Strategic Planning,

Management Control
and Operational Control
Chapter 2
2.1 Strategic Planning
• Strategy is a plan or design for achieving one’s aim or the use of
skilful planning to secure one’s own advantage, as in war,
business or politics.
• Strategic planning sets the guidelines for management control
and management control sets the guideline for operational
control.
• The complete management function involves an integration of
the three processes—Strategic planning, Management control
and Operational control. All these three processes are
complementary.
• Strategic planning decisions affect the physical, financial and
organizational framework within which the operations are carried
on.
A typical organizational structure indicates
three levels of management as shown:

Top
level
Middle
Management level

Lower/shop floor level

• Strategic planning is the function of the Top level,
whereas
• operational control is exercised in the lower level
management and shop-floor level.
• Management control is practiced in the middle
management level touching the bottom of the top-
level and top of the lower level.
• Main activity of strategic planning is strategy-
formulation, which results in identifying goals,
strategies and policies. Management control
activities result in the implementation of the
strategies and policies.
• Activities of operational control result in the
efficient and effective implementation of individual
tasks or operations.
The Relationships between
planning and control

Strategic planning at
Top level

Management Control
at Middle mgt level

Operational Control at
Lower/Shop floor level
2.2. Planning and Control
How the strategic planning process differs from the management control ?
• A strategic plan usually relates to some particular part of the
organisation such as production, marketing, product-line, new business,
merger, etc. It never covers the entire business. But control exists and is
exercised in all parts of the organisation having activities and using
resources.
• Strategic planning is unsystematic and irregular. The process starts when
a need arises due to some perceived threat or an opportunity, or a new
idea occurs in someone’s mind. But operational controls are exercised
systematically throughout the year, so that Programmed activities
indicate the results as per desired objectives (e.g. as given in the
budget).
Cont…..

• Strategic planning is prepared by the Top-level executives, but control is

exercised by the Middle management and Lower-level executives at the
shop-floor. Thus, planning involves only a few from Top-level
management, but the control process covers the entire Middle- and
Lower-level managers.
• Strategic planning is primarily based on external information collected
from outside the organization such as government notifications, new
enactments, technical journals, market research papers, etc. But the
control is exercised on the basis of internal information collected
through the hierarchy by both formal and informal ways.
• Therefore, data and estimates used in strategic planning are obviously
rough approximation for future happenings. But operational or task
control systems use accurate, actual and current data.
Conti..
• In strategic planning, the communication process is simple and
straightforward since the strategy is confided with a few top
executives only. If the strategy is strictly confidential, maintenance
of secrecy itself demands limited communication. But in
management control process, the communication of policies,
objectives, guidelines and decisions down the lines of authority is
extremely important, because the managers have to influence
other members of the unit to implement the strategies and attain
the desired results.
• Strategic planning aims at long-term policy with no specific time
frame, but all control processes aim at short-term objectives with
a specific time limit within which the task has to be completed.
• In strategic planning process, top-level executives have more
important roles in management control than in strategic planning .
• A core group of senior managers are formed with the
responsibility to prepare basic papers for strategic plan by
collecting information with relevant facts and figures from outside
as well as from internal data and reports.
• It is viewed that the Strategic planning using time and energy on
future, while the management control activities is concentrating
on current activities which are sometimes viewed as conflicting
with one another.
• Therefore, these days companies started preparing a long-term
plan, say for five or seven years along with preparing an annual
Budget or Business Plan.
Planning and control are two different functions.
• For management control, some level of planning
has to be undertaken by the same managers who
also exercise control by using their subordinates.
• It is said that "all levels of management should
participate in planning except the operating
managers who neither have time nor inclination or
analytical bent of mind required for strategic plans.
2.3 Operational Control
• Operational control is the process of assuring that specific tasks
are carried out effectively and efficiently.
• Focus of operational control is on individual or specific tasks or
transactions.
Example: Scheduling and controlling a job, procuring an item of
inventory, controlling a personnel action such as taking an
interview.
Activities are planned and programmed in advance. They are
measured in terms of input and output. Inputs are the resources
that output consumes. Output are the goods, service and other
effects created by the organization.
• In metallurgical industry, several virgin metals are melt in an electric furnace and the
molten metals are poured in a casting mould of a billet. Within five minutes, the molten
metals solidify and the billet is taken out of the mould with the help of moving lift.
Thereafter, the knob (which is created for pouring molten metals) is broken and the bill is
stored for transferring to the next process. The furnace has the capacity of melting 1000
kg of metal. At the end of each round of casting 8 billets, the furnace has to be cleaned
and some residue called zinc ash is collected from the bottom of the furnace. It has
marked value and is sold outside.
• In the plant, Standard Costing System is used to control the operations. The input and
output are planned and programmed in the following way:
Input   Output  

