In the second half of the 20th century, there have been substantial changes in the environment, which has gone from stable with fixed rules of the game, to turbulent and very competitive.
Summary:
These environmental changes have triggered a large number of internal changes in companies, in variables such as customer orientation, technological development and innovation, the guiding role of strategic management, quality approaches, the role of human resources in the organization, information management and others. Therefore, business success requires a continuous adaptation of the company to its environment and competitiveness becomes the economic criterion par excellence to guide and evaluate performance inside and outside the company.
Due to the urgent need of companies to obtain products and services with relevant efficiency as a way of solving the economic-financial crisis and insertion in the international market, a high degree of competitiveness is required.
Companies are obliged to define strategies that allow them access to today's competitive world, and if these strategies are not accompanied by the management tools that guarantee their materialization, efforts will be useless. In this sense, an adequate design of the Management Control System is of vital importance.
In this work we intend to address some fundamental concepts, which serve as the basis for the design of Management Control Systems, as well as different approaches used by recognized authors in the subject matter.
Management Control as one of the fundamental tools for companies to obtain products and services with relevant efficiency, which allow access to today's competitive world, has become a highly topical issue.
Below we will address some fundamental concepts, which serve as the basis for the design of Management Control Systems, as well as different approaches used by recognized authors in the subject matter.
System:
The term system designates a set of elements in dynamic interrelation organized according to an objective, with a view to achieving the results of the work of an organization. (J. DE ROSNAY).
Criteria for evaluating the performance of a system.
There are three commonly used criteria in evaluating the performance of a system, which are closely related to quality and productivity: efficiency, effectiveness and efficacy. However, they are sometimes misinterpreted, misused, or considered synonymous; therefore, it is considered convenient to clarify these definitions.
- Efficiency: It is used to account for the use of resources or compliance with activities with two meanings: the first, as a relationship between the amount of resources used and the amount of resources that had been estimated or programmed to use; the second, as the degree to which the resources used are used, transforming them into products. Effectiveness: it is the relationship between the results achieved and the results that we had proposed, and it shows the degree of fulfillment of the objectives that we have planned: quantities to be produced, customers to have, purchase orders to be placed, etc. When effectiveness is considered as the only criterion, it falls into the effective styles, those where the important thing is the result, no matter at what cost. The efficacy: assesses the impact of what we do, the product or service we provide. It is not enough to produce the service or product that we set ourselves with 100% effectiveness, both in quantity and quality, but it is necessary that it be the right one, the one that will really satisfy the client or impact our market. The behavior of these three criteria together gives us a global measure of the company's competitiveness.
Competitiveness:
It is based on the growing and systematic innovation and organic incorporation of knowledge in organizations to respond effectively to the internal and external environment.
Competitiveness is the term without which today's manufacturing world cannot be understood. Competitiveness is the ability of a company to take possession of a part of the market, sustain itself over time and grow. It is measured in terms of market share.
The current criteria for evaluating competitiveness by the client are the following:
- Quality (C): Satisfy customer requirements consistently Opportunity (O): Deliver on time in Quantity and Quality Price (P): Universal measure After-sales Service (S): Need for guarantees, after-sale service for claims Technology (T): Security of permanence, support and response time Ecology (E): Conservation and care of nature.
With these bases it can be said that:
In order to know the operation of the entity, it is essential to measure the factors involved and to compare them with the goals proposed in advance and these are roughly some control functions.
Control:
It is the fundamental function of engineering whose main purpose is to measure, evaluate and correct the operations of the process, machine or system under dynamic conditions to achieve the desired objectives within the cost and safety specifications. (Handbook of Industrial Engineering)
Control is a process through which some aspect of a system is modified so that the desired performance is achieved in it. The purpose of the control process is to get the system fully on track towards its objectives. Control is not an end in itself, it is a means to an end, that is, to improve the operation of the system.
Control is a management function that is built to ensure that facts match plans. To be effective, it must focus on the present, it must focus on the correction and not the error, it must also be specific, in such a way that it focuses on the key factors that affect the results. It is universal and covers all phases of the company (Burfk Scanlan / 1987).
Some authors such as S. García Echevarria (1991) claim that the issue of "controlling" is currently acquiring a new interpretation because the company is in a process of total change. This author establishes that the environments and potentialities of the Organization must be discovered; since the management system has to be oriented to discover the strategies to adapt to changing situations. Defines Modern Controlling as the philosophy of anticipation and prevention therapy.
One of the fundamental keys of Modern Controlling basically lies in:
- The coordination function The link between the present and the future The coordination in the behavior of men in the different heterogeneous functions, coordinated in a homogeneous way in terms of economic criteria.
How to make control systems productive?
Control is closely linked to planning and goal setting.
As a control system should measure correct decisions, it is important that the objectives established in the planning process are relevant to the purpose of the company. This means that the controls should measure performance in the key result areas. In other words, they should highlight important achievements, not trivial ones. Controls should also point out deviations at minimal cost, and their benefits outweigh costs.
