Control Systems for Business Optimization. Part 3.

 

Types of Control Systems:

• Open-loop vs. Closed-loop (https://tinyurl.com/bdzaxr7e): Open-loop systems operate without feedback, while closed-loop systems use feedback to adjust their actions. 

Open loop

These control systems operate with human input. The control action is independent of 

the output. In household use, a washing machine is an example of an open-loop system 

because someone needs to make selections among the settings for it runs. A time-based 

traffic light system is an industrial example of an open-loop control system, where traffic 

engineers must decide the timing for the stop, go and caution lights.

 

Closed loop

These systems can be actively managed or set to operate autonomously. They use feedback 

signals from the system to provide automatic control and maintain specific settings or 

a desired state without human intervention. Some control loops can be switched between 

closed and open modes. When open, a switchable loop is manually controlled; when closed, 

it can be fully automated.

A thermostat is an example of a closed-loop system. It turns a heating system on and off 

based on signals it receives from sensors that monitor air temperature. Temperature control is 

a particularly important part of maintaining a proper data center environment.

In Figure 2, the technician manages a system that can be remotely controlled. The technician 

regularly sends input signals to the device, and it sends output signals via a feedback loop 

and a sensor that monitors the device. When the sensor receives an error signal from 

the device, it sends an alert message over the feedback loop to the technician, who then 

sends instructions to the device as needed to counter the negative feedback.

Figure 2 also depicts a feedback control system. The control system needs feedback data to 

control the device.

• Feedforward, Concurrent, and Feedback (https://tinyurl.com/mrxrfhma): These are different approaches to control, with feedforward anticipating issues, concurrent monitoring during processes, and feedback adjusting based on results.

How Are The Three Types of Control Used In Different Industries?

Control is a crucial aspect of any industry, ensuring that processes and operations run smoothly and efficiently. There are three basic types of control: feedforward, concurrent, and feedback. In this section, we will discuss how these types of control are utilized in different industries. From manufacturing to service industries to healthcare, each type of control plays a vital role in maintaining quality and achieving goals. Let’s take a closer look at how these controls are applied in various sectors and their impact on overall performance.

1. Feedforward Control in Manufacturing

Feedforward control in manufacturing is a crucial process that involves several key steps:

• Anticipating potential issues in the production process.
• Implementing measures to prevent problems from occurring.
• Utilizing advanced technology for predictive analysis.
• Regularly monitoring and adjusting processes to maintain efficiency.

By following these steps, manufacturing companies can proactively address challenges and optimize their production processes.

2. Concurrent Control in Service Industries

• Establish Clear Objectives: Define specific goals for service delivery and quality standards.
• Real-time Monitoring: Use technology to track service processes and identify deviations promptly.
• Immediate Corrective Actions: Address issues as they arise to maintain service quality and compliance.

Pro-tip: Regularly review concurrent control procedures in service industries to adapt to changing service demands and ensure optimal performance.

Feedback is like a doctor’s diagnosis – it tells you what’s wrong and how to fix it, but it’s up to you to actually follow the advice.

3. Feedback Control in Healthcare

1. Healthcare Monitoring: Implement feedback control systems to track patient vital signs, medication effects, and treatment outcomes.
2. Quality Improvement: Utilize feedback control to enhance healthcare service delivery, address patient concerns, and improve overall patient experience.
3. Risk Management: Employ feedback control mechanisms to identify and mitigate potential risks, errors, and adverse events in healthcare operations.
4. Regulatory Compliance: Ensure adherence to healthcare regulations and standards through feedback control processes, promoting patient safety and confidentiality.

Because let’s face it, every type of control has its pros and cons, just like every diet fad and relationship.

What Are The Advantages and Disadvantages of Each Type of Control?

When it comes to managing and maintaining control in any system or organization, there are three basic types of control that can be utilized. Each type offers its own unique advantages and disadvantages, which we will explore in this section. From feedforward control, which aims to prevent problems before they occur, to concurrent control, which monitors ongoing processes, and feedback control, which adjusts based on past results – we’ll discuss the ins and outs of each type and how they can impact a system’s overall performance.