Zinc 840 Kg Billet 8 pcs. @ 112 Kg 896 Kg

Lead 60 Kg Scrap 8 pcs. @ 12 Kg 96 Kg

Cadmium   (Knobs)  
Process Scrap 20 Kg Zinc Ash 8 Kg
Total 80 Kg Total 1000 kg
• The entire process is broken as: Weighing inputs, charging metals
into furnace, preparing mould for casting, pouring molten metal
into the mould through the knob, bring billet out of the mould after
breaking the knob, cleaning the furnace after casting 8 billets,
collecting zinc ash, taking weight of knobs and zinc ash, and
stacking billets for inspection and quality check.
• All these above activities are recorded in reporting format to
reconcile the input and output.
• Under the operational control, the relationship between input and
output established as objectivity of the firm which remains
unchanged at any circumstances.
• However, the improved machinery, better materials, new
techniques can change the input output ratios at any time.
• The optimum is that all the combination resources, out of all the
possible combinations, that produces the product at the lowest
cost.
• If the optimum input-output relationship for a given activity can
be predetermined, then the inputs that should be used in a
certain set of circumstances can be programmed, and output
can be measured and compared against such input.
• These expenses are, therefore, named as 'programmed cost' or
'engineered cost'.
• Control becomes easier because of the use of scientific
standards with which the actuals can be compared. However,
when the choice of relationship between the output and input
is a matter of subjective judgement, e.g. Legal expense or
Advertisement and Sales promotion expenses, then it is left to
the purview of Management Control.
• Expenses incurred for such activities are called Discretionary
expenses.
• Operational control is applicable to direct activities
of manufacturing plants where input-output
relationship can be established and definite tasks
can be identified
• It is applicable to the indirect activities and indirect
expenses like production planning, purchasing,
inventory control, order processing, billing, payroll
accounting, etc. Because these activities, come
under the preview of Management control.
 2.4. Management Control
• Management control has been defined as the process by which managers influence
other members of their organizations to implement their strategies, and also assures
that the resources are obtained and used effectively and efficiently in achieving its
objectives.
• The process of management control is carried on within the framework outlined by
strategic planning. It is intended to achieve planned objective as efficiently and
effectively as possible within the given parameters.

