Eng g Mgt - 8 Controlling

8/9/2019 Eng g Mgt - 8 Controlling

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ENGINEERING MANAGEMENT

CONTROLLING

Controlling is the managerial function of measuring and correcting performance in order to makesure that the organizational objectives and plans that were deliberately devised to be attained are

accomplished. Planning and Controlling are so closely related that some writers and managementpractitioners think that their functions are closely related. Both of them are viewed as the blades of a pair ofscissors. It could only cut well with the two sharp blades.

Controlling, as a management tool, is the function of every manager from president to supervisor.hile the range of control varies among managers, those at all levels have the responsibility for theeffective implementation of plans.

!he Control ProcessControl is the process of assuring management that organizational plans, objectives, programs and

other specific tasks are carried out efficiently and effectively.

!he basic control process involves three steps"#. $stablishing standards%. &easuring performance against these standards'. (emedies for deviation from standards and plans

#. $stablishment of )tandards!he establishment of standards is a process by which criteria are set against which actual

performance can be measured. hen a formal control system is in place, the most common tool used bymanagement as a criterion is the budget. It is important that the master budget integrates the *uantitativetargets of the different units within the organization and shows the e+pected impact of these on income,balance sheet and cash flows.

%. &easurement of Performance!he control system is not better that the information on which it operates and, to a great e+tent, this

information is accumulated from the monitoring process. &onitoring performance is considered to besynonymous with control. !he paramount purpose of monitoring is to collect data and perceive problemareas. !he main problem in monitoring performance is determining where, when, and how often to inspector check this. Check must be made regularly to supply needed information. owever, monitoring can becostly if overdone, and it can result in hostile reactions from employees- hence, proper timing is e*uallysignificant. '. (emedies of eviation

&anagers set standards, study results and follow these with action. !he first two steps are of little

value if accurate action not taken. !he action re*uired may be uncomplicated to keep up the status *uo./ctions of this kind would rely on standards being met in a tolerable manner. If standards are not beingmet, the manager must identify the cause of the deviation and correct it. It is not ade*uate to simply treatonly the signs of the e+istence of a condition. It is likewise possible that a systematic analysis of thedeviation will need a change in the standard. !he standard may not have been met or conditions may havebeen altered so that there is a need for a change.



Critical Control Points and )tandards)tandards are yardsticks against which actual and the e+pected are measured. !he points that

may be selected for control may be critical. ith such standards, managers can handle a large group ofsubordinates and increase their span of management with resulting cost savings. !he ability to select

critical points of control that will best reflect the goals of a department and what will show how these goalsare being met- what best measure critical deviations- who is responsible of the failure- what will cost theleast- and for what standards is information economically available lies primarily on the ability of themanager to select critical points of control which is ultimately one of the arts of management.

There are various types of critical-point standards and these are:#. Physical )tandards%. Cost )tandards'. Capital )tandards0. Program )tandards1. (evenue )tandards

2. Intangible )tandards3. 4oals as standards5. )trategic Plans as control points for strategic control

#. Physical )tandards!he physical standards are basically non6monetary measurements and are common at the

operating level where materials are utilized- labor is employed- services are rendered- and goals areproduced. !hese reflect the *uantities such as labor6hour per unit of output, pounds of fuel per horse6powerproduced, ton6miles of freight traffic carried, and units of production per machine6hour. !he physicalstandards also reflect *uality, such as hardness of bearing, durability of fabric and fastness of color.Process control variables may be considered as physical standards.

%. Cost )tandards!he cost standards refer top the monetary measurement which are attached to monetary values of

specific aspects of operations which all the results of direct and indirect costs per unit produced, labor costper unit or per hour, material cost per unit, machine6hour costs, selling costs per dollar or per peso, andcosts per foot of oil drilled.