1. Feedforward Control

1. Identify and anticipate potential deviations in processes and outcomes when implementing feedforward control.
2. Establish proactive measures to prevent or minimize anticipated issues.
3. Implement clear and specific guidelines for corrective actions, if required.
4. Regularly monitor and adjust processes based on anticipated changes.

When implementing feedforward control, it’s crucial to conduct thorough risk assessments and stay updated with industry trends to ensure the effectiveness of proactive measures.

2. Concurrent Control

Concurrent control in industries like hospitality is crucial for maintaining real-time service quality, offering immediate resolution of any guest issues, and ultimately ensuring sustained customer satisfaction.

Some key processes for implementing concurrent control include:

1. Identify Key Processes: Determine core activities requiring concurrent control.
2. Establish Standards: Set benchmarks and quality measures for real-time performance evaluation.
3. Implement Monitoring Systems: Utilize technology for continuous oversight of operations and deviations related to concurrent control.
4. Enforce Immediate Corrections: Address issues as they arise to maintain efficient workflow and ensure successful implementation of concurrent control.

3. Feedback Control

• Timing: Feedback control takes place after the process, identifying errors and making necessary adjustments.
• Focus: It is centered on the results and performance of the process.
• Direction: Its goal is to maintain or alter the process in order to achieve desired outcomes.

• Cybernetic, Go/No-Go, and Post-Performance (https://www.praxisframework.org/en/knowledge/control): These are broader categories of control systems. 

The three main types of control systems are cybernetic control, go/no-go control, and 

post-performance control. Cybernetic control uses feedback loops to self-regulate and adjust 

to maintain desired performance. Go/no-go control involves making decisions at specific points

 to proceed or halt a project based on predefined criteria. Post-performance control focuses 

on learning from past projects to improve future ones.

Here's a more detailed explanation:

1. Cybernetic Control:

Focus:

Continuous monitoring and adjustment of a system to maintain a desired state or performance level. 

Mechanism:

Uses feedback loops to compare actual performance with a set standard and make corrections as needed. 

Example:

A thermostat regulating room temperature, or a cruise control system in a car. 

Key Feature:

Automatic operation, often without direct human intervention.

 

2. Go/No-Go Control:

Focus:

Making decisions at critical junctures to determine if a project or activity should proceed or be halted. 

Mechanism:

Predefined criteria are established, and the project is evaluated against these criteria at specific points. 

Example:

A software release approval process, or a construction project milestone review. 

Key Feature:

Decision-making at key points based on pre-set conditions.

 

3. Post-Performance Control:

Focus:

Evaluating the performance of a completed project or activity to identify lessons learned for future projects.

Mechanism:

Analysis of project outcomes, successes, and failures to improve future practices.

Example:

A post-project review that identifies areas for improvement in future project planning or execution.

Key Feature:

Learning from past experiences to improve future performance. 

Three basic types of control systems available to executives are: output control, behavioral 

control, and clan control . Organizations often utilize a combination of these approaches. 

(https://tinyurl.com/2ex7etvh)

Output control focuses on measurable results and outcomes, such as sales figures, production 

quotas, or profit margins. 

Behavioral control emphasizes the methods and processes used to 

achieve those results, often through rules, procedures, and direct supervision. 

Clan control relies on shared values, norms, and culture to guide employee behavior and decision-making. 

While each type of control has its own strengths and weaknesses, a well-rounded control 

system often incorporates elements from all three to achieve organizational goals effectively.

Optimization Techniques:

Model-based optimization: Uses mathematical models to predict optimal performance.

Data-driven optimization: Relies on data analysis to identify areas for improvement.

Hybrid approaches: Combine model-based and data-driven methods.  