Controls are also required to be simple enough so that they can be understood, show deviations from standards in a timely manner so that corrective action can be taken before they become major problems.
Joan M. Amat defines that the problem of Control lies in the design of the mechanisms that allow the coincidence between individual behavior and that required by the organization, and that there are three types of Control: Strategic, Management and Operational.
- Strategic Control: It is based on strategic planning, therefore it is long-term and focuses on aspects related to adaptation to the environment, marketing, markets, productive resources, technology, financial resources, etc. Management Control: It is based on the realization of budgets, budget planning in the short term (less than a year), it tries to ensure that the company, as well as each department individually achieve their objectives. Operational Control: Directs its action towards operational planning, that is, it ensures that the tasks carried out in each job position are carried out correctly every day.
Referring to the concepts provided by the different authors, we can see that they all agree that controlling is collecting the necessary data through measurement, then comparing them with the desired results and finally correcting the deviations through improvement programs. to agree on the importance of their employment a priori.
The differences only lie in the deadlines that are taken to control, there are from long term to daily.
We can summarize this part by stating that:
- The efficiency of control lies in ensuring the anticipation of changes in the environment and their impact on the company.The best form of control is one that promotes people's self-control while they act and make decisions, as it guarantees motivation and identification with objectives of the company.All control must be complemented with a formalized analysis that provides the necessary information to know the results of internal management.Control must be carried out by senior management and by each and every one of the components of the organization, Although the greater the responsibility, the greater the involvement must exist. Be adapted to the culture of the company and to the people. Be flexible to help motivate towards the desired behavior rather than to coerce towards it. Not to be carried out a posteriori,but to be a permanent exercise of adaptation of the organization to the environment.
Management:
According to Companys Pascual (management) it is the Planning - Organization - Control set; Planning is equivalent to the formulation of objectives and the lines of action to achieve them, it focuses on selecting the objectives of the organization that have an impact on production, elaborating them in productive terms and completing them with derived objectives, establishing policies, programs and procedures for the scope; Organization is the structuring of tasks, distribution of responsibilities and authority, management of people and coordination of efforts towards the achievement of objectives, establishment of formal structures for the division of labor within the subsystem, determining, listing and defining the required activities, the responsibility to carry it out;Control guarantees that the results and yields obtained are within the marked interval and depending on this take the corrective measures, its information is taken directly from the operations.
Management is directing the actions that constitute the concrete implementation of the general policy of the company, it is making decisions aimed at achieving the objectives set (DEADE), on the other hand, Production Management is a set of responsibilities and tasks that must be satisfied so that the production operations themselves are carried out respecting the quality, deadline and cost conditions that arise from the objectives and strategies of the company (Boris Avgrafoff).
Maritza Hernández (1997) in her doctoral thesis states that: “management is the process by which objectives are formulated and then the results obtained are measured to finally direct the action towards the permanent improvement of results”.
Professor Hugues Jordán (1996) in the notes of the Management Control subject of the European Diploma in Business Administration and Management (DEADE), defines Management as “directing the actions that constitute the concrete implementation of the general policy of the company and make decisions aimed at achieving the objectives set ”.
As a summary, it can be stated that:
By management is understood, the direction of the actions that contribute to making decisions aimed at achieving the objectives set, measuring the results obtained, and finally guiding the action towards the permanent improvement of the system.
Any production management system must be oriented towards the achievement of the organization's objectives and this is only possible through management control.
Management control:
In general terms, it can be said that control should serve as a guide to effectively achieve the objectives set with the best use of available resources (technical, human, financial, etc.). For this reason, we can define management control as a process of information feedback for efficient use of the available resources of a company to achieve the objectives set.
The conditioning factors of management control:
- The first conditioner is the environment. It can be a stable or dynamic environment, cyclically variable or completely atypical. Adapting to the changing environment can be the key to the development of the company The objectives of the company also determine the management control system, depending on whether they are profitability, growth, social and environmental, etc. The structure of the organization, according to Whether functional or divisional, it implies establishing different variables, and therefore different objectives and control systems. The size of the company is directly related to centralization. As the volume increases, decentralization is necessary, since there is more information and increasing complexity in decision-making.Finally, the company culture,In the sense of human relations in the organization, it is a determining factor of management control, without forgetting the incentive system and staff motivation.
The purposes of management control.
The ultimate goal of management control is the efficient use of available resources to achieve the objectives.
However, we can specify other more specific purposes such as the following:
- Inform: It consists of transmitting and communicating the information necessary for decision-making. Coordinate: Try to direct all activities effectively to achieve the objectives. Evaluate: The achievement of goals (objectives) is achieved thanks to people, and their evaluation is what shows the satisfaction of the achievement. Motivate: The impulse and help to all those responsible is of paramount importance for the achievement of the objectives.
Management control instruments.
