Managerial Control Tools and Techniques
Unit VII: Control Tools
Basics
Control involves measuring and correcting individual and organizational performance to ensure alignment with plans. This includes measuring performance against goals, detecting deviations from standards, and taking corrective actions.
Control activities are often associated with measuring achievements. Tools like budget expenditures, inspection records, and records of lost man-hours serve as measurement tools, indicating whether plans are effective. Persistent deviations necessitate corrective action. However, what remedies are available? Activities are carried out through people. For instance, reducing waste, ensuring purchases meet specifications, or controlling sales revenue requires understanding who is responsible for these functions. Achieving plan compliance means identifying individuals accountable for deviations and implementing necessary steps to improve their performance.
Effective organizational control is crucial for survival in a competitive environment. While companies might temporarily withstand competition, long-term success favors organizations that implement efficient control measures to minimize waste and optimize resource utilization.
Application of Control
Managers can enhance control before, during, or after an activity. These correspond to preventive control, concurrent control, and corrective control, respectively.
Preventive Control (Prior to Action)
The most desirable type of control, preventive control, aims to prevent anticipated problems before they occur. It focuses on the future. Consider these examples:
- When McDonald’s opened its first restaurant in Moscow, they sent quality control experts to train Russian farmers in growing high-quality potatoes and bakers in producing high-quality bread. This emphasizes McDonald’s commitment to product quality regardless of location, ensuring consistent taste across all restaurants.
- Preventive maintenance programs for aircraft, aimed at detecting and preventing structural damage that could lead to accidents, are another example of preventive control.
Preventive control involves taking administrative action before a problem arises. It’s advantageous because it allows management to prevent issues rather than fixing them later. However, it requires timely and accurate information, which can be challenging to obtain. Consequently, managers often rely on concurrent and corrective controls.
Concurrent Control
Concurrent control occurs simultaneously with an activity. By applying control during task execution, managers can address problems before they escalate. Direct supervision is a common form of concurrent control. When managers directly supervise subordinates, they can monitor actions and correct issues in real-time. While there’s a slight delay between the activity and the manager’s response, it’s minimal.
Technical equipment can incorporate concurrent controls. For example, computers often provide immediate feedback for errors, rejecting incorrect commands and indicating the issue. Word processing programs flag potential spelling mistakes. Many organizations utilize concurrent controls in quality management to inform workers whether their production and performance meet quality standards.
Corrective Control (After Action)
The most prevalent type of control relies on feedback. This inspection takes place after an activity concludes. An example is a sales report used to evaluate beer sales, which falls under corrective control.
The primary drawback of corrective control is that the damage is already done when the manager receives the information. It’s akin to “closing the barn door after the horse has bolted.” However, in many situations, feedback is the only feasible control mechanism. Financial statements are an example. If they reveal declining sales revenue, the decline has already occurred. The manager’s only recourse is to investigate the cause and implement corrective measures.
Methods of Control
Cost Control
- Cost Center: A unit where managers are responsible for all associated costs.
- Direct Costs: Costs that are proportional to the quantity of goods or services produced.
- Indirect Costs: Costs that are largely unaffected by changes in production volume.
An auto industry analyst highlighted the contrasting approaches to cost control in the United States and Japan. The Japanese view cost control as an ongoing, essential practice, while Americans often treat it as a special project with a defined endpoint. However, cost control should be integral to the design of operating systems and a constant focus for all managers.
Many organizations adopt a cost center approach to control costs. Work areas, departments, or entire plants are designated as specific cost centers, with managers accountable for their unit’s cost performance. Total cost comprises direct and indirect costs. Direct costs are those incurred in proportion to production volume, typically including labor and materials. Indirect costs are largely independent of production volume and persist even when production is halted. Examples include insurance costs and salaries of permanent employees. This distinction is crucial because cost center managers are responsible for their unit’s direct costs, while indirect costs may not be under their control. However, since all costs are ultimately controllable at some organizational level, top management must determine where control resides and hold lower-level managers accountable for the costs within their purview.
Purchasing Control
An organization’s processes and outputs depend on the quality of its inputs. High-quality products require high-quality inputs. For instance, skilled furriers need fine leathers, and service stations rely on suppliers for a consistent supply of gasoline with the correct octane rating. Without the right inputs, businesses cannot function effectively.
Managers must monitor the delivery, performance, quality, quantity, and price of inputs from suppliers. The goal of purchasing control is to ensure product availability, acceptable quality, and reliable sources while minimizing costs.
Effective purchasing control involves collecting information on delivery dates and conditions, supply quality and consistency with business processes, and supplier performance in terms of pricing. This data can be used to qualify suppliers, identify problems, guide supplier selection, and detect trends. For example, it can help assess supplier responsiveness, service quality, reliability, and competitiveness.
Developing close relationships with suppliers is becoming increasingly common. Instead of relying on numerous suppliers and forcing them to compete, manufacturers often partner with a smaller number of suppliers, collaborating to improve efficiency and quality.
Quality Control
Quality encompasses the physical and non-physical characteristics that define something’s nature. Size, shape, and color are direct qualities, while durability, lifespan, and integrity are more complex to define, measure, and control. Explicit quality control programs are prominent in manufacturing, where inspection occurs at various stages of the process.
- Acceptance Sampling: A quality control procedure where a sample is taken, and the decision to accept or reject the entire lot is based on an estimate of the risk of error in the sample.
- Process Control: A quality control procedure where sampling occurs during the transformation process to determine if the process is under control.
- Attributes Sampling: A quality control technique where elements are classified as acceptable or unacceptable based on comparison with a standard.
- Variable Sampling: A quality control technique where measurements are taken to determine the magnitude of an element’s variation from the standard.
Quality control involves monitoring various aspects like weight, strength, consistency, color, taste, reliability, and finish to ensure that products or services meet predetermined standards. It may be necessary to implement quality control at multiple points, starting from the receipt of inputs and continuing through all stages of the production process. Assessments at intermediate stages are often integral to quality control. Early detection of defects in parts or processes can save the cost of later adjustments.
Before implementing quality control measures, managers must decide whether to inspect 100% of the items or use sampling. 100% inspection is justified when evaluation costs are very low or the consequences of a statistical error are severe (e.g., in manufacturing drugs for open-heart surgery). Statistical sampling is usually more cost-effective and sometimes the only feasible option. For example, if the quality test destroys the product (e.g., light bulbs, fireworks, pregnancy test kits), sampling is necessary.
Statistical quality control procedures fall into two categories: acceptance sampling and process control. Acceptance sampling involves assessing purchased or manufactured materials or products that already exist. It’s a form of preventive control before use and corrective control after production. A sample is taken, and the decision to accept or reject the entire lot is based on the calculated risk of error in the sample and whether it meets acceptable quality levels.
Process control involves statistical sampling during the transformation process (a form of concurrent control) to monitor whether the process is under control. For example, in a Coca-Cola bottling plant, process control can detect if a machine is malfunctioning and underfilling bottles. Managers can then halt the process and recalibrate the machine. Tests within process control can also determine if discrepancies fall outside the acceptable quality range. Since most production processes exhibit natural variations, these tests can identify serious problems requiring immediate action.
A final consideration in quality control is whether testing involves attributes or variables. Attributes sampling involves inspecting and classifying elements as acceptable or unacceptable based on comparison with a standard. This is how products like paint color, fabric quality, or potato chip quality are evaluated. Variable sampling involves measuring the magnitude of an element’s deviation from the standard, using a range rather than a simple dichotomy. Managers typically define the standard and acceptable deviation. Samples within the range are accepted, while those outside are rejected.