Benefits of Control System Optimization:

• Improved efficiency: Streamlined processes and resource allocation.
• Increased productivity: Enhanced output and reduced errors.
• Enhanced safety: Reduced risks and improved security.
• Better decision-making: Informed adjustments based on data and feedback.
• Reduced costs: Efficient resource utilization and minimized waste. 

Key Considerations for Implementation:

• Define clear objectives: Establish measurable goals and targets. 
• Identify critical control points: Determine where deviations are most likely to occur. 
• Choose appropriate control mechanisms: Select the right tools and techniques. 
• Continuously monitor and evaluate: Regularly assess the effectiveness of the control system. 
• Adapt and improve: Make adjustments as needed to optimize performance. 

Key functions of a management controller (https://tinyurl.com/5n73kubn)

In general terms, the management controller is responsible for obtaining information in order 

to evaluate company activity, facilitate decision making and oversee compliance with 

the company’s objectives. They must be in contact with all functional areas and act as 

a bridge between them and senior management.

Their key functions include:

#1 Data analysis

The controller collects and analyzes information from different sources to identify trends. They 

also extract company data to evaluate the fulfillment of strategic objectives. To do this, they 

need to have data measurement systems and to establish key performance indicators (KPIs) 

that allow them to understand the most important aspects.

AI and Business Intelligence tools have revolutionized management control, enabling deeper 

and more efficient data analysis.

Machine learning and predictive algorithms can identify patterns and trends in large volumes 

of data, helping companies to anticipate potential problems and make proactive, early 

decisions.

#2 Business management support

Another key function is reporting. The controller produces advanced reports and analyses and 

presents them to management to guide and reinforce strategic decision-making: data-driven 

decisions multiply business success and drive results.

#3 Budget preparation

One of the controller’s most important tasks is drawing up budgets. To plan and ensure 

efficient use of the company’s financial resources, controllers must evaluate costs and risks, 

establish cash flow forecasts, analyze possible budget deviation and define the resources 

required to carry out the company’s activities or a specific project.

Sometimes, an independent financial controller works in conjunction with the management 

controller. In other cases, both roles are combined in a single person or department.

#4 Monitoring objectives

Monitoring and adjusting business targets through KPIs allows companies to stay on track to 

achieve their goals. There are several project management methodologies that every business 

controller should know, including Agile, Scrum and PMI/PMBOK, to carry out this monitoring.

The purpose of supervision is to enable the detection of process errors, inefficiencies, budget 

deviations or other incidents that could undermine the achievement of objectives, so that they 

can be solved and effectively redressed.

In this regard, controllers have to work collaboratively with the finance department, the human 

resources department and with the various cross-functional teams. This is why it is essential for

 them to have management ability and soft skills that help create collaborative relationships 

and mutual understanding:

Monitoring should aim to create positive and cooperative work dynamics, not to scrutinize and 

point the finger but to detect errors or areas for improvement to work on as a team.

Key performance indicators

The use of key performance indicators (KPIs) is essential for measuring the effectiveness and 

efficiency of business processes. We can divide them into:

#1 Evaluation indicators

Evaluation indicators help evaluate if business actions are meeting an organization’s defined 

strategic goals. These KPIs can include comparison of actual versus projected results and 

trend analysis over time. Some common examples are:

* Budget deviation: measures the difference between the planned budget and the actual 

expenditure, allowing an assessment of the accuracy of financial planning.

* Return on investment (ROI): analyzes the profitability of projects or initiatives, providing a clear 

view of the value generated versus the resources invested.

#2 Compliance indicators

These indicators verify that business operations are aligned with internal company policies and 

legal regulations. They are essential to ensure compliance and avoid legal or reputational risks.

Some examples are:

* Regulatory compliance: assesses the degree of adherence to specific regulations, such as 

sustainability regulations or quality standards.

* Internal audit rating: measures the success of internal reviews in detecting and correcting 

deviations before they impact the operation.

#3 Efficiency indicators

Efficiency indicators focus on the optimal use of resources and the continuous improvement of 

processes. They identify areas where productivity can be maximized and costs can be reduced.