The basic tools of management control are planning and budgeting.
Planning consists of anticipating the future by eliminating uncertainties. It is related to the long term and current management, as well as obtaining basically external information. Plans are materialized in programs.
The budget is more linked to the short term. It consists of determining the objectives more precisely, specifying amounts and persons responsible. The budget applied to the immediate future is known by operational planning; It is carried out for a period of days or weeks, with totally quantitative variables and a direct implication of each department.
The budget must be negotiated with those responsible for greater involvement; It should not be imposed, because it would cause disinterest in the achievement of the objectives.
Comparison of the actual data, essentially obtained from accounting, with the expected data may cause deviations, when they do not coincide. The cause can be:
- Errors in the environment forecasts: sales estimates, cost of sales, general expenses, etc. Method errors: little decentralization, little time rigor, lack of coordination between accounting and budgets, etc. Errors in the means-ends relationship: figures ambitious, incorrect use of the media, etc.
These deviations are analyzed to make decisions, both strategic (review and / or change of plan and programs), and tactical or operational (review and / or change of objectives and budgets).
Taylor (1895) was one of the initiators of industrial Management Control, introducing analytical accounting, the timing of direct labor times, standards, the allocation of indirect costs, remuneration for performance. Brown (1907) established the formula for return on capital. Even today many examples are observed in companies, the CG revolves around controlling the internal efficiency of the company, focusing its attention on the resources it consumes, on immediate benefit and on external financial information.
According to García (1975), Management Control (CG) is above all a method, a means to conduct thought and action in order, the first thing is to foresee, establish a forecast on which to set objectives and define an action program. The second thing is to control, comparing the achievements with the forecasts, at the same time that all the means are put in place to compensate for the differences found.
Blanco Amat (1984) argues that the modern philosophy of CG presents the control function as the process by which managers ensure the obtaining of resources and the effective and efficient use of them in the fulfillment of the objectives of the company
According to Huge Jordan (1995), Management Control is a management instrument that provides decision support and its management tools will allow directors to achieve objectives; It is a decentralized and coordinated function for planning objectives, accompanied by an action plan and verification that the objectives have been achieved
Reviewing different definitions of management control, it is observed that:
All the authors acknowledge that the objectives are the guiding category, because the decision-making process is aimed at achieving the objectives set and then these are the pattern to evaluate the management, that is, the degree to which the results of the management are they approach the previously established objectives.
Management control is related to the following activities: formulation of objectives, setting of standards, action programs (budgets), use of resources, measurement of results (verification), analysis of deviations, correction of performance or improvement.
A differentiation is distinguished between the concept of management, management control and the control function, but the same precision is not observed when establishing their borders. Some consider that management control includes both the forecasting stage and the control or verification stage itself; others see it closer to execution and verification; for another, it covers the processes for allocating resources, monitoring actions and evaluating the results.
It is also considered that management control should not be reduced to the control function (understood as evaluation and correction of performance only) but also includes the planning phase (because during the process of defining objectives, the ways to measure them are determined, and its quantification in the standard), which in turn is determined by the improvement processes that are those that give the diagnostic capacity to management control.
Few authors like Goldratt draw attention to the role of management and CG as a bridge between global objectives and local objectives, reflecting the existing problem that many management control systems (SCG) remain in the measurement of global objectives of the company but they are unable to measure whether or not local performance is contributing to the achievement of global objectives.
We conclude that CG is a process that serves to guide management towards the organization's objectives and an instrument to evaluate it. For which it should be understood that:
The CG is a means of deploying the strategy throughout the organization.
If we continue citing authors, it would be verified that the definition of Management Control is not unique, it varies with each author and over the years, since the constant change in the business environment leads to an evolution in the way of thinking and acting, thus as in the methods and tools used to run an organization. The foregoing should not be seen as an isolated element or tool but as a system that relates and interacts with the entire environment.
Management Control System:
A Management Control System (SCG) is an organized stimulation so that decentralized managers make their decisions in due time, it allows to achieve the strategic objectives pursued by each company. To maintain organizational efficiency and facilitate decision-making, it is essential to control the evolution of the environment and the variables of the organization itself that may affect its own survival.
The management control system as a set of procedures that represents a concrete organizational model to carry out the planning and control of the activities carried out in the company, is determined by a set of activities and their interrelations, and an information system (YES).
However, there are other modern approaches, such as that of Mallo and Merlo that conceive the SCG as an information-control system superimposed and continuously linked with the management that aims to define compatible objectives, establish adequate follow-up measures and propose the specific solutions to correct deviations. Control is active in the sense of influencing the direction to design the future and continually creating the conditions to make it happen.
