Management Control in an Organization


Management Control in an Organization

 Management control in an organization is an approach that enables the organization to produce desired results (generally expressed in terms of performance) by taking actions to achieve those results and by dealing with the dangers brought in by external difficulties (particularly those related to the market, competitors and the economic or political environment) and the internal difficulties of the organization.

Management control in the organization consists of a systematic effort on the part of the organizational management. It is required to assure that all organizational resources are being used in the most effective and efficient manner possible in order to achieve the organizational objectives and goals. It constitutes (i) setting of performance standards with planning objectives, (ii) design of information feedback systems, (iii) comparison of actual performance with the predetermined standards, plans or objectives in order to determine whether there are any deviations and to measure their significance, and  (iv) taking of any remedial action if needed.

Management control describes the means by which the actions of individuals or groups within the organization are constrained to perform certain actions while avoiding other actions in an effort to achieve organizational objectives and goals. It is not to be seen as an activity of exclusive competence of the administration area , but rather as a process which involves all the functions of the organization, at the appropriate levels of responsibilities.

Management control can be defined as the process whereby the organization sets itself performance objectives and strives to achieve them as best it can over time. It is a method for managing the performance of the organization. It is an approach that is pursued over time, both before the action in the planning phase, and after the action in the monitoring and analysis of results phase. The approach is therefore progressive, that is why it is a control process.

Management control is a dynamic process made up of two major phases namely (i) planning, and (ii) the analysis of results. As with all the processes, management control process also has different elements, connected to each other. These are (i) the structure (personnel charged of the duty of control), (ii) the tools (performance measurements, data collection, analysis and reporting, and feedbacks etc.), and the systems and procedures (coordination, operational discipline, and optimization etc.).

Management control acts through the following phases in sequence.

  • Planning – Planning is defined by the set of objectives with specific expected results. These objectives need to be understandable, agreed, measurable in extent and time, reachable, consistent with one another and achievable with the available resources taking into account the internal and external restraints with the organization.
  • Implementation of the plans – Implementation of the plans constitute allocation of required resources and monitoring to see that the resources are deployed in effective and efficient manner for the achievement of the planned objectives.
  • Result checking – Through result checking management measures whether the organization is achieving or not the assigned objectives. By shifting analysis, where the possible shifting between objectives and results is analyzed, corrective actions regarding implementation are taken, in order to optimize the organizational behaviour against the planned objectives.

Management can exercise controls before an activity commences, while the activity is going on, or after the activity has been completed. The three respective types of control based on timing are feed forward, concurrent, and feedback (Fig 1).

Management controls

Fig 1 Types of management controls

 Feed forward control focuses on the regulation of inputs (human, material, and financial resources that flow into the organization) to ensure that they meet the standards necessary for the transformation process. Feed forward controls are desirable because they allow management to prevent problems rather than having to cure them later. However these controls require timely and accurate information that is often difficult to obtain or develop.

Concurrent control takes place while an activity is in progress. It involves the regulation of ongoing activities that are part of transformation process to ensure that they conform to organizational standards. Concurrent control is designed to ensure that the work activities of the employees produce the correct results. Since concurrent control involves regulating ongoing tasks, it requires a thorough understanding of the specific tasks involved and their relationship to the desired end product. Concurrent control often involves checkpoints at which determinations are made about whether to continue progress, take corrective action, or stop work altogether on the tasks, products or services.

Feedback control focuses on the outputs of the organization after transformation is complete. It fulfills a number of important functions. It often is used when feed forward and concurrent controls are not feasible or are too costly. Sometimes, feedback is the only viable type of control available. Further feedback control has two advantages over feed forward and concurrent control. The first advantage is that it provides management with meaningful information on how effective its planning effort was. If feedback indicates little variance between standard and actual performance, this is evidence that planning was generally on target. If the deviation is great then management can use this information when formulating new plans to make them more effective. The second advantage of the feedback control is that it can enhance employees motivation. The major drawback of this type of control is that, the time the management has the information and if there is a significant delay, the damage is already done. But for many activities, feedback control fulfils a number of important functions.

Feed forward, concurrent, and feedback control methods are not mutually exclusive. Rather, they usually are combined into a multiple control system. Management normally design control systems to define standards of performance and acquire information feedback at strategic control points.

