Designing Effective Control Systems Without Errors

In order to design an effective control system, the manager should know what needs to be controlled and how often progress needs to be measured.

Trying to control too many elements of operation too strictly can annoy and demoralize employees, waste valuable time, money, and energy and frustrate managers.

3 Criteria for Error Prevention in Designing Control Systems are;

  1. Identifying Key Result Areas (KRAs) or key performance areas.
  2. Identifying strategic control points (SCPs).
  3. Determining critical point standards (CPS).

Identifying Key Result Areas (KRAs) or key performance areas

They are those aspects of the unit or organization that must function effectively for the entire unit or organization to succeed.

These areas usually involve major organizational activities or groups of related activities that occur throughout the unit or organization. Some of the key performance areas are shown in table below;

These key result areas help define detailed control systems and standards and are cross-functional.

ProductionMarketingPersonnel
Management
Finance and Accounting
QualitySales volumeLabor relationsCapital
expenditure
QuantitySales expenseLabor turnoverInventories
CostAdvertising expenditureLabor absenteeismFlow of capital
Individual job performanceIndividual sales person’s performanceLiquidity

Identifying strategic control points (SCPs)

It is needed to determine the critical points in the system where monitoring or information collecting should occur. Once such SCPs can be located, the amount of information that has to be gathered and evaluated can be reduced significantly.

The most effective method of selecting SCPs is to focus on the most significant elements in a given operation.

Usually, only a small percentage of the objects, events, individuals or activities in a given operation will account for a high proportion of the problems or expenses that managers will have to meet.

For example, 2 percent of customers may buy 80% of the products of a company; 5 percent of a manufacturer’s products may well yield 50 percent of its revenue, and 1 percent of an industry’s employees may account for 90 percent of its employee grievances.

Determining critical point standards (CPS)

Every goal, every objective, and every procedure becomes a standard against which actual or expected performance might be measured.

In practice, however, standards may be of the following types:

  1. Physical standards: Physical standards may reflect quantities such as units of production per machine hour, yards of wire per pound of copper, or labor-hours per unit of output.Physical standards may also reflect quality, such as durability of a fabric, fastness of a color, or softness of a cushion.
  2. Revenue standards: They usually arise from attaching monetary values to sales and may include such standards as revenue per unit sold sales per capita in a given market or average sale-proceed per customer.
  3. Cost standards: These standards are monetary measurements and attach monetary values to specific aspects of operations.Illustrative of cost standards may be labor cost per hour or per unit, machine hour cost, material cost per unit, or selling cost per unit or Dollar of sales.
  4. Capital standards: The most widely used capital standard is “return on investment.” Some other capital standards may be the ratios of- fixed investment to total investment, debt to net worth, or current assets to current liabilities.
  5. Intangible standards: Some standards are difficult to be expressed in either physical or monetary measurement.Questions — such as whether the office staffs are dutiful or supervisors loyal to the company’s objectives – clearly show the extent of difficulty in establishing absolute standards for quantitative or qualitative measurement.In fact, where human relationships count in performance, as they do above the basic operating levels, it is very hard to establish standards.Thus many managerial controls over interpersonal relationships continue to be based on intangible standards, trial and error and informal gatherings.
  6. Goals as standards: In complex program operations, as well as in the performance of managers themselves, modem managers find that it is possible to define goals that can be used as performance standards through research and thinking.
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