'. Capital )tandards!here are a number of capital standards arising from the application of monetary measurements to

physical items. !hese have to do with the capital investments in the organization. !hey are primarily relatedto the balance sheet rather than to the income statements. !he balance sheet discloses other capitalstandards. !hese are ratios of current assets to current liabilities, dept to net worth, fi+ed investment to total

investment, cash and receivables, and bonds of stocks and size of turnover inventories.

0. Program )tandards/ budget program is one of the assigned tasks of managers to follow the development of new

products for improving the *uality of sales or other teams. hile it may be inferred that some subjective judgments may have to be applied in appraising program performance, timing and other factors can beused as objective standards.



1. (evenue )tandards!he revenue standards stem from monetary values to sales. !hese include standards like bus

passenger6per6mile, average sale per customer, and sales per capita in a given market place.

2. Intangible )tandards

!he intangible standards are difficult to set because they are not e+pressed in either physical ormonetary measurements. It is observed that many intangible standards e+ist in business, due to ade*uateresearch. Perhaps one of the important reasons is that human relationships count in performance, as theydo above the basic operating levels. It is very difficult to measure what is good, effective or efficient. 7arioustests, surveys 8 sampling techni*ues developed by psychologists have made it possible to probe humanattitudes 8 drives, although a lot of managerial controls over interpersonal relationships must continue to bebased on intangible standards, trial 8 error, and even sheer hunch.

3. 4oals as )tandards!he contemporary tendency for better managed organizations is to establish a network of verifiable

*ualitative and *uantitative goals in every level of management. !he use of intangible standards, while still

important, is decreasing. In large organizations where program operations are very comple+, modernmanagers are finding that, through research, it is possible to define goals that can be used as performancestandards.

5. )trategic Plans (as control points for strategic control)&anagement e+perts and practitioners define strategic control as a systematic monitoring at

strategic control points, as well as modifying the organization9s strategy on the basis of this evaluation.)trategic plans re*uire strategic control. )ince control facilitates comparisons of intended goals with actualperformance, by the same token, they also provide opportunities for learning, which in effect, may be thebasis for organizational change. It may be assumed, with the use of strategic control, a manager gainsinsights not only about organizational performance but also about the changing environment by monitoringit.

CONTROL as a FEEDBACK SYSTEM

Close (elationship between Planning 8 Controlling:Pls. copy figure from PP! Presentation;

<$$<=(/( C=>!(=?Control must be deliberate and directed toward a definite time if it is to be effective. !his is clearly

seen on the time log in the management process. !his makes clear the problem of only using feedbackfrom the output of the system and measuring this output as a means of control. It illustrates the deficiency

of historical data and information such as those received from accounting reports.<eedback )ystem deficiency"

=ne difficulty with such historical data is that they tell business managers in @uly that they lostmoney in @une because of something done in /pril. /t this span of time, control, may not be usefulanymore. hat managers need for effective control is a system that will tell them, in time, to correct theflow at once.



!echni*ues of <uture6irected Control=ne way, some managers have practiced, is through carful and repeated utilization of forecasts

based on the latest objective information. &anagers should compare what is desired with the forecasts, sothat they can introduce program changes that will make the forecast more promising. !o illustrate, if acompany makes a sales forecast by indicating that the sales will be at a lower level than desirable,

managers may develop new plans for advertising, sales promotion, or the production of new products inorder to improve the sales forecast.

<eed6forward 7) <eedback )ystem<eedback systems monitor inputs into a process to ascertain whether the inputs are as planned- if

they are not, the inputs are changed in order to obtain the desired results. It is observed that, for mostmanagement problems, because of time lags which are always inevitable in the correction process, thismay not be good all the time.

