MBA PRESENTATION

C o n f i d e n t i a l

Unit-6 Controlling

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Program : MBA

Semester : 1st Semester

Subject Code : MB0038

Subject Name : Management Process and Organisational

Behaviour

Unit number : 6

Unit Title : Controlling

Lecture Number : 6

Lecture Title : Controlling


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The objectives of this lecture are to:

• explain control and describe its importance

• identify critical control points

• analyse control as a feedback system

• describe prerequisites of effective control

• elucidate various control techniques

• explain IT enabled 'controls' and its challenges

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Objectives

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Controlling


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Lecture Outline

• Introduction

• Definition, Importance and Process of Controlling

• Critical Control Points

• Control as a Feedback System

• Prerequisites of Effective Control

• Control Techniques

• IT Enabled ‘Controls’ and its Challenges

• Summary

• Check Your Learning

• Activity

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Unit-6 Controlling

• Control is the last in the management process and is perhaps the most

important.

• Control is the rudder of business because it ensures that a process is

going in the right direction by making continuous corrections.

• Without control, the business will perhaps go to where it should never

go and do what it should never do.

• A business will be able to expand in product portfolio and geography

and delegate and outsource only because controls are possible and in

fact real time control can be exercised through IT.

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Introduction


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Definition, Importance and Process of Controlling

Controlling

• Defined as measuring and correcting of performance to achieve the

organisational goals.

• Planning and controlling are integral parts of an organisation as both

are important for smooth running of an enterprise

Planning and Controlling relationship

• Planning precedes controlling and controlling succeeds planning.

• Planning and controlling are inseparable functions of management.

• Activities are put on rails by planning and they are kept at a right place

through controlling.

• The process of planning and controlling works on systems approach,

which is as follows:

Planning --> Results --> Corrective Action (through control)

(Contd…)


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Control is important because of the following reasons

• Creates the basis for the future

• Guides to keep goals on track

• Prevents repetition of mistakes

• Enables future planning and follow up action

• Enables decentralisation

• Enable management by exception

• Assists co-ordination

• Enables HR functions and motivation

(Contd…)


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Steps in Controlling:

• Establishment of standards: Standards can be defined as selected

points that are critical in execution of a plan measurement, which identifies

the efficiency of execution of the plan. It has two types:

o Tangible standards: These standards can be measured, such as

profit, return on investment, rejection rate, customer complaints, etc

o Intangibles standards: These include attitude of workers, job

satisfaction, managerial effectiveness, etc.

• Measurement of performance: Measurement is necessary for finding out

deviations and is perhaps the most difficult step in controlling.

• Comparison of actual and standard performance: Deviation can be

defined as the gap between actual performance and the planned targets.

• Taking remedial actions: Once the causes and extent of deviations are

known, the manager has to detect those errors and take remedial

measures.


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• The managers have to exercise control by exception.

• They have to find out those deviations. which are critical and important

for business.

• If a manager controls everything, he / she ends up controlling nothing.

Broad classification of critical control points are as follows

• Physical standards

• Cost standards

• Capital standards

• Revenue standards

• Programme standards

• Intangible standards

• Goals as standards

• Strategic plans and control points

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Critical Control Points


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• Management control is a feedback mechanism much like a thermostat

in a refrigerator.

Real time information and control

• Real time information at a given time can be gathered in many cases.

• It is due to information technology.

• Control requires analysis of the cause of deviation, which cannot take

place in real time.

From Feedback to feed-forward

• The system is focused on the input, which can create a variation in the

output and rectified in time.

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Control as a Feedback System

(Contd…)


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Feedback Loop of Management Control

(Contd…)

Desired Performance

Actual Performance

Measure Actual Performance

Compare Actual vs. Desired

Performance

Implementation of

Correction

Programme of Corrective

Action

Analysis of the Cause of Deviation

Identification of Deviation


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• It is not about criticizing but of proactive action.

• Most management systems fall short of it primarily because we tend to use

the financial data for management control.

• We need to use feed-forward since it enables one to prevent mistakes.

Requirements for feed-forward control

In order to create a feed-forward system some of the following will be

required:

• Identify important input variables.

• Develop a model for the system.

• Review regularly to see whether the input variables are identified and the

inter-relationships continue to represent realities.

• Assess the actual input data regularly from planned-for inputs and evaluate

the impact on the expected end results.

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• All managers like to have controls because without them their plans

would go awry.

Prerequisites for an effective control system is mentioned

• Tailoring controls to plans and positions

• Tailoring controls to individual manager

• Designing 'point to the exceptions at critical point‘

• Objectivity of controls

• Flexibility

• Fitting to the organisational culture

• Economy of controls

• Ability to lead to corrective action

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Prerequisites of Effective Control


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Overall Performance Control

• It is important to control the overall performance and not confine to some

processes.

• Many overall controls in business are financial in nature. The reasons for

overall control are:

o Since overall planning is applied to the enterprise as a whole, control

should also be applied to the entire organisation.

o Planning without controlling is not an effective method as we saw in

earlier sections.

o Decentralisation of authority is required in product and territorial

divisions and in semi independent units, which makes controlling

important.

o Overall control permits the measurement of an integrated area

manger's total effort rather than parts.

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Control Techniques

(Contd…)


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Overall Performance Control Techniques

Some of the control measures are as follows:

• Profit and loss control

• Control through Return on Investment (ROI)

• Management audits and accounting

• Bureaucratic and clan control

Balanced scorecard

• One of the problems with the overall performance control is that the

measures are all financial.

