Controlling: As a Management Function

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Controlling: As a Management Function

Prepared For:

Professor Neaz Ahmed

Prepared By:

Group-05 Mehdi Zaman Roll No: 62 Mohammad Rashedul Islam Roll No: 63 Asif Rezwan Roll No: 64 Khondoker Faisal Alam Roll No: 67 Rahmat Ali Roll No: 82 Tareq Shams Laskar Roll No: 94 Batch: MBA 44D

Institute of Business Administration Dhaka University
Date of Submission: May 13, 2010 2

May 13, 2010

Professor Neaz Ahmed Institute of Business Administration Dhaka University Dear Sir: Submission of Term Paper Here is the term paper on the subject of controlling as a management function. In going through the subject of controlling, we’ve consulted many library volumes as well as online resources. We are expectant that the information in this term paper will benefit all concerned. Hoping for your appreciation, we’ll be glad to converse with you at your convenience should you need any assistance. Sincerely yours, Mehdi Zaman Mohammad Rashedul Islam Asif Rezwan Khondoker Faisal Alam Rahmat Ali Tareq Shams Laskar Roll No: 62 Roll No: 63 Roll No: 64 Roll No: 67 Roll No: 82 Roll No: 94

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.................................................................................................... ....................................................... ...................................................................10 7................................................................7 Objective ...........1 Controlling: .......................................................................13 Understanding Resistance to Control..9 7...................................................................................................................................................2 Measuring performance .............................................................. in turn.......................................................................................16 4 ...................................8 Areas of controlling.................................................................... The control system......9 The planning controlling link..........................................................................................................................................................................................10 7.......................3 Comparing performance against standards...................................................................................................................................................................................................1 Executive Summery........14 Overcoming resistance to control................................................................... tells the manager that things are going as they should....... The manager makes plans and then uses the control system to monitor progress toward fulfillment of those plans.........................11 Forms of organizations control.........................................Table of Contents ..............11 Types of operational control:.....................................................................................................................................................................................................4 Evaluation and Action.................................. Many businesses that use a divisional form of organization design have several controllers: one for the corporation and one for each division............8 The purpose of controlling.15 Choosing a style of control..........................................................................9 7............................................1 Establishing standards.....................................1 As a Management Function...........................6 Introduction..............9 The Control Process........................................................12 Managing the control process............................................. coordinating the organization’s overall control system..................................................................................................................................................................8 Responsibilities of controlling........................................................9 Most large organizations also have one or more specialized managerial positions called controller............... The controller is responsible for helping line managers with their control activities..............................................................9 The organization continuously cycles back and forth between planning and controlling.....................................................................................................16 Effective Controls.....................................

.................28 Common Types of Charts..........................................................................................................................................................................................................................................19 Management Control Strategies ................................................24 Statistical Process Control Charts...18 Characteristics of the Control Process ............21 22.................................................................................................................................................................................19 Designing Effective Control Systems ..........................20 Dysfunctional Consequences of Control ........29 Out-Of-Control Process: Runs Tests........................................................................................................................2 Evaluations............22 Relationship between planning and controlling.......................Organizational Control Systems..................................17 Features of Controlling Function...................................................23 Quality control..................................................................................................21 Quality Control and Operations Management............................................21 22................................26 Use of Statistical charts in Controlling..........................................................................28 Control Individual Observations.........1 Delegation...............................32 5 .................................................................................30 Learning..........................25 Control Chart Elements.........20 Various Administrative Controls......................................................................................................................................23 View of Organizational Control...............................................................................................................................21 Financial Statements (particularly budget management).......................................................................................................................................................................................................................................................................................................................................................................................................................................17 Operations Management and Control..................................................................

control 6 . and helps minimize cost. helps an organization cope with complexity. all organizations must contend with change. On the other hand. lowering standards to what has been attained is not a solution to performance problems. a manager does need to lower standards when they are found to be unattainable due to resource limitations and factors external to the business. comparing the two. It actually is a process of monitoring performance and taking action to ensure desired results. standards should be established for every important task. Performance standards come from the planning function. Although the temptation may be great.Executive Summery Controlling is a four-step process of establishing performance standards based on the firm's objectives. and taking corrective or preventive action as necessary. Control helps an organization adapt to changing conditions. limits the compounding of errors. In today’s complex and turbulent environment. No matter how difficult. If managers could establish goals and achieve them instantaneously. measuring and reporting actual performance.

preventive action must be taken to ensure that the problem does not recur. it is difficult to maintain adequate control without and elaborate control system.” Just as a navigator continually takes reading to ensure whether he is relative to a planned action. It helps ensure that objectives and accomplishments are 7 . and improve output per unit of input. If performance is greater than or equal to standards. So in management Controlling plays a major role in achieving a specific target. Small mistakes and errors do not often seriously damage the health of an organization. It sees to it that the right things happen. When control is practiced effectively. With the passage of time. lower labor costs. it ensures that the overall directions of individuals and groups are consistent with short and long range plans. has a simple structure. and to changing circumstances. produces but one product.would not be needed. many things can happen in the organization and its environment to disrupt movement toward the goal or even to change the goal itself. Effective control system can eliminate waste. But in an organization that produces many products from myriad raw materials. it can help reduce costs and boosts output. has a large market area and complicated organization structure. its managers can probably maintain control with a note pad and pencil. monitor. When a firm purchases only one raw material. and enjoys constant demand for its product. small errors may accumulate and become very serious. Done well. But between the time a goal is established and the time it is reached. If performance is anticipated to be below standards.” Corrective action is necessary when performance is below standards. Introduction Controlling is a systematic exercise which is called as a process of checking actual performance against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs. A properly designed control system can help managers anticipate. and operates in a competitive environment. and at the right time. so should a business manager continually take reading to assure himself that his enterprise is on right course. in the right ways. however. it is useful to reinforce behaviors that led to the acceptable performance.

