PKL 1

Managing Organization ABE Graduate Diploma (QCF Level -6)

Prepared & Presented

By

Pyi Kyaw LynnB.A (English), Yangon University

M.B.A (Finance), Assumption University of Thailand

1/3/2015

PKL 2

CHAPTER [VII] : THE ROLE OF MANAGEMENT

1/3/2015

TODAY’S AGENDA

Principles of Control

Control As An

Organizational Process

Measuring Performance

Benchmarking

Techniques of Performance

Management

MBO OUTSOURCING

BENCHMARKING CONTROL

PKL 3

[A] Principles of Control

1/3/2015

Control is the means by which the organization ensures that the plans which have been made for its operations are effectively carried out.

Control is about reviewing all aspects of the operation & performance of the organization, so that management may take appropriate action.

PKL 4

5 Major Purposes of Management Control

1/3/2015

Identifying Opportunities

Handling Complex

Situations

Detecting Irregularities

Coping withChanges

Decentralizing Authority

MANAGEMENT CONTROL

Identifying variations from the established standards.

Identifying changing operational or environmental factors.

Assessing successful performance as the basis for expansion of activities.

Ensuring effective co-ordination of activities.

Ensuring the effective delegated responsibilities at the lowest levels.

PKL 5

Elements Of A Control System

1/3/2015

After planning objectives & targets in the first stage. Standard of performance is to be established for the task. A standard is a given valued to measure the satisfactory

achievement of the operation . E.g., quality of goods produced.

Monitor actual performance of operation & looking for variance from the plan.

The way in which actual performance is measured must be in the same terms as the standard set.

The information provided by the sensor is known as feedback.

Device or person to compare the actual performance detected by the sensor with the standard < planned target >.

Information of any deviations to be passed to take actions.

SENSOR

COMPARATOR

Machine or person for corrective action where necessary to improve performance

Integral part of the control process.

CORRECTOR

STANDARD

PKL 6

Closed-Loop Control System

1/3/2015

ACTIVITY /PERFORMANCE

CORRECTOR SENSORCOMPARATOR

INPUTS OUTPUTS

CONTROL SYSTEM

All elements of the control system are contained within the operating system. The system correct any deviation in performance standard as a normal part of operation

process. E.g., temperature /pressure, robotic, input of data into computer system. The system does not identify the cause of deviation from the standard. The sensor

monitor output regularly & corrector take actions if deviation found. E.g., In central heating system, the thermostat or sensor cuts of the power and maintain

the required temperature in case of overheating. E.g., water heater

error

PKL 7

Closed – Loop Control System

1/3/2015

PKL 8

Open-Loop Control System

1/3/2015

ACTIVITY/PERFORMANCE

OPERATIONAL SYSTEM

CORRECTOR COMPARATOR SENSOR

INPUTS OUTPUTS

CONTROL SYSTEM

The system analyze the causes of the deviation in addition to measurement & correction, preventing not to happen again.

The system is designed to analyze & detect which elements cause the deviation. E.g., In case of fall in production, the system review the possible causes such as physical

conditions of work, the psychological factors of work force & etc. If found the cause, corrective action is taken until performance is back to standard.

E.g., Traffic control system, Electric washing machine

PKL 9

Techniques of Control System

1/3/2015

The space which allows for minor deviations between the upper & lower limits within which performance is allowed to fluctuate. TOLERANCE

LIMITS

Feedback Regularity : The regularity with which the sensor monitors performance & provide feedback continually.

Management by Exception : It means that only deviations outside the tolerance limits are to be reported to management for action so that management is not overloaded.

Advantages : managers not overloaded with a mass of routine information which may obscure important facts & figures.

FEEDBACK SCREENING

Negative feedback is when the correction it causes takes place the opposite direction to the original divergence in order to offset the error & return the system to equilibrium.

Positive feedback is where the indications are that the organization should take steps to push performance in the direction in which it is already going. E.g., if production is rising.

TYPES OF FEEDBACK

PKL 10

Approaches to Control System

1/3/2015

Takes place before operations begin and includes policies , procedures, and rules designed to ensure that planned activities are carried out properly.

E.g., Control of supply of materials and equipment before operation.

Feed-ForwardControls

Takes place while plans are being carried out. It includes directing, monitoring, and fine-tuning activities as they are performed.

E.g., In factory, monitoring systems that track errors per hour, machine speeds, and other measures allow personnel to correct production problems continuously before they become disasters.

Concurrent (real-time)

Control

Focuses on the use of information about results to correct deviations from the acceptable standard after they arise.

The problem is that, it takes place after an operation has been completed.

