CONTROLLING (MANAGING QUALITY AND PERFORMANCE)

PRIMANKATE MARANONKAT NGKRISTA TAMAYO

WHAT IS CONTROL?The systematic process of regulating

organizational performance towards the attainment of goals.

WHAT IS CONTROL?ESTABLISHING STANDARDS

at the time of planning

MEASURING PERFORMANCE and comparing it to the set

standards

TAKING CORRECTIVE ACTION when any deviation is found

“The essence of control is action which adjusts operations to predetermined standards, and its basis is information in the hands of managers.” by Douglas S. Sherwin

CONTROLLING IS GOAL-ORIENTED!

It ensures that the resources of the

organization are being used effectively and

efficiently for the achievement of

predetermined goals.

STEPS IN THE CONTROL PROCESS1. MEASURING ACTUAL PERFORMANCE

• Personal observation, statistical

reports, oral reports, and written reports

• Management by walking around

(MBWA)

2. COMPARING ACTUALPERFORMANCE AGAINST A STANDARD

• Comparison to objective measures:

budgets, standards, goals

STEPS IN THE CONTROL PROCESS

3. TAKING MANAGERIAL ACTION TO CORRECT DEVIATIONS OR INADEQUATE STANDARDS

• Immediate corrective action• Correcting a problem at once to get performance back

on track• Basic corrective action

• Determining how and why performance has deviated and then correcting the source of deviation

• Revising the standard• Adjusting the performance standard to reflect current

and predicted future performance capabilities

THE CONTROL PROCESS

QUALITIES OF AN EFFECTIVE CONTROL SYSTEM

AccurateEconomicalUnderstandableStrategically placedInvolves multiple criteriaProvides a reasonable criteriaTimelyFlexibleEmphasizes the exceptionInvolves a corrective action

EXAMPLES OF CONTROL STANDARDS

CHOOSING STANDARDS AND MEASURES

• Organization focus on measuring and controlling financial performance, such as sales, revenue and profit.

• Managers recognize the need to also measure intangible aspects of performance to manage the value-creating activities of contemporary organizations.

• It is a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.

• Contains four major perspectives:a. Financial performanceb. Customer servicec. Business Processd. Potential for learning and growth

BALANCED SCORECARD

BALANCED SCORECARD

All well-designed control systems involve the use of feedback to determine whether performance meets established standards.

We will examine the steps in the feedback control model and how it applies to organizational budgeting.

FEEDBACK CONTROL MODEL

Establish Strategic

Goals

Feedback

Adjust Standards Adjust Performance

If

Inadequate

If Adequate

Feedback

1. Establish standards of performance

2. Measure actual

performance

3. Compare performance to standards

4. Do nothing or

provide reinforcemen

t

4. Take corrective

action.

BUDGETING- Reports that list planned and actual expenditures - They highlight the variance between budgeted and actual amounts - They are created for all departments and divisions in an organization

Responsibility Center – any organizational department or unit under the supervision of a single person who is responsible for its activity.• Types of Budget

• Expense Budget• Revenue Budget• Cash Budget

BUDGETING• Capital Budget

–Top-Down Budgeting – budgets for the coming year are imposed on middle and lower level managers

–Bottom-Up Budgeting – involves lower-level managers anticipating their department’s budget needs and passing them up to top management for approval

- Review performance and highlight potential problems- Managers need to be able to evaluate financial reports- Comparisons allow managers to see improvement and focus on competition

FINANCIAL CONTROL

- Most common financial statementsa. Balance Sheetb. Income Statement or Profit & Loss - Ratios and statistics highlight relationships between performance indicators such as asset, sales and inventory

- Ratios are stated fractions or proportions- Most common financial ratios

a. Liquidity Ratiob. Activity Ratioc. Profitability Ratio

FINANCIAL CONTROL

• Hierarchical Control Involves monitoring and influencing employee behaviour through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems and other formal mechanisms

• Decentralized Control The organization fosters compliance with organizational goals through the use of organizational culture, group norms, and a focus on goals rather than rules and procedures.

• Open-book management Allows employee to see for themselves the financial condition of the organization and encourages them to think and act like business owners.

TOTAL QUALITY MANAGEMENT (TQM)

• Total Quality Management (TQM) is a

decentralized control philosophy• Infuse quality into every activity

in a company through continuous improvement• Toyota is a good example of the

results of TQM• TQM became attractive in the

1980s because of its success in Japan

TQM TECHNIQUES• Quality Circles• Benchmarking• Six Sigma• Reduced Cycle Time• Continuous Improvement

TRENDS IN QUALITY AND FINANCIAL CONTROL

• International Quality Standards• New Financial Control Systems• Economic Value-Added (EVA)• Market Value-Added (MVA)• Activity-Based Costing (ABC)• Corporate Governance

CONTROLS AND CULTURAL DIFFERENCES• Methods of controlling employee

behavior and operations can be quite different in different countries

• Distance creates a tendency for formalized controls in the form of extensive, formal reports

• In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control

• Local laws may constrain the corrective actions that managers can take in foreign countries

THE DYSFUNCTIONAL SIDE OF CONTROL

• Unfocused controls• Failure to achieve desired or intended results occur when

control measures lack specificity

• Incomplete control measures• Individuals or organizational units attempt to look good

exclusively on control measures

• Inflexible or unreasonable control standards• Controls and organizational goals will be ignored or

manipulated