Some of the most useful KPIs include:

* Cost per unit produced: measures the total cost of production per unit, highlighting areas where

expenses could be optimized.

* Process cycle time: evaluates the duration from start to completion of a process, helping to 

identify bottlenecks and opportunities for improvement.

 

Control Systems for Business Optimization. Part 2.

 

An Management Control Systems (MCS) is a structured approach for measuring and evaluating how successfully a business achieves its goals related to productivity, profitability, and efficiency. They often involve: 

Results Controls: Setting clear performance expectations and holding individuals accountable for measurable outcomes. 

Action Controls: Focusing on the methods used to achieve objectives, promoting efficiency in time and resource use. 

Personnel Controls: Ensuring employees are well-equipped and motivated to meet company demands through recruitment and training.

A Management Control System (MCS) is a framework used by organizations to define, monitor, and evaluate employee performance with the aim of fostering a culture of optimal productivity aligned with the company’s goals. Rooted in the idea that organizational success hinges on cohesive teamwork, MCS ensures that all employees, from leadership to entry-level staff, work collaboratively towards shared objectives. Developed by organizational theorist Robert N. Anthony in the 1960s, this model emphasizes structured policies that communicate expectations clearly to employees.

MCS encompasses various control types, including results controls, action controls, and personnel controls. Results controls involve setting clear performance expectations and holding individuals accountable for measurable outcomes. Action controls focus on the methods by which objectives are achieved, promoting efficiency in time management and resource use. Personnel controls enhance the recruitment process and provide training to ensure employees are well-equipped to meet company demands. Overall, an effective MCS fosters a supportive environment where productivity and collaboration are encouraged, ultimately aligning employee efforts with organizational success.

A management control system (MCS) is a leadership model in which an organization seeks to define, monitor, and evaluate employee productivity and engagement in order to create a corporate culture of optimum performance in which every employee works toward the same goals and objectives as the company itself. As a theoretical model for workplace organization and development, management control systems assume that, with direction, employees can perform at their maximum potential and achieve the specific goals toward which a company strives as a way to best their competitors. The premise behind MCS is remarkably simple: To be successful, every element of an organization needs to be on the same page, from senior administration to entry-level recruits.

Overview

In a management control system, management takes the lead and encourages employees to act in the best interest of the company and perform in line with company goals. To this end, management develops policies to ensure that employees know what the goals are and are able to meet these goals. There are different ways to describe and categorize management controls. Among these are results controls, action controls, and personnel controls.

With results controls, management communicates its specific expectations upfront, identifies the dimensions of those responsibilities for a specific period, and follows up by holding each employee accountable for that measured outcome. Management can provide action controls by outlining expectations about exactly how company goals can be achieved efficiently and effectively. These can include time management, resource handling, delegating responsibilities, teamwork initiatives, and filing progress reports. Management may institute personnel controls by improving the employee selection process so that candidates vetted for openings have the necessary qualifications and experience to perform for the company. In addition, management provides comprehensive employee training sessions that promote expectations.

To sustain a work environment of productivity and efficiency, management must ultimately provide a clear methodology for work evaluations and a clear and fair system for periodic performance evaluations that, in turn, rewards effective behavior on the job. Done with diplomacy and respect, a management control system can ensure an organization stays committed to collaborative performance and employee productivity. Research concerning MCS methods and success increased between 2000 and 2020, with primary areas of focus on management control, performance management systems, and performance measurement. Researchers emphasized the importance of using MCS in a way that fosters long-lasting creativity and a positive work culture.

Bibliography

Barry, L. L. "The Collaborative Organization: Leadership Lessons from Mayo Clinic." Organizational Dynamics, vol. 33, no. 3, pp. 228–42, doi.org/10.1016/j.orgdyn.2004.06.001. Accessed 26 Dec. 2024.