E.g., Actual spending is much higher compared to targeted quarterly budget.

FeedbackControl

PKL 11

5 Stages of Organizational Control

1/3/2015

Objectives & Targets

Deviations

Standards of Performance

Actual Performance

Corrective Action

FeedbackMeasurement

4 Comparing

5 Rectifying

3 Monitoring2 Establishing1 Planning

PKL 12

[B] Control As An Organizational Process

1/3/2015

Determination of Areas to

Review

Establishment of Standards of Performance

Identifying the key elements which are crucial to success in the operation . Planning objectives & targets to be achieved !!

E.g., The objectives of a road building project is to complete each stage on time & within budget. But the control points with regards to ordering materials for the next stage needs to be considered.

Specifying targets control to measure the degree & quality of achievement. Unless quantifiable targets or outputs, there can be no way of deciding what the firm is trying to achieve.

Targets can be addressed by performance indicators & can be expressed in quantitative terms.

PKL 13

Cont’d

1/3/2015

Performance Measurement

Related to the means of monitoring actual performance Feedback & system of reporting information to be accurate,

relevant & timely Feedback to be related to desired end- results & designed

means to achieve targets. 1st Aspect : Deciding the means of measurement –

Quantitative : accounting ratios, percentage & numerical data.

Qualitative : face to face interviews, questionnaires for customer satisfaction or staff’s motivation.

2nd Aspect : Deciding the frequency of measurement. E.g., Running a nuclear power plant needs constant

monitoring. But over-frequent monitoring runs the risks of overlooking

significant items of detail. Frequent measurement of performance linked to the narrow

span of control. Small tolerance limits reduce the span of control so that control to be ready for deviation.

PKL 14

Cont’d

1/3/2015

Comparison of Performance

Against Standards

Management techniques to be set up to identify variations from the standards.

Require means of interpreting & evaluating information to provide details of progress, reveal deviation & identify causes.

Computerized information or manual system can be applied for detecting variations.

E.g., budgeting control, management by exception, tolerance limits, flexi time system <upper limit 10 hrs & lower limit 7 hrs>

In case performance is not up to standard, corrective action is to be taken , analyzing the reason for the shortfall in performance that may lead to the failure of targeted objectives.

To review the operation of the control system. Corrective action : recognition, rewards or bonuses in relation

to motivation. E.g. Employee’s fault or the equipment.

Taking Appropriate

Action

PKL 15

Effective Control Systems

1/3/2015

UNDERSTANDABLE

DESIGN

TIME

SELECTIVE

FLEXIBLE

The control standards to be clearly stated & understandable to all involved in the operation.

Control scheme to be specifically designed for the functional area & specific information to be supplied to the operation.

Deviations from the planned objectives to be fed back to management in good times for adjustments to be made.

Selective information to be supplied to concentrate on key areas critical to the operation.

Control system not to be too rigid, to be flexible & capable of taking into account changes in relevant circumstances.

ACTION Good control system has the ability to indicate suitable courses

of corrective action to improve performance.

ECONOMIC The cost of the setting up & maintenance of the system to be economic

PKL 16

[C] Measuring Performance

1/3/2015

ECONOMY

EFFICIENCY EFFECTIVENESS

The acquisition of inputs or resources of a given quality at the lowest cost. E.g., overstaffing, overpriced facilities.

Achieving the goals or objectives of the organization or operation.

E.g., ratio of actual outputs to planned outputs.

Obtaining the maximum possible output from a given level of inputs or the use of the minimum inputs to achieve given output.

PKL 17

Approaches to Measuring Performance

1/3/2015

System Resource

Internal Process

Goal

Stakeholder View

Competing Values

View organization as a system & success is based on obtaining resources or inputs.

Concentrates on the internal efficiency rather than effectiveness, drawback is lack of objectives & needs of customers. E.g., focus only on input output ratio.

Focuses effectiveness by comparing actual performance with the planned objectives, drawback is not effective if inappropriate measures are used.

Focuses on the nature of the interest of the key stakeholders which may be internal or external.

Internal : job satisfaction & departmental efficiencies External : competitor’s performance, market share Stable : hierarchical structures & centralized decision. Flexible : greater empowerment & task-based.

Focuses on the overall performance of the whole organization.Balance Score

Card

PKL 18

Balanced Scorecard Approach

1/3/2015

Customer Perspective Identifying customer’s

expectations. Setting objectives to meet the

expectations. e.g., customer prefer short lead

time on deliveries.

Internal Business Perspective Business processes & technologies

critical to success. Goals relating to manufacturing

capacity, quality, efficiencies, performance measures against objectives.

