1. 1 Martin Zralý: ENTERPRISE MANAGEMENT CONTROL Department of Enterprise Management and Economics Faculty of Mechanical Engineering, Czech Technical University in Prague martin.zraly@fs.cvut.cz Prague 11/2010

2. 2 What is it about ? What is it about ? Basic Elements of Enterprise Management Control Basic Elements of Enterprise Management Control Processes - In which way to accept them Integration in Enterprise Control Controlling as an Approach to Enterprise Control Convergent controlling concept Convergent controlling concept Time - the key factor in contemporary management control Time - the key factor in contemporary management control Resources Capacity Utilization Resources Capacity Utilization Measurement - Indicators Measurement - Indicators Summary - Final Conclusions Summary - Final Conclusions

3. 3 Basic Elements (Entities) of Enterprise Management Control Products (incl. services) (set of products, products group) Products (incl. services) (set of products, products group) bring money in ! bring money in ! Processes Processes create products or support creation and sale of the products create products or support creation and sale of the products Activities (= parts of processes) Activities (= parts of processes) Projects (= campaign to support achievement of targets of the processes or activities) Projects (= campaign to support achievement of targets of the processes or activities) Resources: Resources: Human Human Tangible and Intangible Tangible and Intangible Finance Finance Departments (Centres) Departments (Centres) Primary: Which features of these elements and at their important connections are decisive and in which way to do measure them? Primary: Which features of these elements and at their important connections are decisive and in which way to do measure them?

4. 4 ( Processes - In which way to accept them ) Process = purpose-built consequence of activities Process = purpose-built consequence of activities Production (money earning) process: … product producing Production (money earning) process: … product producing Supportive process: … preconditions for effectiveness of the P-processes Supportive process: … preconditions for effectiveness of the P-processes Example: Processes in a project company: Example: Processes in a project company: Production processes Production processes Projects creation, possible more processes if they significantly differ Projects creation, possible more processes if they significantly differ Calculations Calculations Expert opinions activities (e.g.: somebody else's project assessment) Expert opinions activities (e.g.: somebody else's project assessment) Supportive processes Supportive processes Recruitment and retention of the customers (organizing common actions, special offers, identification of the customers requirements, etc.) Recruitment and retention of the customers (organizing common actions, special offers, identification of the customers requirements, etc.) Motivational for employees Motivational for employees Qualifying for employees Qualifying for employees Innovation of the project technologies (incl. bmkg of the competitors, new knowledge assessment, project methodology procedures and recommendations) Innovation of the project technologies (incl. bmkg of the competitors, new knowledge assessment, project methodology procedures and recommendations)

5. 5 Enterprise Control has to be Integrated In which way to interpret Integration in enterprise control ? In which way to interpret Integration in enterprise control ? = Unifying, harmonizing interconnections of all parts in one cohesive unit Basic characteristics of the Integration are: Basic characteristics of the Integration are: self-contained, linking, unifying, interconnection, but also completion The Aim of the Integration concept in an enterprise control: The Aim of the Integration concept in an enterprise control: In which way can Integration contributes to the ability to achieve the high extent of the control of enterprise processes and results.In which way can Integration contributes to the ability to achieve the high extent of the control of enterprise processes and results. Integration in technical systems - Examples: Integration in technical systems - Examples: Computers - hardware i software (MS-Office, CAD + simulation prg.) Computers - hardware i software (MS-Office, CAD + simulation prg.) Machining centres Machining centres

6. 6 Why Integration Has to Be Considered as Significant Feature ? Major reasons for growing importance of Integration: Major reasons for growing importance of Integration: The number (+ rate) of changes is rapidly growing - turbulent environment (Drucker, etc.) The number (+ rate) of changes is rapidly growing - turbulent environment (Drucker, etc.) Products complexity and requirements to the product is growing Products complexity and requirements to the product is growing Processs complexity is growing Processs complexity is growing Enterprise size is growing Enterprise size is growing Product and process costs are growing, namely fixed ones Product and process costs are growing, namely fixed ones Enterprise has to operate as consistent unit Enterprise has to operate as consistent unit Input changes have to cause adequate changes in processes and in outcome Input changes have to cause adequate changes in processes and in outcome Elements in the enterprise control has to be interconnected, possibly unified, … integrated Elements in the enterprise control has to be interconnected, possibly unified, … integrated

7. 7 Controlling as an Approach to Enterprise Control Enterprise control has to be kept in fixed framework Enterprise control has to be kept in fixed framework Enterprise control has to be developed step by step, no revolution is recommended Enterprise control has to be developed step by step, no revolution is recommended (continuous development) (continuous development) Convergent controlling concept can be considered as an suitable framework Convergent controlling concept can be considered as an suitable framework WHY? WHY? Basic points: Basic points: practical experiences from enterprises in different areas practical experiences from enterprises in different areas it respects recommendations of leading persons in controlling theory: prof. Horváth, prof. Eschenbach it respects recommendations of leading persons in controlling theory: prof. Horváth, prof. Eschenbach it respects recent approaches to enterprise control: process control, ABM, resp. TO-ABM (emphasis to Activities and Time characteristics) prof. Kaplan it respects recent approaches to enterprise control: process control, ABM, resp. TO-ABM (emphasis to Activities and Time characteristics) prof. Kaplan it respects recommendations from broad discussions. it respects recommendations from broad discussions.

