Anda di halaman 1dari 32

Controlling:

As a Management
Function

1
--------------------------------------------------------------------
Controlling: As a Management Function

Prepared For: Professor Neaz Ahmed

Prepared By: Group-05

Mehdi Zaman
Roll No: 62

Mohammad Rashedul Islam


Roll No: 63

Asif Rezwan
Roll No: 64

Khondoker Faisal Alam


Roll No: 67

Rahmat Ali
Roll No: 82

Tareq Shams Laskar


Roll No: 94

Batch: MBA 44D

Institute of Business Administration


Dhaka University

Date of Submission: May 13, 2010

2
May 13, 2010

Professor Neaz Ahmed


Institute of Business Administration
Dhaka University

Dear Sir:

Submission of Term Paper

Here is the term paper on the subject of controlling as a management function.

In going through the subject of controlling, we’ve consulted many library volumes as
well as online resources. We are expectant that the information in this term paper will
benefit all concerned.

Hoping for your appreciation, we’ll be glad to converse with you at your convenience
should you need any assistance.

Sincerely yours,

Mehdi Zaman Roll No: 62

Mohammad Rashedul Islam Roll No: 63

Asif Rezwan Roll No: 64

Khondoker Faisal Alam Roll No: 67

Rahmat Ali Roll No: 82

Tareq Shams Laskar Roll No: 94

3
Table of Contents

.............................................................................................1
Controlling: .............................................................................................1
As a Management Function...................................................................................1
Executive Summery.............................................................................................................6
Introduction..........................................................................................................................7
Objective .............................................................................................................................8
The purpose of controlling...................................................................................................8
Areas of controlling.............................................................................................................8
Responsibilities of controlling.............................................................................................9
Most large organizations also have one or more specialized managerial positions called
controller. The controller is responsible for helping line managers with their control
activities, coordinating the organization’s overall control system. Many businesses that
use a divisional form of organization design have several controllers: one for the
corporation and one for each division. ...............................................................................9
The planning controlling link..............................................................................................9
The organization continuously cycles back and forth between planning and controlling.
The manager makes plans and then uses the control system to monitor progress toward
fulfillment of those plans. The control system, in turn, tells the manager that things are
going as they should. ..........................................................................................................9
The Control Process.............................................................................................................9
7.1 Establishing standards................................................................................................9
7.2 Measuring performance .........................................................................................10
7.3 Comparing performance against standards..............................................................10
7.4 Evaluation and Action.............................................................................................11
Types of operational control:.............................................................................................11
Forms of organizations control..........................................................................................12
Managing the control process............................................................................................13
Understanding Resistance to Control................................................................................14
Overcoming resistance to control......................................................................................15
Choosing a style of control................................................................................................16
Effective Controls..............................................................................................................16

4
Organizational Control Systems........................................................................................17
Operations Management and Control................................................................................17
Features of Controlling Function.......................................................................................18
Characteristics of the Control Process ..............................................................................19
Management Control Strategies .......................................................................................19
Designing Effective Control Systems ...............................................................................20
Dysfunctional Consequences of Control ..........................................................................20
Various Administrative Controls.......................................................................................21
22.1 Delegation..............................................................................................................21
22.2 Evaluations.............................................................................................................21
Financial Statements (particularly budget management)..................................................21
Quality Control and Operations Management...................................................................22
Relationship between planning and controlling................................................................23
Quality control...................................................................................................................23
View of Organizational Control........................................................................................24
Statistical Process Control Charts......................................................................................25
Control Chart Elements.....................................................................................................26
Use of Statistical charts in Controlling..............................................................................28
Common Types of Charts..............................................................................................28
Control Individual Observations........................................................................................29
Out-Of-Control Process: Runs Tests.................................................................................30
Learning.............................................................................................................................32

5
Executive Summery

Controlling is a four-step process of establishing performance standards based on the


firm's objectives, measuring and reporting actual performance, comparing the two, and
taking corrective or preventive action as necessary. It actually is a process of monitoring
performance and taking action to ensure desired results.

Performance standards come from the planning function. No matter how difficult,
standards should be established for every important task. Although the temptation may be
great, lowering standards to what has been attained is not a solution to performance
problems. On the other hand, a manager does need to lower standards when they are
found to be unattainable due to resource limitations and factors external to the business.
Control helps an organization adapt to changing conditions, limits the compounding of
errors, helps an organization cope with complexity, and helps minimize cost.

In today’s complex and turbulent environment, all organizations must contend with
change. If managers could establish goals and achieve them instantaneously, control

6
would not be needed. But between the time a goal is established and the time it is
reached, many things can happen in the organization and its environment to disrupt
movement toward the goal or even to change the goal itself. A properly designed control
system can help managers anticipate, monitor, and to changing circumstances.

Small mistakes and errors do not often seriously damage the health of an organization.
With the passage of time, however, small errors may accumulate and become very
serious.

When a firm purchases only one raw material, produces but one product, has a simple
structure, and enjoys constant demand for its product, its managers can probably
maintain control with a note pad and pencil. But in an organization that produces many
products from myriad raw materials, has a large market area and complicated
organization structure, and operates in a competitive environment, it is difficult to
maintain adequate control without and elaborate control system.

When control is practiced effectively, it can help reduce costs and boosts output.
Effective control system can eliminate waste, lower labor costs, and improve output per
unit of input.

So in management Controlling plays a major role in achieving a specific target.