Simons considers it to be those usual procedures and controls, of a formal type, based on information and used by management to maintain or modify certain guidelines in the activities of the organization, distinguishing within the SCG four types of formal systems based on information in function of their relationship to strategy: belief system, boundary setting system, diagnostic control system, and interactive control system. The belief system, to communicate and reinforce statements about the mission and objectives of the company; the boundary-setting system, for setting rules and limits, such as budgeting systems; the diagnostic control system, as a formal feedback system,to monitor the results and correct any deviations that occur in relation to what was planned; and the interactive control system, to attract attention and encourage dialogue and learning throughout the organization. Coinciding with these authors are the Japanese management approaches and those of other authors such as Goldratt and Lorino.
In the concepts obtained from the different literatures, it can be observed that all agree that the SCG is a procedure based on the information collected to draw up the objectives and the path to be followed by the entity, control and take the corresponding decisions to correct deviations.
Management control indicators.
Management control indicators (Ic) are quantitative expressions that allow us to analyze how well the company is being managed. According to Harrington, an indicator is expressed by an attribute, a meter, a goal, and a time horizon.
Among other features, the modern management philosophies TQM, JIT, TOC, have in common that the new is not in the indicators themselves, but in the scale of importance or priority with which they are considered in the management process: added value, inventory and expenses operations, unlike traditional philosophies, which take cost accounting as the central control tool, magnifying the indicators associated with operating expenses.
Among the indicators commonly used in evaluating the performance of a system are those that point towards efficacy, efficiency, effectiveness, stability, and value improvement, in accordance with the performance triangle.
In the generality of the bibliography, a set of indicators is proposed to measure the efficiency and effectiveness of each functional unit of the company, Production, Sales, Supplies, Marketing, Research and Development, Planning and Preparation of Production, Maintenance, Administration and Finance, Human Resources. Lorino mentions financial, reactivity (term) and quality indicators. Gunn in his book on manufacturing in the 21st century, lists a series of business excellence meters for the different subsystems of the company such as Accounting, Sales and Marketing, focused on measuring: time, waste, cost, quality, flexibility, added value, productivity, asset use, data and information integration.
However, Goldrat and Lorino warn about the need to condition the definition of the indicators to the clear precision of the company's objectives, prioritizing first the importance of what is measured and then its indicator. Second, the selected indicators should allow judging the impact of local decisions on the overall goal of the company.
What has been reviewed around the indicators allows us to conclude that:
- In most of the consulted works, a list of indicators grouped according to the traditional functional approach (production, technical, sales, human resources, and others) is presented. Global indicators typical of the top management of the company are shown, and they are not It gives importance to the need to classify them for different management levels, ignoring the connection mechanisms between global and local indicators. The importance of indicators is overrated, sometimes falling into recipes, downplaying the importance of the procedure to define them. Indicators are presented as something that can be determined a priori or prefixed behind the objectives, strategies, system restrictions, critical problems and the specificity of the industrial object itself.In this work it is considered that these indicators can be taken as a reference but cannot be incorporated a priori in the IS of an organization's SCG, because there is a risk of having a lot of data but not having the pertinent information to answer key management questions for a particular organization.
Closely related to the design of Management Control Systems is also the topic of the Balanced Scorecard, where it is considered that it provides executives a broad framework that translates the vision and strategy of a company into a set consistent performance indicators.
Many people think that indicators are a tool to monitor behavior and to evaluate past performance. We should not see them just like that, but incorporated into the Balanced Scorecard (BSC) to articulate and communicate business strategy, business strategy and to coordinate and align the individual initiatives of the organization and that of its multiple departments in order to achieve a common goal. The WCC does not endeavor to make individuals and units of the Organization follow a pre-established plan, the traditional goal of a control system. The BSC should be used as a communication, information and training system, and not as a control system.
The CMI transforms the Mission and the strategy into objectives and indicators organized in four different perspectives: financial, customer, internal processes and training and growth (innovation or learning).
The BSC provides a framework, structure, and language to communicate mission and strategy; uses indicators to inform employees about current and future success factors.
The CMI allows you to view and provide company information from four different and important angles:
a) Customer or Consumer Perspective: what do they expect from the company?
Good customer service is very important and is the basis for being able to stay in a competitive market. The Mission is likely to stand out in this regard. Customers expect products of the highest quality, at an adequate cost, delivered on time and performing as agreed.
b) Internal Perspective: in what can we stand out?
What to do within the company to meet customer expectations? The company's processes must be studied and evaluated to achieve consumer satisfaction.
c) Perspective of innovation or learning: What should continue to be improved?
Competition is fierce in this new millennium, so the company must be able to innovate and improve. The products fulfill their life cycle and it is necessary to have new ones, with greater and attractive capacities.
d) Financial Perspective: What do shareholders expect?
Those who invest their money legitimately expect an adequate return. If this is not pleased, they are likely to invest their money in a different company.
Compliance with the four pillars of the BSC contributes greatly: to employee motivation; to improve all stages of the Value Chain; to meet customer expectations and gain their loyalty; finally, to offer higher economic returns to shareholders.
