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Management Control

a person is thinking with clocks

♠ WHAT IS MANAGEMENT CONTROL ?

♦  Management Control is the fifth and final fundamental function of management.

♦  Quick and unexpected changes in the environment of organization have contributed to the increased value of this function.

♦  In the conditions of increasingly competitive game,constantly increasing demands of customers and rapid technological changes which affect the product life cycle, so even the best take an unexpected turn.

♦  Management Control can be defined as a process which ensures that actual activities correspond to planned activities.

♦  The process of control is measured by the degree of achievement of the objectives.

♦  Management Control affects all organizational levels, processes and employees.

♦  Control is inextricably connected to planning; even literature emphasizes the relationship between these two functions so they are observed like Siamese twins.

♦  All activities in the organization, which can be found between these two extremes, represent an attempt of plan execution and a subject of performance control.

♦  The definition of control, as one of the activities in the process of enterprise management, was first brought by Henry Fayol in his famous work “General and Industrial Management”.

♦  According to Fayol, control means permanent control of organization’s behavior in relation to the planned activity, with the aim to perceive and correct weaknesses and errors and prevent their subsequent recurrence.

♦  It is about continuous process which allows individual tasks of organizations to be carried out in an efficient and effective manner, i.e. that things happen as planned.

♦  Planning must set goals and identify courses of action in order to achieve goals.

♦  It is necessary to create a map of movement on which it will be easy to follow the routes which lead to the achievement of goals.

♦  In order to clearly recognize ‘wrong turns’, it is necessary to develop methods of variance measurement, and respectively, of control.

♠ WHICH STEPS TAKE PART IN MANAGEMENT CONTROL ?

♦  Defining and measuring deviations, as well as taking corrective actions, is called the control process.

♦  The stages of the control process can best be noticed in the definition of control, which was given by Robert J. Mokler, which states:

“Management control is a systematic attempt to establish standards for producing effect with planned objectives, to design informative feedback systems, to compare actual results with predetermined standards, to determine if there are any deviations, to measure the value of deviations and to take all measures to ensure that all corporate resources are being used in the most efficient and effective way to achieve corporate goals”.

♦  The control process is carried out in four interrelated phases: defining the standards and methods of performance measurement, performance measurement at each workplace, comparison of obtained norms with established standards and taking corrective action.

♠ TYPES OF MANAGEMENT CONTROL

♦  The literature refers to many types of control.

♦  This is natural, because control is very complex activity, an activity that can be observed from numerous points of view.

♦  The following divisions of control are particularly noteworthy, according to the level of manager’s control which can be strategic, tactical and operational control.

♦  Depending on the type of resources, control is divided into financial control, control of human resources, control of work tools, control of materials, control of data, i.e. information, control of products and services quality and additional control.

♦  In addition to these, the literature points out other divisions of control.

♦  Thereby, particular attention is paid to control performances, depending on the time of its implementation.

♦  It is not just because of the nature, role and importance of control, but also because all types of control, in addition to their specificities, have the time as their overall characteristic.

♠ STYLES OF MANAGEMENT CONTROL

♦  The market style of control is a style which relies on management strategy that includes performances which contribute to setting standards for controlling on the basis of market demands.

♦  Market style of control is a style which managers apply according to their understanding that market performance should be the basis for setting standards and all other actions or steps of the control process.

♦  The market style of control is not effective in controlling multiple processes or results.

♦  This most likely relates to the control of the application of policies, procedures and rules.

♦  For their control, the bureaucratic style of control is suitable .

♦  The bureaucratic style of control is a style that is based on the hierarchical structure of authority management.

♦  It is about the fact that managers, each in accordance with his/her position and role, control the implementation of durable solutions, which are used in recurring situations.

♦  The bureaucratic style is applied to control the behavior of all employees.As indicated, human resources are the most valuable resources.

♦  The fact is that the largest number of operations or tasks is performed through team work.

♦  Thus, this way helped in the promotion of the need for modern organizations to maximally respect the social needs of employees.

♦  This style is known as clan control or control through clan.

♦  The control through clan is the management style which is based on respecting the social needs of members of the group which is being controlled.

♦  The control through clan is a style of management control which involves the implementation of all controllability measures with regard to the acceptance of organizational culture shared by members of the group whose behavior is controlled.

♦  It is largely based on the performances of organizational culture, as myths, beliefs, traditions, etc., because of what it is often called the control through culture.

♠ TYPES OF MANAGEMENT CONTROLS ACCORDING TO PERFORMANCE TIME

♦  Preventive control occurs prior to the commencement of certain activity, in order to avoid adverse business results.