Introduction
Controlling is a systematic exercise which is called as a process of checking actual
performance against the standards or plans with a view to ensure adequate progress and
also recording such experience as is gained as a contribution to possible future needs.”

Just as a navigator continually takes reading to ensure whether he is relative to a planned


action, so should a business manager continually take reading to assure himself that his
enterprise is on right course.”

Corrective action is necessary when performance is below standards. If performance is


anticipated to be below standards, preventive action must be taken to ensure that the
problem does not recur. If performance is greater than or equal to standards, it is useful to
reinforce behaviors that led to the acceptable performance.

It sees to it that the right things happen, in the right ways, and at the right time. Done
well, it ensures that the overall directions of individuals and groups are consistent with
short and long range plans. It helps ensure that objectives and accomplishments are

7
consistent with one another throughout an organization. It also helps maintain compliance
with essential organizational rules and policies.

Objective
As a part of our “Management of organization” course we are working on Controlling.
We believe this study will help us learning the concept of controlling in detailed with
various perspective in it. Further more this study will help us learn how to take a group
decision effectively as well as how to work in a group efficiently toward a single group
task. Besides learning controlling we tried to develop our communication skill by
interacting with each other which will help us in the long run while working in an
organization.

The purpose of controlling


In many ways the purpose of control should be obvious. The purpose of control is to
provide managers with an assessment of where the organization is in comparison to
where it is supposed to be at a certain point in time and in terms of one or more indicators
of performance.

Areas of controlling
Organizational control can focus on any area of an organization. Two useful ways of
identifying areas of control are in terms of resource focus and level.

The resource view of control, as shown in the fig: deals with financial, physical, human,
and information resources. The management process itself involves efficiently and
effectively combining these resources into appropriate outputs. Control of physical
resources includes inventory management, quality, control, and equipment control.
Control of human resources includes selection and placement activities, training and
development, performance appraisal, and compensation levels. Control of information
resources involves sales and marketing forecasting, environmental analysis, public
relations, production scheduling, and economic forecasting.

Control can also classified by level. Operations control is control focused on one or more
operation systems within an organization. Quality control is one type of operations
control. Organizational control is concerned with the overall functioning of the
organization. Strategic control is concerned with how effectively organization
understands and aligns itself with its environment.

8
Responsibilities of controlling

Managers have always been responsible for managing control. It is they who actually
implement control systems and take appropriate actions based on the information
provided by those control systems.

Most large organizations also have one or more specialized managerial positions called
controller. The controller is responsible for helping line managers with their control
activities, coordinating the organization’s overall control system. Many businesses
that use a divisional form of organization design have several controllers: one for the
corporation and one for each division.

The planning controlling link


The organization continuously cycles back and forth between planning and controlling.
The manager makes plans and then uses the control system to monitor progress toward
fulfillment of those plans. The control system, in turn, tells the manager that things are
going as they should.

The Control Process


• Establish objectives and standards.
• Measure actual performance.
• Compare results with objectives and standards.
• Take necessary action.

7.1 Establishing standards

The first step in the control process is the establishment of standards. A standard is a
target against which subsequent performance is to be compared. As much as possible,
standard established for control purposes should be derived from the organizations goals.

On a broader level, control standards also reflect organizational strategy. A final aspect of
establishing standards is to decide which performance indicators are relevant. When a

9
new product is introduced, its manufacturer should have some idea in advance whether
the first month’s sale will take a while to gather momentum.

• The control process begins with planning and the establishment of performance
objectives.
• Performance objectives are defined and the standards for measuring them are set.

There are two types of standards:


– Output Standards- measures performance results in terms of quantity,
quality, cost, or time.
– Input Standards- measures work efforts that go into a performance task.

7.2 Measuring performance

The second step in the control process is measuring performance. Performance refers to
that which we are attempting to control. The measurement of performance is a constant,
ongoing activity for most organizations, and for control to be effective, relevant
performance measures must be valid. When a manager is concerned with controlling
sales, daily, weekly, or monthly sales figures represent actual performance. For a
production manager, performance may be expressed in terms of unit cost, quality or
volume. For employees, performance may be measured in terms of quality or quantity of
output.

• Measurements must be accurate enough to spot deviations or variances between


what really occurs and what is most desired.
• Without measurement, effective control is not possible.

7.3 Comparing performance against standards

The third step in the control process is to compare measured performance against the
standards developed in step 1. Performance may be higher than, lower than, or the same
as the standards. The issue is how much leeway is permissible for remedial action is
taken. In some cases comparison is easy. It is relatively simple to determine whether this
standard has been met.

In other settings, however, comparison is less clear-cut. Assume that each of three sales
managers has a goal of increasing sales by 10% during the year. At the end of year, one
manager has increased sales by 9.9%, another by 9.3% and the third by 8.7%. How do we

10
decide whether each has met the standard? For the most part, this is a management
decision that must be based on many relevant factors. Although none of the three sales
managers attained the precise goal of 10%, one was very close. Another may have met
with unexpected competition from a new company. These and other relevant factors must
be considered.

• The comparison of actual performance with desired performance establishes the


need for action.
• Ways of making such comparisons include:
Historical / Relative / Engineering
Benchmarking

7.4 Evaluation and Action

The final step in the control process is to evaluate performance and then take appropriate
action. This evaluation draws heavily on a manager’s analytic and diagnostic skills. After
evaluation, one of three actions is usually appropriate.