It also helps maintain compliance with essential organizational rules and policies. Two useful ways of identifying areas of control are in terms of resource focus and level. We believe this study will help us learning the concept of controlling in detailed with various perspective in it. Areas of controlling Organizational control can focus on any area of an organization. Organizational control is concerned with the overall functioning of the organization. control. performance appraisal. Control can also classified by level. Control of human resources includes selection and placement activities. and economic forecasting. Objective As a part of our “Management of organization” course we are working on Controlling. Besides learning controlling we tried to develop our communication skill by interacting with each other which will help us in the long run while working in an organization. Control of physical resources includes inventory management. 8 . Operations control is control focused on one or more operation systems within an organization. production scheduling. Control of information resources involves sales and marketing forecasting. and equipment control. The purpose of controlling In many ways the purpose of control should be obvious. quality. The resource view of control. environmental analysis. training and development. The management process itself involves efficiently and effectively combining these resources into appropriate outputs. Further more this study will help us learn how to take a group decision effectively as well as how to work in a group efficiently toward a single group task. and compensation levels. physical. and information resources. public relations. Quality control is one type of operations control. as shown in the fig: deals with financial. human. Strategic control is concerned with how effectively organization understands and aligns itself with its environment. The purpose of control is to provide managers with an assessment of where the organization is in comparison to where it is supposed to be at a certain point in time and in terms of one or more indicators of performance.consistent with one another throughout an organization.

7. standard established for control purposes should be derived from the organizations goals. The Control Process • • • • Establish objectives and standards. The control system. On a broader level.Responsibilities of controlling Managers have always been responsible for managing control. Most large organizations also have one or more specialized managerial positions called controller.1 Establishing standards The first step in the control process is the establishment of standards. Take necessary action. control standards also reflect organizational strategy. in turn. It is they who actually implement control systems and take appropriate actions based on the information provided by those control systems. coordinating the organization’s overall control system. Many businesses that use a divisional form of organization design have several controllers: one for the corporation and one for each division. The manager makes plans and then uses the control system to monitor progress toward fulfillment of those plans. A final aspect of establishing standards is to decide which performance indicators are relevant. tells the manager that things are going as they should. The planning controlling link The organization continuously cycles back and forth between planning and controlling. When a 9 . A standard is a target against which subsequent performance is to be compared. Measure actual performance. As much as possible. Compare results with objectives and standards. The controller is responsible for helping line managers with their control activities.

• • The control process begins with planning and the establishment of performance objectives. 7. weekly.9%. and for control to be effective. effective control is not possible. or monthly sales figures represent actual performance. ongoing activity for most organizations.7%. The measurement of performance is a constant. cost. performance may be expressed in terms of unit cost. Without measurement. or time. When a manager is concerned with controlling sales.2 Measuring performance The second step in the control process is measuring performance. 7.new product is introduced. There are two types of standards: – Output Standards. At the end of year. In other settings. daily.measures work efforts that go into a performance task. performance may be measured in terms of quality or quantity of output. – Input Standards.3% and the third by 8. quality or volume. It is relatively simple to determine whether this standard has been met. comparison is less clear-cut. another by 9. quality. For employees. Assume that each of three sales managers has a goal of increasing sales by 10% during the year. its manufacturer should have some idea in advance whether the first month’s sale will take a while to gather momentum. For a production manager. How do we 10 . relevant performance measures must be valid. lower than. Performance may be higher than.measures performance results in terms of quantity. however. one manager has increased sales by 9. Performance objectives are defined and the standards for measuring them are set. • • Measurements must be accurate enough to spot deviations or variances between what really occurs and what is most desired. In some cases comparison is easy. The issue is how much leeway is permissible for remedial action is taken. or the same as the standards.3 Comparing performance against standards The third step in the control process is to compare measured performance against the standards developed in step 1. Performance refers to that which we are attempting to control.