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167In the second half of the 20th century, there have been substantial changes in the environment, which has gone from stable with fixed rules of the game, to turbulent and very competitive.
SUMMARY:
These environmental changes have triggered a large number of internal changes in companies, in variables such as customer orientation, technological development and innovation, the guiding role of strategic management, quality approaches, the role of human resources in the organization, information management and others. Therefore, business success requires a continuous adaptation of the company to its environment and competitiveness becomes the economic criterion par excellence to guide and evaluate performance inside and outside the company.
Due to the urgent need of companies to obtain products and services with relevant efficiency as a way of solving the economic-financial crisis and insertion in the international market, a high degree of competitiveness is required.
Companies are obliged to define strategies that allow them access to today's competitive world, and if these strategies are not accompanied by the management tools that guarantee their materialization, efforts will be useless. In this sense, an adequate design of the Management Control System is of vital importance.
In this work we intend to address some fundamental concepts, which serve as the basis for the design of Management Control Systems, as well as different approaches used by recognized authors in the subject matter.
Management Control as one of the fundamental tools for companies to obtain products and services with relevant efficiency, which allow access to today's competitive world, has become a highly topical issue.
Below we will address some fundamental concepts, which serve as the basis for the design of Management Control Systems, as well as different approaches used by recognized authors in the subject matter.
System:
The term system designates a set of elements in dynamic interrelation organized according to an objective, with a view to achieving the results of the work of an organization. (J. DE ROSNAY).
Criteria for evaluating the performance of a system.
There are three commonly used criteria in evaluating the performance of a system, which are closely related to quality and productivity: efficiency, effectiveness and efficacy. However, they are sometimes misinterpreted, misused, or considered synonymous; therefore, it is considered convenient to clarify these definitions.
Efficiency: It is used to account for the use of resources or fulfillment of activities with two meanings: the first, as a relationship between the amount of resources used and the amount of resources that had been estimated or programmed to use; the second, as the degree to which the resources used are used, transforming them into products.
Effectiveness: it is the relationship between the results achieved and the results that we had proposed, and it shows the degree of fulfillment of the objectives that we have planned: quantities to be produced, customers to have, purchase orders to be placed, etc. When effectiveness is considered as the only criterion, it falls into the effective styles, those where the important thing is the result, no matter at what cost.
Effectiveness: assesses the impact of what we do, the product or service we provide. It is not enough to produce the service or product that we set ourselves with 100% effectiveness, both in quantity and quality, but it is necessary that it be the right one, the one that will really satisfy the client or impact our market. The behavior of these three criteria together gives us a global measure of the company's competitiveness.
Competitiveness:
It is based on the growing and systematic innovation and organic incorporation of knowledge in organizations to respond effectively to the internal and external environment.
Competitiveness is the term without which today's manufacturing world cannot be understood. Competitiveness is the ability of a company to take possession of a part of the market, sustain itself over time and grow. It is measured in terms of market share.
The current criteria for evaluating competitiveness by the client are the following:
Quality (C): Satisfy customer requirements consistently.
Opportunity (O): Deliver on time in Quantity and Quality.
Price (P): Universal measure.
After-Sales Service (S): Need for guarantees, after-sale attention for claims.
Technology (T): Security of permanence, backup and response time.
Ecology (E): Conservation and care of nature.
With these bases it can be said that:
Competitiveness = f (C, O, P, S, T, E)
In order to know the operation of the entity, it is essential to measure the factors involved and to compare them with the goals proposed in advance and these are roughly some control functions.
Control:
It is the fundamental function of engineering whose main purpose is to measure, evaluate and correct the operations of the process, machine or system under dynamic conditions to achieve the desired objectives within the cost and safety specifications. (Handbook of Industrial Engineering)
Control is a process through which some aspect of a system is modified so that the desired performance is achieved in it. The purpose of the control process is to get the system fully on track towards its objectives. Control is not an end in itself, it is a means to an end, that is, to improve the operation of the system.
Control is a management function that is built to ensure that facts match plans. To be effective, it must focus on the present, it must focus on the correction and not the error, it must also be specific, in such a way that it focuses on the key factors that affect the results. It is universal and covers all phases of the company (Burfk Scanlan / 1987).
Some authors such as S. García Echevarria (1991) claim that the issue of "controlling" is currently acquiring a new interpretation because the company is in a process of total change. This author establishes that the environments and potentialities of the Organization must be discovered; since the management system has to be oriented to discover the strategies to adapt to changing situations. Defines Modern Controlling as the philosophy of anticipation and prevention therapy.
One of the fundamental keys of Modern Controlling basically lies in:
· The coordination function.
· The link between the present and the future.
· Coordination in the behavior of men in different heterogeneous functions, coordinated in a homogeneous way in terms of economic criteria.
How to make control systems productive?
Control is closely linked to planning and goal setting.