• Maintain the status quo: One response is to do nothing, or maintain the statues
quo. This action is generally appropriate when performance more or less measures
up to the standard.
• Correct the deviation: It is more likely that some action will be needed to correct a
deviation from the standard. If the cost-reduction standard is 4% and we have thus
far managed only a 1% reduction, something must be done to get us back on
track. We may need to motivate our employees to work harder or supply them
with new machinery. Managers at sharper image saw a clear problem with their
same–store sales and took corrective action immediately.
• Change standards: A final response to the outcome of comparing performance to
standards is to change the standards. The standard may have been too high or too
low to begin with. The company may need to reassess its standard and adopt a
lower one to better reflect the realities of its marketplace.
• Taking any action necessary to correct or improve things.
• Management-by-Exception focuses managerial attention on substantial
differences between actual and desired performance.
.

Types of operational control:


Operational control can take three forms-preliminary, screening and post action. The
three forms vary primarily in terms of where they occur in relation to the transformation
processes used by the organization.

11
a. Preliminary Control (feed forward)

Preliminary Control concentrated on inputs to the system early in the overall process.
Preliminary control attempts to monitor the quality or quantity of financial, physical,
human and information resources before they become part of the system. Firms like
Proctor & Gamble and General Mills hire only college graduates for their management
training programmes-and only after several interviews and other selection criteria have
been satisfied. Thus, they control the quality of he human resource entering the
organization. When Sears orders merchandise to be manufactured under its own brand
name, it specifies rigid standards of quality, thereby controlling material inputs.
Similarly, organizations often take steps to control financial and information resources as
they enter the system.

b. Screening Control (Concurrent)

Screening Control takes place during the transformation process. Screening control relies
heavily on feedback processes. Suppose that a manager of a manufacturing control
establishes a number of checkpoints along the assembly line. As the product moves along
the line, it is periodically checked to make sure that all of the components assembled so
far are working properly. This is screening control, because the product is being
controlled during the transformation process itself. Because screening control are widely
applicable and useful in identifying the cause of problems they tend to be used more
often than other forms of control.

More and more companies are adopting a screening control philosophy. Such control
systems are an effective way to promote employee participation and catch problems in
the transformation process.

c. Post action control

Post action control focuses on the outputs of the organization after the transformation
process is complete. If a product can be manufactured in only two or three steps, post
action control may be the most effective method. Although post action control is
generally not as useful as preliminary or screening control, it can be effective in two
important ways. It provides management with information for future planning. Post
action control also provides a basis for rewarding employees.

Forms of organizations control

9.1 Bureaucratic Control

Bureaucratic Control is a form of organizational control characterized by formal and


mechanistic structural arrangements. The goal of bureaucratic control is to extract
employee compliance. Organizations that use it rely on strict rules and a rigid hierarchy,

12
concentrate on ensuring that people meet minimally acceptable levels of performance and
have a tall structure. Moreover they focus their rewards on individual performance and
allow only limited and formal employee participation.

9.2 Clan Control

Clan Control is an approach to organizational control based on informal and organic


structural arrangements. Accordingly, it relies heavily on group norms, a strong corporate
culture and self-control of behavior. The focus of performance is not so much on
minimally acceptable levels, but rather on how people can enhance their levels of
performance beyond minimal levels. Organizations using this approach are usually
relatively flat and encourage shared influence. Rewards are often directed at group
performance and participation is widespread.

9.3 Strategic control

Strategic control-the third level of control practiced by organization-is aimed at ensuring


that the organization is maintaining an effective alignment with its environment and
moving toward achieving its strategic control. Because the study of strategic control is
still in its infancy, there are no generally accepted models or theories. In general,
however, the implementation of strategy generally five basic areas: structures, leadership,
technology, human resources, and information and control systems. Thus it follows that
strategic control should focus on these five areas in order to ensure that strategy has been
and is being effectively implemented.

9.4 Cybernetic Control System

One that is self-contained in its performance monitoring and correction capabilities. The
control process practiced in organizations is not cybernetic, but it does follow similar
principles.

Controlling consists of verifying whether everything occurs in conformities with the


plans adopted, instructions issued and principles established. Controlling ensures that
there is effective and efficient utilization of organizational resources so as to achieve the
planned goals. Controlling measures the deviation of actual performance from the
standard performance, discovers the causes of such deviations and helps in taking
corrective actions.

Managing the control process

13
Developing Effective Control Systems

Control systems tend to be most effective when they are integrated with planning and are
flexible, accurate, timely and objective.

Integrated with Planning

We noted earlier that control should be linked with planning. In general, the more explicit
and precise this linkage is, the more effective the control system will be. The most
important factor in effectively integrating planning and control is to account for control
as plans are developed.

Flexible

Another characteristic of an effective control system is flexibility-that is, the control


system itself must be flexible enough to accommodate change.

Accurate

Control systems must also be accurate. This seems obvious enough, but it is surprising
how many managers base decisions on inaccurate information. Denied accurate
measurement and reporting of performance, managers may take inappropriate action, and
the results of inaccurate information can be quite dramatic.

Timely

Another characteristic of an effective control system is that it provides performance


information in a timely way. Timeliness does not necessarily means fast; it simply means
that information is provided as often as is suitable for that which is being controlled.

Objective

To the extent possible, the information provided by the control system should be
objective or it can be said that the control system should therefore provide objective
information to the manager for evaluation and action, but the manager must take
appropriate precautions in interpreting it.