We may need to motivate our employees to work harder or supply them with new machinery. something must be done to get us back on track. • • • . These and other relevant factors must be considered. • • The comparison of actual performance with desired performance establishes the need for action. one of three actions is usually appropriate. Management-by-Exception focuses managerial attention on substantial differences between actual and desired performance. Ways of making such comparisons include: Historical / Relative / Engineering Benchmarking 7. The three forms vary primarily in terms of where they occur in relation to the transformation processes used by the organization. Correct the deviation: It is more likely that some action will be needed to correct a deviation from the standard. Taking any action necessary to correct or improve things. After evaluation. The standard may have been too high or too low to begin with. Managers at sharper image saw a clear problem with their same–store sales and took corrective action immediately. Change standards: A final response to the outcome of comparing performance to standards is to change the standards. If the cost-reduction standard is 4% and we have thus far managed only a 1% reduction. • • Maintain the status quo: One response is to do nothing. this is a management decision that must be based on many relevant factors. This evaluation draws heavily on a manager’s analytic and diagnostic skills. or maintain the statues quo. Although none of the three sales managers attained the precise goal of 10%. The company may need to reassess its standard and adopt a lower one to better reflect the realities of its marketplace.4 Evaluation and Action The final step in the control process is to evaluate performance and then take appropriate action. one was very close. Types of operational control: Operational control can take three forms-preliminary.decide whether each has met the standard? For the most part. This action is generally appropriate when performance more or less measures up to the standard. Another may have met with unexpected competition from a new company. screening and post action. 11 .

Forms of organizations control 9. human and information resources before they become part of the system. Post action control Post action control focuses on the outputs of the organization after the transformation process is complete. 12 . thereby controlling material inputs. If a product can be manufactured in only two or three steps. organizations often take steps to control financial and information resources as they enter the system. b. Similarly. Such control systems are an effective way to promote employee participation and catch problems in the transformation process. Preliminary Control (feed forward) Preliminary Control concentrated on inputs to the system early in the overall process. c. More and more companies are adopting a screening control philosophy. Firms like Proctor & Gamble and General Mills hire only college graduates for their management training programmes-and only after several interviews and other selection criteria have been satisfied. it is periodically checked to make sure that all of the components assembled so far are working properly. Organizations that use it rely on strict rules and a rigid hierarchy. Suppose that a manager of a manufacturing control establishes a number of checkpoints along the assembly line. physical. Screening control relies heavily on feedback processes. When Sears orders merchandise to be manufactured under its own brand name. Preliminary control attempts to monitor the quality or quantity of financial.a. Although post action control is generally not as useful as preliminary or screening control. The goal of bureaucratic control is to extract employee compliance. they control the quality of he human resource entering the organization. Thus. post action control may be the most effective method. Screening Control (Concurrent) Screening Control takes place during the transformation process. it can be effective in two important ways. it specifies rigid standards of quality. Because screening control are widely applicable and useful in identifying the cause of problems they tend to be used more often than other forms of control. As the product moves along the line.1 Bureaucratic Control Bureaucratic Control is a form of organizational control characterized by formal and mechanistic structural arrangements. because the product is being controlled during the transformation process itself. This is screening control. Post action control also provides a basis for rewarding employees. It provides management with information for future planning.

Managing the control process 13 . Because the study of strategic control is still in its infancy. there are no generally accepted models or theories. human resources. Rewards are often directed at group performance and participation is widespread. discovers the causes of such deviations and helps in taking corrective actions. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. the implementation of strategy generally five basic areas: structures. but it does follow similar principles. 9. however. Controlling consists of verifying whether everything occurs in conformities with the plans adopted. technology. Thus it follows that strategic control should focus on these five areas in order to ensure that strategy has been and is being effectively implemented. The focus of performance is not so much on minimally acceptable levels.4 Cybernetic Control System One that is self-contained in its performance monitoring and correction capabilities. Organizations using this approach are usually relatively flat and encourage shared influence. Controlling measures the deviation of actual performance from the standard performance. 9. a strong corporate culture and self-control of behavior. instructions issued and principles established.3 Strategic control Strategic control-the third level of control practiced by organization-is aimed at ensuring that the organization is maintaining an effective alignment with its environment and moving toward achieving its strategic control. Moreover they focus their rewards on individual performance and allow only limited and formal employee participation.concentrate on ensuring that people meet minimally acceptable levels of performance and have a tall structure. leadership. In general. but rather on how people can enhance their levels of performance beyond minimal levels. Accordingly.2 Clan Control Clan Control is an approach to organizational control based on informal and organic structural arrangements. and information and control systems. it relies heavily on group norms. 9. The control process practiced in organizations is not cybernetic.

Understanding Resistance to Control 14 . Timely Another characteristic of an effective control system is that it provides performance information in a timely way. Objective To the extent possible. and the results of inaccurate information can be quite dramatic. Integrated with Planning We noted earlier that control should be linked with planning. but the manager must take appropriate precautions in interpreting it. accurate. This seems obvious enough. Flexible Another characteristic of an effective control system is flexibility-that is. Accurate Control systems must also be accurate. it simply means that information is provided as often as is suitable for that which is being controlled. but it is surprising how many managers base decisions on inaccurate information. managers may take inappropriate action. The most important factor in effectively integrating planning and control is to account for control as plans are developed.Developing Effective Control Systems Control systems tend to be most effective when they are integrated with planning and are flexible. In general. Denied accurate measurement and reporting of performance. the control system itself must be flexible enough to accommodate change. the more explicit and precise this linkage is. Timeliness does not necessarily means fast. the information provided by the control system should be objective or it can be said that the control system should therefore provide objective information to the manager for evaluation and action. the more effective the control system will be. timely and objective.

