Management Planning and Control Systems

Management Planning and Control Systems

By: Kleber Becerra


Engineering in the productive factors

The global economy has caused managers throughout industry to take a close look at their often disappointing accomplishment, as well as the declining performance, of their employees. In consequence, they have placed great stress on improving produtivity, usually by cutting costs and increasing controls.

The short-term benefits of such crisis management have improved productivity and profits, but unless the human side of control is carefully considered, it is quite likely that productivity and profits will decline again to even lower levels in the long term.

Consider the position in some of the UK public sectors at the moment (May1998). Education and health, for example, have by some accounts, morale problems amongst key frontline staff. Both have had imposed over recent times, management controls, of one form or another.

A coincidence? Read on and draw your own conclusions

Why management control systems fail

A control system is necessary in any organization in which the activities of different divisions, departments, sections, and so on need to be coordinated and controlled. Most control systems are past-action-oriented and consequently are inefficient or fail. For example, there is little an employee can do today to correct the results of actions completed two weeks ago.

Steering controls, on the other hand, are future-oriented and allow adjustments to be made to get back on course before the control period ends. They therefore establish a more motivating climate for the employee.

What's more, although many standards or controls are simply estimates of what should occur if certain assumptions are correct, they take on a precision in today's control systems that leaves little or no margin for error. Managers would be better off establishing a range rather than a precise number and changing standards as time passes and assumptions prove erroneous. This would be fairer and would positively motivate employees. There are three fundamental beliefs underlying most successful control systems.

  • First, planning and control are the two most closely interrelated management functions.
  • Second, the human side of the control process needs to be stressed as much as, if not more than, the tasks or 'numbers crunching' side.
  • Finally, evaluating, coaching, and rewarding are more effective in the long term than measuring, comparing, and pressuring or penalizing

The Management Planning Process

Few managers realize that a company plan must provide the framework for the company control system. If missions, goals, strategies, objectives, and plans change, then controls should change. Unfortunately, they seldom do. Although this error occurs at the top, repercussions are felt at all levels.

Often, too, the standards of the control systems are derived from previous years budgets rather than from current objectives of company plans The result is that employees at lower levels are simply given "numbers to make" based on factors of which they have little knowledge and over which they have practically no influence.

The above schematic shows the important interrelationships between planning and control. As you can see, the control process does not begin after the entire planning process ends, as most managers believe.

After objectives are set in the first step of the planning process, appropriate standards should be developed for them. Standards are units of measurement established to serve as a reference base and are useful in determining time lines, sequences of activities, scheduling, and allocation of resources.

For example, if objectives are set and work is planned for 18 people on an assembly line, standards or reasonable expectations of performance from each person then need to be clearly established.

The second significant interaction between planning and control occurs with the final step of the control process-taking corrective action. This can take several forms, but two of the most effective are to change the objectives or alter the plan.

Managers dislike doing either; but if a positive motivational climate is to be established, these ought to be the first two corrective actions attempted. Objectives and standards are based on assumptions, but if these assumptions prove inaccurate, then objectives and standards require alteration. Thus sales quotas assigned on the premise of a booming economy can certainly be altered if, as is often the case, the economy turns sour.

Likewise, if the assumptions are accurate and objectives and standards have not been met, then it is possible that the plan developed was inadequate and needs to be changed.

The control process - consider the effects

Planning and organizing are two management functions that have been popular research areas in recent years. Control, the third well-known management function, has received surprisingly little attention.

This is perhaps because the task side of control is noticed and the behavioral or human side is largely overlooked. But as previously noted, managers should carefully consider the behavioral aspects of the process when designing a control system if employees are to be motivated to accomplish assigned tasks.

Management Planning and Control Systems

Step 1: Setting Performance Standards

Performance standards may be set by staff or managers, by managers and staff, or by managers with input from employees whose performance is being measured. The last method is the best because employees believe that line and staff do not have enough information about the conditions of various jobs to set realistic standards.

Managers should see that objectives and standards are measurable and that individuals are held accountable for their accomplishment. The level of difficulty should be challenging but within the capabilities of the employee. Standards set too low are usually accomplished but not exceeded, while standards set too high usually do not motivate the employee to expend much effort to reach the goal.

It is important that standards be complete; however, it is difficult to develop a single standard or goal that will indicate the effective overall performance. For example, consider the automobile dealer who decided to measure sales peoples performance on the basis of the number of automobiles sold. Sales increased impressively, but it was later learned that many sales had been made to poor credit risks, and too high prices had been allowed on trade-ins.

Too many managers are looking for that one magic number that will tell them how well the company is doing or how their employees are performing. Standards for the automobile salespeople might have included number of sales, losses from poor credit risks, and profit on resale's. Standards should also be expressed in terms that relate to the job and are meaningful to the employees.

For example, the foremen in one plant were assigned standards based on break-even analysis, although none of them had any knowledge of this analytical technique. From a behavioral standpoint, it is extremely important that the employee be able to significantly influence or affect the standard assigned.