Understanding Resistance to Control

14
Over control

Occasionally, organizations make the mistake of over control-they try to control too
many things. This becomes especially problematic when the control relates directly to
employee behavior. As for example when a company tells an employee how to dress,
how to wear their hair, employees are likely to feel over controlled.

Inappropriate fears

Another reason for resistance is that the focus of the control system may be inappropriate.
The control system may be too narrow, or it may focus too much on quantifiable
variables and leave no room for analysis or interpretation.

Rewards for inefficiency

If two separate departments in one company gets treated different way for their spending
or conserving like: one dept. is punished (budget cuts) for being overly efficient with
their funds while the other is rewarded (budget increase) for being inefficient. People
naturally resist this kind of control, because the rewards and punishments associated with
spending and conserving are unfair.

Accountability

Another reason some people resist control is that effective control systems create
accountability. When people have the responsibility to do something, effective controls
allow managers to determine whether they successfully discharge that responsibility. If
the standards are properly set and performance is accurately measured, managers not only
know when problems arise but also which dept. and even which individuals are
responsible.

Overcoming resistance to control


Create effective controls

Perhaps the best way to overcome resistance to control is to create effective control to
begin with. If control systems are properly integrated with an organization’s planning
system and if the controls are flexible, accurate, timely and objective, the organization
should not fall victim to the problems of over control, incorrect focus or rewarding
inefficiency.

Encourage Participation

Participation can help overcome resistance to change. By the same token, when
employees are involved with planning and implementing the control system they are less
likely to resist it.

15
Use of MBO

Management by objectives, or MBO can also overcome employee resistance to control.


When MBO is used properly, employee help establish their own goals. These goals, in
turn, become standards against which their performance will be measured. Employees
also know in advance that their rewards will be based on the extent to which they achieve
and maintain those goals and standards.

Use of Checks and Balances

Another way to overcome employee resistance to control is to maintain a system of


checks and balances. The human resource control system should have records on the
matter. Multiple standards and information systems provide checks and balances for
control. Resistance declines because the system of checks and balances serves to protect
employees as well as management.

Choosing a style of control


One approach to selecting a style of control bases the decision on four factors:
management style, organizational style, performance measures, and employee desire to
participate. Management styles are presumed to be either participative (Consulting with
subordinates) or directive (telling others what to do). Organizational style, which is a
composite of culture, structure, and reward systems, can be participative (participative
decision making throughout the organization) or no participative (centralized, with few
people participating in the decision making process). Performance measures are classified
as accurate (reliable, valid, and truly reflective of performance) or relatively inaccurate
(unreliable, ambiguous, and not totally reflective of performance). Finally, employees are
assumed to have either considerable desire to participate in decision-making or little
desire to participate.

Effective Controls

The Best Controls in Organizations are

• Strategic and results oriented


• Understandable
• Encourage self-control
• Timely and exception oriented
• Positive in nature

16
• Fair and objective
• Flexible

Organizational Control Systems

• Management Processes
– Strategy and objectives
– Policies and procedures
– Selection and training
– Performance appraisal
– Job design and work structures
– Performance modeling, norms, and organization culture

• Compensation and Benefits


– Attract talented people and retain them.
– Motivate people to exert maximum effort in their work.
– Recognize the value of their performance contributions.

Employee Discipline

• Discipline is defined as influencing behavior through reprimand.


• Progressive Discipline ties reprimand to the severity and frequency of the
employee’s infractions.
• Positive Discipline tries to involve people more positively and directly in making
decisions to improve their behavior.

Effective Discipline

• Immediate
• Focus on activity not personality
• Consistent

• Informative
• Occur in a supportive setting
• Support realistic rules

Operations Management and Control


• Purchasing

17
– Economic Order Quantity
– automatic reorder points
– Just-In-Time Scheduling
– Project Management

• Program Evaluation and Review Technique (PERT) - Identifies and controls the
many separate events in complex projects.

Statistical Quality Control


– Based on the establishment of upper and lower control limits, that can be
graphically and statistically monitored to ensure that products meet standards.

Controlling has got two basic purposes

1. It facilitates co-ordination
2. It helps in planning

Features of Controlling Function


Following are the characteristics of controlling function of management-

1. Controlling is an end function- A function which comes once the performances


are made in conformities with plans.
2. Controlling is a pervasive function- which means it is performed by managers at
all levels and in all type of concerns.
3. Controlling is forward looking- because effective control is not possible without
past being controlled. Controlling always look to future so that follow-up can be
made whenever required.
4. Controlling is a dynamic process- since controlling requires taking reviewal
methods, changes have to be made wherever possible.
5. Controlling is related with planning- Planning and Controlling are two
inseperable functions of management. Without planning, controlling is a
meaningless exercise and without controlling, planning is useless. Planning
presupposes controlling and controlling succeeds planning.

18
Characteristics of the Control Process
The control process is cyclical which means it is never finished. Controlling leads to
identification of new problems that in turn need to be addressed through establishment of
performance standards, measuring performance etc.

Employees often view controlling negatively. By its very nature, controlling often leads
to management expecting employee behavior to change. No matter how positive the
changes may be for the organization, employees may still view them negatively.

Control is both anticipatory and retrospective. The process anticipates problems and takes
preventive action. With corrective action, the process also follows up on problems.