As a control system should measure correct decisions, it is important that the objectives established in the planning process are relevant to the purpose of the company. This means that the controls should measure performance in the key result areas. In other words, they should highlight important achievements, not trivial ones. Controls should also point out deviations at minimal cost, and their benefits outweigh costs.
Controls are also required to be simple enough so that they can be understood, show deviations from standards in a timely manner so that corrective action can be taken before they become major problems.
Joan M. Amat defines that the problem of Control lies in the design of the mechanisms that allow the coincidence between individual behavior and that required by the organization, and that there are three types of Control: Strategic, Management and Operational.
Strategic Control: It is based on strategic planning, therefore it is long-term and focuses on aspects related to adaptation to the environment, marketing, markets, productive resources, technology, financial resources, etc.
Management Control: It is based on the realization of budgets, budget planning in the short term (less than a year), it tries to ensure that the company, as well as each department individually achieve their objectives.
Operational Control: Directs its action towards operational planning, that is, it ensures that the tasks carried out in each job position are carried out correctly every day.
Referring to the concepts provided by the different authors, we can see that they all agree that controlling is collecting the necessary data through measurement, then comparing them with the desired results and finally correcting the deviations through improvement programs. to agree on the importance of their employment a priori.
The differences only lie in the deadlines that are taken to control, there are from long term to daily.
We can summarize this part by stating that:
· The efficiency of control is in ensuring the anticipation of changes in the environment and their impact on the company.
· The best form of control is one that promotes people's self-control while they act and make decisions, as it guarantees motivation and identification with the company's objectives.
· All control must be complemented with a formalized analysis that provides the information necessary to know the results of internal management.
· The control must be carried out by the senior management and by each and every one of the components of the organization, although the greater the responsibility, the greater the involvement.
· Be adapted to the culture of the company and people.
· Be flexible to help motivate towards desired behavior rather than coerce towards it.
· Not to be carried out a posteriori, but to be a permanent exercise in adapting the organization to the environment.
Management:
According to Companys Pascual (management) it is the Planning - Organization - Control set; Planning is equivalent to the formulation of objectives and the lines of action to achieve them, it focuses on selecting the objectives of the organization that have an impact on production, elaborating them in productive terms and completing them with derived objectives, establishing policies, programs and procedures for the scope; Organization is the structuring of tasks, distribution of responsibilities and authority, management of people and coordination of efforts towards the achievement of objectives, establishment of formal structures for the division of labor within the subsystem, determining, listing and defining the required activities, the responsibility to carry it out;Control guarantees that the results and yields obtained are within the marked interval and depending on this take the corrective measures, its information is taken directly from the operations.
Management is directing the actions that constitute the concrete implementation of the general policy of the company, it is making decisions aimed at achieving the objectives set (DEADE), on the other hand, Production Management is a set of responsibilities and tasks that must be satisfied so that the production operations themselves are carried out respecting the quality, deadline and cost conditions that arise from the objectives and strategies of the company (Boris Avgrafoff).
Maritza Hernández (1997) in her doctoral thesis states that: “management is the process by which objectives are formulated and then the results obtained are measured to finally direct the action towards the permanent improvement of results”.
Professor Hugues Jordán (1996) in the notes of the Management Control subject of the European Diploma in Business Administration and Management (DEADE), defines Management as “directing the actions that constitute the concrete implementation of the general policy of the company and make decisions aimed at achieving the objectives set ”.
As a summary, it can be stated that:
By management it is understood, the direction of the actions that contribute to making decisions oriented to achieve the set objectives, to measure the results obtained, to finally direct the action towards the permanent improvement of the system.
Any production management system must be oriented towards the achievement of the organization's objectives and this is only possible through management control.
Management control:
In general terms, it can be said that control should serve as a guide to effectively achieve the objectives set with the best use of available resources (technical, human, financial, etc.). For this reason, we can define management control as a process of information feedback for efficient use of the available resources of a company to achieve the objectives set.
The conditioning factors of management control:
The first conditioner is the environment. It can be a stable or dynamic environment, cyclically variable or completely atypical. Adapting to the changing environment can be the key to business development.
The objectives of the company also condition the management control system, depending on whether they are profitability, growth, social and environmental, etc.
The structure of the organization, depending on whether it is functional or divisional, implies establishing different variables, and therefore different objectives and control systems.
The size of the company is directly related to centralization. As the volume increases, decentralization is necessary, as there is more information and increasing complexity in decision-making.
Finally, the culture of the company, in the sense of human relations in the organization, is a determining factor of management control, without forgetting the system of incentives and motivation of the staff.
The purposes of management control.
The ultimate goal of management control is the efficient use of available resources to achieve the objectives.
However, we can specify other more specific purposes such as the following:
Inform: It consists of transmitting and communicating the information necessary for decision-making.
Coordinate: Try to direct all activities effectively to achieve the objectives.
Evaluate: The achievement of goals (objectives) is achieved thanks to people, and their evaluation is what shows the satisfaction of the achievement.
