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Martin Zralý:

ENTERPRISE MANAGEMENT CONTROL

Department of Enterprise Management and EconomicsFaculty of Mechanical Engineering, Czech Technical University in Prague

martin.zraly@fs.cvut.cz

Prague 11/2011Prague 11/2011

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Questions:Questions:

Which are Which are the Basic Elementsthe Basic Elements of Enterprise Management of Enterprise Management Control (MC)?Control (MC)? Their hierarchy?Their hierarchy?

What does it mean What does it mean to apply the Process Approachto apply the Process Approach (Control)?(Control)? What does it mean the Enterprise Control What does it mean the Enterprise Control is integratedis integrated? ? Why the Why the Time isTime is considered as considered as the key factorthe key factor in in

contemporary Management Controlcontemporary Management Control Which Which optimal TIME situationoptimal TIME situation are required in MC? are required in MC? MeasuresMeasures (Indicators) (Indicators):: Why they are of the key role in MC? Why they are of the key role in MC?

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What is it about ?What is it about ?

Basic Elements of Enterprise Management ControlBasic Elements of Enterprise Management Control Processes - In which way to accept themProcesses - In which way to accept them Integration in Enterprise ControlIntegration in Enterprise Control Controlling as an Approach to Enterprise ControlControlling as an Approach to Enterprise Control Convergent controlling conceptConvergent controlling concept Time - the key factor in contemporary management controlTime - the key factor in contemporary management control Resources Capacity UtilizationResources Capacity Utilization Measurement - IndicatorsMeasurement - Indicators Summary - Final ConclusionsSummary - Final Conclusions

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Basic Elements Basic Elements ((EntitiesEntities) ) of Enterprise of Enterprise Management Management ControlControl

Products Products (incl. services)(incl. services) (set of products, product’s group) (set of products, product’s group) bring money inbring money in ! !

ProcessesProcesses create products or support creation and sale of the productscreate products or support creation and sale of the products

Activities Activities (= parts of processes)(= parts of processes) Projects Projects (= campaign to support achievement of targets of the processes or (= campaign to support achievement of targets of the processes or

activities)activities) Resources:Resources:

HumanHuman Tangible and Intangible Tangible and Intangible FinanceFinance

Departments Departments (Centres)(Centres)

Primary:Primary: Which Which featuresfeatures of these elements and at their important connections of these elements and at their important connections are decisive and in which way to are decisive and in which way to do measure themdo measure them??

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( Processes - In which way to accept them )( Processes - In which way to accept them ) Process Process == purpose-built consequence of activities purpose-built consequence of activities

Production (money earning) process:Production (money earning) process: … product producing … product producing Supportive process:Supportive process: … preconditions for effectiveness of the P-processes … preconditions for effectiveness of the P-processes

Example:Example: Processes in a Processes in a project companyproject company::

Production processesProduction processes Projects creation,Projects creation, possible more processes if they significantly differpossible more processes if they significantly differ CalculationsCalculations Expert opinions activities Expert opinions activities ((e.g.:e.g.: somebody else's project assessment) somebody else's project assessment)

Supportive processesSupportive processes Recruitment and retention of the customers Recruitment and retention of the customers (organizing common actions, special (organizing common actions, special

offers, identification of the customer’s requirements, etc.)offers, identification of the customer’s requirements, etc.) Motivational for employeesMotivational for employees Qualifying for employeesQualifying for employees Innovation of the project technologiesInnovation of the project technologies (incl. bmkg of the competitors, new (incl. bmkg of the competitors, new

knowledge assessment,knowledge assessment, project methodology procedures and recommendations) project methodology procedures and recommendations)

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Enterprise ControlEnterprise Control has to has to be Integratedbe Integrated

In which way to interpret In which way to interpret „Integration“„Integration“ in enterprise control ? in enterprise control ?