Fachrudin, Augustito, et al. “Exploring the Recent Development of Management Control Systems Study.” Cogent Business & Management, vol. 11, no. 1, 2024, doi.org/10.1080/23311975.2024.2357709. Accessed 26 Dec. 2024.

Hartmann, F. G. H., et al. Management Control Systems. 2nd ed., McGraw Hill, 2021.

Malmi, Teemu, and David A. Brown. "Management Control Systems as a Package: Opportunities, Challenges and Research Directions." Management Accounting Research, vol. 19, no. 4, 2008, pp. 287–300, doi.org/10.1016/j.mar.2008.09.003. Accessed 26 Dec. 2024.

"Management Control Systems (MCS) Guide: Components and Tips." Indeed, 4 Feb. 2023, www.indeed.com/career-advice/career-development/management-control. Accessed 26 Dec. 2024.

Merchant, K., and W. van Der Stede. Management Control Systems: Performance, Measurement, Evaluation and Incentives. 5th ed., Pearson, 2023.

Ptley, David. "Performance Management: A Framework for Management Control Systems Research." Management Accounting Research, vol. 10, 1999, pp. 363−82.

"What Are Management Control Systems (MCS)?" Pittsburg State University, 25 Jan. 2023, degree.pittstate.edu/online-programs/mba/general/management-control-systems-mcs. Accessed 26 Dec. 2024.

https://tinyurl.com/4663uke3

Internal Controls

Audit & Advisory Services is committed to assisting all levels of management and staff in the achievement of UCSF's goals and objectives by striving to provide a positive impact on the efficiency and effectiveness of operations. To that end, the internal controls information provided below covers the basic concepts of internal controls and their application to UCSF, including:

Internal controls summary

Internal control structure

Internal control types

Internal controls in my department

Internal controls summary

Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance:

• That information is reliable, accurate and timely

• Of compliance with applicable laws, regulations, contracts, policies and procedures

• Of the reliability of financial reporting

Internal controls are intended to prevent errors and irregularities, identify problems and ensure that corrective action is taken. In many cases, process owners within your department perform controls and interact with the control structure on a daily basis, sometimes without even realizing it because controls are built into operations.  

Control definition reflects certain fundamental concepts:

• Internal control is a process. It is a means to an end, not an end in itself.

• Internal control is effected by people. It is not merely policy manuals and forms, but also people at every level of an organization.

• Internal control can be expected to provide only reasonable, not absolute, assurance to an entity’s management and board.

Internal controls are established to further strengthen:

• The reliability and integrity of information

• Compliance with policies, plans, procedures, laws and regulations

• The safeguarding of assets

• The economical and efficient use of resources

• The accomplishment of established objectives and goals for operations or programs

Internal control structure

The internal control structure is derived from the way management runs an operation or function and is integrated with the management process. Although the components apply to the entire University, small and mid-size departments may implement them differently than large ones do. Together, they are designed to provide reasonable assurance that overall established objectives and goals are met.

The internal control structure consists of five inter-related components:

• Control environment – The control environment sets the tone of an organization, influencing the control consciousness of its people. Control environment factors include (1) the integrity, ethical values and competence of the entity's people; (2) management's philosophy and operating style; (3) the way management assigns authority and responsibility and organizes and develops its people; and (4) the attention and direction provided by the University. Additional examples are:

1. Tone from the top
2. University policies
3. Organizational authority

• Risk assessment – Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. Examples include:

1. Monthly meetings to discuss risk issues
2. Internal audit risk assessment
3. Formal internal departmental risk assessment

• Control activities – Control activities are the policies and procedures that help ensure management directives are carried out. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. Additional examples are:

1. Purchasing limits
2. Approvals
3. Security
4. Specific policies

• Information and communication – Pertinent information must be identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities. Information systems produce reports containing operational, financial and compliance-related information that makes it possible to run and control the organization. Effective communication also must occur in a broader sense, flowing down, across and up the organization. Examples include:

1. Vision and values or engagement survey
2. Issue resolution calls
3. Reporting
4. University communications (e.g., emails, meetings)

• Monitoring – Internal control systems need to be monitored, a process that assesses the quality of the system's performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the Regents. Examples include:

1. Monthly reviews of performance reports
2. Internal audit function

Internal control types

Different risks and environments require different controls. The control types described below can be used in combination to mitigate risks to the organization.