<eed6forward in &anagement!his concept is also referred to as preliminary control. !he system of feedforward is likely to appear

comple+ because it is difficult to identify system input variables. !here are certain re*uirements for a

workable feedback control system to be effective.#. &ake a thorough and careful analysis of planning 8 control system.%. evelop a working model of the system.'. !ake care to keep the model up6to6date. !he model should be reviewed regularly to find out

whether the input variables are identified and their interrelationships continue to represent realities.0. Collect data or input variables regularly, and put them into the system.1. &ake a regular assessment of the variations of actual input data from planned :for inputs; and

evaluate the impact on the e+pected end6result.2. !ake appropriate action. ?ike any other techni*ue of planning and control, all that the system can

do is indicate problems, and apparently, people must take action to solve the problem.

!he )tructure of Control!he following principles are aimed at identifying how control systems and techni*ues can be

designed to enhance the *uality of managerial control" !he Principle of =rganizational )uitability

!he Principle of Individuality of Controls

!he Principle of =rganizational )uitability!his principle states that the more an organizational an organizational structure is clear, complete

8 integrated, and the more controls are designed to reflect the place in the organizational structure whereresponsibility for actions lies- the more the controls will facilitate correction of deviations from plans. Plansare implemented by people in the organization. eviations from plans must be the responsibility ofmanagers for they are the ones entrusted with that task of e+ecuting planned programs and otherorganizational activities.

!he Principle of Individuality of Controls!his principle relates that the more control techni*ues 8 information are understandable to

managers who will use them, the more they will actually be used and the more they will result in effectivecontrol. /s a general rule, controls should be tailored to meet the individual needs of managers. !he aspect



of individuality is the tailoring of controls to the specific kind and levels of a manager9s understanding.Control information that a manager cannot use has little practical value.

!he Process of Control!he control process, which involves establishing standards, measuring performance against

standards, and correcting undesirable deviations rests heavily on the art of managing and on know6how ingiven circumstances.!here are certain principles that have a wide range of applicability"

#. !he Principle of )tandard%. !he Principle of Critical6Point Control'. !he $+ception Principle0. !he Principle of <le+ibility of Control1. !he Principle of /ction

#. !he Principle of )tandard$ffective control re*uires objectives, accurate, and suitable standards. !he design should be

simple and there should be specific and verifiable way to measure whether a planning program is beingaccomplished or not. Control is implemented by people in the organization. $ven the best manager cannothelp being influenced by factors- and therefore- actual performance is often camouflaged by a dull orsparkling personality or, in some cases, by a subordinate9s ability to demonstrate a deficient performance.4ood standards of performance, objectivity applied, is acceptable by subordinates as fair 8 reasonable.

%. !he Principle of Critical6Point Principle!he principle purports to emphasize that effective control re*uires attention to those factors that

are critical when evaluating performance against plans. It would be wasteful and unnecessary to followevery minute detail of plan implementation. !hey must concentrate only on the salient factors ofperformance that will indicate any significant deviations from plans.

'. !he $+ception Principle!his principle states that the more managers concentrate efforts on significant e+ceptions, the

more effective will be the results of their control. !his principle holds that managers should concernthemselves with significant deviations, whether good or bad. !his principle is often confused with theprinciple of critical6point control, and the two have some degree of relationship. hile the critical6point hasto do with recognizing the points to be observed closely, the e+ception principle has something to do with watching the size of deviations at these points.

0. !he Principle of <le+ibility of Control!his principle holds that, if controls are to remain effective despite failure or unforeseen changes of

plans, fle+ibility is re*uired in their design. In this principle, controls must not be so infle+ibility tied in with aplan as to be useless if the entire plan virtually fails or is suddenly revised.

It is to be noted that this principle clearly applies to failure of plans and not the failures of peopleoperating under plans.

1. !he Principle of /ction



!his principle states that control is justified only if indicated deviation from plans are correctedthrough appropriate planning, organizing, staffing, and leading. !here are instances in practice ande+perience in which this simple truth is forgotten. Control will be a wasteful use of managerial and staff time8 effort if not followed by action. If deviations are found in the course of projected performance, appropriateaction is indicated. !he situation may re*uire reorganization, replacing subordinates, or training to do the

tasks desired. If the fault is lack of defined direction 8 leadership in getting a subordinate to understandplans or in motivating him to do this action is clearly suggested.