= Unifying, harmonizing interconnections of all parts in one cohesive unit= Unifying, harmonizing interconnections of all parts in one cohesive unit

Basic characteristics of the Basic characteristics of the „Integration“„Integration“ are: are:

self-contained, linking, unifying, interconnection, but also completionself-contained, linking, unifying, interconnection, but also completion

The Aim of the The Aim of the „Integration concept“ „Integration concept“ in an enterprise control:in an enterprise control:

„„In which way can „Integration“ contributes to the ability to achieve the high In which way can „Integration“ contributes to the ability to achieve the high extent of the control of enterprise processes and results.“extent of the control of enterprise processes and results.“

Integration in technical systems - Integration in technical systems - ExamplesExamples: : Computers - hardware i software (MS-Office, CAD + simulation prg.)Computers - hardware i software (MS-Office, CAD + simulation prg.) Machining centresMachining centres

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WWhhy Integration Has to Be Considered as Significant y Integration Has to Be Considered as Significant Feature ?Feature ?

Major reasons for Major reasons for growinggrowing importance of Integration: importance of Integration: The number (+ rate) of changes is rapidly growing - turbulent environment The number (+ rate) of changes is rapidly growing - turbulent environment

(Drucker, etc.) (Drucker, etc.) Product’s complexity and requirements to the product is growingProduct’s complexity and requirements to the product is growing Process’s complexity is growingProcess’s complexity is growing Enterprise size is growingEnterprise size is growing Product and process costs are growing, namely fixed onesProduct and process costs are growing, namely fixed ones

Enterprise has to operate as consistent unitEnterprise has to operate as consistent unit Input changes have to cause adequate changes in processInput changes have to cause adequate changes in processeses and and in in

outcomeoutcome

Elements in the enterprise control has to be interconnected, Elements in the enterprise control has to be interconnected, possiblypossibly unified, … unified, … integratedintegrated

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Controlling as an Approach to Enterprise ControlControlling as an Approach to Enterprise Control

Enterprise control has to be kept Enterprise control has to be kept in fixed frameworkin fixed framework Enterprise control has Enterprise control has to be developed step by stepto be developed step by step, no revolution is , no revolution is

recommended recommended (continuous development) (continuous development) Convergent controlling concept can be considered as an Convergent controlling concept can be considered as an suitable frameworksuitable framework

WHY? WHY? Basic points:Basic points:

practical experiences from enterprises in different areaspractical experiences from enterprises in different areas it respects recommendations of leading persons in controlling theory: it respects recommendations of leading persons in controlling theory: prof. prof.

Horváth, prof. EschenbachHorváth, prof. Eschenbach it respects recent approaches to enterprise control: process control, ABM, it respects recent approaches to enterprise control: process control, ABM,

resp. TO-ABM (emphasis to Activities and Time characteristics) resp. TO-ABM (emphasis to Activities and Time characteristics) prof. prof. KaplanKaplan

it respects recommendations from broad discussions.it respects recommendations from broad discussions.

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Convergent controlling conceptConvergent controlling concept 1/2

Concept based on seven viewpoints: Concept based on seven viewpoints: (1) Objectives are primarily(1) Objectives are primarily Acceptance of basic controlling line Acceptance of basic controlling line

(spiral):(spiral):(vision) (vision) objectives objectives targets targets processes ( processes (+ + activities) activities) projects projects

(initiatives)(initiatives) indicators indicators plan x records plan x records evaluation evaluation decision (D) decision (D) (correction) (correction) D- execution D- execution D-evaluation D-evaluation

(2) Integration(2) Integration horizontal and verticalhorizontal and verticalcontent and formalcontent and formalTOOLS: methods, approaches, methodologies, software, …TOOLS: methods, approaches, methodologies, software, …

(3) Planning(3) Planning (budgeting) has exceptional role(budgeting) has exceptional role (4) Evaluation(4) Evaluation Regular and consistent, in short time-periodsRegular and consistent, in short time-periods (5) Tools(5) Tools Application of controlling and other managerial tools and their Application of controlling and other managerial tools and their

combination, emphasiscombination, emphasis to to integrative ability of toolsintegrative ability of tools

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Convergent controlling conceptConvergent controlling concept 2/2

(6) Standardization and formalization of procedures(6) Standardization and formalization of procedures (for control, etc.)(for control, etc.) (7) Broad acceptance of learning processes(7) Broad acceptance of learning processes (ability to take lessons) in all (ability to take lessons) in all

areasareas Regular update, resp. improving of procedures, regulations, rules … Regular update, resp. improving of procedures, regulations, rules … ((versus: „we did it in this way last year, we will continue in this way this „we did it in this way last year, we will continue in this way this year again“year again“))

Important confirmation of this approach + another inspirations:Important confirmation of this approach + another inspirations: BM- project fy. Point ConsultingBM- project fy. Point Consulting (9/2003) and its results: (9/2003) and its results:

namely: Dominant support of sayingDominant support of saying „„Missing integration in enterprise controlMissing integration in enterprise control"",,

related to the evaluation of all managerial toolsrelated to the evaluation of all managerial tools !!