8. 8 Convergent controlling concept Convergent controlling concept 1/2 Concept based on seven viewpoints: Concept based on seven viewpoints: (1) Objectives are primarily Acceptance of basic controlling line (spiral): (1) Objectives are primarily Acceptance of basic controlling line (spiral): (vision) objectives targets processes (+ activities) projects (initiatives) indicators plan x records evaluation decision (D) (correction) D- execution D-evaluation (2) Integration (2) Integration horizontal and vertical horizontal and vertical content and formal content and formal TOOLS: methods, approaches, methodologies, software, … TOOLS: methods, approaches, methodologies, software, … (3) Planning (budgeting) has exceptional role (3) Planning (budgeting) has exceptional role (4) Evaluation Regular and consistent, in short time-periods (4) Evaluation Regular and consistent, in short time-periods (5) Tools Application of controlling and other managerial tools and their combination, emphasis to integrative ability of tools (5) Tools Application of controlling and other managerial tools and their combination, emphasis to integrative ability of tools

9. 9 Convergent controlling concept Convergent controlling concept 2/2 (6) Standardization and formalization of procedures (for control, etc.) (6) Standardization and formalization of procedures (for control, etc.) (7) Broad acceptance of learning processes (ability to take lessons) in all areas (7) Broad acceptance of learning processes (ability to take lessons) in all areas Regular update, resp. improving of procedures, regulations, rules … ( we did it in this way last year, we will continue in this way this year again) Regular update, resp. improving of procedures, regulations, rules … (versus: we did it in this way last year, we will continue in this way this year again) Important confirmation of this approach + another inspirations: BM- project fy. Point Consulting (9/2003) and its results: BM- project fy. Point Consulting (9/2003) and its results: namely: Dominant support of saying Missing integration in enterprise control", related to the evaluation of all managerial tools Dominant support of saying Missing integration in enterprise control", related to the evaluation of all managerial tools !! Solutions: Integrative System Concept E.g.: Business Navigation Solutions: Integrative System Concept E.g.: Business Navigation

10. 10 Time - the key factor in contemporary mgmt. control WHY? Time related costs rate in total costs is growing Time related costs rate in total costs is growing E.g.: Equipment & Machine C., Space C., IT-C., Staff C., Admin. C., Maint. & Repair C., etc. E.g.: Equipment & Machine C., Space C., IT-C., Staff C., Admin. C., Maint. & Repair C., etc. In some branches: 80 - 90 % costs In some branches: 80 - 90 % costs Time is more and more expensive Time is more and more expensive Time can be controlled Time can be controlled Time as: Time as: (1)Time expression of disposable capacity of resources: staff, machine, activity, process,.. ( capacity utilization) (2) Time consumption for product, service typical application in Target Costing processes ( cutting time consumption) + It is measurable indicator! + It is measurable indicator! Importance of HCT-Method application in different areas

11. 11 Utilization of Resources Capacity Link to the previous slide Time as key factor (time costs) Link to the previous slide Time as key factor (time costs) Human and Equipment Capacity is continually getting: Human and Equipment Capacity is continually getting: (1) More expensive (2) More productive (mainly equipment capacity) It has to be managed in more economic way, or the performance efficiency is decreasing It has to be managed in more economic way, or the performance efficiency is decreasing Consistency in capacity planning and recording is required Consistency in capacity planning and recording is required Activity time sheet is applied for equipment and staff too (also in areas of product design, product development, at administrative staff, … ) Activity time sheet is applied for equipment and staff too (also in areas of product design, product development, at administrative staff, … ) (1) Motivational effect (1) Motivational effect (2) To get an overview of the capacity planned consumed (2) To get an overview of the capacity planned versus consumed Essential significance of HCT-Method application

12. 12 Measurement - Indicators Quotation: Quotation: Measurement is the first step that leads to control and eventually to improvement. If you cant measure something, you cant understand it. If you cant measure something, you cant understand it. If you cant understand it, you cant control it. If you cant understand it, you cant control it. If you cant control it, you cant improve it. If you cant control it, you cant improve it. H. J. Harrington

13. 13 Summary - Final Conclusions Essential Factors of Contemporary Enterprise Control: Essential Factors of Contemporary Enterprise Control: Controlling management concept Convergent Approach (7V) Controlling management concept Convergent Approach (7V) Process (Activity) Oriented Approach (Process control, ABM) Process (Activity) Oriented Approach (Process control, ABM) Time Control (Capacity, Time consumption/unit) Time Control (Capacity, Time consumption/unit) Maximization of Resource Capacity Utilization Maximization of Resource Capacity Utilization Selection of Suitable Indicators permanent searching, making them more accurate Selection of Suitable Indicators permanent searching, making them more accurate Look after specific solutions according to your managerial needs Look after specific solutions according to your managerial needs Prefer simple, understandable, effective tools Prefer simple, understandable, effective tools Do regular, critical evaluation of application functioning Do regular, critical evaluation of application functioning make it better (improve it continuously) make it better (improve it continuously) Personality of Manager is and will be most important Personality of Manager is and will be most important