Management Control: Purpose and Strategies

Management Control: Purpose and Strategies Controlling is one of the four main functions in management. It is important to managers in order to ensure all planning, organising and leading run as smoothly as desired. If managers are able to ensure that each plan made and every task given to the employees are carried out perfectly, and the results expected is what had been planned, control is not required. Unfortunately, managers are not able to ensure these conditions will run smoothly without the occurrence of any problems since most planning is done by humans and humans are known to be diverse in terms of abilities, motivation and others. In a rapidly changing business environment, not only the expected results must be controlled, planning must also be monitored and controlled. 11.1.1 Definition of Control Management control is a systematic effort to fix or establish the standard of performance through planning objectives, designing information feedback systems, comparing true performance with the fixed standard, determining whether there are any disadvantages or weaknesses and taking suitable actions to ensure all resources within the organisation can be used in the most effective and efficient way in achieving the objective of the organisation. Control is the process of ensuring that organisational activities are running according to plan. This process can be carried out by comparing the true performance with the standard that has been established and taking corrective actions in order to rectify any distortion that does not comply with the standard. The main purpose of control in management is to prepare managers to face future or existing problems before they turn critical. In general, an organisation with a good control mechanism will have the advantage of competing strength compared to organisations without a good control system. The following are several examples of the importance of control for organisations: 11.1.2 Quality Assurance The smooth running of a particular process can be monitored and problems can be avoided by having control. Control is able to stimulate the organisation to monitor and increase the quality of products and services offered. Through the activities related to the control process, members of the organisation will always be driven to act according to the plans that have been established. 11.1.3 Preparation to Face Changes Change cannot be avoided. Change in environmental factors such as markets, competitors, technology and legislation makes the control process important for managers in responding towards opportunities and threats. Control helps the organisation to suit its products to the needs and wants of consumers in the market. 11.1.4 Steps in the Control Process A control process has three basic needs: fixing of standards to be used in measuring the level of growth; monitoring decisions and comparing it to the standards, that is, the comparison of the organisationà ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒ ¢Ã¢â‚¬Å¾Ã‚ ¢s true performance with the planned performance; and finally, taking corrective actions in rectifying any disadvantages and weaknesses that occurred in achieving the performance that has already been set. Establishing Standards Standard is the base for comparison to measure the level of performance of a company in order to find out whether the company is compliant. Standard is the point of reference in making comparisons to another value. Standard can be defined as what is required out of a particular job or an individual. In management control, standards are usually derived from the objectives. Standards should be easy to be measured and interpreted. A specific objective that can be measured makes it more suitable to be used as a standard. If this standard is not clearly and specifically stated, it may be interpreted in a different way and will then raise various difficulties that can affect the goals of the organisation. In general, there are three types of standards: physical standard such as quantity of products and services, number of customers and quality of products and services; financial standard which is stated in the form of money, and this includes labour cost, sales cost, material cost, sales revenue, profit margin and others; and lastly, time standard which includes the performance rate of a particular task or the time period required to complete a particular task. Measuring Performance and Making Comparisons Performance measurement is a type of control. Actual results need to be monitored to ensure that output produced is according to the specific standard. The main purpose of performance monitoring is to gather data and detect deviation and problem areas. Measurement has no meaning if it is not compared to the standard. The next step is performing the comparison of standards. Comparison of standard is a process where comparison is made between the true performances with the standard set. This step is important because it allows any deviation or distortion to be detected and corrective actions can be taken in order to achieve the goals that have been set. Corrective Actions It is often found that managers establish standards and monitor decisions but do not take suitable actions. The first and second steps in control will be meaningless if corrective actions are not taken. Before taking any steps in correcting, detailed analysis must be carried out in order to find out the factors that caused the particular deviation. This corrective action may involve change in one or more operation activities of the organisation such as modification, repairing of machines, preparation of certain courses and others, or it might also involve a change in the fixed standard. Corrective action is a process of identifying the distorted performance, analysing the distortion and developing and implementing programmes in order to rectify it. 11.2 THE CONTROL PROCESS The running of a control process is a continuous act. This process cannot be done only once in order to gain the achievement expected. This is considered as a dynamic process. This dynamic process begins with looking at the true performance and measuring the achievement level of that particular performance. Managers will then compare the performance achieved with the performance that has been fixed. If there happens to be any difference, it must be analysed in order to identify the cause of the differences and this is followed by the correcting act. This process must be done repeatedly and must be given full attention by the manager in order to achive the performance goals set. 11.2.1 Basic Methods of Control According to Williams (2000), a control process consists of three basic methods which are identified as future control, concurrent control and feedback control. 11.2.2 Future Control This type of control is also known as prevention control. This involves the use of information, including information from the latest results, is to forecast what will happen in the future so that preventive measures can be taken. It is implemented to prevent the occurrence of deviation between what had really happened with what is expected to happen. Prevention is carried out through detailed analysis on the input before it is accepted into the process of organisation transformation. Input is ensured to comply with the quality standards established so that the results obtained are as expected. One example of the use of this control is when a manager ensures that the sample of raw material that is going to be used complies with the standard established by the organisation or based on certain specifications to avoid damage towards the product in the future. 11.2.3 Concurrent Control Concurrent control is carried out during the process of transformation. When this control is carried out, restoration actions, corrective actions or modifications are done after distortion is detected. For a production-oriented organisation, this controlling action is taken while input is being processed while for service-oriented organisations, it is taken while service is being provided. Through this method of control, organisations will monitor their operations and simultaneously take the necessary corrective actions before the transformation process is completed. This will help to reduce mistakes in the outputs being produced. Examples of this method of control are mid-term examinations, control of accounts, control of inventories and others. 