In the early 1970's, the performance of a hotel manager in Florida was based on profit and room occupancy rates. During this period, OPEC caused a fuel crisis and relatively few tourists could travel to Florida. The hotel manager was penalized for failing to accomplish a standard over which, in this case, he had no influence.

Finally managers should see that the number of standards assigned, like planning objectives, are limited and placed in priority order for the employee. If there are too many controls assigned, the employee will not be able to give enough attention to any of them and will become frustrated and confused.

Step 2: Measure and compare actual with planned results

As with setting standards, the objectivity of the measurement and the person who measures and compares the performance are important. Measuring and comparing can be accomplished by the person performing the task, by the boss, or by a staff person; even an automated system can measure and compare. From a behavioral standpoint, the last method is the least popular, followed by measurement by a staff person only.

An employee believes an automated system, a staff person, or even the boss does not know enough about the conditions of the job to make a fair comparison between actual and planned results.

Also, the employee often distrusts the staff person and sometimes even the boss. At the same time, the employee is usually not trusted enough by the company to perform the measurement and comparison alone. The best solution is to have the measurement done by the person most trusted by the employee and to allow the employee some input.

Behavioral Responses to Control Systems

When employees have relatively low trust in a control system, they sometimes behave in various ways that are harmful to the organization. They may do what is required by the system.

For example, when bonuses for salespeople in a department store were based on sales volume, many employees soon lost interest in customers who did not immediately purchase an item, and they spent little time helping customers, making merchandise attractive, or performing stock work.

Quite often employees will report data in such a way that performance will look good for a particular time period. Some control systems will also cause employees to report invalid or misleading data about what can be done.

For example, it is not uncommon at budget time for managers to ask for larger amounts than needed if they believe their requests will be reduced. In many organizations budget setting sessions are largely negotiating games with little effort given to establishing realistic standards. The advent of computer-based management information systems has also caused invalid data to be provided. These systems sometimes require historical cost, production, and other data that are simply not available and cannot be provided. When pressed, however, the data are estimated, often inaccurately.

Finally, control systems that employees view as clearly threatening will cause strong resistance, perhaps the best example of this is automatic data systems. These systems create new experts with much power, are often not well understood, and, therefore are feared by many employees.

Step 3. Evaluate results, give feedback and coach

The third step is most effective when steering controls are selected. With these controls, forecasters of the results can also be used for early warning that specific actions may be required.

For example, high morale is a popular goal but one that is difficult to measure. Forecasters such as number of accidents, absenteeism, and employee turnover may be evaluated together and serve as a surrogate measure for increasing or declining morale.

However, careful evaluation must be used. If the accident rate increases rapidly in the production area, it would suggest declining morale when a significant increase is caused by employee carelessness. However, if the cause is related to equipment that suddenly wears out, then there probably is not a relationship between accident rate and low morale.

It is essential that managers carefully evaluate deviations before taking action. It is also important that they remember that deviations can be positive as well as negative and that they reward employees for positive deviations. Unfortunately, this step is often omitted and only the negative aspects of deviation receive attention.

Who should receive feedback from this evaluation and how often should it be offered?

  • The person who is accountable for accomplishing the standard should receive the information first.
  • The employee's boss, or whoever is in a position to reward the employee should receive the information at about the same time or a little later.
  • Then peers, staff people, subordinates. and other line people can receive the information. At this time, the boss ought to have some suggestions about how to get back on course if the employee needs help.

The boss's most important job is coaching subordinates. and a good planning control system provides an excellent framework for such coaching.

Feedback must be reliable, relatively frequent, and prompt. The feedback has to be reliable for the employees to be able to change the behavior or plan in order to get on course. Frequency of information has to do with the interval for which data are received.

If, for instance, costs would not normally get out of control in a short period, then monthly reports might be adequate. On the other hand, a delay of six months might allow the situation to get so far out of control that it would be too late to take corrective action.

Sometimes prompt feedback can create problems. Today's computer-based control systems can provide feedback on a real time basis, but such speed can be harmful from a behavioral standpoint. This kind of speed causes undue pressure because there is no time for the manager to use discretion and make changes.

A company director recently described his company's "outstanding" planning-control system. He proudly explained a feedback system that provided information on a continuous basis to every employee concerning his or her progress toward a numbers goal. 'When numbers weren't being made, more pressure was applied.'

Employees were confused because there was no plan to change, and consequently, standards and objectives were not changed. The company had a standards-control system based on numbers: but objectives, plans, evaluation, and coaching did not exist. It is this sort of system that causes low morale and unethical and illegal behavior - all in the name of control.

Step 4. Take corrective action

Making changes as the activity is in progress is a form of corrective action. The real correction occurs when warnings raised by the forecasters or predictors are confirmed.

The corrective action can be changing objectives, standards, plans, and the like, but it can also be penalizing employees when the objectives, standards, and plans are determined to be appropriate and employees have not met them.

However, there usually are several alternative corrective actions that can be taken and often more than one will prove effective. The planning control system is not effective until corrective action is taken and this action begins a new planning-control cycle.