CONTROLLINGCONTROLLING

Anuj Tagra (25)Shweta Singh (22)Anuja Deora (28)Vikash Bairoliya (04)

ControllingControlling

A process of monitoring performance and A process of monitoring performance and taking action to ensure desired results.taking action to ensure desired results.

Any process that directs the activities of Any process that directs the activities of individuals toward the achievement of individuals toward the achievement of organizational goals.organizational goals.

It sees to it that the right things happen, It sees to it that the right things happen, in the right ways , in the right time.in the right ways , in the right time.

Characteristics/ Strategies Of Characteristics/ Strategies Of ControlsControls

System control Features and requirements

Bureaucratic controlUses formal rules, standards, hierarchy, legitimate authority. Works best where tasks are certain and workers are independent.

Market controlUses prices, competition, profit centers, exchangerelationships. Works best where tangible output can be identified and market can be established between parties.

Clan controlInvolves culture, shared values, beliefs, expectations, and trust. Works best where there is “no one best way” to do a job and where employees are empowered to make decisions.

The Control ProcessThe Control Process

Setperformance

standards

Measureperformance

CompareDeterminedeviation

Withinlimits

Standards

No

Continuework

progress

YesTake

correctiveaction

Bureaucratic Control Systems Bureaucratic Control Systems

Approaches to bureaucratic controlApproaches to bureaucratic control

Feedforward controlFeedforward control - control process used - control process used before operations beginbefore operations begin

future orientedfuture oriented prevent problems before they occurprevent problems before they occur includes policies, procedures, and rulesincludes policies, procedures, and rules

Concurrent controlConcurrent control - control process used - control process used while plans are being carried outwhile plans are being carried out

the heart of any control systemthe heart of any control system directing, monitoring, and fine-tuning activities as directing, monitoring, and fine-tuning activities as

they are occurthey are occur advances in information technology have created advances in information technology have created

powerful concurrent controlspowerful concurrent controls

Feedback controlFeedback control

Control that focuses on the use of information Control that focuses on the use of information about previous results to correct deviations from about previous results to correct deviations from the acceptable standardthe acceptable standard

Implies that performance data were gathered and Implies that performance data were gathered and analyzedanalyzed

Results used to make correctionsResults used to make corrections Timing is an important aspect of feedback controlTiming is an important aspect of feedback control Some feedback processes are under real-time Some feedback processes are under real-time

(concurrent) control(concurrent) control

Bureaucratic Control Systems Bureaucratic Control Systems

A type of feedback control.A type of feedback control. Most important quality control tool.Most important quality control tool. Developed by Motorola in the late 1980’s.Developed by Motorola in the late 1980’s. GE Commercial introduced it in financial GE Commercial introduced it in financial

services domain.services domain. Six sigma achieves 99.99966 percent level Six sigma achieves 99.99966 percent level

of accuracy.of accuracy.

Six SigmaSix Sigma

Relationship Between Sigma Level Relationship Between Sigma Level And Defects/Million OpportunitiesAnd Defects/Million Opportunities

Sigma level DPMO Examples of four sigma quality

20,000 lost articles of mail per hour

Unsafe drinking water 15 minutes per day

5,000 incorrect surgical operations per week

200,000 wrong prescriptions each year

No electricity for 7 hours each month

2 308,537

3 66,807

4 6,210

5 233

6 3.4

Dabbawala Association is Six sigma certified.Dabbawala Association is Six sigma certified.

Employee strength of 5000.Employee strength of 5000.

Deliver 2 lacs dabbas everyday.Deliver 2 lacs dabbas everyday.

They rely on low capital .They rely on low capital .

Groups work independently and network.Groups work independently and network.

Meet once a month where all the groups gather and thrash out issues.Meet once a month where all the groups gather and thrash out issues.

No retirement age. People work as long as they want to.No retirement age. People work as long as they want to.

Involves a lot of physical exercise, so they rarely suffer from illnesses.Involves a lot of physical exercise, so they rarely suffer from illnesses.

Dabbawallas have a credit society which gets them through money Dabbawallas have a credit society which gets them through money

crunches.crunches.

Being ‘annadattas’ they are automatically treated with respectBeing ‘annadattas’ they are automatically treated with respect

DabbawallasDabbawallas

The first dabbawalla picks up the tiffin from home The first dabbawalla picks up the tiffin from home

and takes it to the nearest railway station.and takes it to the nearest railway station.

