Evaluation Techniques for Operational Control

The techniques that are employed for internal appraisal are used for operational control as well as discussed. Firms employ value chain to identify and evaluate the competitive potential of resources and capabilities. By studying their skills relative to those associated with primary and support activities, firms are able to understand their cost structure, and their activities through which they create value.

Most firms prepare reports of quantitative performance measurements such as sales growth, profit growth, economic value added ratio analysis etc. Managers review at regular intervals. These measurements are generally linked to the standards set in the first step of the control process. For example, if sales growth is a target, the firm should have a means of gathering and exporting sales data. If the firm has identified appropriate measurements, regular review of these reports helps managers stay aware of whether the firm is doing what it should do. In addition to these certain qualitative bases based on intuition, judgment, opinions, or surveys could be used to judge whether the firm’s performance is on the right track or not.

Benchmarking: it is a process of learning how other firms do exceptionally high quality things. Some approaches to bench marking are simple and straight forward. For example, Xerox Corporation routinely buys copiers made by other firms and takes them apart to   see how they work. This helps the firms to stay abreast of its competitors’ improvements and changes.

Balanced Scored Card tries to do away with the bias in performance measures towards financial tools and tries to build comprehensive objective system of measurement. The score card takes into account four key performance measures: 1) customer perspective: How do customers see us? 2) Internal business perspective: What must we excel at? 3) Innovation and learning perspective: Can we continue to improve and create value? 4) Financial perspective: How do we reward shareholders?

Key factor rating is based on a close examination of key factors affecting performance (financial, marketing, operations and human resource capabilities) and assessing overall organizational capability based on the collected information.

Network techniques like Programme Evaluation and Review Technique (PERT), Critical Path method (CPM) are also used to ensure effective operational control over scheduling and resource allocation in projects.

Operational control is exercised through a process consisting of four steps:

Establishment of standards: The first step in the control process is establishing standards. Standards are the targets against which subsequent performance will be compared. They serve as the benchmarks because they specify acceptable levels of performance.  Control standards are broadly divided into two categories:

Quantitative standards: These are generally expressed in physical or monetary terms. Such standards are set up in respect of production, finance, sales, etc. where results can be measured in exact quantitative terms. Quantitative standards may further be divided as follows:

Time standards: Time standards state the length of time it should take to make a certain good or perform a certain service. An airline has a standard time span in which to make a certain trip.

Cost standards: Cost standards are based on the cost or producing the goods or services. For example, the material cost might be Rupees 10 per unit. Cost standards specify the cost limits within which results should be achieved.

Productivity standards: Standards of productivity are based on the output of goods or services during a set time period. For instance, a productivity standard might be to complete 10 units or serve 150 customers per hour.

Revenue standards:  They arise from attaching monetary values to sales. They may include such standards as revenue per passenger – mile, average sales per customer or sales per capita in a given market area.

Qualitative standards: Standards of quality are based on the level of perfection desired in respect of certain intangible items such as goodwill, employee morale, industrial relations etc. tests, surveys, and sampling techniques are used to prove human attitudes.

How to set the standards? Setting standards for every operation is an inescapable task of management:

  • Before setting standards an executive must study the characteristics of the work.
  • Executives must consider ordinarily flexible and generally acceptable levels of good performance in terms of work characteristics
  • As nature of work differs with every operation (unit), the characteristics are different and so are the standards.
  • Standards are set, thus, depending on the characteristics of the task.

Requirements of performance

  • Set in precise quantitative terms.
  • Flexible enough to modify whenever required.
  • Clear and understandable to all.
  • Workable and acceptable.
  • Take care of all critical points that cover the entire organization
  • Revise periodically and keep up to date.

The actual performance of employee is measured against the standard fixed for his job. This should be done in an objective manner. Where standards are expressed in numerical terms, measurement does not create problems. For example, performance of a worker in terms of units produced in a week could be easily measured against the standard output for the week. On the other hand, measuring the performance of a HR manager (where standards cannot be set in precise terms) is not easy. In that case indirect measures such as number of strikes organized during his tenure, say 5 years man-days lost during his period etc. Generally, speaking measurements of performance is more difficult at the higher levels of management. Measurement can be done directly through personal observation or indirectly through regular reports (oral or written).

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