Thursday, 22 December 2011

16: Control Techniques and Information Technology

All control techniques are tools for planning. Obviously control must reflect plan and planning must precede control.

Budget as a Control Device

The Concept of Budgeting
Budgeting is the formulation of plans for a given future period in numerical terms. Budgets are statements of anticipated results, either in financial terms—as in revenue and expense and capital budgets—or in non-financial terms—as in budget of direct-labor-hours, materials, physical scales volume or units of production.

Dangers in Budgeting
Budgetary control programs are so complete and detailed that they become cumbersome, meaningless and unduly expensive. Budgetary control may be used for the wrong reasons. They measure inputs but ignore outputs such as the quality of the product or customer satisfaction. Some of these items should be included in the long-range plan rather than in the one-year budget.

Zero-Base Budgeting
The idea behind zero-base budgeting is to divide enterprise programs into “packages” composed of goals, activities and needed resources and then to calculate costs for each package from ground up. By starting the budget of each package from base zero, budgeters calculate costs afresh for each budget period; thus they avoid the common tendency in budgeting of looking only at changes from a previous period. This technique has generally been applied to so-called support areas, rather than to actual production areas like marketing, research and development, planning and finance. The various programs thought to be desirable are costed and reviewed in terms of their benefits to the enterprise and are then ranked in accordance with those benefits and selected on the basis of which package will yield the benefit desired. The principle advantage of this technique is, of course, the fact that it forces managers to plan each program package afresh.

Traditional Non-budgetary Control Devices
Examples of non-budgetary control devices are use of statistical data of many aspects of the operation, special reports and analysis of specific areas, the operational audit and personal observation.

Time-Event Network Analysis

Time-Event Network Analysis is also called the Program Evaluation and Review Techniques (PERT).

Gnatt Charts
This chart shows time relationships between “events” of a production program. Gnatt recognized that total program goals should be regarded as a series of interrelated supporting plans (or events) that people can comprehend and follow. The most important development of control reflects this simple and basic principle of control, such as picking out the more critical elements of a plan to watch carefully.

Milestone Budgeting
follows them. In this approach to control, “milestones” are defined as identifiable segments. When accomplishment of a given segment occurs, cost or other results can be determined.

Program Evaluation and Review Technique (PERT)
This is developed by Special Project Office of the US Navy.

Major Features of the PERT This is a time-event network analysis system in which the various events in a program or project are identified, with a planned time established for each. These events are placed in a network showing the relationships of each event to the other events. Each circle represents an event—supporting plan whose completion can be measured at a given time. The circles are numbered in an order in which the events occur. Each arrow represents an activity—the time consuming element of a program, the effort that must be made between events. Activity time, represented by the numbers beside the arrows, is the elapsed time required to accomplish an event. This activity time, can be expressed all in “optimistic” time, and estimate of the time required if everything goes exceptionally well; “most likely” time, an estimate based on the time the project engineer really believes is necessary for the job; and “pessimistic” time, a time estimate based on the assumption that some logically conceivable bad luck—other than a major disaster—will be encountered. These three estimates are required where; it is very difficult to estimate time accurately. The next step is to compute the critical path, that is, sequence of events which takes the longest time and which has zero (or the least) slack time. It is customary to identify several crucial paths in order of importance. Although the critical path has a way of changing as key events are delayed in other parts of the program, identifying it at the start makes possible close monitoring of this particular sequence of events to ensure that the total program is on schedule. When more than 200 to 300 events are involved, it is virtually impossible to handle the calculation without a computer.

Strength and Weaknesses of PERT There are five important advantages of PERT.
1. It forces managers to plan, because it is impossible to make a time event analysis without planning and seeing how the pieces fit together.
2. It forces planning all the way down the line, because each subordinate manager must plan the event for which he or she is responsible.
3. It concentrates attention on critical elements that may need correction.
4. It makes possible a kind of forward looking control; a delay will affect succeeding events and possibly the whole project if manager doesn’t take appropriate action.
5. The network system with its subsystems enables managers to aim reports and pressure for action at the right spot and level in the organization structure at the right time.

Limitations of PERT
1. This technique is not useful when a program is nebulous and no reasonable “guess-time” of schedule can be made.
2. Major disadvantage of PERT is, it emphasis on time only, and not on cost. While this focus is suitable for programs in which time is of the essence or in which, as so often is the case, time and costs have a close, direct relationship. The tool is more useful when considerations other than time are introduced into the analysis.

Information Technology

Communication and the Management Information System (MIS) are the linkage that makes managing possible. At the outset one has to realize the distinction between data and information. Data are the row facts that may not be very useful until they become information, that is, they are processed and become meaningful and understandable by the receiver. Information technology encompasses a variety of technologies including various kinds of hardware, software, telecommunication, database management and others (like 3G or 4G). Information technology has prompted the development of the Management Information System (MIS). It is defined here as a formal system of gathering, integrating, comparing, analyzing and dispersing information internal and external to the enterprise in a timely, effective and efficient manner to support managers in performing their jobs. MIS has to be tailored to specific needs and may include routine information, such as monthly reports; information that points out exceptions, especially at critical points and information necessary to predict the future. The computer can, with proper programming, process data toward logical conclusions, classify them, and make them readily available for a manager’s use. The data do not become information until they are processed into a usable form that informs.