Preventive and detection controls

Preventive controls attempt to deter or stop an unwanted outcome before it happens. Examples include use of passwords, approval, policies and procedures.

Preventive controls

Preventive controls play an important part in an Internal Сontrol System (ICS) because they help prevent errors or irregularities from occurring in the first place. These controls are put into effect to proactively address potential risks and issues, rather than just reacting to them after they have already happened.

Some common examples of preventive controls include:

1-Segregation of duties:

This involves dividing tasks and responsibilities among different individuals within an organization to prevent a single person from having too much control over a particular process. Such a split can help prevent errors or fraud, because it makes it more difficult for one person to manipulate the system without being detected.

2-Authorization and approval processes:

This involves setting up rules and procedures for how transactions and other business activities are authorized and approved. The measure ensures that only authorized individuals can make decisions and take actions on behalf of the organization.

3-Physical controls:

Physical controls prevent unauthorized access to assets or information. This can include things such as locks, security cameras, and other measures to protect the organization’s premises and assets.

4-Information technology controls:

These are controls that focus on preventing errors or irregularities in the organization’s IT systems. Typical examples might be password policies, data backup and recovery procedures, and any other measures to protect the organization’s  IT infrastructure.

Detection controls attempt to uncover errors or irregularities that may already have occurred. Examples include reconciliations, monitoring of actual expenses vs. budget, prior periods and forecasts.

Detective controls

Detective controls are initiated after any activity in order to identify errors, fraud, and other irregularities within an organization. These controls typically involve the use of various monitoring and reporting tools to discover potential issues, such as discrepancies in financial records or deviations from established policies and procedures.

Four examples of detective controls include:

1-Auditing:

Regular audits are used to review an organization’s financial records and transactions to identify errors or inconsistencies.

2-Fraud detection systems:

Internal or external fraud detection systems can be used to monitor transactions and identify potential instances of fraud.

3-Security monitoring:

Tools such as intrusion detection systems and security cameras can be used to monitor an organization’s physical premises and detect potential security breaches.

4-Exception reporting:

Automated reports that flag deviations from established policies and procedures can help to identify potential issues and areas for improvement.

 

Hard vs. soft controls

Hard controls are formal and tangible. Examples include organizational structure, policies, procedures and segregation of duties

Soft controls are informal and intangible. Examples include tone at the top, ethical climate integrity, trust and competence

Manual vs. automated controls

Manual controls are manually performed, either solely manual or IT-dependent, where a system-generated report is used to test a particular control.

Automated controls are performed entirely by the computer system.

Key vs. secondary controls

Key controls are those that must operate effectively to reduce the risk to an acceptable level.

Secondary controls are those that help the process run smoothly but are not essential.

To identify the correct control(s) to implement, you must know what risks are present. To know what risks are present, you need to understand what objectives are being sought.  Therefore, Objectives → Risks→ Controls.

Why is an internal control system important?

An internal control system is a vital component of any company’s long-term success, as it not only protects the company’s assets from illegal or unauthorized access, but also ensures the accuracy and reliability of financial information.

This makes ICS an essential asset for good decision making and reporting. What’s more, an internal control system helps to ensure proper compliance with laws and regulations and reduce the likelihood of fraud. So altogether, an ICS enables the organization to be more efficient and cost-effective in its operation.

It’s also worth noting, that an internal control system is not a legal requirement for every organization. For instance, financial institutions, public accounting firms, and government agencies are strictly required to have one. Other organizations may choose to implement an internal control system as part of their risk management strategy and thus take advantage of its manifold benefits.

