Measuring performance is a crucial part of evaluation and control. Inappropriate controls can result in managers manipulating the measures for personal advantage to the detrimental of company. In designing a control system, top management should remember that controls should follow strategy. Unless controls ensure the use of the proper strategy to achieve objectives, dysfunctional (unable to deal with) side effects are likely to completely undermine the implementation of the objectives. The following guidelines are recommended.
- Control should involve only the minimum amount of information needed to give a reliable picture of events. Too many controls create confusion. Focus
on the strategic factors by following the 80/20 rule: Monitor 20% of the factors that determine 80% of the results.
- Controls should monitor only meaningful activities and results.
- Control should be timely. Corrective action must be taken before it is too late.
- Controls should be long-term and short-term. If only short-term measures are emphasized a short term managerial orientation is appropriate.
- Controls should pinpoint exceptions. Only those activities or results that fall outside a predetermined acceptance range should call for action.
- Controls should be used to reward meeting or exceeding standards rather than to punish failure to meet standards. Heavy punishment of failure typically results in goal displacement. Manages will falsify reports and lobby for lower standards.