THE BASICS OF CONTROL

Mar. 1, 1998

The Big Three. We have discussed planning ("Where are you going and how will you get there?") and organizing (the mechanisms "to get you where you want to go.") The third leg of the stool is controlling (the process that tell you "whether or not you actually go there." Thus, managers often speak of the Planning-Organizing-Controlling cycle.

Four basic steps are necessary to all control systems.

1. Setting performance objectives or standards. Control systems begin with some agreed-upon standard of performance.

2. Measuring actual performance. Once the standard is set, steps are taken to determine if the actual performance meets the standards. Many ways can be used to measure performance.

3. Comparing actual performance against objectives or standards. By comparing actual performance against the standard, the gap between actual and planned can be ascertained. Then the organization must decide how much of a discrepancy can be toler ated before corrective action is taken.

4. Taking appropriate action. If corrective action is needed, a decision is needed about what action should be taken. Sometimes these actions are explicitly stated within the standard. (Ex.: If circulation falls below a certain amount in a cert ain time period, a re-examination of the hours of opening will take place).

Decisions about Measurement

• What will be measured?

• Where in the process will the measurement take place?

  • Input -- preventive control systems (ex. hiring procedures);

  • Process -- concurrent control systems (steering controls = formative evaluation; yes/no controls = summative);

  • Output -- feedback systems (ex. cou rse evaluations))

• How often will measurements be taken?

  • Continuously,
  • Periodically,
  • A sample or
  • The whole

• Who is responsible for taking correction action? (Management by exception -- only involve manager if can't be handled by next lowest level)

Types of control system. The manager is usually concerned with three types:

• Performance appraisal systems

• Financial control systems

• Information systems

The control system with which we are most concerned today is the Financial Control system. Here one could again identify three types depending on whether the system focuses on input, process or output controls. Examples of each follow:

• Budgets are considered feedforward controls; they show what the organization intends to spend.

• Financial analyses (e.g., financial statements and ratio analyses) are considered concurrent controls; they show how money is being spent and project the financial condition of the organization.

• Audits are considered feedback controls; they verify that money has been spent according to budget and financial sttements accurately reflect the flow of financial resources.

Our emphasis today will be on budgets after a brief digression on the Quality Control Movement.