Measurement and Accountability

Module 15

LIS 580: Spring 2006

Instructor- Michael Crandall

May 16, 2006 LIS580- Spring 2006 2

Roadmap

• Control systems• Diagnostic systems

• Financial control- the budget• Financial ratios• Other systems

• Boundary control systems• Interactive control systems• Commitment-based control systems• Issues in control systems

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What is Control?

• The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations

• An effective control system ensures that activities are completed in ways that lead to the attainment of the organization’s goals

Prentice Hall, 2002

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The Fundamentals Of An Effective Control System

• Control– The task of ensuring that planned activities

are getting the desired results.– All control systems try to influence

behavior.– Controlling involves setting a target

(planning), measuring performance (evaluation), and taking corrective action.

– Control also applies to monitoring every task—large and small—that is delegated.

G.Dessler, 2003

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Management and the Control Process

FIGURE 14–1G.Dessler, 2003

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Characteristics of ThreeApproaches to Control Systems

• Market– Uses external market mechanisms, such as price

competition and relative market share, to establish standards used in system to gain competitive advantage

• Bureaucratic– Emphasizes organizational authority of

administrative and hierarchical mechanisms to ensure appropriate employee behaviors and to meet performance standards

• Clan– Regulates employee behavior by the shared

values, norms, traditions, rituals, beliefs, and other aspects of the organization’s culture

Prentice Hall, 2002

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Types of Control

Prentice Hall, 2002

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Steps in the Control Process

• Measuring actual performance– Personal observation, statistical reports,

oral reports, and written reports– Management by walking around (MBWA)

• Comparing actual performance against a standard– Comparison to objective measures:

budgets, standards, goals– Range of variation

Prentice Hall, 2002

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Defining an Acceptable Range of Variation

Prentice Hall, 2002

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Steps in the Control Process(cont’d)

• Taking managerial action to correct deviations or inadequate standards– Immediate corrective action

• Correcting a problem at once to get performance back on track

– Basic corrective action• Determining how and why performance has deviated and

then correcting the source of deviation

– Revising the standard• Adjusting the performance standard to reflect current and

predicted future performance capabilities

Prentice Hall, 2002

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The Control Process

Prentice Hall, 2002

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Qualities of an EffectiveControl System

Prentice Hall, 2002

Accuracy Timeliness

Economy Flexibility

Understandability Reasonable criteria

Strategic placementEmphasis on theexception

Multiple criteria Corrective action

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Approaches To Maintaining Control

• The Traditional Control Process– Step 1: Set a standard, target, or goal.– Step 2: Measure actual performance

against standards (observation and timing).

– Step 3: Take corrective action.

• The Commitment-Based Control Process– Encouraging all employees to exercise

ethical self-control (as they initiate process improvements and new ways of responding to customers’ needs.

G.Dessler, 2003

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FIGURE 14–4

Two Basic Categories of Control Systems

G.Dessler, 2003

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Types of Traditional Control Systems

• Diagnostic controls– A control method, such as a budget, that ensures

that standards are being met and that variances are diagnosed and explained.

• Boundary Controls– Policies, such as codes of conduct, that establish

rules and identify the actions and pitfalls that employees must avoid.

• Personal/Interactive Controls– Control methods that involve direct, face-to-face

interaction with employees so as to monitor rapidly changing information and respond proactively to changing conditions.

G.Dessler, 2003

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FIGURE 14–3

Examples of Control Standards

G.Dessler, 2003

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The Basic Management Control System

• Budget– Formal financial expression of a manager’s

plans.

• Capital Budget– Shows the expenses for equipment with a

life longer than one year.

• Operating Budget– Shows the expected sales and/or expenses

for each of the company’s departments for the planning period in question.

G.Dessler, 2003

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University of Alberta Library

• How does this budget present options for different funding levels?

• What do they use to support their arguments for increased funding levels?– On the positive side?– On the negative side?

• What is going to be the hardest thing to get approval for in this budget?

• How does the budget explain the request for changes in their operating expenses?

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2005 OSE BudgetOrg X1107

Account Description Amount710110 Salaries and Wages (4.0 FTE) $304,801.00720110 FICA $18,210.00720114 Medicare $4,550.00820410 Health Insurance Premium $25,991.37720600 Summary and Special Allowances $0.00820120 IF Unemployment $208.00820130 IF Worker's Compensation Claims $0.00820310 IF Pension-City Retirement Sys $25,195.00820320 IF Death Benefit Contribution $48.00820490 IF Dental Insurance $5,254.00820530 IF Group Fund Life Insurance $181.00820550 IF Long Term Disability Insurance $157.00810310 IF Salaries & Wages -TEMP $0.00