♦  For example, the measures taken by McDonalds when he wanted to open the first restaurant in Moscow.

♦  Another example, if a factory of television receivers introduces legislation which strictly forbids workers to speak during their work time, this reduces the possibility of error in assembling electronic components of these devices, i.e. the company produces greater number of TVs which successfully pass the final inspection.

♦  Special kind of this control is protective Screening Control.

♦  The purpose of this control is multiple verification of key activities, before the continuation of complete operating flow.

♦  It is not recommendable that the problem escalates into a crisis in order to take certain actions.

♦  A key element of preventive control is taking action before the problem even occurs, which means that managers can prevent the occurrence of problems.

♦  Thus, managers must carefully and continuously apply forecasts, based on the latest available information.

♦  As one of the best methods of control is network planning, notably network PERT (Program Evaluation and Review Technique).

♦  Using these techniques, managers can easier evaluate whether and which problems will arise, if the action is not taken at the right time.

♦  Obviously, control requires accurate information in advance, what often presents a problem to managers, so organizations often implement other two types of control.

♦  Control during work time implies continuous monitoring of some activity.

♦  Control during that activity can fix some of the problems until they become too expensive.

♦  This control has the purpose of monitoring activities in order to identify deviations in relation to the established standards and allows managers to take timely corrective actions.

♦  One can control the operation of people, machines, workstation, etc.

♦  The most well-known form of current control is direct control, in which manager can control the work of employees, and fix problems in the moment of their appearance.

♦  One example of control during work is control of delivering circuits and components which arrive onto an assembly line in car factories.

♦  Thanks to the use of “just in time” system, i.e. the sophisticated logistics, car parts arrive onto the assembly line in the moment when they should be assembled, so the reserves of parts and components are not allowed.

♦  In the production process, computers and other machines contribute to the success of the current control.

♦  Different types of computer programs allow simultaneous control. It is based on feedback.

♦  A product can be controlled immediately after its creation or its sales can be analyzed.

♦  Also, the analyses of success or failure in company’s business in the previous period of three months, or five or ten years can be made.

♠ MANAGEMENT CONTROL RULES

♦  The successful implementation of any activity involves behavior according to certain rules.

♦  This approach is relevant for control.

♦  Given that the control is very complicated and responsible process, a set of rules must be defined.

♦  Particular attention should be given to control requests, which should be specified by measurable indicators.

♦  Each control request must be given together with the amount of allowed deviations, and before each control request, it is necessary to determine in advance what, when and how will be controlled.

♦  In particular, it is necessary to determine what and how will the implementer control, because self-control has the highest preventive effect.

♦  Control requests must be known to the implementer in advance.

♦  In addition to the above, it should be noted that not only managers are interested in results of control.

♦  They are subject whose results are controlled.

♦  This is the reason for the need of managers to pay more attention to informing their employees about the cognitions obtained in the process of controlling their activities, i.e. their results.

♦  Control must take into account certain principles and rules.

♦  There is no consent about the characteristics of principles and rules of control among management researchers.

♦  This is the reason to promote many and various principles and rules of control.

♦  They all have in common to point to the determinants of control behavior, which allow to establish efficient and effective system, i.e. control process.

♠  MANAGEMENT CONTROL IN PRODUCTION

♦  Control of all stages of production is possible by the application of special procedures and methods, i.e. by using control tools.

♦  The most known means of controlling the production process is directing management only towards exceptional issues, break-even analyses, planning and control of the necessary raw materials and materials of quality control.

♦  Break-even analysis shows how costs and profits change in relation to production volume.

♦  The main elements of this analysis are fixed costs, variable costs, total costs, total revenue, profit and loss.

♦  Break-even analysis is very useful control mechanism, as it allows managers to understand the relationships between all critical elements of the organization.

♦  Planning and control of the necessary raw materials, is the third means of control, which can increase the effectiveness and efficiency of the production process.

♦  This is possible through the use of kanban system or just-in-time inventory system.

♦  The use of kanban system, which was introduced in Japanese companies in the mid-seventies of the last century, perfected the system of production lines supply.

♦  The essence of this control mechanism is in creating precise lists of necessary components and materials for the production of each individual product.

♦  This requires exact amounts of each component, as well as the time at which each of them arrives to the production line.

♦  Materials are more often bought in smaller amounts, when they need to be used in production, while products are made when they need to be delivered exactly on time.