The main tasks and goals of an internal control system

An internal control system is a valuable tool for businesses of all sizes. Ensuring smooth operation of internal processes and preventing corruption should be of high importance to every organization. Thus, the main tasks and objectives of an ICS can be broken down into four main categories: asset protection, documentation, improvement and compliance.

Here’s how it works:

Asset Protection:

ICS helps to safeguard businesses against losses by providing visibility into existing assets. This allows the company to quickly identify any potential risks and take action to prevent losses.

Documentation:

ICS helps to ensure that all processes are recorded accurately and in a timely manner. This helps to ensure that all parties involved are aware of any changes and that the records are up-to-date.

Improvement:

With the help of ICS, businesses can easily identify areas of improvement and make necessary changes. By having access to all the records, businesses can quickly identify any discrepancies and take corrective action.

Compliance:

ICS helps to ensure that all parties involved are following regulations and guidelines. This helps to reduce the risk of non-compliance, which can lead to costly fines and penalties.

Main tasks and goals of an internal control system

Internal controls in your department

Control activities within your department may include the following:

• Implementing segregation of duties where duties are divided (segregated) among different people, to reduce the risk of error or inappropriate actions. No one person has control over all aspects of any financial transaction.

• Making sure transactions are authorized by a person delegated approval authority when the transactions are consistent with policy and funds are available.

• Ensuring records are routinely reviewed and reconciled, by someone other than the preparer or transactor, to determine that transactions have been properly processed.

• Making certain that equipment, inventories, cash and other property are secured physically, counted periodically and compared with item descriptions shown on control records.

• Providing employees with appropriate training and guidance to ensure that they (1) have the knowledge necessary to carry out their job duties, (2) are provided with an appropriate level of direction and supervision and (3) are aware of the proper channels for reporting suspected improprieties.

• Making sure University- and departmental-level policies and operating procedures are formalized and communicated to employees. Documenting policies and procedures and making them accessible to employees helps provide day-to-day guidance to staff and promotes continuity of activities in the event of prolonged employee absences or turnover.

Remember, everyone in your department has responsibility for internal controls.

Benefits of an internal control system

Broadly speaking, investing in the right controls to ensure a sustainable operation of your organization in the long run is a must. Not only does this guarantee business continuity and protect your organization from costly errors and fraud, but it also creates added transparency, helps identify problems early on and allows for adequate corrective action. Some of the other ICS benefits include:

Accuracy:

It ensures accurate recording of financial data, maintaining integrity.

Efficiency:

Improves operational efficiency by streamlining processes and identifying areas for improvement.

Protection:

Protects the organization from fraud, asset loss, and compliance failures.

Early problems identification:

Identifying issues at an early stage enables prompt resolution and mitigation of risks.

Transparency:

Establishes openness and clarity in organizational operations, fostering trust among stakeholders.

Productivity:

Promotes boosts in employee productivity through streamlined processes and reduced operational friction.

Reputation:

Safeguards the organization’s reputation by demonstrating commitment to integrity and reliability.

Brand value:

Enhances the brand’s value by instilling confidence and credibility among customers and stakeholders.

Customer retention:

Improves customer satisfaction and loyalty by ensuring consistent quality and reliability in products or services.

Challenges of an internal control system

Due to the complexity of different moving parts in your organization, implementing an effective internal control system is not always an easy task. It can be challenging to identify the potential risks and develop strategies to mitigate them, as well as ensure that all employees are aware and follow the procedures put in place by the ICS.

Another obstacle for a successful ICS operation is the ever-changing business environment. As technology evolves, it becomes necessary to update and modify your internal controls accordingly.

Nevertheless, this is where an internal control system software comes in to save the day. Supporting your ICS initiatives with a suitable tool, makes any challenges significantly easier and the implementation of proper measures much more efficient.

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https://tinyurl.com/yeyvej7z

Control Systems for Business Optimization. Part 1.

 

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.

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Business Process Controls: Streamline Your Operations In 6 Easy Steps

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.

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