Essentials of Management

Session 8
Managerial and quality control techniques

Dilipchandra S

dilip@bmaindia.com

Session Overview

Why
What
Who
Levels
Steps & Types of Control.

Why Control?
How does control help the
manager?
Regulates organizational
activities to make them
consistent with
established:
Plans
Targets
Standards

The Purpose of Control

Adapt to
environmental change

Limit the
accumulation of error

Control helps the organization

Cope with organizational

complexity

Minimize costs

Figure 20.2: Levels of Control

Who Is Responsible for Control?

Control rests with all
managers.
Large corporations
have a controller.
What does a
controller do?
Helps line managers
with their control
activities.

What are the steps in the Control Process

Forms of Operational Control

Organizational Control Focus

Feedforward
Control Anticipates
Problems

Examples
Pre-employment
drug testing
Inspect raw materials
Hire only college
graduates

Exhibit 19.1

Concurrent Control

Feedback Control

Solve Problems as
They Happen

Solves Problems
After They Occur

Examples
Adaptive culture
Total quality
management
Employee
self-control
Focus is on

Focus is on

Focus is on

Inputs

Ongoing
Processes

Examples
Analyze sales per
employee
Final quality
inspection
Survey customers

Outputs

What Does Preliminary Control Monitor?

It attempts to monitor quality and quantity of:
Financial resources.
Material resources.
Human resources.
Information resources.

Why?
Before they become part of the system.
Attempts to identify and prevent deviations

What does Concurrent Control Monitor?

Includes self-control on behavior personal values & attitudes

Focus on how inputs are being

transformed into outputs
Monitors ongoing activities to
ensure consistency with
performance standards
Assesses
Current work activities
Relies on performance standards
Includes rules and regulations

What does Feedback Control Monitor ?

Focuses on organizations
outputs

Sometimes called
postaction or output
control

What Are the Reasons for Financial Controls?

They control the financial resources as they
flow into the organization.
Then they are held by the organization.
Then they flow out of the organization.
Businesses must manage their finances so
that revenues are sufficient to cover expenses
and still return a profit.

What Is a Budget?
It is a plan expressed in numerical terms.
What is the time frame for a budget?
Usually a year, but sometimes broken down
into quarters and months.

Budgets are quantitative in nature and

provide yardsticks for measuring
performance and facilitating comparisons.

What Are the Types of Budgets?

Types of budget:
Financial
Operating
Non-monetary

What the budget

shows:
Sources and use of
cash.
Operations in
financial terms.
Operations in nonfinancial terms.

Developing Budgets

Operating
Unit
Budget
Request

Division
Budget
Request

Organizational
Budget Prepared
by Budget
Committee
Approved by
Budget
Committee

Figure 20.5: Developing Budgets in

Organizations

Other Tools for Financial Control

Financial Statement
A profile of
some aspect of an
organizations financial
circumstances.

Balance Sheet
List of assets and liabilities of
an organization at a specific
point in time, usually the last
day of the fiscal year.

Income Statement
A summary of financial
performance over a period of
time or time interval, usually
one year.

Ratio Analysis
The calculation of one or more
financial ratios to assess some
aspect of the organizations
financial health.

Audit: An independent appraisal of an organizations

accounting, financial, and operational system.

Financial Statements
For specific point in time

Balance sheet
Assets what company owns fixed &
current
Liabilities what company owes current &
long-term

Owners equity
Difference between assets and liabilities
and

Is the companys net worth in stock and

retained earnings

Financial Statements
For given time interval usually one year

1. Income statement Shows revenues coming into the

organization from all sources
Subtracts all expenses, including
cost of goods sold, interest, taxes,
and depreciation
Bottom line indicates the net income
(profit or loss)

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20 - 21

Financial Analysis
Managers need to be able to evaluate
financial reports that compare the
organizations performance with earlier
data or industry norms
Liquidity ratios Debt ratio

Activity ratios Inventory turnover, Conversion ratio

Profitability ratios Profit margin on sales, gross
margin, ROA

Leverage ratios Debt ratio

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20 - 22

What Is Bureaucratic Control?

A form of organizational
control characterized by
formal and mechanistic
structural
arrangements.
What is clan control?
An approach to
organizational control
characterized by informal
and organic structural
arrangements.

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20 - 23

Figure 20.6: Organizational Control

What Is Meant by Strategic Control

Control aimed at
ensuring that the
organization is
maintaining an
effective alignment
with its environment
and moving toward
achieving its
strategic goals.

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20 - 25

Total Quality Management - TQM

Based on decentralized control philosophy

Organizationwide commitment to
infusing quality into every activity
through continuous improvement
Quality circles
Benchmarking
Six Sigma
Reduced cycle time
Continuous improvement

TQM Success Factors

TQM does not always work
Six sigma principles might not be
appropriate for all organizational
problems
Many contingencies can influence the
success of TQM program
Quality circles = more beneficial when
challenging jobs
TQM more successful = enriches jobs +
improves motivation

Trends in Quality and Financial Control

International Quality Standards

ISO 9000

Control Systems for Turbulent Times

Open-Book Management = sharing financial
information and results with all employees in the
organization
Balanced scorecard = comprehensive
management control system that balances
traditional financial measures with measures of
customer service, internal business processes,
and the organizations capacity for learning and
growth

The Balanced Scorecard

Exhibit 19.10 Adapted

Financial
Do actions contribute
to improving financial
performance?

Customers
How well do we
serve our
customers?

Internal Business
processes

Mission
& Goals

Are we learning,
changing, and
improving?

Learning and Growth

Do internal activities
and processes add
value for customers
and shareholders?