Management control also falls into two broad categories namely (i) regulative controls, and (ii) normative controls. Within these two categories there are several types. The regulative controls include bureaucratic controls, financial controls, and quality controls while the normative controls include team norms and organization cultural norms (Fig 2).

categories of management control

Fig 2 Categories of management norms

 Regulative controls

 Regulative controls stem from standing policies and standard operating procedures. Often the regulative controls are termed as outdated and counter-productive. As organizations have become more flexible in recent years by flattening organizational hierarchies, expanding organizational boundaries to include suppliers in inventory management and customers in new product development, forging cooperative alliances with competitors, and developing virtual organizations in which employees are geographically dispersed and may meet only a few time each year, some people are of the opinion that regulative controls may prevent rather promote goal attainment.

The key in terms of management control is matching regulative controls such as policies and procedures with organizational goals such as customer satisfaction. Each of the three types of regulative controls has the potential to align or misalign organizational goals with regulative controls. The challenge for the management is striking the right balance between too much control and too little.

Bureaucratic controls stem from lines of authority and this authority comes with one’s position in the organizational hierarchy. The higher up the chain of command, the more an individual has the authority to dictate policies and procedures. Bureaucratic controls have gotten a bad name. The organization placing too much reliance on chain of command authority relationships inhibit flexibility to deal with unexpected events. Bureaucratic controls are sometimes considered synonymous with rigidity. Often an organization with the bureaucratic controls builds rigidity into many bureaucratic systems, but this need not be the case. It is entirely possible for creative management to develop flexible, quick-response bureaucratic systems. There are ways management can build flexibility into policies and procedures that make bureaucratic controls flexible and able to quickly respond to the problems.

Financial controls include key financial targets for which management is held accountable. These types of controls are common among organizations that are organized as multiple strategic business units (SBUs). SBUs are having managements who are responsible for the SBU’s profits and losses. The managements of SBUs are held responsible to the organizational top management to achieve financial targets that contribute to the overall profitability of the organization. Individual department heads also have financial responsibilities as well and are typically responsible for keeping expenses within budgeted guidelines. These managers, however, tend to have less overall responsibility for financial profitability targets than SBU managers. In either case, financial controls place constraints on spending. The role of financial controls is to increase overall profitability as well as to keep costs under check. To determine which costs are reasonable, some organizations benchmark other organizations in the same industry. Such benchmarking, while not always an apple-to-apple comparison, provides at least some material evidence to determine whether costs are in line with industry averages.

Quality controls describe the extent of variation in processes or products that is considered acceptable. Quality controls influence the ultimate product or service outcome offered to the customers. By maintaining consistent quality, customers can rely on the organizational product or service attributes, but this also creates an interesting dilemma. An overemphasis on consistency where variation is kept to the lowest levels may also reduce response to unique customer needs. This type of controls is not a problem when the product or service is relatively standardized, but may pose a problem when customers have nonstandard situations for which a one-size-fits-all solution is inappropriate. Thus, there is to be room available within quality controls for both creativity and standardization.

Normative controls

 Normative controls govern employee and managerial behaviour through generally accepted patterns of action rather than relying on written policies and procedures as in regulative controls. One way to think of normative controls is in terms how certain behaviours are appropriate and others are less appropriate. Two types of normative controls consist of team norms and organization cultural norms.

Team working is very common in many organizations. Team norms are the informal rules that make team members aware of their responsibilities to the team. Although the task of the team may be formally documented and communicated, the ways in which team members interact are typically developed over time as the team goes through phases of growth. Even team leadership be informally agreed upon; at times, an appointed leader may have less influence than an informal leader. If, for example, an informal leader has greater expertise than a formal team leader, team members may look to the informal leader for guidance requiring specific skills or knowledge. Team norms tend to develop gradually, but once formed, can have powerful influences over behaviour.

In addition to team norms, norms based on the culture of the organization are another type of normative control. Organizational culture involves the shared values, beliefs, and rituals of a particular organization. The organization need to have culture in which innovation is valued, beliefs are shared among employees that the work of the organization is important, and teamwork and collaboration are common. In contrast, some organizations give emphasis to individual working based on the nature of work in these organization. These organizations de-emphasize teamwork and collaboration in favour of personal effort and rewards. Both of these example are equally effective in matching norms with organizational goals. The key is thus in properly aligning norms and goals.

The broad categories of regulative and normative controls are present in nearly all organizations, but the relative emphasis of each type of control varies. Within the regulative category are bureaucratic, financial, and quality controls. Within the normative category are team norms and organization cultural norms. Both categories of norms can be effective and one is not inherently superior to the other. The managerial challenge is to encourage norms that align employee behaviour with organizational goals.