♦  Thus, warehouses of required components, materials and finished products, which increased the cost of production and delivery, become unnecessary.

♦  Next to the warehouse, the use of very precise control of material flow also proved unnecessary.

♦  In accordance with Ishikawi, Japanese expert and creator of the so-called total quality control (TQC), the implementation of quality control means :

•  development,

•  design,

•  manufacture and

•  service of the quality product

which is most economical, most useful and which always satisfies the needs of consumers.

♦  It means that quality control helps to achieve the desired level of quality.

♠ FINANCIAL CONTROL MANAGEMENT

♦  The various aspects of financial control are considered to be especially significant.

♦  This type of control is fairly simple, since money can be easily counted.

♦  With that in mind, it is possible to get an idea about the results of the organization, and, consequently, build forecasts.

♦  Financial reports are used to track the monetary value of goods and services.

♦  They serve as a tool for monitoring liquidity, profitability and overall financial condition, as long-term balances between debt and proprietary capital.

♦  Except managers, financial statements are used by shareholders, unions, investment analysts and others.

♦  In recent years, financial statements do not reflect all the necessary information (scientific discoveries, innovations, etc.).

♦  The most famous financial reports are balance sheet, balance of success and report about net cash income.

♦  Balance sheets show the financial condition of the organization at the given moment.

♦  It actually describes the state of company with assets, liabilities and net worth.

♦  Assets is represented on the left side of balance sheet and includes money assets in bank to goodwill.

♦  Liabilities appear on the right side of balance sheet and include current and long-term commitments.

♦  The balance of success serves to show financial results achieved by the organization in a certain period of time.

♦  It includes gross income from which all expenses, made in the realization of ordinary activities, are deducted.

♦  Net cash flow is used to show cash flow.

♠ INFORMATION AND CONTROL

♦  All management functions are based on regular flow of information.

♦  Information systems enable and facilitate the control of method of activities performance in organizations.

♦  For success of control, as well as other management functions, the quality and timeliness of information is important.

♦  Also, they have to be appropriate for the task in terms of importance and quantity.

♦  Here, a distinction should be made between data and information.

♦  Data refers to raw facts and figures about some events, while information is data that are processed in a certain way that makes sense.

♦  The survival and long-term development of any organization in today’s dynamic and turbulent business environment can hardly be imagined without an adequate information system.

♦  Management information system (MIS) can be defined as the formal method which provides management with accurate and timely information.

♦  The value of this method has especially come to the fore with the emergence of computer.

♦  The MIS should provide timely, accurate and detailed information necessary for operational control,

for eg :

•  the production manager needs to have information about waste material,

•  errors in the process,

•  the duration of certain operations, etc.

♦  The flow of information in operational control should happen daily or at least once a week.

♦  Information required for monitoring control include processed data on current and future results of the strategic business units.

♦  That could be information about suppliers, customers and their requirements, as well as about traffic.

♦  For strategic planning and strategic management control, MIS should deliver information to the highest level of management.

♠ EFFECTIVENESS AND EFFICIENCY OF CONTROL

♦  The need to build efficient and effective control system is present in all organizations, regardless of size, activity, peculiarities of business environment etc.

♦  Effectively organized control system can be achieved through defining key areas of success in the organization, critical point of success, methods of defining standards, volumes and sources of information.

♦  Such control system implies that managers know the processes and activities in the organization well, and that they know the goals, both of the organization as a whole and its parts.

♦  The savings on the resources costs can be achieved at time of carrying out of control activities.

♦  The control system must be reliable, timely, cost-effective, target oriented and integrated into the operating flows.

♦  The control system will be effective if it is focused on the future and achieving success and, of course,if it is recognized by all members of the organization.

♦  In order for control to be successful, it is necessary to understand that various company goals can achieved through the control process, not just controlling people, technology and finances.

♦  In the control process, it is necessary to collect as much information as possible and use them.

♦  Taking into account the fact that the information after some time lose their quality and value.

♦  Any subsequent action will not be sufficient to achieve the same effect, because it is possible that the information will not be relevant for control anymore.

♦  Managers should establish a control process which is clear to everyone in the organization.

♦  Each member should know what is being controlled, why and in which way.

♦  It is necessary to create such an atmosphere in the organization so that all employees consider control as a process that promotes business.

♦  Control should be seen as something positive, not as a process established by the management of the organization.

♦  In order to achieve all of the above, trick is not in control, but in creating a situation in which everything is under control.

♦  On the basis of exposed facts, it can be concluded that an effective and efficient control is the one which allows organizations to go in the direction they want.

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