• Measure other factors, which create the cohesion in the first place and

then create financial results.

• Four key components of a balanced scorecard are financial, customer,

Internal processes and learning and growth.

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Control Techniques

(Contd…)


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Budget as a Control

• A budget is a plan for a given period in numerical terms. They are

statements of anticipated results.

• Budgeting is done by making incremental changes to the existing budget.

Some of the popular budgeting methods are discussed below:

o Capital budgeting

o Zero based budgeting

Non-budgetary control

• An inspection visit, managing by walking around, use of statistical data,

benchmarking, operational audit, HR audit, etc. are the non-budgetary

controls.

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Control Techniques

(Contd…)


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Benchmarking

• Benchmarking is the process of comparing one's business processes and

performance with industry bests and/or best practices from other finms or

industries.

• Management identifies the best firms in their industry, or in another

industry where similar processes exist and compare the results and

processes of those studied (the "targets") with one's own results and

processes.

Costing

There are two types of costing:

• Activity based costing

• Target costing

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Control Techniques

(Contd…)


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Quality tools/ Logistic Control

Total / Quality Management (TQM)

• Quality control should be measurable and therefore creates a measure

and then goes on to make the improvement continuous.

• It makes quality a long term investment and thus brings an effective

control on the product lines, processes and also overall performance.

Kaizen

• It is a philosophy based on team work, personal discipline, improved

morale, quality circle and suggestion for improvement.

• It has three foundations namely elimination of waste and inefficiency (also

called muda in Japanese).

• Its 5 S framework means tidiness (seiri), orderliness (seiton), cleanliness

(seiso), standardised clean up (seiketsu) and discipline (shitsuke).

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Control Techniques

(Contd…)


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Quality tools/ Logistic Control

Just in Time (JIT)

• JIT is a plan to ensure that the inventory is reduced to almost nil and it is

a plan that Toyota tried out successfully.

• JIT differs from inventory control in its philosophy to keep the required

parts manufacturer and the outlet which sells well integrated into the

main plant to include the quality of the supplies.

• JIT controls by eliminating the following:

o Waste from overproduction

o Waste of waiting time

o Transportation waste

o Processing waste

.

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Control Techniques

(Contd…)


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Six Sigma

• It stands for six standard deviations from the mean.

• This methodologies provide the techniques and tools to improve the

capability and reduce the defects in any process.

• It was started in Motorola, in its manufacturing division, where millions of

parts were made using the same process repeatedly.

• It uses a methodology known as DMAIC (Define opportunities, measure

performance, analyse opportunity, improve performance, control

performance).

• Six sigma strives for perfection and allows for only three to four defects

per million opportunities for each product or service transaction.

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Control Techniques

(Contd…)


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Through Time Event Network Analysis

Gantt Charts

• A Gantt chart is a type of bar chart, developed by Henry Gantt, which

illustrates a project schedule.

• Gantt charts illustrate the start and finish dates of elements of a project.

Program Evaluation and Review Technique (PERT) and Critical Path

Method (CPM)

• A PERT chart is a graphic representation of a project’s schedule.

• A PERT chart can document an entire project or a key phase of a project.

• The chart allows a team to avoid unrealistic timetables and schedule

expectations, to help identify and shorten tasks that are bottlenecks and

to focus attention on most critical tasks.

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Control Techniques

(Contd…)


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Steps in creating a PERT chart are as follows

• Identify the specific activities and milestones

• Determine the proper sequence of activities

• Construct a network diagram

Advantages of PERT

• It forces the managers to plan since they have to make a time event

chart.

• Forces planning all the way down the line because each subordinate

manager must plan the event for which he/she is responsible.

Disadvantages of PERT

• When a programme is new or ambiguous and no reasonable estimate of

time can be made, PERT is difficult to implement.

• It emphasises only on time and not cost.

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Control Techniques


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• Most real time controls are microprocessor or IT enabled.

• IT enabled controls create their own unique challenges to business.

Some of the far reaching IT enabled processes, which have facilitated control

are as follows:

• Enterprise resource planning system

• Speech recognition software

• Telecommuting

• Computer networks

• Internet, intranet and extranet

• Groupware

• E-commerce and M-commerce

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IT Enabled ‘Controls’ and its Challenges


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The following Points summarises the concepts of this unit.

• Controlling is important as it creates basis for the future,

ensures goals are on track, prevents repetition of

mistakes, enables future planning, enables

decentralisation, assist co-ordination, enables motivation

and management by exception.

• Effective control must be tailored to plans and positions,

individual manager, objective, flexible, fitting to the

organisational culture, economical and must lead to

corrective action

• A balanced scorecard was created by Kaplan and Nortan

to measure the overall performance of a firm.

• Some of the quality tools of control are TQM, Kaizen, JIT,

Six Sigma, Gantt Charts, PERT and CPM.

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Summary


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1. Define Six Sigma?

Ans: Six sigma stands for six standard deviations from the

mean. This methodologies provide the techniques and

tools to improve the capability and reduce the

defects in any process. It uses a methodology known

as DMAIC (Define opportunities, measure

performance, analyse opportunity, improve

performance, control performance).

2. List any three quality control tools implemented in an organisation.

Ans: The three quality tools are:

• Kaizen

• Just in Time (JIT)

• Total Quality Management (TQM)

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Check Your Learning


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Activity 1

Visit an organisation and find out what are the pre-requisites

a manager follows in to have an effective control system.

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Activity

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