Motivate: Promoting and helping everyone responsible is of paramount importance for the achievement of the objectives.
Management control instruments.
The basic tools of management control are planning and budgeting.
Planning consists of anticipating the future by eliminating uncertainties. It is related to the long term and current management, as well as obtaining basically external information. Plans are materialized in programs.
The budget is more linked to the short term. It consists of determining the objectives more precisely, specifying amounts and persons responsible. The budget applied to the immediate future is known by operational planning; It is carried out for a period of days or weeks, with totally quantitative variables and a direct implication of each department.
The budget must be negotiated with those responsible for greater involvement; It should not be imposed, because it would cause disinterest in the achievement of the objectives.
Comparison of the actual data, essentially obtained from accounting, with the expected data may cause deviations, when they do not coincide. The cause may be:
Errors in the environment forecasts: sales estimate, cost of sales, general expenses, etc.
Method errors: little decentralization, little temporal rigor, lack of coordination between accounting and budgets, etc.
Errors in the means-ends relationship: ambitious figures, incorrect use of the means, etc.
These deviations are analyzed to make decisions, both strategic (review and / or change of plan and programs), and tactical or operational (review and / or change of objectives and budgets).
Taylor (1895) was one of the initiators of industrial Management Control, introducing analytical accounting, the timing of direct labor times, standards, the allocation of indirect costs, remuneration for performance. Brown (1907) established the formula for return on capital. Even today many examples are observed in companies, the CG revolves around controlling the internal efficiency of the company, focusing its attention on the resources it consumes, on immediate benefit and on external financial information.
According to García (1975), Management Control (CG) is above all a method, a means to conduct thought and action in order, the first thing is to foresee, establish a forecast on which to set objectives and define an action program. The second thing is to control, comparing the achievements with the forecasts, at the same time that all the means are put in place to compensate for the differences found.
Blanco Amat (1984) argues that the modern philosophy of CG presents the control function as the process by which managers ensure the obtaining of resources and the effective and efficient use of them in the fulfillment of the objectives of the company
According to Huge Jordan (1995), Management Control is a management instrument that provides decision support and its management tools will allow directors to achieve objectives; It is a decentralized and coordinated function for planning objectives, accompanied by an action plan and verification that the objectives have been achieved
Reviewing different definitions of management control, it is observed that:
All the authors recognize that the objectives are the guiding category, because the decision-making process is oriented to achieve the objectives set and then these are the pattern to evaluate the management, or is the degree to which the results of the management approach the previously established objectives.
Management control is related to the following activities: formulation of objectives, setting of standards, action programs (budgets), use of resources, measurement of results (verification), analysis of deviations, correction of performance or improvement.
A differentiation is distinguished between the concept of management, management control and the control function, but the same precision is not observed when establishing their borders. Some consider that management control includes both the forecasting stage and the control or verification stage itself; others see it closer to execution and verification; for another, it covers the processes for allocating resources, monitoring actions and evaluating the results.
It is also considered that management control should not be reduced to the control function (understood as evaluation and correction of performance only) but also includes the planning phase (because during the process of defining objectives, the ways to measure them are determined, and its quantification in the standard), which in turn is determined by the improvement processes that are those that give the diagnostic capacity to management control.
Few authors like Goldratt draw attention to the role of management and CG as a bridge between global objectives and local objectives, reflecting the existing problem that many management control systems (SCG) remain in the measurement of global objectives of the company but they are unable to measure whether or not local performance is contributing to the achievement of global objectives.
We conclude that CG is a process that serves to guide management towards the organization's objectives and an instrument to evaluate it. For which it should be understood that:
The CG is a means of deploying the strategy throughout the organization.
If we continue citing authors, it would be verified that the definition of Management Control is not unique, it varies with each author and over the years, since the constant change in the business environment leads to an evolution in the way of thinking and acting, thus as in the methods and tools used to run an organization. The foregoing should not be seen as an isolated element or tool but as a system that relates and interacts with the entire environment.
Management Control System:
A Management Control System (SCG) is an organized stimulation so that decentralized “managers” make their decisions in due time, it allows achieving the strategic objectives pursued by each company. To maintain organizational efficiency and facilitate decision-making, it is essential to control the evolution of the environment and the variables of the organization itself that may affect its own survival.
The management control system as a set of procedures that represents a concrete organizational model to carry out the planning and control of the activities carried out in the company, is determined by a set of activities and their interrelations, and an information system (YES).
However, there are other modern approaches, such as that of Mallo and Merlo that conceive the SCG as an information-control system superimposed and continuously linked with the management that aims to define compatible objectives, establish adequate follow-up measures and propose the specific solutions to correct deviations. Control is active in the sense of influencing the direction to design the future and continually creating the conditions to make it happen.