Ideally, each person in the business views control as his or her responsibility. The
organizational culture should prevent a person walking away from a small, easily
solvable problem because "that isn't my responsibility." In customer driven businesses,
each employee cares about each customer. In quality driven dairy farms, for example,
each employee cares about the welfare of each animal and the wear and tear on each
piece of equipment.

Controlling is related to each of the other functions of management. Controlling builds on


planning, organizing and leading.

Management Control Strategies

Managers can use one or a combination of three control strategies or styles: market,
bureaucracy and clan. (Figure 18.3) Each serves a different purpose. External forces
make up market control. Without external forces to bring about needed control, managers
can turn to internal bureaucratic or clan control. The first relies primarily on budgets and
rules. The second relies on employees wanting to satisfy their social needs through
feeling a valued part of the business.

Self-control, sometimes called adhocracy control, is complementary to market,


bureaucratic and clan control. By training and encouraging individuals to take initiative
in addressing problems on their own, there can be a resulting sense of individual
empowerment. This empowerment plays out as self-control. The self-control then
benefits the organization and increases the sense of worth to the business in the
individual.

19
Designing Effective Control Systems
Effective control systems have the following characteristics:

1. Control at all levels in the business (Figure 19.1)

2. Acceptability to those who will enforce decisions

3. Flexibility

4. Accuracy

5. Timeliness

6. Cost effectiveness

7. Understandability

8. Balance between objectivity and subjectivity

9. Coordinated with planning, organizing and leading

Dysfunctional Consequences of Control


Managers expect people in an organization to change their behavior in response to
control. However, employee resistance can easily make control efforts dysfunctional. The
following behaviors demonstrate means by which the manager's control efforts can be
frustrated:

1. Game playing--> control is something to be beaten, a game between the "boss and me
and I want to win."

2. Resisting control--> a "blue flu" reaction to too much control

3. Providing inaccurate information --> a lack of understanding of why the information is


needed and important leading to "you want numbers, we will give you numbers."

4. Following rules to the letter--> people following dumb and unprofitable rules in
reaction to "do as I say."

5. Sabotaging --> stealing, discrediting other workers, chasing customers away, gossiping
about the firm to people in the community
20
6. Playing one manager off against another --> exploiting lack of communication among
managers, asking a second manager if don't like the answer from the first manager.

Various Administrative Controls


Organizations often use standardized documents to ensure complete and consistent
information is gathered. Documents include titles and dates to detect different versions of
the document. Computers have revolutionized administrative controls through use of
integrated management information systems, project management software, human
resource information systems, office automation software, etc. Organizations typically
require a wide range of reports, e.g., financial reports, status reports, project reports, etc.
to monitor what's being done, by when and how.

22.1 Delegation

Delegation is an approach to get things done, in conjunction with other employees.


Delegation is often viewed as a major means of influence and therefore is categorized as
an activity in leading (rather than controlling/coordinating). Delegation generally
includes assigning responsibility to an employee to complete a task, granting the
employee sufficient authority to gain the resources to do the task and letting the employee
decide how that task will be carried out. Typically, the person assigning the task shares
accountability with the employee for ensuring the task is completed..

22.2 Evaluations

Evaluation is carefully collecting and analyzing information in order to make decisions.


There are many types of evaluations in organizations, for example, evaluation of
marketing efforts, evaluation of employee performance, program evaluations, etc.
Evaluations can focus on many aspects of an organization and its processes, for example,
its goals, processes, outcomes, etc.

Financial Statements (particularly budget management)

Once the organization has establish goals and associated strategies (or ways to reach the
goals), funds are set aside for the resources and labor to the accomplish goals and tasks.
As the money is spent, statements are changed to reflect what was spent, how it was spent
and what it obtained. Review of financial statements is one of the more common methods
to monitor the progress of programs and plans. The most common financial statements

21
include the balance sheet, income statement and cash flow statement. Financial audits are
regularly conducted to ensure that financial management practices follow generally
accepted standards, as well.
Performance Management (particularly observation and feedback phases)
Performance management focuses on the performance of the total organization, including
its processes, critical subsystems (departments, programs, projects, etc.) and employees.
Most of us have some basic impression of employee performance management, including
the role of performance reviews. Performance reviews provide an opportunity for
supervisors and their employees to regularly communicate about goals, how well those
goals should be met, how well the goals are being met and what must be done to continue
to meet (or change) those goals. The employee is rewarded in some form for meeting
performance standards, or embarks on a development plan with the supervisor in order to
improve performance.
Policies and Procedures (to guide behaviors in the workplace)
Policies help ensure that behaviors in the workplace conform to federal and state laws,
and also to expectations of the organization. Often, policies are applied to specified
situations in the form of procedures. Personnel policies and procedures help ensure that
employee laws are followed (e.g., laws such as the Americans with Disabilities Act,
Occupational Health and Safety Act, etc.) and minimize the likelihood of costly
litigation. A procedure is a step-by-step list of activities required to conduct a certain
task. Procedures ensure that routine tasks are carried out in an effective and efficient
fashion.

