Types of critical points standards in management control?

Answer 1

Types of Critical Points StandardsEvery objective, every goal of the many planning programs, every activity of these programs, every policy, every procedure, and every budget can become a standard against which actual or expected performance might measured. In practice, however, standards tend to be of the following types:

• Physical Standards

• Cost Standards

• Capital Standards

• Revenue Standards

• Program Standards

• Intangible Standards

• Goals as Standards and

• Strategic Plans as Control Points for Strategic Control.

• Physical Standards: Physical standards are nonmonetary measurements and are common at the operating level, where materials are used, labor is employee, services are rendered, and goods are produced. They may reflect quantities, such as labor-hours per unit of output, sounds of fuel per horsepower per hour, ton-miles of freight traffic carried, units of production per machine-hour, or feet of wise per ton of copper, closeness of tolerances, rate of climb of an airplane, durability of a fabric, or fastness of color.

• Cost Standards: Cost standards are monetary measurements and like physical standards, are common at the operating level. The attach monetary values to specific aspects of operations. Illustrative of cost standards are such widely used measures as direct and indirect costs per unit or per hour, material cost per unit, machine-hour costs, cost per seat-mile, selling cost per dollar unit of sales, and cost per foot of oil well drilled.

• Capital Standards: There are a variety of capital standards, all arising from the application of monetary measurements to physical items. They have to do with the capital invested in the firm rather than with operating costs and are therefore primarily related to the balance sheet rather than to the income statement. Perhaps the most widely used standard for new investment, as well as for overall control, is return on investment. The typical balance sheet will disclose other capital standards, such as the ratios of current assets to current liabilities, debt to het worth, fixed investment to total investment, cash and receivables to payables, and bonds to stocks, as well as the size and turnover of inventories.

• Revenue Standards: Revenure standards arise from attaching monetary values to sales. They may include such as revenue per bus passener-mile, average sales per customer, and sales per capital in a given market area.

• Program Standards: A manager may be assigned to install a variable budget program, a program for formally following the developement of new products, or a program for improving the quality of a sales force. Although some subjective judgment may have to be applied in appraising program performance, timing and other factors can be used as objective standards.

• Intangible Standards: More difficult to set are standards not expressed in either physical or monetary measurements. What standard can a manager use for determining the competence of the divisional purchasing agent or the personnel director? What can one use for determining whether the advertising program is successful? Are supervisors loyal to the company's objectives? Are the office staff alert? Such questions show the difficulty of establishing standards or goals for clear quantitative or qualitative measurement.

• Goals as Standards: With the present tendency for better-managed enterprises to establish an entire network of verifiable or quantitative goals at every level of management, the use of intangible standards, while still important, is diminishing. In complex program operations, as well as in the performance of mangers themselves, modern managers are finding that through research and thinking it is possible to define goals that can be used as performance standards. While the quantitative goals are likely to take the form of the standards outlined above, the definition of qualitative goals represents an important development in the area of standards. For example, if the program of a district sales office is spelled out to include such elements as training sales people in accordance with a plan with specific characteristics, the plan and its characteristics themselves furnish standards that tend to become objective and therefore "tangible."

• Strategic Plans as Control Points for Strategic Control: Strategic control requires systematic monitoring at strategic control points and modifying the organization's strategy based on this evaluation. As pointed out earlier, planning and controlling are closely related. Therefore, strategic plans require strategic control. Moreover, since control facilitates comparison of intended goals with actual performance, it also provides opportunities for learning, which in turn is the basis for organizational change. Finally, through the use of strategic control, one gains insights not only about organizational performance but also about the ever-changing environment.