisor to understand the dynamics and

problems in a work spot, and to remove the hurdles to the smooth work flow, to theextent he can.

2. Budgetery Control:The concept of budgets was discussed as one of the techniques of planning. Here weshall look at budgets as mean of control. Budgets are useful as tool of control to theextent that they permit, monitoring, measurement, evaluation, regulation and correctionof an enterprise activity along desired pre-determined directions.


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The essentials elements of budgetery control are as follows:a. Translation of enterprise goals into sub goals of various operating units which arefurther operationalized as standards of performance, and targets of achievement (sales,market share, production, profit etc) over a short period of time say, six months or oneyear.

b. Determination of volume of recourses required to achieve the operational goals-funds, material, labour, equipment, time and so forth.c. Accord of general sanction for the acquisition and allocation of budgetry resources tovarious activity units over the budgetry periods.d. Devolution of necessory authority and fixing up the accountability for the plannedperformance standards and targets, among the various executives positions.e. Establishment of appropriate system of monitoring, measuring and evaluating thepace and quality of operations on a continuous basis. This includes initiation of requiredmeasures to ensure that actual performance is in conformity with budgetedperformance. Deviations and variances are analyzed and remedial measures are takento set them right.

3. Financial Statements:The annual financial statements of enterprises -a Income statement and balance sheetare powerful tools of control. They optimize the financial dimension of enterpriseoperations at periodic intervals of time. The Income statement summarize the relationsbetween revenue and expenses of the enterprise operations during a specified periodwith the balance sheet is a position statement of the financial status of the enterprise atthe end of the specified period.Financial statements permit management to undertake the exercise of ratio analysis.Ratio analysis could be a handy tool to understand key aspects of enterprise health,profitability, liquidity, solvency and so on - at particular point of time over a period oftime. Ratio analysis can also be used for inter-firm comparison to assess the position ofan enterprise in relation to other comparable enterprises in the industry.

4. Break-Even analysis:Also called cost volume profit analysis, break-even analysis is a control to size up thebehavior of costs, revenues and profits at various levels of activity. It enablesmanagement to understand the amount of profit that can be expected at variousvolumes of operations, the appropriate volume of operations needed to obtain a targetlevel of profit, and the impact level of changes in product prices and costs on thevolume of operations and profitability.Simple break-even graphs can be prepared on a rough basis by using the available orprojected data of fixed and variable costs and sales volumes of the enterprise to arriveat the break even point. The point at which the total revenues is equal to total cost. It isa profit no loss point. More complex break even analysis can be undertaken with thehelp of computers to project how small changes in unit prices, target profits and levelsof activity influence one another.Break-even analysis is adopted asa tool of profit planning. It is thus a technique of bothplanning and control.


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5. Management Information System:Management information system is defined as an assemblage of facilities and personalfor collecting, processing, storing, retrieving and transmitting information that is requiredby one or more managers in the performance of their functions. Mangers at top, middle

and supervisory levels need information on a continuous or period basis on severalaspect of internal and external conditions for purposes of understanding and identifyingproblems and issues and alternatives for decision making. They wools also like to beposted with information on the status to particular activities as a basis for controllingthem. The role of MIS is to systematically generate relevant data and process such datainto information which is directly meant to be useful to managers on specific aspects orissues for decision making, planning, administration and control.The role of MIS stems from the fact that it is an arrangement meant for pulling togetherall the diverse bits of data valuable in the organization, conveniently assessable tomanager at various levels and units of activity. In a well-designed MIS, data arecomprehensively processed, analyzed and interpreted so as to make them directly

useful to managers.