Solutions:Solutions: Integrative System ConceptIntegrative System Concept E.g.:E.g.: „Business Navigation“„Business Navigation“

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Time - the key factor in contemporary mgmt. control Time - the key factor in contemporary mgmt. control

WHY?WHY? Time related costs rateTime related costs rate in total costs in total costs is growingis growing

E.g.:E.g.: Equipment & Machine C., Space C., IT-C., Staff C., Admin. C., Equipment & Machine C., Space C., IT-C., Staff C., Admin. C., Maint. & Repair C., etc. Maint. & Repair C., etc.

In some branches: 80 - 90 % costsIn some branches: 80 - 90 % costs „ „Time“ is more and more expensiveTime“ is more and more expensive

Time can be controlledTime can be controlled „„Time“ as:Time“ as:(1)(1) Time expression of disposable capacity of resources: Time expression of disposable capacity of resources: staff, staff,

machine, activity, process,.. machine, activity, process,.. ( ( capacity utilization) capacity utilization)

(2)(2) Time consumption for product, service Time consumption for product, service typical application in Target typical application in Target Costing processes Costing processes (( cutting time consumption) cutting time consumption)

+ It is measurable indicator!+ It is measurable indicator!

Importance of HCT-Method application in different areasImportance of HCT-Method application in different areas

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UtilizationUtilization of of ResourcesResources CapacityCapacity

Link to the previous slide Link to the previous slide “Time as key factor“ “Time as key factor“ (time costs) (time costs)

Human and Equipment Capacity is continually getting:Human and Equipment Capacity is continually getting:

(1) More expensive(1) More expensive

(2) More productive (mainly equipment capacity)(2) More productive (mainly equipment capacity)

It It has to be managedhas to be managed in more economic way, or the performance in more economic way, or the performance efficiency is decreasingefficiency is decreasing

Consistency in capacity planning and recording is requiredConsistency in capacity planning and recording is required Activity time sheet is appliedActivity time sheet is applied for equipment and staff too (also in areas of for equipment and staff too (also in areas of product design, product development, at administrative staff, …product design, product development, at administrative staff, … ) )

(1) Motivational effect(1) Motivational effect(2) To get an overview of the capacity planned (2) To get an overview of the capacity planned versus consumed consumed

Essential significance of HCT-Method applicationEssential significance of HCT-Method application

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Measurement - IndicatorsMeasurement - Indicators

QuotationQuotation::

„„Measurement is the first step that leads to control and eventually to Measurement is the first step that leads to control and eventually to improvement. improvement.

If you can’t measure something, you can’t understand it .If you can’t measure something, you can’t understand it .

If you can’t understand it, you can’t control it.If you can’t understand it, you can’t control it.

If you can’t control it, you can’t improve If you can’t control it, you can’t improve it.“it.“

H. J. HarringtonH. J. Harrington

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Summary - Final ConclusionsSummary - Final Conclusions

Essential FactorsEssential Factors of Contemporary Enterprise Control: of Contemporary Enterprise Control: Controlling management concept Controlling management concept Convergent Approach (7V)Convergent Approach (7V) Process (Activity) Oriented Approach Process (Activity) Oriented Approach (Process control, ABM)(Process control, ABM) Time ControlTime Control (Capacity, Time consumption/unit)(Capacity, Time consumption/unit) Maximization of Resource Maximization of Resource Capacity UtilizationCapacity Utilization Selection of Suitable Selection of Suitable IndicatorsIndicators permanent searching, making permanent searching, making

them more accuratethem more accurate Look after Look after specific solutionsspecific solutions according to your managerial needs according to your managerial needs Prefer Prefer simple, understandable, effective simple, understandable, effective toolstools Do Do regular, critical regular, critical evaluationevaluation of application functioning of application functioning

make it better (improve it continuously)make it better (improve it continuously) Personality of ManagerPersonality of Manager is and will be most important is and will be most important