Expansion of Basic Data
Traditional accounting information, aimed at the calculation of profits, has been of limited value for control. Yet in many companies this has been virtually the only regularly collected and analyzed type of data. Managers need all kinds of non-accounting information about the external environment, such as social, economic, political and technical developments. In addition, managers need non-accounting information on internal operation. The information should be qualitative and quantitative.

Information Indigestion and Intelligence Services
Information indigestion means manager being buried under printouts, reports, projections and forecasts that they do not have time to read or cannot understand or which do not fill their particular needs. On attempt at solving the problem of information overload is the establishment of intelligence services and the development of a new profession of intelligence experts.

The Use of Computers in Handling Information

The computer can store, retrieve and process data so that it becomes information. The mainframe is full-scale computer, often costing millions of dollars, that is capable of handling huge amounts of data. The minicomputer has less memory and is smaller than mainframe, often connected with peripheral equipment. The microcomputer is even smaller and may be desk computer, home computer, personal computer, portable computer or small computer for a business system. Some tasks that previously required a powerful computer can now be carried out by smaller computers that are hooked together. Grid Technology can be used to gain such computing power. Rather than buying bigger computers, smaller computers are connected. Among the many business applications of the computer are, material requirements planning, manufacturing resource planning, and computer aided control of manufacturing machinery, project costing, inventory control and purchasing.

The Impact of Computers on Mangers at Different Organizational Levels
At supervisory level, activities are usually highly programmable and repetitive. Consequently, the use of computers is widespread at this level. Middle-level managers, such as department heads or plant mangers are usually responsible for administration and coordination. But much of the information important to them is now also available to top management if the company has a comprehensive information system. For this reason, some people think that the computer will reduce the need for middle-level mangers. Top-level managers are responsible for the strategy and overall policy of the organization. In addition to determining the general direction of the company, they are responsible for the appropriate interaction between the enterprise and its environment. Clearly many of the tasks of CEOs are not easily programmable. Yet top managers can use the computer to retrieve information from a database that facilitates the application of decision models.

The Application and Impacts of Microcomputers
Personal Computers (PC) is becoming increasingly appealing to managers. Its application include: spreadsheets, graphic presentations, financial analysis, budget preparation, forecasting, simulation modeling, word processing, e-mail, database access and time sharing. The direction between line and staff is becoming less clear. The information that was formerly fathered by staff can now be obtained with ease by other managers when they access a common database. Information that was the prerogative of upper-level managers can also be made available to personnel at lower level, possibly resulting in the shift of power to lower levels. Thus, one of the problems currently faced by many firms is maintaining the security of information.

Opportunities and Challenges Created by Information Technology

Preventing the unauthorized use of information is just one of the many challenges created by information technology.

1. Resistance to Computer Application: People over age of 50, may have a phobia. Also in the past, typing was considered as the task of the secretary, not manager. When benefits were realized, resistance decreased.

2. Speech Recognitions Devices: Speech recognition is increasingly used at call-centre and car.

3. Telecommuting: This means that a person can work at a computer terminal at home instead of commuting to work. It may be useful for avoidance of traffic congestion and reduce need for office space but its use may lead to miss office gossip and the human interactions with workers.

4. Computer Networks: The interconnection allows users at several workstations to communicate with each other as well as to access other computers. Moreover, workstations can be connected to costly hardware that may be underutilized by single user.

5. Internet: The internet is the largest network of computers. The internet is also excellent tool for doing company research and doing business. Building community is one purpose of the internet. It has created internet related companies such as Google, Yahoo, etc. Use of internet requires understanding of English language, as almost all scientific material on the internet is in English.

6. Other Types of Networks: The intranet is a network that applies the computer and technologies of the internet to an organization or selected groups within the organization. The extranet also uses the computer and Internet technologies but it connects selected users inside and outside the company.

7. Groupware: A group of people on a network can collaborate over long distance at the same time using groupware. Thus, people who may be located in different parts of the world can collaborate on the same task simultaneously.

8. Information Security: Protection of computers can be afforded through encryption. The use of firewall also provides some protection. There is a concern about people working with information systems in organization. Individual and companies also should protect data by regularly making copies and storing them in a secure place.

The Digital Economy, E-Commerce and M-Commerce

The e-commerce—business transactions on the web—is changing the way we do business.

The Emerging Digital Economy
Information technology affects most aspects of business and personal life. For example, the price in computer power is dropping dramatically. One of the major impacts of the Internet is on the way business is conducted. Relationships with suppliers and customers are changing dramatically. The economic gains of e-commerce come from the lower costs of online companies, reduction in distribution costs and the elimination of intermediaries. The internet facilitates four kinds of transactions.

1. Business to Consumers (B2C): e.g. ordering books from
2. Consumer to Business (C2B): e.g. bidding for airline tickets through
3. Consumer to Consumer (C2C): e.g. auction through
4. Business to Business (B2B): e.g. GM and Ford, plan to transfer all purchasing to the web within the next few years.

The five largest US airlines—Continental, Delta, Northwest, United Airlines and American Airlines have a common website called

M-Commerce and Wireless Communication
While e-commerce is changing the way business is conducted, wireless communications and m-commerce are emerging to take it further. Managers need to observe the trends and develop strategies to take advantage of those new technologies.

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