Chapter Sixteen: Control
The control function in management is the regulation of activities and behaviours within organisations, adjustment and conformity to specifications and objectives. There is a control feedback loop which recognises changes in planning and organising. The basic control principles are 1. Establish standards, 2. Measure performance, 3. Compare performance against standards and 4., Evaluate results and take necessary corrective action. Standards are targets of performance, performance measurement requires quantification, consensus on how the measurement takes place and interpretation of whether all necessary aspects are being measured. When evaluating, a positive gap (performance better than standards) suggests reinforcing action whereas a negative gap suggests corrective action.
The scope of control in an organisation includes the operational controls, the tactical controls and the strategic controls with increasing scope along the continuum. The degree of centralisation of control is a function of environmental stability; stable environments are highly centralised, turbulent environments are highly decentralised. Approaches to strategic control can expand this function to another dimension to include the ability to specify and measure against objectives. Thus a matrix environmental turbulence and measurement ability low:easy (strategic control system valuable), low:difficult (strategic control track progress rather than motivation), high:easy (valuable, but loose), high:difficult (strategic control problematic).
Tactical control is the regulation of day-to-day functions of an organisation and its major units. They are of limited time compared to strategic controls, they are specific rather than general, comparison are made within rather than between organisations, and the focus is the implementation of strategy rather than its determination.
Financial controls include profitability (ratio of cost to benefits) Return on Investment (net income divided by total assets invested), liquidity (how well it can meet short-term cash requirements), leverage (ratio of debt to total assets [er, no, it's ratio of debt to equity]), efficiency (ratio of sales to total cost of inventory). The break-even point is the amount of a product that must be sold to cover a firm's fixed and variable costs. Budgetary controls are a type of tactical control based on responsibility for meeting financial targets and evaluating how well those target are met. Supervisory control structures are a tactical control based on reporting levels. Human resource policies and procudures are a tactical control based on the overall approach to using human resources. Bureaucratic control is a tactical control that stresses adherence to rules and regulations and is imposed by others. Commitment (clan) control is a tactical control that emphases consensus and shared responsibility.
Operational control regulates the activities and methods an organisation uses to produce goods and services. Precontrol focuses on the quantity, quality and characteristics of the inputs. Concurrent control evaluates the conversion of inputs to outputs while it is happening. Post-control checks quality after production or service outputs.
The factors in control effectiveness include the focus of control. One approach is the balanced scorecard; that reviews the financial perspective, the customer perspective, the internal business perspective and the innovation and learning perspective. Another factor is the amount of control, specifically the right amount. The quality of information collected by controls, refers to the usefulness, accuracy, timeliness and objectivity. Others include the flexibility of controls, favourable cost-benefit ratios and the source of control.