11.2.4 Feedback Control Feedback control involves gathering information related to the weaknesses of controlling measures after an incident takes place. This type of control is implemented after the transformation process has been completed with the purpose of finding out whether the whole activity ran properly with results as expected. This control is also able to determine whether the plan that is going to be carried out has the continuity with the previous programme. It is also able to evaluate the effectiveness and efficiency of the involved parties in performing the activities of the organisation. An example of this method of control is the use of low-quality raw materials that resulted in the production of low-quality products. The act of changing the raw materials used is one of the examples of feedback control. 11.2.5 Types of Control According to Williams (2000), there are five forms of control that can be used by managers in implementing the process of control à ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬ bureaucratic, objective, normative, concertive and self. Figure 9.3 illustrates these five forms of control. Bureaucratic Control This method uses hierarchy authority to influence employees. Rewards are given to employees who obey and punishment is meted out to employees who do not obey the policies, regulations and procedure of the organisation. Objective Control This method uses the measurement of observation towards the behaviour of employees or output produced to evaluate work performance. Managers are more focused on the observation or measurement towards the behaviour of employees or outputs rather than the policies or rules. Objective control consists of two forms of control; behaviour control and output control. Behaviour control Behaviour control is the rule of behaviour and actions that controls the behaviour of employees in their tasks. Output control Output control is the form of control that controls the output of employees by granting rewards and incentives. Important features in the implementation of output control are reliability, fairness and accuracy, convincing employees and managers to achieve the expected results while rewards and incentives depend on the performance standard that has been established. Normative Control Normative control is a method that arranges the behaviour of employees and results through norms and beliefs shared together among all the members within the organisation. There are two main substances in this type of control which are, sensitivity towards selection of employees based on their attitude and norms, and obtaining inspiration based on experience and observation of employees. Concertive Control This is a method that uses the norms and behaviour discussed, formed and agreed by the work group. This form of control plays a role in an autonomous work group. An autonomous work group is a work group that operates without the presence of a manager and is fully responsible for the control of process, task group, output and behaviour. Autonomous work groups gradually grow through two stages of concertive control. First, members work and learn from each other, supervising the work of each member and develop norms and beliefs that guide and control them. Secondly, the appearance and acceptance of objectives as guide and control of behaviour. Self Control It is a system where managers and employees control their own behaviour by establishing their own goals; monitor their own progress and their own achievements of goals, and reward themselves when goals have been achieved. EXERCISE 9.2 11.3 FACTORS THAT NEED TO BE CONTROLLED Determining the matters to be controlled is as important as making decisions on whether to control or in what method should control be done. There are several perspectives that need to be controlled by a manager in order for the organisation to be able to achieve the goals expected. 11.3.1 Financial Perspective One of the important areas that need to be controlled is finance. There are times when the financial performance does not reach the expected standard. If this condition remains undetected and relevant actions are not taken, the existence of the company might be in jeopardy. Financial perspective is generally related to activities such as sales, purchases and others. Financial statements are important sources of financial information for an organisation. A balance sheet shows how strong the financial position, assets, liabilities and the position of the equity holder for a certain financial period. A profit-loss statement or income statement shows the summary of the operational activities and the relationship between expenditure and revenue for a particular financial year. There is a new approach in the financial perspective known as economic value added. Economic value added is the total profit of a company which exceeds the capital cost in a particular year. In this perspective, a manager must impose control so that the total profit of a company always exceeds the capital cost for the company to continuously gain economic value added. 11.3.2 Human Resource Perspective The control towards human resources is vital for organisations. If an organisation is unable to control its human resources properly such as losing expert workforce hence it will jeopardise the performance and achievement of the company. Organisations need to have planning that is able to motivate the employees. For example, organisations need to be concerned regarding the problems faced by the employees by creating harmonious discussions between the management and the employees union. 11.3.3 Quality Perspective Internal operations of organisations are usually measured through quality. Operations control is very important for every organisation especially for manufacturing firms. This is because efficiency and effectiveness of operations control will determine the level of production and organisational performance as fixed by the standard. The quality value of products and services produced based on the standard will be able to strengthen the perception of the customers towards the quality of goods that they had purchased. For example, the control of product quality is able to reduce waste and product defects and this will further save cost. Inventory control is also effective in reducing the costs of investments related to inventory 11.3.4 Consumer Perspective In order to measure the performance of customers, an organisation needs to impose control on customers who leave the organisation and not based on the survey of customer satisfaction. In this perspective, the manager will make evaluation by measuring the percentage rate of customers who left the organisation. By controlling customers from leaving the organisation, a company will be able to increase profits. For example, the cost in obtaining a new customer is five times more compared to the cost of retaining an existing customer. SUMMARY The main purpose of management control is to prepare managers to face existing or future problems before it becomes critical. Management control has three basic needs: establishing standards; monitoring decision and comparing it to the standard; and making corrections on any distortion that occurred between the true decision and the standard. Control is a dynamic process because it is a continuous process. Control process consists of three basic methods: future control which is also known as prevention control; concurrent or present control; and feedback control. There are five forms of control that can be used by managers in implementing the control process: bureaucratic, objective, normative, concertive and self. In order to ensure that the organisation can achieve its goals, several important perspectives must be controlled à ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬ finance, human resource, quality and customers.