Quality Control and Operations Management


The concept of quality control has received a great deal of attention over the past twenty
years. Many people recognize phrases such as "do it right the first time, "zero defects",
"Total Quality Management", etc. Very broadly, quality includes specifying a
performance standard (often by benchmarking, or comparing to a well-accepted
standard), monitoring and measuring results, comparing the results to the standard and
then making adjusts as necessary. Recently, the concept of quality management has
expanded to include organization-wide programs, such as Total Quality Management,
ISO9000, Balanced Scorecard, etc. Operations management includes the overall activities
involved in developing, producing and distributing products and services.
Risk, Safety and Liabilities
For a variety of reasons (including the increasing number of lawsuits), organizations are
focusing a great deal of attention to activities that minimize risk, avoid liabilities and
ensure safety of employees. Several decades ago, it was rare to hear of an organization
undertaking contingency planning, disaster recovery planning or critical incident
analysis. Now those activities are becoming commonplace. See

22
Relationship between planning and controlling

Planning and controlling are two separate functions of management, yet they are closely
related. The scope of activities if both is overlapping to each other. Without the basis of
planning, controlling activities becomes baseless and without controlling, planning
becomes a meaningless exercise. In absence of controlling, no purpose can be served by.
Therefore, planning and controlling reinforce each other. According to Billy Goetz,
“Relationship between the two can be summarized in the following points

1. Planning precedes controlling and controlling succeeds planning.


2. Planning and controlling are inseparable functions of management.
3. Activities are put on rails by planning and they are kept at right place through
controlling.
4. The process of planning and controlling works on Systems Approach which is as
follows :

Planning → Results → Corrective Action

5. Planning and controlling are integral parts of an organization as both are


important for smooth running of an enterprise.
6. Planning and controlling reinforce each other. Each drives the other function of
management.

In the present dynamic environment which affects the organization, the strong
relationship between the two is very critical and important. In the present day
environment, it is quite likely that planning fails due to some unforeseen events. There
controlling comes to the rescue. Once controlling is done effectively, it gives us stimulus
to make better plans. Therefore, planning and controlling are in separate functions of a
business enterprise.

Quality control
Quality control is a process employed to ensure a certain level of quality in a product or
service. It may include whatever actions a business deems necessary to provide for the
control and verification of certain characteristics of a product or service. The basic goal
of quality control is to ensure that the products, services, or processes provided meet
specific requirements and are dependable, satisfactory, and fiscally sound.

Essentially, quality control involves the examination of a product, service, or process for
certain minimum levels of quality. The goal of a quality control team is to identify
products or services that do not meet a company’s specified standards of quality. If a
problem is identified, the job of a quality control team or professional may involve

23
stopping production temporarily. Depending on the particular service or product, as well
as the type of problem identified, production or implementation may not cease entirely.

Usually, it is not the job of a quality control team or professional to correct quality issues.
Typically, other individuals are involved in the process of discovering the cause of
quality issues and fixing them. Once such problems are overcome, the product, service,
or process continues production or implementation as usual.

Quality control can cover not just products, services, and processes, but also people.
Employees are an important part of any company. If a company has employees that don’t
have adequate skills or training, have trouble understanding directions, or are
misinformed, quality may be severely diminished. When quality control is considered in
terms of human beings, it concerns correctable issues. However, it should not be
confused with human resource issues.

Often, quality control is confused with quality assurance. Though the two are very
similar, there are some basic differences. Quality control is concerned with the product,
while quality assurance is process–oriented.

Even with such a clear-cut difference defined, identifying the differences between the
two can be hard. Basically, quality control involves evaluating a product, activity,
process, or service. By contrast, quality assurance is designed to make sure processes are
sufficient to meet objectives. Simply put, quality assurance ensures a product or service is
manufactured, implemented, created, or produced in the right way; while quality control
evaluates whether or not the end result is satisfactory.

View of Organizational Control

I. Organization Control includes any process designed to assure that organization plans
are carried out the way they were designed.

a. Traditionally, control processes were primarily quantitative in nature. budgets,


standard cost systems, market quotas

b. Thus, the duty for establishment and analysis of control system results developed
primarily as an accounting function.

c. During the past decade, control systems have moved from strictly quantitative in
nature to both quantitative and qualitative in nature. i.e.; From performance bonuses
based on bottom-line net income to efforts that generate increased satisfaction of
customers with the quality of product services

24
II. The contemporary attitude of control and control systems is that such control efforts
should motivate people toward desired organizational behavior and not promote
dysfunctional behavior.

Traditional Outlook 1990s Through 21st Century

What is measured Meeting Budget Customer Satisfaction


Production Efficiency New Product Development
Inputs Outcomes
Quantitative Performance Quantitative and
Qualitative Performance

Who is measured Individuals Teams (Groups)


Functions Cross-Functional Efforts
Responsibility Centers

How rewarded Efficiency Quality


Profits Innovation
ROI Creativity
Overall Company
Performance

Focus Internal Macro-Environment


Industry Environment
Internal

Statistical Process Control Charts


Statistical process control charts are a widely used quality management tool because they
can be applied in many different situations. When maintained in real time, these charts
provide an early warning about quality problems. Most cost management and accounting
literature focuses on control charts with only a single variable, even though many
variables can be measured for the same process.

Univariate (one-variable) charts measure only one characteristic, while multivariate


(many-variable) charts monitor more than one characteristic simultaneously. A single
variable control chart can, under certain conditions, give misleading information when
multiple variables are being measured concurrently. This article shows how a

25
multivariate control chart can be used to acquire more useful information about a process
or activity when more than one characteristic is monitored at once.

Control Chart Elements


An SPC chart is a graph that shows the measurements of some characteristic of interest.
This characteristic can be a qualitative or a quantitative attribute. In general, SPC charts
possess the following elements:

 Center line, or process average, surrounded by individual observations.