Rewards for inefficiency If two separate departments in one company gets treated different way for their spending or conserving like: one dept. Encourage Participation Participation can help overcome resistance to change. People naturally resist this kind of control. because the rewards and punishments associated with spending and conserving are unfair.Over control Occasionally. and even which individuals are responsible. is punished (budget cuts) for being overly efficient with their funds while the other is rewarded (budget increase) for being inefficient. managers not only know when problems arise but also which dept. This becomes especially problematic when the control relates directly to employee behavior. when employees are involved with planning and implementing the control system they are less likely to resist it. organizations make the mistake of over control-they try to control too many things. 15 . accurate. As for example when a company tells an employee how to dress. By the same token. Overcoming resistance to control Create effective controls Perhaps the best way to overcome resistance to control is to create effective control to begin with. If the standards are properly set and performance is accurately measured. incorrect focus or rewarding inefficiency. effective controls allow managers to determine whether they successfully discharge that responsibility. employees are likely to feel over controlled. Inappropriate fears Another reason for resistance is that the focus of the control system may be inappropriate. The control system may be too narrow. timely and objective. or it may focus too much on quantifiable variables and leave no room for analysis or interpretation. When people have the responsibility to do something. the organization should not fall victim to the problems of over control. how to wear their hair. If control systems are properly integrated with an organization’s planning system and if the controls are flexible. Accountability Another reason some people resist control is that effective control systems create accountability.

Use of MBO Management by objectives. and not totally reflective of performance). ambiguous. Finally. When MBO is used properly. Organizational style. and employee desire to participate. employee help establish their own goals. organizational style. Performance measures are classified as accurate (reliable. become standards against which their performance will be measured. structure. performance measures. can be participative (participative decision making throughout the organization) or no participative (centralized. Effective Controls The Best Controls in Organizations are • • • • • Strategic and results oriented Understandable Encourage self-control Timely and exception oriented Positive in nature 16 . These goals. and reward systems. Management styles are presumed to be either participative (Consulting with subordinates) or directive (telling others what to do). Multiple standards and information systems provide checks and balances for control. which is a composite of culture. Use of Checks and Balances Another way to overcome employee resistance to control is to maintain a system of checks and balances. Employees also know in advance that their rewards will be based on the extent to which they achieve and maintain those goals and standards. and truly reflective of performance) or relatively inaccurate (unreliable. The human resource control system should have records on the matter. with few people participating in the decision making process). Choosing a style of control One approach to selecting a style of control bases the decision on four factors: management style. employees are assumed to have either considerable desire to participate in decision-making or little desire to participate. in turn. valid. Resistance declines because the system of checks and balances serves to protect employees as well as management. or MBO can also overcome employee resistance to control.

norms. Employee Discipline • • • Discipline is defined as influencing behavior through reprimand. – Recognize the value of their performance contributions. Progressive Discipline ties reprimand to the severity and frequency of the employee’s infractions. and organization culture Compensation and Benefits – Attract talented people and retain them.• • Fair and objective Flexible Organizational Control Systems • Management Processes – Strategy and objectives – Policies and procedures – Selection and training – Performance appraisal – Job design and work structures – Performance modeling. • Effective Discipline • • • • • • Immediate Focus on activity not personality Consistent Informative Occur in a supportive setting Support realistic rules Operations Management and Control • Purchasing 17 . Positive Discipline tries to involve people more positively and directly in making decisions to improve their behavior. – Motivate people to exert maximum effort in their work.

4. Controlling is a dynamic process.Identifies and controls the many separate events in complex projects. 18 . Controlling is related with planning. Planning presupposes controlling and controlling succeeds planning. controlling is a meaningless exercise and without controlling.which means it is performed by managers at all levels and in all type of concerns.– – – – • Economic Order Quantity automatic reorder points Just-In-Time Scheduling Project Management Program Evaluation and Review Technique (PERT) .Planning and Controlling are two inseperable functions of management. 5. that can be graphically and statistically monitored to ensure that products meet standards. Statistical Quality Control – Based on the establishment of upper and lower control limits. Without planning. Controlling is a pervasive function. 3. It facilitates co-ordination 2. 2. changes have to be made wherever possible. Controlling is forward looking.since controlling requires taking reviewal methods. It helps in planning Features of Controlling Function Following are the characteristics of controlling function of management1.A function which comes once the performances are made in conformities with plans. Controlling is an end function. Controlling always look to future so that follow-up can be made whenever required. planning is useless.because effective control is not possible without past being controlled. Controlling has got two basic purposes 1.

