Key Variables
It is a significant indicator of business
activity whose sudden or unpredicatble change warrants immediate action by the management. These are called as key success factors as they help in explaining the success or failure of the organization.
a significant impact on performance of the organization. Key variables differ from organization to organization. Key variables are crucial to the organization for attainment of its goals and objectives.
the environment in which the organization operates are the factors which greatly influence the identification of key variables. Once the manager identifies the key variables he can rely on them to monitor business activities and alert the organization to the changes in business environment that could affect attainment of management goals.
the reasons for significant changes in key variables continually. Some examples of key variables are profitability,market position,productivity and employee attitude. Though key variables differ from business to business,they have certain common characterstics.
organization. They require examination and in depth evaluation. They are easily measurable either directly or via surrogate or substitute. They are volatile. Changes in key variables are unpredicatble
key variables. Management action is needed whenever significant changes occur in key variables.
identifying key variables is input through output model. The input variables are related to raw material. The throughput variables are related to production,processing and manufacturing. The output variables are related to
Input variables
Raw material availability
Production variables
It includes the following:-
variables or procurement variables.It reflects the ability of the production staff to schedule and plan what to produce , how much to produce and when to produce.
wastage in process of manufacturing the product. Quality control:-The number of complaints from customers and the quantity of goods returned are usually good indicators of quality. Maintainence:-The number and percentage of productive hours lost due to maintainence .
Marketing Variables
Order book position:-It is
important for organizations that take manufacturing based on orders.It helps the marketing department to decide planning schedules for marketing and distribution. Market share :-performance and competitive strength.
sales comprise a significant part of total sales,the number of orders received from institutional buyers is a key variable.A decline in it is a signal of trouble in marketing area.
turnover denotes the relationship between the total assets in an organization and sales volume.A decrease in asset turnover is not a good sign for the organization and needs immediate managerial attention.
efficiency of management of working capital is indicated by the working capital turnover.The inventory turnover and accounts receivable can also help in analysis of working capital.
Environmental characterstics
Competitive strategy
Stakeholders
Significant functions
given industry , there are certain general requirements for success which applies to all the firms.In the insurance industry,for example the basic requirement for success is positive investment
Industry , the occupation rate iscritera for success. Environmental factors:-It includes the economic and political climate.example is the publishers who depend on the postal services are affected by postal rates.
Competitive strategy:-The
strategy that a company adopts usually determine the variables that must be monitored and emphasized.An organization that follows a low cost strategy will require an analysis of the product cost structure.
customers,suppliers,executives and creditors can also be considered as key variables. Significant functions :- In an organization with a function based structure , every manager can identify one or more few key variables related to the function of the unit.A key variable for an operations manager , for example,is the quality of goods produced.
CONTROL PARADIGM
The control system should fit with the hierarchical
structure of an organization. Decentralization gives autonomy to managers of various units of organization. Responsibility centers are set up to coordinate and control various activities. Each responsibility center has its own goals and strategies.
Control process
REINFORCING INTERACTIONS BALANCING INTERACTIONS
Cont..
These interactions are circular and are called
CAUSAL LOOPS. Secondary Effects also plays a major role in reinforcement. Reasons for delays in control process:i. When management overreacts to a problem. ii. Management unable to solve a complex problem. This results in low performance. iii. A dominant team member can block informal planning efforts.
ADAPTIVE ORGANIZATION
In today's world characterized by rapid unpredictable change and volatility, the sustainable ability to change is much more important than the ability to create change in the first place. Companies, like any living organism, must become learning organization that change and adapt to suit their changing business environment.
i.
ii. i. ii.
fill the
performance gap.
Hospital
Magazine Restaurant
KEY VARIABLES SHOULD BE IDENTIFIED AT EACH LEVEL AND FOR EACH RESPONSIBILITY CENTER OF THE ORGANIZATION
PROBLEMS
CONCENTRATING ON VARIABLES THAT ARE EASY TO MEASURE
For Example :Focus on Quantity and not Quality Reduction of expenses on R&D, Maintenance and Employee Development.
PRECAUTIONS
VARIABLES SHOULD CORRESPOND WITH THE GOALS AND OBJECTIVES ONLY CRUCIAL VARIABLES SHOULD BE MEASURED ACCOUNT FOR BOTH SHORT-TERM OBJECTIVES AND LONGTERM GOALS
GENERAL ELECTRIC
MEASURING THE WHOLE DEPARTMENT AS AN ECONOMIC ENTITY MEASURING THE FUNCTIONAL DEPARTMENTS MEASURING THE PERFORMANCE OF THE MANAGEMENT OF THE DEPARTMENTS ON THE BASIS OF THE ABOVE MEASURES, THE PRINCIPLES FOR THE CONTROL PROGRAM AT GE WERE FORMULATED
THE PRINCIPLES FOCUSED ON FACTUAL KNOWLEDGE TO SUPPORT JUDGEMENT IN PERFORMANCE APPRAISAL OF DEPARTMENTS
PERFORMANCE MEASURES
SHORT-TERM PROFITABILITY
MARKET SHARE
PRODUCTIVITY PRODUCT LEADERSHIP PERSONNEL DEVELOPMENT EMPLOYEE ATTITUDE
PUBLIC RESPONSIBILITY
BALANCE BETWEEN SHORT-RANGE OBJECTIVES & LONG-RANGE GOALS
LIMITATIONS OF INDICATORS
ABSENCE OF CONSENSUS AMONG MANAGERS ON USE OF INDICATORS
PROBLEMS ENCOUNTERED DURING MEASUREMENT OF INDICATORS LACK OF CLEAR SPECIFICATION OF THE UNIT OF MEASUREMENT LACK OF CONSISTENT INFORMATION LEADING TO INCORRECT CONCLUSIONS
Insurance Industry
Number of claims settled
In given period of time. Number of policies processed. Growth rate in business with respect to each policy
Hotel Industry
Room occupancy rate
Number of complaints
by customers. Amount of food wasted in restaurant Percentage of revenue contributed by restaurant. Percentage of absenteeism among employees.
Sugar Industry
Price of sugar sold in
the open market. Transport cost per ton of cane. Fuel cost per kilogram of sugar. Number of production days lost. Support price by government.
for an entrance examination. Percentage of absenteeism among students. Number of research projects undertaken and completed. Time spent by faculty on teaching and research. Time spent on management development programs.
Power Industry
Quantity and quality
of coal. Availability of wagons for transportation. Availability of water. Capacity utilization. Preventive and breakdown maintenance.
Airlines Industry
Attracting customer.
Managing fleet.
Managing people. Managing finances.
promotion of subscription Annual expenditure for the promotion of the magazine The size of the magazine i.e. number of pages per issues