Innovation & Learning Perspective Focuses on the development of the

capacity of the organization. Improving staff morale, encouraging

participation, personal development & training.

New products development.

Financial Perspective Focuses on the financial health

of the business. Focuses on the financiers such as

shareholders , tax payers. Focuses on cash flows & Return

on Investments.

PKL 191/3/2015

Balanced Scorecard Example

PKL 20

Relationships in the Balance Scorecard

1/3/2015

PKL 21

Measures of Performance [General approach]

1/3/2015

DEFINITION Measures of performance imply that what is to be assessed is

capable of being measured. So they must be quantitative.

Measures of Efficiency

Are concerned with the way in which inputs are converted into outputs through the activities of the organization. It includes –

activity counts & throughput in relation to time productivity & utilization rated compared to inputs quality in relation to number of rejected items costs & expenditures levels compared to budgets profitability

Measures of Effectiveness

Are concerned with the outputs of the organization. It includes Sales or volume of output units compared to market shares. Revenue from outputs compared to products or markets. Quality of goods or services delivered compared to complaints &

returns.

Types of Performance Measures

PKL 22

Measures of Performance [Specific approach]

1/3/2015

To measure overhead cost & utilization To measure machine efficiency & production time To measure adequacy of lighting, heating, etc [qualitative ]

To measure the number of customer rejects or sales returns To measure the number of people served or the speed of service. To measure the level of customer satisfaction

To measure the standard costs for materials & stock turnover. To measure the packaging material performance [no of reported

breakages on arrival]

Performance Measure for Overheads

Performance Measures for

Sales

Performance Measures for

Materials

To measure sales per individual employee To measure the units of production per production operative. To measure the number of invoices posted per data-entry clerk.

Performance Measures for

People

PKL 23

Measuring Brand Performance

1/3/2015

PKL 24

[D] Benchmarking

Main business functions subject to benchmarking - Customer service

- Manufacturing- Human resources- Information services

1/3/2015

DEFINITION

FUNCTIONAL BENCHMARKING

PROCESS BENCHMARKING

MAIN BUSINESS FUNCTIONS

An organization’s assessment of the performance & practices of other organizations & competitors in an effort to analyze and compare its own performance.

Comparing performance relating to a single business function.

Comparing performance relating to a structured set of activities designed to produce a specified output for a particular customer or market. This type looks at the activities of competitors supplying the same customer or market.

PKL 25

Purposes, Benefits & Limitations of Benchmarking

1/3/2015

PURPOSES

BENEFITS LIMITATIONS

BENCHMARKING

To understand your organization compared with similar others.

To determine the gap between your organization with those with others.

To ascertain the best practices must be introduced to close the gap.

It enables realistic targets It increases motivation of staff It provide early warning of

competitive disadvantage. It promotes teamwork & cross

functional learning.

Selection of an inappropriate set of measures.

Selection of a benchmarking partner not representing good practice.

Inability to gain suitable benchmarking data. Insufficient knowledge of the data collected.

PKL

Benchmarking Process

26

CSF AREAS PARTNER DATA ANALYSIS

Understanding & measuring critical success factors To focus on core areas & factors that determine the success

Selecting the areas of performance to be benchmarked by determining the activities.

Selecting the benchmark partner using appropriate criteria. Assessing competitor (local, national, international) in other industries.

Collecting data in partner organizations using techniques similar to those employed in organization.

Currying out a comparative analysis of data.Identifying areas of differences & finding root causes in terms of activities, decision-making, etc.

Positive benchmark: the organization is ahead of its competitors.Negative benchmark: the organization behind its competitors.

FEEDBACK

1/3/2015

PKL

[E] Techniques of Performance Management

27

MBO OUTSOURCING

1/3/2015

PKL

Management By Objectives

1/3/2015 28

DEFINITION Management by objectives is a process of positive action for results,

comprising the setting of objectives, planning of work for their achievement & monitoring results.

BENEFITS

Individual objectives are integrated with the objectives of the organization.

The emphasis on planning for results helps to establish priorities for the organization and individual jobs.

The review process facilitates communication with a positive outlook. The involvement of job holders contribute to enhancing employee

motivation.

PROBLEMS The tendency of over bureaucratic, time consuming & costly Lack of commitment & understanding by management The potential conflict between personal & organizational goals.

PKL 29

MBO Process

1/3/2015

PKL 301/3/2015

MBO Process

PKL 31

MBO by Peter Drucker

1/3/2015

PKL

Outsourcing

1/3/2015 32

DEFINITION

Contracting with an external organization for the provision of particular services , if not outsources, have to be provided directly by the organization.

