The structure and system of managerial control
- 1. 1 The structure and system of managerial control Every human being already knows the essentials. When implementing or improving management control in a company, as an introduction we o en make the comparison with going on a journey. When you go a on a journey, you automatically do ex- actly the same things, as are needed to obtain management control: - You decide when and where you want to go. - You decide how you want to go there. - You depart and along the way check if you are on the right track. - If you are not on the right track, you take corrective action. - When you arrive, you check to see if you are the right place. Any human being can travel. Applying the above structured steps is something children pick-up very early in life. They learn to apply structure to achieve their goal. Then how can we have lost or forgot- ten this skill as adults, when it comes to doing our work? If you work without structure, you are work- ing unstructured. Ordinarily, something that none us would like to do. The structure of a manage control system is identical to the steps you follow when going on a journey. A management control system is a tool that uses a structured approach to manage and control your area and to obtain the desired results. The structure is made of the elements, the steps to follow. Where this becomes a system is when the components are interconnected and working together to- wards the same end. A system is a number of logical steps or processes, called system elements, that allow you to work systematically to achieve your objectives. The management control system makes crucial information on key performance visible at regular intervals. Comparing what you set out to achieve and how you are actually performing alerts you when there is a deviation from plan, so that you can take the appropriate actions on undesirable deviations. The system elements are: forecasting, planning, shop-floor control and reporting. These elements require action to give life to an otherwise lifeless tool; all elements have to be followed-up. A system does not solve problems: you need to make it work, bring it to life. The system elements: Forecasting & Planning A forecast sums up the expectations on future output. A forecast describes the output we want to achieve in a given period in the future. The forecast is linked to relevant work periods such as months, weeks or days and is useful only if updated regularly on the basis of results achieved. A fore- cast enables us to predict future requirements. Without a forecast we have nothing from which to de- velop a plan. Planning is the process of allocating available resources to perform the work to be done in the time available for its completion in the most efficient and effective manner. Planning provides a base- line against which subsequent performance has to be measured. Without planning we would never be able to determine where we are or should be going. Forecasting is necessary to know where to go and planning is necessary to know how to get there. Shop Floor Control & Short Interval Control (monitoring) Short Interval Control is sometimes confused with Shop Floor Control, both are not clearly defined and sometimes used interchangeably. They centre around the same activity. Do you know what your operators are doing right now? Do you know how your line is performing right now? Shop-floor control is the process
- 2. 2 Short Interval Control is the process whereby you regularly monitor the progress of work by comparing the actual ongoing performance against plan. Where there is an unfavourable deviation, you take correc- tive action. To translate this into an understandable picture as an example here are three scenarios. You hire a contractor to make some repairs to your house. (1) You leave him a note in the morning before you go, telling him what to do and you return after he is finished. Will everything be done exactly as you had in mind when you return at the end of the day? (2) When he arrives, you tell him what you want done and you return after he is finished. Do you expect everything will be done exactly as you had in mind when you return at the end of the day? (3) You tell him what you want done. When he starts working you check if he is competent and if he under- stood your wishes. You check halfway to see if the work will be completed within the agreed time. You return before he has cleared his tools, so if anything needs adjusting that can still be done. Which scenario gives the result desired? You use the shortest practical interval to ensure the minimum deviation from plan. This is short-in- terval control. By monitoring actual performance against plan in the shortest possible time you can react on time against unfavourable deviations and achieve more of your plan. “On time” means that you have to check todayʼs ongoing activities now, today. Tomorrow is too late for you to do anything about todayʼs results. Follow-up is necessary to stay on the right way, every day. Reporting and accountability. All good processes have a feedback loop, turning the processes into cycles instead of a once-only ex- ercise. If there is a gap in the loop the process automatically comes to a standstill. Reporting is the feedback loop in the Management Control System. Reporting means that crucial information is passed upwards in the organisation, in an operating report whereby actual performance is compared to plan. A good report provides timely, important and accurate information. It should enable us to spot variances quickly so that we can take corrective actions. Information has to be shared in three directions: upwards in the organisation, across time and across the departments. Accountability means that your people know in advance what they have to account for. Not many people realise that this is a blessing for both sides. As a manager you donʼt have waste time to chase the information, your people know in advance which information to collect and pass on. Your people should be bringing you the information. Chasing information costs energy and is a waste of time.
- 3. 3 Using the system: review meetings Every step has to be followed-up to make certain that everything is done as agreed. This is done at the floor by monitoring (described in § 6.3), by reporting (§ 6.4) and by using review meetings. Review meetings follow-up on the daily and weekly operating reports and the previous action plans. The only monthly review meetings that show any effectiveness, occur at senior executive level. For all other purposes the follow-up interval of a month is too long. next month is too late to do any- thing about this monthʼs results. Review meetings take place: (1) at all levels of the organization and (2) as information is passed up and reported upon. Time, place, attendance and the agenda are fixed. Review meetings are vital: they are the steering wheel of the organisation. A review meeting is reporting by exception and no time is wasted in discussing areas where no problems occur. The end product of a meeting is an action plan: which actions will be taken by whom and by when. The chairman of the meeting has a fixed agenda and each participant comes prepared. The chairman reviews previous meetingsʼ action plans. Each participant then reports on their key in- dicators by exception. New actions are planned and recorded on the action plan. The chairman sum- marises and ends the meeting. Contrary to their name review meetings should be forward looking always. The only reasons you look at yesterdays or last weekʼs reports are to decide if and how you need to steer to achieve the outcome desired for the day or the week ahead. You cannot change anything about the past. Looking back only leads to apportioning blame. The future is where your direction and leadership are needed. To summarise: a. Forecasting is necessary to know where to go; b. Planning is necessary to know how to get there; c. Monitoring is necessary to stay on the right track; d. Reporting is necessary to know if we are on the right track; e. Review meetings are necessary to know if and how to steer to get back on the right track; f. Action plans are necessary to get us back on the right track. Thus, a management control system is a dynamic tool consisting of: forecasting, planning, monitor- ing and reporting, brought to life by review meetings and action plans.