the process also follows up on problems. Management Control Strategies Managers can use one or a combination of three control strategies or styles: market. Control is both anticipatory and retrospective. By its very nature. Controlling leads to identification of new problems that in turn need to be addressed through establishment of performance standards. External forces make up market control. each employee cares about each customer. (Figure 18. Controlling is related to each of the other functions of management. Self-control. bureaucratic and clan control. The organizational culture should prevent a person walking away from a small. bureaucracy and clan. With corrective action. By training and encouraging individuals to take initiative in addressing problems on their own. each employee cares about the welfare of each animal and the wear and tear on each piece of equipment. In quality driven dairy farms. The self-control then benefits the organization and increases the sense of worth to the business in the individual. organizing and leading. managers can turn to internal bureaucratic or clan control. The first relies primarily on budgets and rules.3) Each serves a different purpose. easily solvable problem because "that isn't my responsibility. The second relies on employees wanting to satisfy their social needs through feeling a valued part of the business. 19 . Controlling builds on planning. Employees often view controlling negatively.Characteristics of the Control Process The control process is cyclical which means it is never finished. is complementary to market. for example. No matter how positive the changes may be for the organization. measuring performance etc. The process anticipates problems and takes preventive action. controlling often leads to management expecting employee behavior to change. employees may still view them negatively. sometimes called adhocracy control. Without external forces to bring about needed control. Ideally." In customer driven businesses. This empowerment plays out as self-control. each person in the business views control as his or her responsibility. there can be a resulting sense of individual empowerment.

Coordinated with planning. The following behaviors demonstrate means by which the manager's control efforts can be frustrated: 1. employee resistance can easily make control efforts dysfunctional. Timeliness 6.1) 2." 4. Control at all levels in the business (Figure 19. Resisting control--> a "blue flu" reaction to too much control 3. Following rules to the letter--> people following dumb and unprofitable rules in reaction to "do as I say. a game between the "boss and me and I want to win. However. Providing inaccurate information --> a lack of understanding of why the information is needed and important leading to "you want numbers. Game playing--> control is something to be beaten. gossiping about the firm to people in the community 20 . discrediting other workers. Balance between objectivity and subjectivity 9. Accuracy 5. Sabotaging --> stealing.Designing Effective Control Systems Effective control systems have the following characteristics: 1. we will give you numbers." 5. Flexibility 4." 2. organizing and leading Dysfunctional Consequences of Control Managers expect people in an organization to change their behavior in response to control. Cost effectiveness 7. chasing customers away. Understandability 8. Acceptability to those who will enforce decisions 3.

Evaluations can focus on many aspects of an organization and its processes.g. Financial Statements (particularly budget management) Once the organization has establish goals and associated strategies (or ways to reach the goals). human resource information systems. project management software.6. processes. by when and how. Delegation generally includes assigning responsibility to an employee to complete a task. evaluation of marketing efforts. As the money is spent. for example. statements are changed to reflect what was spent. the person assigning the task shares accountability with the employee for ensuring the task is completed. Playing one manager off against another --> exploiting lack of communication among managers. financial reports. The most common financial statements 21 . how it was spent and what it obtained. 22.1 Delegation Delegation is an approach to get things done. etc. etc. Computers have revolutionized administrative controls through use of integrated management information systems. in conjunction with other employees. granting the employee sufficient authority to gain the resources to do the task and letting the employee decide how that task will be carried out.. its goals. Typically. 22. outcomes.2 Evaluations Evaluation is carefully collecting and analyzing information in order to make decisions. Review of financial statements is one of the more common methods to monitor the progress of programs and plans. status reports. for example. to monitor what's being done. program evaluations. funds are set aside for the resources and labor to the accomplish goals and tasks. evaluation of employee performance. Delegation is often viewed as a major means of influence and therefore is categorized as an activity in leading (rather than controlling/coordinating). Various Administrative Controls Organizations often use standardized documents to ensure complete and consistent information is gathered. Organizations typically require a wide range of reports. asking a second manager if don't like the answer from the first manager. office automation software.. Documents include titles and dates to detect different versions of the document. etc. project reports. etc. There are many types of evaluations in organizations. e.

how well those goals should be met. laws such as the Americans with Disabilities Act. including the role of performance reviews. Policies and Procedures (to guide behaviors in the workplace) Policies help ensure that behaviors in the workplace conform to federal and state laws. Safety and Liabilities For a variety of reasons (including the increasing number of lawsuits). the concept of quality management has expanded to include organization-wide programs.include the balance sheet. Several decades ago. Performance reviews provide an opportunity for supervisors and their employees to regularly communicate about goals. producing and distributing products and services. The employee is rewarded in some form for meeting performance standards. "zero defects". as well. Often. Performance Management (particularly observation and feedback phases) Performance management focuses on the performance of the total organization. etc. Financial audits are regularly conducted to ensure that financial management practices follow generally accepted standards. Very broadly.. etc. critical subsystems (departments. or comparing to a well-accepted standard). organizations are focusing a great deal of attention to activities that minimize risk. projects. etc. Occupational Health and Safety Act. avoid liabilities and ensure safety of employees. programs.g. and also to expectations of the organization. ISO9000. how well the goals are being met and what must be done to continue to meet (or change) those goals. Most of us have some basic impression of employee performance management. Risk.) and employees.) and minimize the likelihood of costly litigation. Procedures ensure that routine tasks are carried out in an effective and efficient fashion. such as Total Quality Management. See 22 . Recently. comparing the results to the standard and then making adjusts as necessary. Many people recognize phrases such as "do it right the first time. it was rare to hear of an organization undertaking contingency planning. Personnel policies and procedures help ensure that employee laws are followed (e. Now those activities are becoming commonplace. A procedure is a step-by-step list of activities required to conduct a certain task. etc. disaster recovery planning or critical incident analysis. Quality Control and Operations Management The concept of quality control has received a great deal of attention over the past twenty years. Balanced Scorecard. Operations management includes the overall activities involved in developing. income statement and cash flow statement. including its processes. policies are applied to specified situations in the form of procedures. monitoring and measuring results. "Total Quality Management". or embarks on a development plan with the supervisor in order to improve performance. quality includes specifying a performance standard (often by benchmarking.