The second dabbawalla sorts out the dabbas at The second dabbawalla sorts out the dabbas at

the railway station according to destination and the railway station according to destination and

puts them in the luggage carriage. puts them in the luggage carriage.

The third one travels with the dabbas to the The third one travels with the dabbas to the

railway stations nearest to the destinations. railway stations nearest to the destinations.

How Is The Dabba DeliveredHow Is The Dabba Delivered

Scope of CompetitionScope of Competition

Working of DabbawallasWorking of Dabbawallas

Bureaucratic ControlBureaucratic Control Management AuditsManagement Audits

• Evaluation of the effectiveness and efficiency of various Evaluation of the effectiveness and efficiency of various systems within an organization.systems within an organization.

External Audit External Audit

• Evaluation conducted by one organization, such as a CPA Evaluation conducted by one organization, such as a CPA firm, on another.firm, on another.

Internal Audit Internal Audit

• Periodic assessment of a company’s own planning, Periodic assessment of a company’s own planning, organizing, leading, and controlling processes.organizing, leading, and controlling processes.

Most widely recognized and commonly Most widely recognized and commonly used method of managerial controlused method of managerial control

BudgetingBudgeting

Process of investigating what is being done Process of investigating what is being done and comparing the results with the and comparing the results with the corresponding budget data corresponding budget data

Budgetary ControlBudgetary Control

Fundamental Budgetary ConsiderationsFundamental Budgetary Considerations

Budgetary control proceeds through several stagesBudgetary control proceeds through several stages

Budgetary ControlBudgetary Control

Types Of BudgetsTypes Of Budgets

Accounting AuditsAccounting Audits

• Procedures used to verify accounting reports and Procedures used to verify accounting reports and statementsstatements

• Performed by an outside firm of public accountantsPerformed by an outside firm of public accountants

Activity-Based Costing (ABC)Activity-Based Costing (ABC)

• Cost accounting method that identifies streams of activityCost accounting method that identifies streams of activity

• Employees break down what they do to define Employees break down what they do to define basic basic activitiesactivities

• Total amounts spread over the activities according to time Total amounts spread over the activities according to time spent on eachspent on each

• Provides an accurate picture of how costs should be chargedProvides an accurate picture of how costs should be charged

• Highlights where wasted activities are occurringHighlights where wasted activities are occurring

Budgetary ControlBudgetary Control

Balance SheetBalance Sheet

Report that shows the financial picture of a company at a given Report that shows the financial picture of a company at a given timetime

Shows trends over timeShows trends over time

Gives managers insight into overall performanceGives managers insight into overall performance

Identifies areas which require adjustmentsIdentifies areas which require adjustments

Profit and loss statementProfit and loss statement

Itemized financial statement of the income and expenses Itemized financial statement of the income and expenses of a company’s operationsof a company’s operations

Comparisons of profits and losses can identify trouble Comparisons of profits and losses can identify trouble areasareas

A common control for the enterprise as a wholeA common control for the enterprise as a whole

Financial ControlsFinancial Controls

Financial RatiosFinancial Ratios

Indicate possible strengths and weaknesses Indicate possible strengths and weaknesses calculated from selected items on the Profit and calculated from selected items on the Profit and

Loss statement and the Balance SheetLoss statement and the Balance Sheet

liquidity ratios liquidity ratios leverage ratiosleverage ratios Profitability ratios Profitability ratios

Financial ControlsFinancial Controls

Downside of bureaucratic controlDownside of bureaucratic control

Rigid bureaucratic behaviorRigid bureaucratic behavior

• Acting in ways that make one look good on the control system’s Acting in ways that make one look good on the control system’s measuremeasure

Tactical behaviorTactical behavior

• Behavior aimed at “beating the systemBehavior aimed at “beating the system

Resistance to controlResistance to control

• control system can change expertise and power structurescontrol system can change expertise and power structures

• control system can change the social structurecontrol system can change the social structure

• control system may be perceived as an invasion of privacycontrol system may be perceived as an invasion of privacy

Markets ControlMarkets Control Market controlMarket control

involves the use of economic forces - and the pricing involves the use of economic forces - and the pricing mechanisms that accompany them - to regulate performancemechanisms that accompany them - to regulate performance

as a market for these transactions becomes established:as a market for these transactions becomes established: price becomes an indicator of the value of the product or serviceprice becomes an indicator of the value of the product or service price competition effectively controls performanceprice competition effectively controls performance

market controls at the corporate levelmarket controls at the corporate level used to regulate independent business unitsused to regulate independent business units business units treated as competing profit centers business units treated as competing profit centers profit and loss data used to evaluate performanceprofit and loss data used to evaluate performance

Market control (cont.)Market control (cont.)

