Control systems are crucial for business optimization by providing mechanisms to monitor, manage, and improve operational performance, efficiency, and goal achievement. These systems leverage data to identify areas for improvement, ensure adherence to policies, and align daily activities with strategic objectives, ultimately leading to streamlined operations and better resource allocation.
Key aspects of control systems for business optimization:
Management Control Systems (MCS):
These are frameworks businesses use to track progress towards productivity,
profitability, and efficiency goals. They involve setting key performance
indicators (KPIs), continuous measurement, and analysis to predict
outcomes and take corrective actions.
Management Control Systems (MCS) Guide: Components and Tips
For businesses to succeed, they often have to manage multiple departments with different responsibilities. To organize many teams' efforts into one successful product or service, businesses often use management control systems. Having an organized approach to defining goals and measuring results can help businesses create unified and highly productive workplaces.
What is a management control system?
A management control system (MCS) is an approach businesses employ to understand how successfully it achieves goals related to productivity, profitability or efficiency. These systems continuously measure a business's performance to predict whether an outcome is likely.
They use business software or data employees collect to track progress in certain metrics, such as dollars, hours or units of product. Businesses can adapt management control systems for the many departments they rely on for success, and some companies may use several management control systems.
Analyzing the information in a management control system helps managers understand where they can make improvements in a company's or department's day-to-day operations. Clear feedback from the system often helps them determine specific obstacles that may hinder goals and find sensible fixes.
Components of a management control system
Several components comprise a management control system, and here's what they are, along with examples of how they work in a business:
Clear managerial assignments
The larger a company, the more likely there are managers with different responsibilities. It's important to understand what every department is working toward so each manager can be accountable for meeting objectives.
For example, a restaurant owner might create two managerial categories, one for the kitchen and one for the dining room. The executive chef is the kitchen manager, and the service manager is responsible for the dining room. Each has different daily and monthly objectives, oversees different staff members and has different budgets, but both need to succeed for the restaurant to profit.
Bureaucratic controls
Bureaucratic controls are the rules and guidelines of a business operation that enhance efficiency and maintain organization. They define the chain of command and delegate responsibilities within each division of an operation.
Well-designed bureaucratic controls aim to answer questions ahead of time so staff can resolve issues quickly. In management control systems, it's important to establish bureaucratic controls, so employees and management can have a shared sense of what the future should look like.
For example, in a marketing company, a new copywriter and a graphic designer might each receive a handbook when they start work. Some information is the same, such as vacation policies, company background and code of conduct.
However, much of the information might differ because of the department in which they work. They may have different managers, work different hours and have different expectations. Because of clear bureaucratic controls, the employees feel well-informed and ready to perform the duties their managers assign to them.
Financial controls
Financial controls are the targets a business establishes as necessary for growth and profitability. This could include something like the costs of production or the return from sales. In management control systems, managers closely monitor financials to identify the adjustments they need to remain aligned with the business's goals.
For example, a sales professional and their supervisor have specific financial goals for their management control systems. The supervisor looks to meet average weekly revenue goals while also making sure labor cost is under control. The laborer calculates service prices to keep their rates reasonable and maximize profit.
Quality controls
Quality controls help ensure a business's product or service meets certain standards. These establish procedures to test a product or service to check whether they meet specific guidelines or metrics. This can create better production processes, increase sales, optimize how a team or company uses its resources and improve customer satisfaction.
For example, a software development agency can establish quality control guidelines in their MCS to help team members test their software to detect bugs or other areas of improvement. Doing this can help them adjust the program before releasing it to the public.
Normative controls
Normative controls are behavior-based patterns that unify a team in its approach and attitude toward goals. They often are less formal than other controls that use number-based indicators of success.
You might not address every aspect of workplace behavior in writing, but you can encourage certain habits by repeating them. There are two types of normative controls to consider.
The first is team norms, which divisions of a company use to accomplish goals specific to them. The second is organizational culture norms, which define company culture for all employees and reflect the company's mission statement or sense of purpose.
For example, it may be a team norm that when one veterinarian technician calls out sick, another works on a scheduled day off to help the team. An organizational culture norm of the office might be that all employees, such as technicians, office managers and billing specialists, clock in for work 15 minutes early to create a culture of timeliness and exceeding expectations.
Tips for management control systems
If all the components of a management control system are in place, a business may be more likely to meet its goals more often and predict difficulties in advance. Here are some tips for optimizing your management control systems:
Make informed comparisons
As you collect information for your financial and quality controls, consider how to make the most of it. Your business may try to reach new levels of productivity, contend better with competitors or focus on producing the same quantity of goods more efficiently. In each instance, you may adapt the numbers you target to confirm each department's successes.
Understand variations in goals
When you encounter variation from a goal, try to identify the cause before taking any action. Whether you're short of reaching a quota or exceeding sales goals, the management control system can clarify what's causing the difference. This can allow you to make any adjustments to prevent future variations or decide to wait to make changes to see whether the variation happens again.
Plan to correct variations
You can use your insights from analyzing variations to plan for future outliers. For example, you might aim for more sales or realize an avoidable lack of supplies affected your productivity. A slight change in planning can reduce mistakes and help a company become more efficient.
Repeat the process
You may have great management control systems that reliably guide your business, but it's still important to monitor them. If prices change on the materials you order or employees start working more overtime, your revenue might change. Being consistent with the systems you implement can help you navigate these changes sooner and better to ensure continuous profitability.
https://tinyurl.com/486nb376
Why business process controls are considered an integral part of processes
As a process owner, you are responsible for a whole variety of tasks. These range from planning and managing, to the continuous optimization of business processes within your organization. Your main interest is therefore to ensure that your defined processes work as specified.