The analysis of Management Control brings out the following

salient features:
A). Process: A Management Control system consists of a “process and a Structure. The
process refers to the set actions to be taken place such as programming, budgeting,
operating, performance measuring , reporting, analysing and communicating information.
The Structure refers to organisational set-up incating lines of authority, delegation,
responsibility, and accountability.
b). Managers: They are management. Management control is a
process for the use of managers. It involves interaction between
managers as well as with subordinates.
c). Strategies: they refer to strategic planning process which fixes the
goals, objectives and policies. The Management Control process is
intended to achieve these goals and objectives.
d). Assures: the managers assure that the organization carries out its
strategies efficiently. This does not mean that the managers perform
the work personally. Actually, they get the work done mostly by other
managers and subordinates.
e). Effectively: It indicates the satisfaction expressed by its customers
for doing the job in time and in a manner desired by the customers.
f). Efficiently: It refers to the skill of producing maximum output with
minimum input per unit.
2.5. Characteristic features of management
control system
a). It focuses on ‘programmes’ and ‘responsibility centres’. A programme means and
includes a project, products, goods and services that an organization undertake
achieve its goals. Responsibility centre is an unit or sub-unit of an organize usually
headed by a manager, who becomes responsible and accountable for the activities
of that unit or sub-unit. Responsibility centres constitute organization structure
b) For the purpose of control, managers use two types of data, viz. planned data
and actual data. Planned data relate to estimate, budget, standard and forecast
details of future events or activities.
c) The control process is a set of actions such as programming, budgeting,
monitoring, evaluating, analysing and reporting. It is a continuous or an on going
process. "Just the navigator in an aircraft or sea voyage continually takes reading to
ascertain whether or not he is relative to a planned course, so should the business
manage continuous takes reading to assure himself that his enterprise or
department is on course"
d) It is a 'total system' covering all aspects of a company's
operations. This is an important because management function
assures that all parts are balanced with one another. Unless
management obtains information about each of them,
coordination between all the activities is not possible.
e). The system is normally coordinated and integrated so that the
same set of information can be used for some other purpose. It
means that although the data collected for one purpose may
differ from those collected for some other purpose, these data
should be reconcilable with one another. In fact, Management
Control System is a set of interlocking sub-systems generating a
single system. While designing reporting format, this aspect is
carefully considered by the systems manager.
f) The system is usually designed with financial figures and not with
physical units of input and output. Because, monetary unit is the only
common denominator which can be used to express heterogeneous input
and resources, such as, kgs., pcs., litre, machine-hour, labour-hour, etc.
However, reports of non-monetary measures, such as, units per operation,
output per labour, defectives and spoilage per unit of output are also
important part of the system and therefore, must be included.
g) The system tends to be rhythmic, not ad hoc, one-time or occasional. It
follows a regular time table like daily, weekly, fortnightly, monthly,
quarterly, half-yearly and annual, year after year. In the budget
preparation, actual operations, reporting and reviewing, the procedure to
be followed at each step in the process—the time table for completion for
each step, the type of formats to be used for reports—all are set in a
policy and procedure manual. All reports are prepared and forwarded to
the persons mentioned in the circulation list at regular intervals.
h). Line and staff managers are equally involved in the control process,
but more significant decisions are made by the line managers, not by the
staff managers. Staff people collect, summarize and present information
that are useful in the planning process and system design, but the line
manager's judgements are mostly incorporated in the approval plans,
because they are the persons who will influence others and their
performance will be measured. Line managers are, therefore, the focal
points in management control.
(i) G.W. Dalton and P.R. Lawrence added two other features in
Management Control System:
(a) Reciprocity: Every living being tries to control its environment as a
mean of fulfilling its needs, who in turn, must be controlled by someone.
If anyone refuses to be controlled by the other, he loses the control he
has. It is the reciprocal nature of the exchange that makes the control
effective.
(b) Expansibility: Control in an organization is a variable rather than a
constant element, because it can expand or contract. The influence of an
individual in the organization changes from time to time. Similarly, an
organization's influence in the environment fluctuates.
• Finally, the purpose of a Management Control System
is to encourage managers to take actions that are in
the best interests of the company. Although
systematic, the Management control System is by no
means mechanical. The process involves interactions
among individuals. There is no mechanical way of
describing these interactions. Again, managers have
their personal goals. The key control problem of
management control system is to induce them to act
so that when they seek their personal goals, they help
to attain the organisational goals also.
Distinctions between Strategic planning
and Management control
Characteristics Strategic Planning Management Control

a. Focus of plans On one aspect at a time On entire organization

b. Complexities Many variables, hence complex Less complex

c. Structure Unstructured and irregular, each problem being Rhythmic, definite pattern, set procedure
different

d. Nature of information Tailor-made for the issue, more external and Integrated, more internal a historical, more
predictive, less accurate. accurate

e. Communication of information Relatively simple Relatively difficult

f. Purpose of estimates Show expected results Lead to desired results

g. Persons involved Staff and top management Line and top management
Conti.. Distinctions between Strategic
planning and Management control

h. No. of persons involved Small Large

i. Mental activity Creative, analytical Administrative, persuasive

j. Planning and control Planning dominant but some control Emphasis on both planning and control

k. Time horizon Tends to be long Tends to be short

l. End result Policies and precedents Action within policies laid

m. Appraisal of job done Extremely difficult Less difficult

Distinctions between
Operational Control and
Management control
Characteristics Operational Control Management Control

a. Focus of plans Single task or transaction On entire organization

b. Nature of information Tailor-made to operation, specific, Integrated, more internal and historical, more
often non-financial, real time accurate

c. Persons involved Supervisors Line and top management

d. Mental activity Follow directives or none as in Administrative, persuasive

case of machines or set objectives

e. Time horizon Day to day Tends to be short

f. Type of cost Engineered—Existence of objective standard Discretionary—Control is more difficult due to

against which actuals can be compared makes subjective consideration.
control easier