the strong relationship between the two is very critical and important. Once controlling is done effectively. 3. “Relationship between the two can be summarized in the following points 1. Planning precedes controlling and controlling succeeds planning. yet they are closely related. Planning and controlling are integral parts of an organization as both are important for smooth running of an enterprise. There controlling comes to the rescue. Therefore. or process for quality control team is to identify specified standards of quality. The basic goal of quality control is to ensure that the products. planning and controlling reinforce each other. In absence of controlling. It may include whatever actions a business deems necessary to provide for the control and verification of certain characteristics of a product or service.Relationship between planning and controlling Planning and controlling are two separate functions of management. and fiscally sound. 4. the job of a quality control 23 of a product. 6. quality control involves the examination certain minimum levels of quality. The process of planning and controlling works on Systems Approach which is as follows : Planning → Results → Corrective Action 5. services. Quality control Quality control is a process employed to ensure a certain level of quality in a product or service. The scope of activities if both is overlapping to each other. If a team or professional may involve . The goal of a products or services that do not meet a company’s problem is identified. Therefore. Planning and controlling are inseparable functions of management. or processes provided meet specific requirements and are dependable. Activities are put on rails by planning and they are kept at right place through controlling. planning becomes a meaningless exercise. Planning and controlling reinforce each other. it gives us stimulus to make better plans. Essentially. satisfactory. service. In the present dynamic environment which affects the organization. According to Billy Goetz. controlling activities becomes baseless and without controlling. no purpose can be served by. planning and controlling are in separate functions of a business enterprise. Each drives the other function of management. Without the basis of planning. 2. it is quite likely that planning fails due to some unforeseen events. In the present day environment.

Organization Control includes any process designed to assure that organization plans are carried out the way they were designed. From performance bonuses based on bottom-line net income to efforts that generate increased satisfaction of customers with the quality of product services 24 . Typically. quality may be severely diminished. services. quality assurance ensures a product or service is manufactured. quality assurance is designed to make sure processes are sufficient to meet objectives. Depending on the particular service or product. while quality control evaluates whether or not the end result is satisfactory. while quality assurance is process–oriented. there are some basic differences. as well as the type of problem identified. or service. Thus. it concerns correctable issues. b. View of Organizational Control I. and processes. activity. quality control involves evaluating a product. it is not the job of a quality control team or professional to correct quality issues. the product. Though the two are very similar. Quality control is concerned with the product. If a company has employees that don’t have adequate skills or training. Simply put. Traditionally. a. standard cost systems. it should not be confused with human resource issues. process. or process continues production or implementation as usual. During the past decade. other individuals are involved in the process of discovering the cause of quality issues and fixing them. created. implemented. i. When quality control is considered in terms of human beings. identifying the differences between the two can be hard. However.e.. Often. production or implementation may not cease entirely. Basically. service. or are misinformed. quality control is confused with quality assurance. Quality control can cover not just products. the duty for establishment and analysis of control system results developed primarily as an accounting function.stopping production temporarily. Employees are an important part of any company. Even with such a clear-cut difference defined. market quotas budgets. control systems have moved from strictly quantitative in nature to both quantitative and qualitative in nature. but also people. c. control processes were primarily quantitative in nature. Usually. have trouble understanding directions. Once such problems are overcome. By contrast. or produced in the right way.

When maintained in real time.II. while multivariate (many-variable) charts monitor more than one characteristic simultaneously. The contemporary attitude of control and control systems is that such control efforts should motivate people toward desired organizational behavior and not promote dysfunctional behavior. This article shows how a 25 . even though many variables can be measured for the same process. these charts provide an early warning about quality problems. under certain conditions. give misleading information when multiple variables are being measured concurrently. A single variable control chart can. Traditional Outlook What is measured Meeting Budget Production Efficiency Inputs Quantitative Performance Individuals Functions Responsibility Centers Efficiency Profits ROI 1990s Through 21st Century Customer Satisfaction New Product Development Outcomes Quantitative and Qualitative Performance Teams (Groups) Cross-Functional Efforts Who is measured How rewarded Quality Innovation Creativity Overall Company Performance Macro-Environment Industry Environment Internal Focus Internal Statistical Process Control Charts Statistical process control charts are a widely used quality management tool because they can be applied in many different situations. Most cost management and accounting literature focuses on control charts with only a single variable. Univariate (one-variable) charts measure only one characteristic.