6. Management Audit:The term 'Management audit' is defined as a systematic evaluation of the functioning,performance and effectiveness of management of an organization. It is a thorough-going, critical and constructive review of the quality of management. The audit work isgenerally done by an independent team of experts from relevant areas. They naturallyadopt some of the tried and tested principals of auditing. The aim is to make an ablativeassessment of the manner in which the affairs of the organization are managed. Theaudit is conducted on periodic basis. The audit team collects evidence from historicalrecords about the various aspects of the functioning of the organization. A few majorareas which could be exposed to the search lights of management audit are listedfollows:a. Formulation of organizational objectives, strategies, policies and programmers ofaction and the manner in which they are pursued, as also the extent of successachieved;b. Design and operation of organizational structures of roles, activities andrelationships;c. The manner and efficiency with which resources and assets are mobilized,developed, allocated, utilized and safeguard, including the human resources;d. Design and functioning of various systems and operations within the organization;e. The manner in which the management team anticipates and sizes up externalenvironmental elements and designs appropriate adaptive strategies to cope with them;f. The internal organizational climate - to what extent it is conductive for cooperation,harmony, creativity, productive and satisfaction;g. The equality of managerial decisions: their soundless, timeliness and effectiveness.

The management audit function goes beyond stator audit and internal audit of the


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organization because of its distinct content and character. As is to be expected,professional accountants nod auditor have shown considerable interest in popularizingthe efficacy of management audit and have taken several initiatives in this regardespecially in U.S.A.

7. Control by return on investment technique:The ownership group of business organizations, whether public or private, seeks areturn in their investments as a reward for risk taking. The excess of revenue over thecosts of doing business generally accrues to ownership group; in the form of profit,whether is distributed to them or retained in the business. The rate of return oninvestments (ROI) is an overall measure of the financial performance of a businessenterprise on individual division there of.Net income is the residue of revenue through sales after deducting the cost of sales.Net income before and after corporate taxes can be used for purposes of comparison.Total investment includes working capital and fixes assets used in business.Management can increased in ROI by stepping up sales volume proportionately more

than total investment. Another way to increase ROI is by reducing the total investmentwithout disturbing the sales volume or by reducing the former proportionately more thenthe latter. A third way is by increasing the sales volume proportionately more than thecost of sales or by reducing the cost of sales proportionately more than the decrease insales volume.

8. Self Control:Behavioral scientists assert that control is most effective when it self-directed. Theimplication is that most 'organization men' feel more at home under conditions of self-control. Sense of responsibility for result is said to be at a more desirable level whenpersons are assigned the task of exercising imposed control. They wonder as to whysomebody should always be looking over their shoulders, as if they are kids. Theyperceive that their zone of freedom being unduly restricted by outside control. Self-control includes a measure of freedom to set one's own standards of performance, paceof work and evaluation and feedback of results and correction of negative deviations. Ifshould, however, be understood that people who volunteer for self-control are bindingthemselves to a deeper commitment than those who do not. While freedom is moreunder conditions if self-control, responsibility for results is much more.It is to be admitted that some self-control is implicit even it situations of totally externalcontrol systems. For example, there cannot be a minute to minute regulation of asubordinate's pace of work by his supervisor. When the former is assigned a task, someresponsibility is imposed upon him to work according to the dictates of the latter.Similarly, a person cannot be left entirely to the virtues of his self-control.

When employees have relatively low trust in a control system, they sometimes behave


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in various ways that are harmful to the organization. They may do what is required bythe system.

For example, when bonuses for sales people in a department store were based onsales volume, many employees soon lost interest in customers who did not immediately

purchase an item, and they spent little time helping customers, making merchandiseattractive, or performing stock work.

Quite often employees will report data in such a way that performance will look good fora particular time period. Some control systems will also cause employees to reportinvalid or misleading data about what can be done.

For example, it is not uncommon at budget time for managers to ask for larger amountsthan needed if they believe their requests will be reduced. In many organizations budgetsetting sessions are largely negotiating games with little effort given to establishingrealistic standards. The advent of computer-based management information systems

has also caused invalid data to be provided. These systems sometimes requirehistorical cost, production, and other data that are simply not available and cannot beprovided. When pressed, however, the data are estimated, often inaccurately.

Finally, control systems that employees view as clearly threatening will cause strongresistance, perhaps the best example of this is automatic data systems. These systemscreate new experts with much power, are often not well understood, and, therefore arefeared by many employees.

control system in management

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