The essential elements of any control system are:
1. A predetermined goal, plan, policy, standard, norm, decision rule, criterion, or yardstick.
2. A means for measuring current activity (quantitatively, if possible).
3. A means of comparing current activity with a criterion.
4. Some means of correcting the current activity to achieve the desired result.
The first element of a control system involves the answer to the question: What should be the results? This element forces attention on the future and what is desired or expected. The attempt to predict future events provides the basis for interpreting the meaning of events when they actually occur. Even poor prediction provides a framework for better understanding of current experience. The predetermined criterion may even be set arbitrarily. The goal may be judged by others to be bad. A useful control system does not evaluate the goodness of the goal; it merely provides a means by which activity can be directed toward an actual goal.
The predetermined criterion should be stated explicitly. For this reason, quantitative statements are usually preferable. In production management, physical units, such as ton-miles of freight, units per machine-hour, or pounds of scrap page per unit of output, may provide a simple and direct yardstick for operations. In financial management, dollar values serve as explicit statements of norms. Often, financial managers use past achievements of the firm as crude yardsticks for controlling current operations, for example, the record of the past twelve months. The assumption is that past performance was not too bad and that if it can be equaled or surpassed, the firm will not decline. Marketing managers often use such industry data as benchmarks against which the company can compare its own sales efforts. They also develop quotas based on market potential to serve as predetermined goals.
The second element in any control system is the measurement of actual performance. This step usually requires the greatest attention and expenses, because records and reports must be devised to present information in a form that will fit the control system. Measurements of actual performance must be in units similar to those of the predetermined criterion. Prompt reporting of actual performance increases the value of a control system. Recent improvements in data processing increase the speed of reporting this data.
The degree of accuracy to which measurement is carried will depend upon the needs of the specific application. All measurement is accurate only to some limited degree. There are many instances in management when it is desirable to round a number to emphasize important magnitudes. Concern over small errors might overshadow major factors and confuse the interpreter. The ability of a good manager to strike quickly at the heart of the meaning of past performance is a most important factor in successful management.
Comparison of a criterion with actual performance indicates variations in activity. This key step adds meaning to the data provided by the control process. Because some variation can be expected in all activity, a critical question facing a manager is the determination of what amount of variation is large enough to be significant and worth attention. If limits of variations are not clear, the manager may waste time studying unimportant problems while failing to give sufficient time to pertinent issues.
The method of presenting comparisons of performance with the predetermined goal is an important question. The simplest and most direct method is usually the best. Graphical techniques provide means of visualizing important relationships, uncluttered by insignificant details. Anyone who has attempted to interpret large volumes of quantitative data will recognize the sense of futility that develops unless some simplified approach can be devised.
This third element of a control system involves the study of relationships. Such techniques as ratios, trends, mathematical equations, and charts help add meaning to the measurements of actual performance by showing the relation of actual experience to the predetermined criterion.