In practice, however, this is often more difficult than it seems. Especially when it comes to ensuring smooth process flows, you are confronted with a number of challenges. These, as you may know, are typically tied to the deviations in operational execution of the individual process steps, i.e. the activities that are carried out by the employees. And this is exactly where business process controls come into play.
Business process controls are detailed tasks that help you to realize your processes effectively and efficiently. They guarantee that the performance or condition is always maintained at the same level. And as a process owner you can highly benefit from them in the following areas:
- meeting compliance requirements
- mitigating process risks
- saving time and costs
- keeping the set process quality standards
- achieving your process goals efficiently
In the next few paragraphs, we’ll share with you what it takes to successfully implement business process controls in your processes and how to realize their true potential. But before we go into this in more detail, we’d like to take a brief look at the internal control system (ICS) and explain why ICS is also of fundamental importance for you as a process owner.
Business process controls as part of an Internal Control System (ICS)
As a process owner, the term “internal control system” is probably not part of your daily vocabulary. So, you may have little or no awareness of it in the context of your environment. However, what you also may not know is how great of an advantage an ICS can be to you as a process owner.
In principle, these are simply internal (business process) controls that ensure the achievement of your defined goals and compliance with external requirements. In the following sections, when we go into the 6 steps in more detail, we’ll guide you through the introduction of an internal control system – that you can easily use for your individual process requirements.
How to implement business process controls in 6 easy steps
To ensure that the introduction of business process controls is successful and that they unfold their true benefit, we recommend that you follow the 6 steps shown in the figure below.
These will not only support you in the initial implementation of your process controls, but also help you review your existing control landscape.
Step 1: Identify relevant processes
Every company has a substantial number of processes. Thus, the probability’s also quite high that there’s a need for improvement in one or the other process. But, it’s important that you don’t go and optimize all of your processes at the same time, rather start with individual business processes first. Focus is the key term here!
First, identify and prioritize particularly important business processes. Start with your core and support processes, for example from IT or accounting departments. Indicators for processes with an urgent need for business process controls include the following:
- complexity of processes
- number of process executions,
- number of registered loss events or
- number of complaints received
Step 2: Identify and evaluate process risks
Once you’ve identified processes that require improvement, the next step is to determine and assess potential risks within your processes. This is because only the identification of risk sources and risk drivers enables the planning of control steps at the appropriate point.
So after you’ve detected potential process risks, you move on to assessing them. Evaluate your risks according to their probability of occurrence and expected impact at periodic intervals. In doing so, make sure to adapt the assessment process to your specific business requirements.
Step 3: Define and anchor business process controls in your processes
Once the basic groundwork consisting of the first two steps is done, you can now fully concentrate on anchoring your business process controls.
Remember – business process controls are detailed tasks that support proper process execution, mitigation of discovered risks or even their prevention in the first place.
To do so, first define the control steps within your process models (see the graphic above). The description of the business process control includes, among other things, the type of control, frequency, responsibilities, technical resources used, and applicable documents.
When it comes to the frequency and intensity of the control, it’s important to emphasize that this should be adapted to the requirements of individual process. On one hand, this allows the risk to be limited as far as possible and, on the other, prevents the process from becoming cumbersome due to too many control measures.
To ensure effective process execution, we also recommend having the execution of business process controls confirmed at periodic intervals. This can be done, for example, in the form of protocols, e-mails or as confirmation in a system. In this way, you can track and also prove the correct execution of your business process controls at any time. This is particularly useful for audits by internal revision or external certification authorities.
Step 4: Test business process controls and identify control gaps
In addition to the specification of business process controls, it’s also essential that you regularly test them for appropriateness and effectiveness. As part of the so-called control tests, you analyse whether the control evidence has been provided in the period under review and whether you have achieved your defined process objectives. This enables you to quickly uncover control gaps and identify potentials for improvement. You should also document the results of the control tests and any other considerations.
Step 5: Optimize business processes, risks and business process controls
If you’ve discovered room for improvement, for example through control tests or with regards to your risks, you can optimize your processes with the help of concrete measures. Measures are characterized foremost by their project character and differ significantly from controls in this respect. In most cases, measures are planned, implemented and completed once. At this point, we recommend involving both the affected persons and the audit in the optimization process.
Step 6: Leverage reports and dashboards
Use reports and dashboards for your specific requirements. In addition to increased transparency, you also benefit from a holistic view of upcoming tasks for all roles involved in the process.
The process documentation as the basis for business process controls
The basis for the introduction of business process controls is, of course, detailed process documentation. This starts at the process landscape level and usually ends with a detailed description of all work steps at the operational level.
Therefore, if you have not yet created any process documentation yet, we strongly recommend starting with that as a very first step. You can read all important information on this topic in our business process documentation guide.
A business process management software, like the renowned BPM suite ADONIS, can provide great support in this endeavor. Advantages range from simple and standardized documentation of processes, process clarity and transparency, to the increase in quality that comes with it. For these reasons and more, companies increasingly turn to BPM software for their manifold added-benefits.
So, if you’ve already documented your processes with tool support, your first big milestone is covered. This makes it all the easier to build on this foundation and implement your business process controls using an ICS software. Just kick off with step 1 directly (Identify relevant business processes) and make sure your processes operate seamlessly.
Summary
As you can see, business process controls (i.e., an internal control system) are an incredibly helpful asset for process owners. They support you in achieving your process goals, adhering to compliance requirements, managing process risks and accelerating your business processes. Further advantages include easy sourcing of recommendations for improvement, as well as the integrated view of processes, risks, controls, measures and much more.
https://tinyurl.com/5b8h2cd8