Personnel Total $384,595.37730010 Subscriptions/Publications/Books $1,000.00730220 Office Supplies $1,500.00730410 Equip- PCs & Other DP <$5000 $2,000.00730450 Software Purchases $250.00730490 Equipment-Misc <5000741190 Services-Othr Professional/Technic* $64,520.63810310 IF Salaries & Wages INTER - (Staff Loans)* $36,868.00841190 Services-Othr Professional/Technic**743550 Maintenance-Data Processing Equip $250.00744110 Postage & Delivery Costs $200.00744320 Training Tuition & Fees $4,000.00744350 Out Of City Travel Costs $2,000.00744510 Dues & Memberships $4,000.00744575 Copying/Printing/Binding & Design $3,500.00744520 Volunteer-Employee Recognition $750.00842580 IF-Rentals Vehicles $750.00

Operational Total $121,588.63

TOTAL $506,184.00* This is the half-time position OSE pays Parks for Richard Gelb.** This is where we RECEIVE money (MOAs) from other departments

Example of a

Budget

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2006 Budget Issue Paper Department: OSE BIP Title: Planning & Development Specialist II BIP Number: OSE-02 Budget program(s) affected:

2006 GF $ 2006 Other $ Estimated $ change: $55,000*

Regular positions affected: No. of Positions: 1 Total FTE change: 1.0

Other departments affected: “All Funds” Capital/Operating budget:

* The total costs of the position are estimated at $75,000. We propose that OSE cover $20,000 of that (which constitutes about 30% of our available professional services budget for 2006), reducing the “new load” on the General Fund to $55,000 -- less when you factor in that OSE’s budget is cost-shared with City Light and Seattle Public Utilities.

(1) Summary of BIP (100 words or less) This is a request to create a one-year Planning and Development Specialist 2 position in OSE for 2006, ending 12/31/06. This would sustain OSE’s 2005 human resource capacity, and allow us to continue to deliver on the Mayor’s priorities and OSE’s Accountability Contract -- notably the Mayor’s Climate Protection Initiative. The position will assume the duties currently performed by a TES employee; the position will focus primarily on implementation of the Mayor’s Climate Protection Initiative, but may be available for other priority projects as well. (2) Detailed explanation: A TES Planning & Development Specialist 2 was hired in April 2005 to support implementation of the Mayor’s Climate Protection Initiative. This position has played a key role in the development of the highly successful US Mayors Climate Protection Agreement, and provides much-needed staff support to the Mayor’s Green Ribbon Commission on Climate Protection, which is developing the Seattle Climate Action Plan. The Commission is due to deliver its final report to the Mayor in December 2005; however OSE will need to retain staff capacity to ensure completion of the final document and implementation of the strategy. Specific duties will include:

Provide staff support to the Mayor’s Green Ribbon Commission, including conducting research and analysis of action recommendations and preparing briefings and presentations. The Commission is a panel of high-level business, government and civic leaders charged with developing a set of recommendations to reduce global warming pollution in the Seattle community. Though the Commission’s report is due to the Mayor at the end of 2005, we anticipate that the Commission’s work will continue into at least part of 2006;

Help write the Green Ribbon Commission’s final report to the Mayor; Help develop and write-up the Mayor’s implementation strategy -- a City-wide work plan that responds

to the Commission’s recommendations). Help develop and implement a plan for distributing and doing extensive community outreach on the

Action Plan, including a strategy for mobilizing neighborhoods and businesses behind the Plan; Work closely with a number of City departments and external partners (such as the Puget Sound

Clean Air Agency) to implement the report’s recommendations. For example, work with SDOT and others to implement transportation-related recommendations; work with City Light and others to implement energy-related recommendations; work with SPU and others to implement waste management -related recommendations; work with Parks and others to implement forest management-related recommendations; work with DON and others to do community outreach and mobilize neighborhood-based action;

Develop a system for monitoring implementation progress, and produce annual progress reports as part of overarching Environmental Action Agenda progress reporting process

(3) Anticipated outcome of change: This conversion will ensure the successful completion and implementation of the Seattle Climate Protection Action Plan, an important component of the Mayor’s Climate Protection Initiative. (4) Department workforce change (regular positions to be added, abrogated, reduced in FTE or reassigned to different programs). Include titles when known: Addition of 1.0 FTE Planning & Development Specialist 2 for one year (2006).

Example of a

Budget

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Performance Reporting

• Variances– Differences between budgeted and actual

amounts.

• Audit– A systematic process of objectively obtaining and

evaluating evidence of the firm’s performance, judging the accuracy and validity of the data, and communicating the results to interested users.

• Financial Ratio– An arithmetic comparison of one financial measure

to another, generally used to monitor and control financial performance.

G.Dessler, 2003

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FIGURE 14–6

Example of a Performance Report

G.Dessler, 2003

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FIGURE 14–7a

Widely Used Financial Ratios

G.Dessler, 2003

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FIGURE 14–7b

Widely Used Financial Ratios (cont’d)

G.Dessler, 2003

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FIGURE 14–7c

Widely Used Financial Ratios (cont’d)

G.Dessler, 2003

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FIGURE 14–7d

Widely Used Financial Ratios (cont’d)

G.Dessler, 2003

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FIGURE 14–8

Ratio Analysis: Factors Affecting Return on Investment

G.Dessler, 2003

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Financial Responsibility Centers

• Financial Responsibility Centers– Individuals or groups who are assigned the responsibility for

a particular set of financial outputs and/or inputs.