 Upper and lower control limits (three standard deviations from the
short-term process average).

 Horizontal axis that identifies observations and preserves the time order
of their collection.

 Vertical axis scaled to the values of the observations.

SPC charts are used to identify points that differ from the process average as well as to
reveal shifts in the process. If the points (observations) in a chart fall within the upper and
lower limits then the process is considered to be in statistical control. If an observation
falls outside of the control limits or a run is detected in the data then the process is
considered to be out of control. (A run is a series of consecutive points above or below
the center line). An investigator tries to discover the source of variation and determine a
remedy by evaluating

A control chart can also be used to evaluate the non-financial aspects of various processes
and activities (i.e. cycle time, schedule attainment, machine availability, defect rate, etc.).
Performance measurement is a recurring part of the accounting function. Employees in
this area should have an understanding of the control chart and how they can help in
evaluating performance.

Administrative processes, especially repetitive ones, are also candidates for SPC (i.e.
payroll, accounts payable, accounts receivable). If SPC is used, personnel would gain a
greater understanding of the natural variability in the processes and of how reducing
variation could result in better services.

29.1 The Multivariate Control Chart

A multivariate control chart should be used to obtain more complete information about
the state of control when more than one variable is being measured simultaneously. The
purpose of this chart is to determine if the variation present in a process is attributable to

26
unusual influences. This chart measures several variables at once and sends out a signal
when the relationship among the variables changes unexpectedly.

29.2 Differences Between Multivariate and Univariate Charts

Three main differences occur between multi- and univariate control charts:

1. Calculating the data point to be plotted on the chart—points plotted on a


univariate control chart for averages are the sample means. In a
multivariate control chart based on samples, the points plotted are a
quadratic form of the means of the measurements in each sample.

2. Calculating the control limits—there is only an upper control limit in a


multivariate control chart due to the way the observations are calculated.

3. Investigating out-of-control points—in a multivariate control chart, the


investigator must first determine which characteristic caused the process
to be out-of-control. This is not necessary in a univariate control chart
because only one characteristic is measured.

29.3 Multivariate Charts Complement Univariate Charts

Both multivariate and univariate charts should be used together because they complement
each other. The univariate chart signals when an observation falls outside of the upper
and lower control limits. The multivariate chart sends out a signal when an imbalance
exists among the variables. This shows that when multiple variables are concurrently
monitored for the same process or activity, the best and most complete information is
generated when using the two charts in conjunction with one another.

29.4 Advantages of Multivariate Charts

Provides an out-of-control signal when the variables move in a direction


that is unexpected.

Indicates whether this variation is statistically significant.

Easier to examine than multiple univariate charts simultaneously.

Detects differences in the degree of movement away from a process


average.

May detect subtle changes in the relationships among the variables that
would not be noticeable from separate univariate charts.

27
Allows users to evaluate the system as a whole rather than the sum of
many individual parts.

Requires no additional data if the data currently are accumulated for


univariate control charts.

Use of Statistical charts in Controlling

The general approach to on-line quality control is straightforward: We simply extract


samples of a certain size from the ongoing production process. We then produce line
charts of the variability in those samples, and consider their closeness to target
specifications. If a trend emerges in those lines, or if samples fall outside pre-specified
limits, then we declare the process to be out of control and take action to find the cause of
the problem. These types of charts are sometimes also referred to as Shewhart control
charts

Interpreting the chart: The most standard display actually contains two charts, one is
called an X-bar chart, the other is called an R chart.

In both line charts, the horizontal axis represents the different samples; the vertical axis
for the X-bar chart represents the means for the characteristic of interest; the vertical axis
for the R chart represents the ranges. For example, suppose we wanted to control the
diameter of piston rings that we are producing. The center line in the X-bar chart would
represent the desired standard size (e.g., diameter in millimeters) of the rings, while the
center line in the R chart would represent the acceptable (within-specification) range of
the rings within samples; thus, this latter chart is a chart of the variability of the process
(the larger the variability, the larger the range). In addition to the center line, a typical
chart includes two additional horizontal lines to represent the upper and lower control
limits (UCL, LCL, respectively); we will return to those lines shortly. Typically, the
individual points in the chart, representing the samples, are connected by a line. If this
line moves outside the upper or lower control limits or exhibits systematic patterns across
consecutive samples then a quality problem may potentially exist.

Common Types of Charts

The types of charts are often classified according to the type of quality characteristic that
they are supposed to monitor: there are quality control charts for variables and control

28
charts for attributes. Specifically, the following charts are commonly constructed for
controlling variables:

• X-bar chart. In this chart the sample means are plotted in order to control the
mean value of a variable (e.g., size of piston rings, strength of materials, etc.).
• R chart. In this chart, the sample ranges are plotted in order to control the
variability of a variable.
• S chart. In this chart, the sample standard deviations are plotted in order to
control the variability of a variable.
• S**2 chart. In this chart, the sample variances are plotted in order to control the
variability of a variable.