Simons considers it to be those usual procedures and controls, of a formal type, based on information and used by management to maintain or modify certain guidelines in the activities of the organization, distinguishing within the SCG four types of formal systems based on information in function of their relationship to strategy: belief system, boundary setting system, diagnostic control system, and interactive control system. The belief system, to communicate and reinforce statements about the mission and objectives of the company; the boundary-setting system, for setting rules and limits, such as budgeting systems; the diagnostic control system, as a formal feedback system,to monitor the results and correct any deviations that occur in relation to what was planned; and the interactive control system, to attract attention and encourage dialogue and learning throughout the organization. Coinciding with these authors are the Japanese management approaches and those of other authors such as Goldratt and Lorino.
In the concepts obtained from the different literatures, it can be observed that all agree that the SCG is a procedure based on the information collected to draw up the objectives and the path to be followed by the entity, control and take the corresponding decisions to correct deviations.
Management control indicators.
Management control indicators (Ic) are quantitative expressions that allow us to analyze how well the company is being managed. According to Harrington, an indicator is expressed by an attribute, a meter, a goal, and a time horizon.
Among other features, the modern management philosophies TQM, JIT, TOC, have in common that the new is not in the indicators themselves, but in the scale of importance or priority with which they are considered in the management process: added value, inventory and expenses operations, unlike traditional philosophies, which take cost accounting as the central control tool, magnifying the indicators associated with operating expenses.
Among the indicators commonly used in evaluating the performance of a system are those that point towards efficacy, efficiency, effectiveness, stability, and value improvement, in accordance with the performance triangle.
In the generality of the bibliography, a set of indicators is proposed to measure the efficiency and effectiveness of each functional unit of the company, Production, Sales, Supplies, Marketing, Research and Development, Planning and Preparation of Production, Maintenance, Administration and Finance, Human Resources. Lorino mentions financial, reactivity (term) and quality indicators. Gunn in his book on manufacturing in the 21st century, lists a series of business excellence meters for the different subsystems of the company such as Accounting, Sales and Marketing, focused on measuring: time, waste, cost, quality, flexibility, added value, productivity, asset use, data and information integration.
However, Goldrat and Lorino warn about the need to condition the definition of the indicators to the clear precision of the company's objectives, prioritizing first the importance of what is measured and then its indicator. Second, the selected indicators should allow judging the impact of local decisions on the overall goal of the company.
What has been reviewed around the indicators allows us to conclude that:
· In most of the consulted works, a list of indicators grouped according to the traditional functional approach (production, technical, sales, human resources, and others) is presented.
· Global indicators of the company's senior management are shown, and the need to classify them for different management levels is not given importance, ignoring the connection mechanisms between global and local indicators.
· The importance of indicators is overestimated, sometimes falling into recipes, downplaying the procedure to define them.
· Indicators are presented as something that can be determined a priori or prefixed behind the objectives, strategies, system restrictions, critical problems and the specificity of the industrial object.
· In this work it is considered that these indicators can be taken as a reference but cannot be incorporated a priori in the SI of an organization's SCG, because there is a risk of having a lot of data but not having the relevant information to answer management questions keys to a particular organization.
Closely related to the design of Management Control Systems is also the topic of the Balanced Scorecard, where it is considered that it provides executives a broad framework that translates the vision and strategy of a company into a set consistent performance indicators.
Many people think that indicators are a tool to monitor behavior and to evaluate past performance. We should not see them just like that, but incorporated into the Balanced Scorecard (BSC) to articulate and communicate business strategy, business strategy and to coordinate and align the individual initiatives of the organization and that of its multiple departments in order to achieve a common goal. The WCC makes no effort to make individuals and units of the Organization follow a pre-established plan, the traditional goal of a control system. The CMI should be used as a communication, information and training system, and not as a control system.
The CMI transforms the Mission and the strategy into objectives and indicators organized in four different perspectives: financial, customer, internal processes and training and growth (innovation or learning).
The BSC provides a framework, structure, and language to communicate mission and strategy; uses indicators to inform employees about current and future success factors.
The CMI allows you to view and provide company information from four different and important angles:
a) Customer or Consumer Perspective: what do they expect from the company?
Good customer service is very important and is the basis for being able to stay in a competitive market. The Mission is likely to stand out in this regard. Customers expect products of the highest quality, at an adequate cost, delivered on time and performing as agreed.
b) Internal Perspective: in what can we stand out?
What to do within the company to meet customer expectations? The company's processes must be studied and evaluated to achieve consumer satisfaction.
c) Perspective of innovation or learning: What should continue to be improved?
Competition is fierce in this new millennium, so the company must be able to innovate and improve. The products fulfill their life cycle and it is necessary to have new ones, with greater and attractive capacities.
d) Financial Perspective: What do shareholders expect?
Those who invest their money legitimately expect an adequate return. If this is not pleased, they are likely to invest their money in a different company.
Compliance with the four pillars of the BSC contributes greatly: to employee motivation; to improve all stages of the Value Chain; to meet customer expectations and gain their loyalty; finally, to offer higher economic returns to shareholders.
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