CONTROLLING PRACTICES & EXPERIENCES OF 3 SELECTED COUNTRIES

Controlling as a managerial function is the measurement 8 correction of performance in order toensure that the organizational objectives 8 plans devised to attain them are accomplished. Perhaps it issafe to state that control systems are basically the same when applied to organizations, regardless of workenvironment.

Controlling in the Anited )tatesControl in the Anited )tates simply means measuring performance against pre6established precise

standards. &anagement by =bjectives :&B=;, an approach used for performance appraisal againstverifiable objectives, is widely practiced in the A). In this scheme, the superior can trace deviations to aspecific individual9s performance, and conse*uently, fi+ing the blame on him. In an attempt toma+imize individual results, group performance may suffer. e can only infer that self6interest of theindividual is placed before the group or organizational interest. !he use of Quality Control Program in theA) is not new. ughes /ircraft Company, for instance, has such programs for a long time under the names Zero Defects and Value ngineering. &any of these *uality programs were developed in the A) andeventually used by the @apanese for improvement of product *uality and productivity.

Controlling in @apan!he group its dynamics and its pressure has a profound impact on the managerial process. In an

office setting of a work environment, when there are no dividing walls, peers are well aware of theperformance of their colleagues. Besides, the managers are a part of the work group, rather than beingseparated from the rank 8 file employees by an office door. !he measurement of individual performance isnot against specific verifiable objectives- instead, emphasis is placed on group performance. !he @apaneseapproach of letting subordinates save faceD would be incongruent with fi+ing the blame for deviations fromplans on individuals, control emphasizes process, not numbers. !oday, the @apanese are well6known fortheir concern for *uality. !here was a time when @apanese products had an inferior *uality image, this hasdramatically changed. >ow, the good *uality image is associated with @apanese products. !his is partly dueto the success of *uality control, which re*uires grassroots involvement and active participation in Quality Control Circles! /ccording to the @apanese, *uality 8 productivity can be obtained in various ways. !oyotaemphasizes the "ai#en concept , which re*uires continuous improvement. !he idea behind this concept is

that continuously taking small steps in improvement will be the key to long6term success. )o far, thisstrategy has worked well for !oyota, considered to be the best carmaker in the world.

Controlling in ChinaIn China, control is e+ercised primarily by group leaders. !he control focus is not only on groups

but also on individuals. <actory managers are e+pected to meet their annual *uota of production. !heChinese control practices are a mi+ture of A) 8 @apanese managerial practices. In identifying deviationsfrom standards, there is a tendency to let the persons responsible for sub6performance save face which is



similar to the @apanese practice. !here are some uses of Quality Circles- although these are commonlypracticed.

)ummaryIt may be noted that the comparisons of planning, organizing, staffing, coordinating, leading 8

controlling practices in the A), @apan 8 China make it clear that the application of the principles andmanagerial concepts differ in these ' countries. It is also apparent that managers with a global orientation will learn about management at it is practiced, not only in their own country but also in other places in the world. Chinese managers look at both A) and @apanese managerial practices and compare them with theirpast e+periences. )ome practices from the A) 8 @apan may be transferable, but others are not. !heenvironment, especially socio6cultural factors, does not influence practice.

Comparison of Controlling Practices in ' Countries"

A.). &anagement#. Control by )uperior

%. Control <ocus on individuals'. <i+ing blame0. ?imited use of Euality Control Circles

@apanese &anagement#. Control by Peers%. Control <ocus on 4roup Performance'. )aving <ace0. $+tensive use of Euality Control Circles

Chinese &anagement#. Control by 4roup ?eader :superior;%. Primary Control focus on 4roup :also on individuals;'. !rying to )ave <ace0. ?imited Ase of Euality Control Circles

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Eng g Mgt - 8 Controlling