For controlling quality characteristics that represent attributes of the product, the
following charts are commonly constructed:

• C chart. In this chart (see example below), we plot the number of defectives (per
batch, per day, per machine, per 100 feet of pipe, etc.). This chart assumes that
defects of the quality attribute are rare, and the control limits in this chart are
computed based on the Poisson distribution (distribution of rare events).
• U chart. In this chart we plot the rate of defectives, that is, the number of
defectives divided by the number of units inspected (the n; e.g., feet of pipe,
number of batches). Unlike the C chart, this chart does not require a constant
number of units, and it can be used, for example, when the batches (samples) are
of different sizes.
• Np chart. In this chart, we plot the number of defectives (per batch, per day, per
machine) as in the C chart. However, the control limits in this chart are not based
on the distribution of rare events, but rather on the binomial distribution.
Therefore, this chart should be used if the occurrence of defectives is not rare
(e.g., they occur in more than 5% of the units inspected). For example, we may
use this chart to control the number of units produced with minor flaws.
• P chart. In this chart, we plot the percent of defectives (per batch, per day, per
machine, etc.) as in the U chart. However, the control limits in this chart are not
based on the distribution of rare events but rather on the binomial distribution (of
proportions). Therefore, this chart is most applicable to situations where the
occurrence of defectives is not rare (e.g., we expect the percent of defectives to be
more than 5% of the total number of units produced).

Control Individual Observations


Variable control charts can by constructed for individual observations taken from the
production line, rather than samples of observations. This is sometimes necessary when
testing samples of multiple observations would be too expensive, inconvenient, or

29
impossible. For example, the number of customer complaints or product returns may only
be available on a monthly basis; yet, you want to chart those numbers to detect quality
problems. Another common application of these charts occurs in cases when automated
testing devices inspect every single unit that is produced. In that case, you are often
primarily interested in detecting small shifts in the product quality (for example, gradual
deterioration of quality due to machine wear). The CUSUM, MA, and EWMA charts of
cumulative sums and weighted averages discussed below may be most applicable in those
situations.

Out-Of-Control Process: Runs Tests


As mentioned earlier in the introduction, when a sample point (e.g., mean in an X-bar
chart) falls outside the control lines, you have reason to believe that the process may no
longer be in control. In addition, you should look for systematic patterns of points (e.g.,
means) across samples, because such patterns may indicate that the process

as the sigma control limits discussed earlier, the runs rules are based on "statistical"
reasoning. For example, the probability of any sample mean in an X-bar control chart
falling above the center line is equal to 0.5, provided (1) that the process is in control
(i.e., that the center line value is equal to the population mean), (2) that consecutive
sample means are independent (i.e., not auto-correlated), and (3) that the distribution of
means follows the normal distribution. Simply stated, under those conditions there is a
50-50 chance that a mean will fall above or below the center line. Thus, the probability
that two consecutive means will fall above the center line is equal to 0.5 times 0.5 = 0.25.

Accordingly, the probability that 9 consecutive samples (or a run of 9 samples) will fall
on the same side of the center line is equal to 0.5**9 = .00195. Note that this is
approximately the probability with which a sample mean can be expected to fall outside
the 3- times sigma limits (given the normal distribution, and a process in control).
Therefore, you could look for 9 consecutive sample means on the same side of the center
line as another indication of an out-of-control condition. Refer to Duncan (1974) for
details concerning the "statistical" interpretation of the other (more complex) tests.

Zone A, B, C. Customarily, to define the runs tests, the area above and below the chart
center line is divided into three "zones."

30
By default, Zone A is defined as the area between 2 and 3 times sigma above and below
the center line; Zone B is defined as the area between 1 and 2 times sigma, and Zone C is
defined as the area between the center line and 1 times sigma.

9 points in Zone C or beyond ( on one side of central line ). If this test is positive (i.e.,
if this pattern is detected), then the process average has probably changed. Note that it is
assumed that the distribution of the respective quality characteristic in the plot is
symmetrical around the mean. This is, for example, not the case for R charts, S charts, or
most attribute charts. However, this is still a useful test to alert the quality control
engineer to potential shifts in the process. For example, successive samples with less-
than-average variability may be worth investigating, since they may provide hints on how
to decrease the variation in the process.

6 points in a row steadily increasing or decreasing. This test signals a drift in the
process average. Often, such drift can be the result of tool wear, deteriorating
maintenance, improvement in skill, etc. (Nelson, 1985).

14 points in a row alternating up and down. If this test is positive, it indicates that two
systematically alternating causes are producing different results. For example, you may
be using two alternating suppliers, or monitor the quality for two different (alternating)
shifts.

2 out of 3 points in a row in Zone A or beyond. This test provides an "early warning"
of a process shift. Note that the probability of a false-positive (test is positive but process
is in control) for this test in X-bar charts is approximately 2%.

4 out of 5 points in a row in Zone B or beyond. Like the previous test, this test may be
considered to be an "early warning indicator" of a potential process shift. The false-
positive error rate for this test is also about 2%.

15 points in a row in Zone C (above and below the center line). This test indicates a
smaller variability than is expected (based on the current control limits).

31
8 points in a row in Zone B, A, or beyond, on either side of the center line (without
points in Zone C). This test indicates that different samples are affected by different
factors, resulting in a bimodal distribution of means. This may happen, for example, if
different samples in an X-bar chart where produced by one of two different machines,
where one produces above average parts, and the other below average parts.

Learning
Controlling is a vital part in management and it is done to run the business activities
accordingly to reach a business purpose. we will finish the discussion on controlling by
stating our learning from this report.

• It makes us aware about the various characteristics and implications of controlling


in Business and real life.
• As future managers we will be better prepared to control a business process.
• We learned different types and forms of controlling used in business.
• Get detailed idea about different stages of control process.
• Working in a group we saw how controlling in a group works as well.

…………….0……………

32