• market controls at the business unit levelmarket controls at the business unit level

regulates exchange among departments and functionsregulates exchange among departments and functions

transfer pricetransfer price - price charged by one unit in the organization for a - price charged by one unit in the organization for a

product or service that it supplies to another unit of the same product or service that it supplies to another unit of the same

organizationorganization

• ideally, reflects the price that the receiving business unit would ideally, reflects the price that the receiving business unit would

have to pay for that product or service in the marketplacehave to pay for that product or service in the marketplace

provide natural incentives to keep costs down when organization provide natural incentives to keep costs down when organization

has the option to outsource products and services to external has the option to outsource products and services to external

partnerspartners

Markets ControlMarkets Control

Example Of Market ControlExample Of Market Control

CEO uses marketcontrols to evaluate

performance of businessunit heads

Managers use transferpricing to establishvalues for internaltransactions among

units

Market rates determinethe base wage/salary formanagers and employees

CEO/President

Businessunit

manager

Businessunit

manager

Businessunit

manager

Businessunit

manager

Clan control: the role of empowerment and cultureClan control: the role of empowerment and culture• Bureaucratic and market controls are no longer sufficient because:Bureaucratic and market controls are no longer sufficient because:

employees’ jobs have changedemployees’ jobs have changed the nature of management has changedthe nature of management has changed the employment relationship has changedthe employment relationship has changed

• EmpowermentEmpowerment - has become a necessary aspect of a manager’s - has become a necessary aspect of a manager’s repertoire of controlrepertoire of control

employees trusted to act in the best interests of the firm employees trusted to act in the best interests of the firm does not mean giving up management controldoes not mean giving up management control

• Clan controlClan control - create relationships built on mutual respect - create relationships built on mutual respect encourage each person to take responsibility for her/his encourage each person to take responsibility for her/his

actionsactions

Clan ControlClan Control

Clan controlClan control

• diagnosing culturediagnosing culture - clues about culture - clues about culture

• corporate mission statements and official goalscorporate mission statements and official goals

• business practicesbusiness practices

• symbols, rites and ceremoniessymbols, rites and ceremonies

• the stories people tellthe stories people tell

cultures can be categorized according to cultures can be categorized according to whether they emphasize flexibility versus control whether they emphasize flexibility versus control and whether their focus is internal or external to and whether their focus is internal or external to the organizationthe organization

Clan ControlClan Control

Clan control (cont.)Clan control (cont.)•diagnosing culturediagnosing culture (cont.) (cont.)• general cultures can be categorized general cultures can be categorized

group culturegroup culture• dominant attributedominant attribute: cohesiveness, participation, : cohesiveness, participation,

teamwork, sense of familyteamwork, sense of family• leadership styleleadership style: mentor, facilitator, parent-: mentor, facilitator, parent-

figurefigure• bondingbonding: loyalty, tradition, interpersonal cohesion: loyalty, tradition, interpersonal cohesion• strategic emphasisstrategic emphasis: toward developing human : toward developing human

resources, commitment, and moraleresources, commitment, and morale

Clan ControlClan Control

Competing Values Model Of Competing Values Model Of CultureCulture

Group

Hierarchy

Adhocracy

Rational

ExternalPositioning

InternalMaintenance

FlexibleProcesses

Control-OrientedProcesses

Management Control In An Management Control In An Empowered SettingEmpowered Setting

1.Put control where the operation is

2.Use “real time” rather than after-the-fact controls

3.Rebuild the assumptions underlying management control to build on trust rather than distrust

4.Move to control based on peer norms

5.Rebuild the incentive systems to reinforce responsiveness and teamwork

DESIGNING EFFECTIVE CONTROL DESIGNING EFFECTIVE CONTROL SYSTEMSSYSTEMS

1. Establish valid performance standards

2. Tend to expressed in quantitative terms

3. Provide adequate information Relevant ,right amount, accesible, feedback

4. Ensure acceptability to employees

5. Useful but not over controlling standards

6. Maintain open communication

7. Use multiple approaches

Performance MetricsPerformance Metrics

Customer SatisfactionCustomer Satisfaction Market ShareMarket Share Revenue GrowthRevenue Growth ExpensesExpenses EarningsEarnings

TIME EVENT NETWORK ANALYSIS PERTTIME EVENT NETWORK ANALYSIS PERT

•Circle – event

•Arrow – activity

•Activity times -numbers beside the arrows