payroll. surrounded by individual observations.multivariate control chart can be used to acquire more useful information about a process or activity when more than one characteristic is monitored at once. accounts payable. machine availability. The purpose of this chart is to determine if the variation present in a process is attributable to 26 . accounts receivable). personnel would gain a greater understanding of the natural variability in the processes and of how reducing variation could result in better services. If SPC is used.e. Employees in this area should have an understanding of the control chart and how they can help in evaluating performance. Control Chart Elements An SPC chart is a graph that shows the measurements of some characteristic of interest.   Upper and lower control limits (three standard deviations from the short-term process average). If an observation falls outside of the control limits or a run is detected in the data then the process is considered to be out of control. Administrative processes. An investigator tries to discover the source of variation and determine a remedy by evaluating A control chart can also be used to evaluate the non-financial aspects of various processes and activities (i. 29. (A run is a series of consecutive points above or below the center line). This characteristic can be a qualitative or a quantitative attribute. In general. etc.1 The Multivariate Control Chart A multivariate control chart should be used to obtain more complete information about the state of control when more than one variable is being measured simultaneously.  Horizontal axis that identifies observations and preserves the time order of their collection. If the points (observations) in a chart fall within the upper and lower limits then the process is considered to be in statistical control. SPC charts possess the following elements:  Center line. schedule attainment. cycle time. Performance measurement is a recurring part of the accounting function. especially repetitive ones. are also candidates for SPC (i.  Vertical axis scaled to the values of the observations. or process average. SPC charts are used to identify points that differ from the process average as well as to reveal shifts in the process. defect rate.e.).

29. 29. Calculating the control limits—there is only an upper control limit in a multivariate control chart due to the way the observations are calculated. 3.3 Multivariate Charts Complement Univariate Charts Both multivariate and univariate charts should be used together because they complement each other. This shows that when multiple variables are concurrently monitored for the same process or activity. This is not necessary in a univariate control chart because only one characteristic is measured. Easier to examine than multiple univariate charts simultaneously. in the degree of movement away from a process May detect subtle changes in the relationships among the variables that would not be noticeable from separate univariate charts. Detects differences average. the points plotted are a quadratic form of the means of the measurements in each sample. the best and most complete information is generated when using the two charts in conjunction with one another.and univariate control charts: 1. Investigating out-of-control points—in a multivariate control chart. Indicates whether this variation is statistically significant. This chart measures several variables at once and sends out a signal when the relationship among the variables changes unexpectedly. 2.2 Differences Between Multivariate and Univariate Charts Three main differences occur between multi. 27 . 29. In a multivariate control chart based on samples. The multivariate chart sends out a signal when an imbalance exists among the variables. the investigator must first determine which characteristic caused the process to be out-of-control.4 Advantages of Multivariate Charts Provides an out-of-control signal when the variables move in a direction that is unexpected.unusual influences. The univariate chart signals when an observation falls outside of the upper and lower control limits. Calculating the data point to be plotted on the chart—points plotted on a univariate control chart for averages are the sample means.

a typical chart includes two additional horizontal lines to represent the upper and lower control limits (UCL. thus. we will return to those lines shortly. the vertical axis for the R chart represents the ranges. while the center line in the R chart would represent the acceptable (within-specification) range of the rings within samples. Typically. or if samples fall outside pre-specified limits.. If this line moves outside the upper or lower control limits or exhibits systematic patterns across consecutive samples then a quality problem may potentially exist.g. this latter chart is a chart of the variability of the process (the larger the variability. The center line in the X-bar chart would represent the desired standard size (e. respectively). LCL. Common Types of Charts The types of charts are often classified according to the type of quality characteristic that they are supposed to monitor: there are quality control charts for variables and control 28 . In both line charts. representing the samples. the other is called an R chart. diameter in millimeters) of the rings. the individual points in the chart. In addition to the center line. data if the data currently are accumulated for Use of Statistical charts in Controlling The general approach to on-line quality control is straightforward: We simply extract samples of a certain size from the ongoing production process. For example.Allows users to evaluate the system as a whole rather than the sum of many individual parts. are connected by a line. the larger the range). then we declare the process to be out of control and take action to find the cause of the problem. We then produce line charts of the variability in those samples. one is called an X-bar chart. These types of charts are sometimes also referred to as Shewhart control charts Interpreting the chart: The most standard display actually contains two charts. the horizontal axis represents the different samples. If a trend emerges in those lines. Requires no additional univariate control charts. suppose we wanted to control the diameter of piston rings that we are producing. and consider their closeness to target specifications. the vertical axis for the X-bar chart represents the means for the characteristic of interest.