ADVANTAGES

Effective form of cost control as the cost of providing is borne by the contractor in case of cost increase.

Cheaper option as the contractor is able to apply economies of scale.

The contractor can employ expertise staff , benefiting organization without having to employ its own staff.

Suitable for small organizations due to saving in staff, time & expertise.

DISADVANTAGES

Some functions are not appropriate to be outsources. E.g., legal work or information management.

Once outsourced for a particular function, it is quite difficult to reverse the decision.

Conflict of interest between the firm & contractor

PKL 33

Reasons for Outsourcing

1/3/2015

PKL 34

Reasons for Outsourcing

Lower Wages : Lower operational and labor costs are among the primary reasons why companies choose to outsource. When properly executed it has a defining impact on a company's revenue and can deliver significant savings

Focusing on Core Business : Companies also choose to outsource or offshore so that they may continue focusing on their core business processes while delegating mundane time consuming processes to external agencies

Global knowledge: Outsourcing and off-shoring also enable companies to tap in to and leverage a global knowledge base, having access to world class capabilities

Freeing Up Internal Resources: That could be put in to effective use for other purposes is also one of the primary benefits realized when companies outsource or offshore

Improved Service: Outsourcing can help improve service. Why waste time and valuable resources training an in-house customer service team when there are professionals to be hired that can usually do the same task for less money? IT , HR functions and financial services . Having an offshore company handle non-core business activities usually leads to better service.

1/3/2015

PKL 35

The Advantages of Outsourcing

Swiftness and Expertise: Most of the times tasks are outsourced to vendors who specialize in their field. The outsourced vendors also have specific equipment and technical expertise. Effectively the tasks can be completed faster and with better quality output.

Concentrating on core process rather than the supporting ones: Outsourcing the supporting processes gives the organization more time to strengthen their core business process

Risk-sharing: one of the most crucial factors determining the outcome of a campaign is risk-analysis. Outsourcing certain components of your business process helps the organization to shift certain responsibilities to the outsourced vendor. Since the outsourced vendor is a specialist, they plan your risk-mitigating factors better.

Reduced Operational and Recruitment costs: Outsourcing eludes the need to hire individuals in-house; hence recruitment and operational costs can be minimized to a great extent. This is one of the prime advantages of offshore outsourcing

1/3/2015

PKL 36

The Disadvantages of Outsourcing

Risk of exposing confidential data: When an organization outsources HR, Payroll and Recruitment services, it involves a risk if exposing confidential company information to a third-party.

Synchronizing the deliverables: In case you do not choose a right partner for outsourcing, some of the common problem areas include stretched delivery time frames, sub-standard quality output and inappropriate categorization of responsibilities. At times it is easier to regulate these factors inside an organization rather than with an outsourced partner

Hidden costs: Although outsourcing most of the times is cost-effective at times the hidden costs involved in signing a contract while signing a contract across international boundaries may pose a serious threat.

Lack of customer focus: An outsourced vendor may be catering to the expertise-needs of multiple organizations at a time. In such situations vendors may lack complete focus on your organization’s tasks.

1/3/2015

PKL 37

Example

1/3/2015

PKL 381/3/2015

Thank You !!

PKL 39

Q & A

1. “Managers must understand what they need to do, and then learn better ways of doing it from others”.Explain the main functions of management. [10 marks]Discuss the usefulness of ‘benchmarking’ to managers. [15 marks]

2. Organizations need clear guidance on how to achieve a balance between financial and non-financial measure of performance. Such guidance already exists in the form of the “Balanced Scorecard Approach”.Explain the Balanced Scorecard Approach to measuring organizational performance. [10 marks]

3. Evaluate the contribution that internal benchmarking can make to organizational performance. [ 15 marks]

1/3/2015

PKL 40

4. Organizational controls are part of a systematic process through which managers regulate activity to meet planned goals and performance standards.Explain the main elements of an organizational control system. [10 marks]Discuss the factors that are likely to influence the effectiveness of an organizational control system. [15 marks]

5. The managerial function of control is an effective way of monitoring an organization’s performance.With the aid of examples, explain the difference between a “closed-loop and opened-loop” control system. [10 marks]Using a company of your choice, discuss how a manager can use control as a measure of performance. [15 marks]

6. (a) “Control” is crucial to management. Explain the main purposes of a management control system. [10 marks](b) Critically analyze the ways in which an organization can implement control mechanisms, indicating the likely problems. Use examples from the workplace to support your answer. [15 marks]

1/3/2015

Q & A