• Profit centers– Responsibility centers whose managers are held

accountable for profit.

• Revenue centers– Responsibility centers whose managers are held

accountable for generating revenues, which is a financial measure of output.

• Cost centers– Groups which are supported through internal taxes on other

groups; overhead functions.

G.Dessler, 2003

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Other Diagnostic Financial and Managerial Controls

• Activity-Based Costing (ABC)– A method for allocating costs to products and

services that takes all the product’s cost drivers into account when calculating the actual cost of each product or service.

G.Dessler, 2003

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Other Diagnostic Financial and Managerial Controls (cont’d)

• Balanced Scorecard– A management tool, usually a computerized

model, that traces a multitude of performance measures simultaneously and shows their interactions.

• Enterprise Resource Planning System– A companywide integrated computer system that

gives managers real-time, instantaneous information regarding the costs and status of every activity and project in the business.

G.Dessler, 2003

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Balanced Scorecard

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Boundary Control Systems

• Boundary Control Systems– Define the ethical rules for proper conduct in the

organization and specify which actions and pitfalls that employees must avoid.

– Include ethics standards, codes of conduct, and strategic policies.

• Steps in establishing boundary controls:– Emphasize top management’s commitment.– Publish a code.– Establish compliance mechanisms.– Measure results.

G.Dessler, 2003

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Personal/Interactive Control Systems

• Interactive Control– Maintaining control by personally

monitoring how everyone is doing is interactive control.

• Electronic Performance Monitoring (EPM)– Monitoring the work activities of employees

through electronic means.

G.Dessler, 2003

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Implementing Commitment-based Control Systems

Commitment-Commitment-Building SystemsBuilding Systems

Commitment-Commitment-Building SystemsBuilding Systems

MotivationMotivationTechniquesTechniques

MotivationMotivationTechniquesTechniques

BeliefBeliefSystemsSystems

BeliefBeliefSystemsSystems

Commitment-Commitment-Based Control Based Control

SystemSystem

Commitment-Commitment-Based Control Based Control

SystemSystem

G.Dessler, 2003

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Using Commitment-Building Systems to Foster Self-Control

• Foster People-First Values• Guarantee Organizational Justice• Build a Sense of Shared Fate and Community• Use Value-based Hiring• Financial Rewards and Profit Sharing• Communicate Your Vision• Encourage Personal Development and Self-

Actualization

G.Dessler, 2003

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Contingency Factors inControl System Design

• Size of the organization

• The job/function’s position in the organization’s hierarchy

• Degree of organizational decentralization

• Type of organizational culture

• Relative importance of the control activity to the organization’s success

Prentice Hall, 2002

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Controls and CulturalDifferences

• Methods of controlling employee behavior and operations can be quite different in different countries

• Distance creates a tendency for formalized controls in the form of extensive, formal reports

• In less technologically advanced countries, direct supervision and highly centralized decision making are the basic means of control

• Local laws may constrain the corrective actions that managers can take in foreign countries

Prentice Hall, 2002

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The Dysfunctional Side ofControl

• Unfocused controls– Failure to achieve desired or intended results occur

when control measures lack specificity

• Incomplete control measures– Individuals or organizational units attempt to look

good exclusively on control measures

• Inflexible or unreasonable control standards– Controls and organizational goals will be ignored or

manipulated

Prentice Hall, 2002

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Behavioral Consequences of Controls

ControlsControlsControlsControls

Negative Negative AttitudesAttitudes

Negative Negative AttitudesAttitudes

Behavioral Behavioral DisplacementDisplacement

Behavioral Behavioral DisplacementDisplacement

Games-Games-manshipmanship

Games-Games-manshipmanship

Operating Operating DelaysDelays

Operating Operating DelaysDelays

G.Dessler, 2003

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Contemporary Issues In Control

• The right to personal privacy in the workplace versus:– Employer’s monitoring of employee activities in the

workplace– Employer’s liability for employees creating a hostile

environment– Employer’s need to protect intellectual property

The computer on the desk typically belongs to the organization

Prentice Hall, 2002

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Next Time

• Managing world-class operations– Read Chapter 15 and the assigned articles

• Before lecture discussion group questions (Group E):– What impact does the streamlining of operations

have on employees?– What process do you think SPL used to decide on

their operations changes?– What measures could SPL institute to decide

whether their changes are improving value? – What lessons do companies like UPS have for

service organizations like libraries?

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Next Time

• After lecture discussion group questions (Group F):– Does a library director need to have an MLS?– Is subject matter expertise more important than

management expertise in managerial positions?– What arguments would you make for or against

your choice?– How well do you think our library schools are doing

in educating library managers?– What steps would you take to provide better

management education for MLIS graduates?