Evaluation and Control Information

Performance data Activity reports

Measuring performance
The end result of activity

What Is Control?
Robert J. Mockler's definition of control points out the essential elements of the control process: Management control is a systematic effort to set performance standards with planning objectives, to design information feedback systems, to compare actual performance with these predetermined standards, to determine whether there are any deviations and to measure their significance, and to take any action required to assure that all corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives. Management can implement controls before an activity commences, while the activity is going on, or after the activity has been completed. The three respective types of control based on timing are feedforward, concurrent, and feedback.

Feedforward control focuses on the regulation of inputs (human, material, and financial resources that flow into the organization) to ensure that they meet the standards necessary for the transformation process. Feedforward controls are desirable because they allow management to prevent problems rather than having to cure them later. Unfortunately, these control require timely and accurate information that is often difficult to develop. Feedforward control also is sometimes called preliminary control, precontrol, preventive control, or steering control. However, some authors use term "steering control" as separate types of control. This types of controls are designed to detect deviation some standard or goal to allow correction to be made before a particular sequence of actions is completed.

Concurrent control takes place while an activity is in progress. It involves the regulation of ongoing activities that are part of transformation process to ensure that they conform to organizational standards. Concurrent control is designed to ensure that employee work activities produce the correct results. Since concurrent control involves regulating ongoing tasks, it requires a through understanding of the specific tasks involved and their relationship to the desired and product. Concurrent control sometimes is called screening or yes-no control, because it often involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on products or services.

Feedback control focuses on the outputs of the organization after transformation is complete. Sometimes called postaction or output control, fulfils a number of important functions. For one thing, it often is used when feedforward and concurrent controls are not feasible or are to costly. First, feedback provides managers with meaningful information on how effective its planning effort was. If feedback indicates little variance between standard and actual performance, this is evidence that planning was generally on target. If the deviation is great, a manager can use this information when formulating new plans to make them more effective. Second, feedback control can enhance employees motivation.

Multiple Controls -Feedforward, concurrent, and feedback control methods are not mutually exclusive. Rather, they usually are combined into an multiple control systems. Managers design control systems to define standards of performance and acquire information feedback at strategic control points. Strategic control points are those activities that are especially important for achieving strategic objectives. When organizations do not have multiple control systems that focus on strategic control points, they often can experience difficulties that cause managers to reevaluate their control processes.

Managerial Approaches To Implementing Controls There are three control approaches regarding the mechanisms managers will use to implement controls: market control, bureaucratic control, and clan control. Market Control Market control involves the use of price competition to evaluate output. Managers compare profits and prices to determine the efficiency of their organization. In order to use market control, there must be a reasonable level of competition in the goods or service area and it must be possible to specify requirements clearly. Market control is non appropriate in controlling functional departments, unless the price for services is set through competition and its representative of the true value of provided services.

Bureaucratic Control Bureaucratic control is the use of rules, policies, hierarchy of authority, written documentation, reward systems, and other formal mechanisms to influence employee behavior and assess performance. Bureaucratic control can be used when behavior can be controlled with market or price mechanisms Clan Control Clan control represents cultural values almost the opposite of bureaucratic control. Clan control relies on values, beliefs, corporate culture, shared norms, and informal relationships to regulate employee behaviors and facilitate the reaching of organizational goals. Organization that use clan control require trust among their employees. Given minimal direction and standards, employees are assumed to perform well - indeed, they participate in setting standards and designing the control systems.

Types of Controls
Behavior controls
How something is done through policies, procedures, rules, SOPs

Types of Controls
Output controls
What is to be accomplished; focus on end result through performance targets

Types of Controls
Input controls
Resources skills, abilities, values, motives

Types of Controls
Behavior controls
ISO 9000 Standards Series ISO 14000 Standards Series

Types of Controls
Activity Based Costing (ABC)
Allocation of indirect and fixed costs to individual products or product lines Based on value-added activities More accurate charge of costs

Types of Controls
Enterprise Risk Management (ERM)
Identify risks Rank risks Measure risks

Primary Measures of Performance

Traditional Financial Measures
Return on investment (ROI) Earnings per share (EPS) Return on equity (ROE) Operating cash flow Free cash flow

Primary Measures of Performance

Shareholder
Shareholder value Economic value added (EVA) Market value added (MVA)

Primary Measures of Performance

Balanced Scorecard Approach
Financial Customer Internal business perspective Innovation and learning

Evaluating Top Management & Board

Chairman-CEO Feedback Instrument Management Audit Strategic Audit

Divisional & Functional Performance

Responsibility Centers
Standard cost centers Revenue centers Expense centers profit centers Investment centers

Using Benchmarking
Continual process of measuring products, service, and practices against the toughest competitors or those companies recognized as industry leaders

International Measurement Issues

International transfer pricing Repatriation of profit piracy

Strategic Information Systems

Enterprise Resource Planning (ERP) Divisional and functional IS support

Problems in Measuring Performance

Short-term orientation Goal displacement
Behavior substitution Suboptimization

Guidelines for Proper Control

Minimum amount of information necessary Meaningful activities and results Timely Long and short-term Pinpointing exceptions Meeting/exceeding standards

Strategic Incentive Management

Weighted-factor method Long-term evaluation method Strategic funds method