and it can be used. per machine) as in the C chart. Control Individual Observations Variable control charts can by constructed for individual observations taken from the production line. etc. size of piston rings. the sample ranges are plotted in order to control the variability of a variable. In this chart. Therefore. the control limits in this chart are not based on the distribution of rare events but rather on the binomial distribution (of proportions). Unlike the C chart. This chart assumes that defects of the quality attribute are rare. per machine. the number of defectives divided by the number of units inspected (the n.. In this chart we plot the rate of defectives. per machine. strength of materials. they occur in more than 5% of the units inspected).) as in the U chart. and the control limits in this chart are computed based on the Poisson distribution (distribution of rare events). when the batches (samples) are of different sizes. In this chart the sample means are plotted in order to control the mean value of a variable (e.g. the control limits in this chart are not based on the distribution of rare events. but rather on the binomial distribution. However. for example. S chart. For controlling quality characteristics that represent attributes of the product. the following charts are commonly constructed for controlling variables: • • • • X-bar chart. we expect the percent of defectives to be more than 5% of the total number of units produced). we plot the number of defectives (per batch.. that is. we may use this chart to control the number of units produced with minor flaws. the sample standard deviations are plotted in order to control the variability of a variable. This is sometimes necessary when testing samples of multiple observations would be too expensive.g. this chart should be used if the occurrence of defectives is not rare (e.). Therefore.g.charts for attributes.). In this chart (see example below). U chart. In this chart. number of batches). P chart. feet of pipe. per 100 feet of pipe. In this chart. per day. per day. In this chart. R chart. inconvenient. In this chart.. we plot the number of defectives (per batch. Specifically. the sample variances are plotted in order to control the variability of a variable. e. Np chart. per day. this chart is most applicable to situations where the occurrence of defectives is not rare (e. rather than samples of observations. S**2 chart.g. For example. etc. etc.. we plot the percent of defectives (per batch. However. the following charts are commonly constructed: • • • • C chart. or 29 . this chart does not require a constant number of units.

25. you are often primarily interested in detecting small shifts in the product quality (for example. Note that this is approximately the probability with which a sample mean can be expected to fall outside the 3.e.5 times 0. In addition. Another common application of these charts occurs in cases when automated testing devices inspect every single unit that is produced. not auto-correlated). B. yet. and (3) that the distribution of means follows the normal distribution.e. Zone A. the probability that 9 consecutive samples (or a run of 9 samples) will fall on the same side of the center line is equal to 0. mean in an X-bar chart) falls outside the control lines. and EWMA charts of cumulative sums and weighted averages discussed below may be most applicable in those situations." 30 .impossible. For example. Out-Of-Control Process: Runs Tests As mentioned earlier in the introduction. Therefore.5**9 = . the probability that two consecutive means will fall above the center line is equal to 0. Accordingly. and a process in control). you could look for 9 consecutive sample means on the same side of the center line as another indication of an out-of-control condition. C. Refer to Duncan (1974) for details concerning the "statistical" interpretation of the other (more complex) tests..00195. Thus. In that case.g. the area above and below the chart center line is divided into three "zones. because such patterns may indicate that the process as the sigma control limits discussed earlier.. means) across samples. (2) that consecutive sample means are independent (i.times sigma limits (given the normal distribution. MA. The CUSUM. under those conditions there is a 50-50 chance that a mean will fall above or below the center line. that the center line value is equal to the population mean). you have reason to believe that the process may no longer be in control. provided (1) that the process is in control (i. the probability of any sample mean in an X-bar control chart falling above the center line is equal to 0. the number of customer complaints or product returns may only be available on a monthly basis. when a sample point (e. Customarily.g.. Simply stated..5 = 0. you should look for systematic patterns of points (e. gradual deterioration of quality due to machine wear). the runs rules are based on "statistical" reasoning. you want to chart those numbers to detect quality problems.5. For example. to define the runs tests.

4 out of 5 points in a row in Zone B or beyond. it indicates that two systematically alternating causes are producing different results. Zone B is defined as the area between 1 and 2 times sigma. This is. or most attribute charts. improvement in skill. If this test is positive (i. For example. for example. 1985). then the process average has probably changed. (Nelson. 31 .. 15 points in a row in Zone C (above and below the center line). For example. etc.By default. this is still a useful test to alert the quality control engineer to potential shifts in the process. such drift can be the result of tool wear. This test provides an "early warning" of a process shift. successive samples with lessthan-average variability may be worth investigating. 6 points in a row steadily increasing or decreasing. this test may be considered to be an "early warning indicator" of a potential process shift. deteriorating maintenance. Zone A is defined as the area between 2 and 3 times sigma above and below the center line. This test indicates a smaller variability than is expected (based on the current control limits). or monitor the quality for two different (alternating) shifts. Like the previous test. since they may provide hints on how to decrease the variation in the process. 9 points in Zone C or beyond ( on one side of central line ). and Zone C is defined as the area between the center line and 1 times sigma. you may be using two alternating suppliers. This test signals a drift in the process average. Note that it is assumed that the distribution of the respective quality characteristic in the plot is symmetrical around the mean. Note that the probability of a false-positive (test is positive but process is in control) for this test in X-bar charts is approximately 2%. 2 out of 3 points in a row in Zone A or beyond. not the case for R charts. However. 14 points in a row alternating up and down. If this test is positive. if this pattern is detected). Often. The falsepositive error rate for this test is also about 2%. S charts.e.

or beyond. where one produces above average parts. if different samples in an X-bar chart where produced by one of two different machines. resulting in a bimodal distribution of means. • • • • • It makes us aware about the various characteristics and implications of controlling in Business and real life. Learning Controlling is a vital part in management and it is done to run the business activities accordingly to reach a business purpose. and the other below average parts. Working in a group we saw how controlling in a group works as well. we will finish the discussion on controlling by stating our learning from this report. This test indicates that different samples are affected by different factors. As future managers we will be better prepared to control a business process. for example. A. This may happen. ……………. We learned different types and forms of controlling used in business.8 points in a row in Zone B. Get detailed idea about different stages of control process. on either side of the center line (without points in Zone C).0…………… 32 .

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