Responsibility And Controllability Considerations
Responsibility And Controllability Consider Each Of The Followin
Consider each of the following independent situations for Prestige Fountains. Prestige manufactures and sells decorative fountains for commercial properties. The company also contracts to service both its own and other brands of fountains. Prestige has a manufacturing plant, a supply warehouse that supplies both the manufacturing plant and the service technicians (who often need parts to repair fountains), and 12 service vans.
The service technicians drive to customer sites to service the fountains. Prestige owns the vans, pays for the gas, and supplies fountain parts, but the technicians own their own tools.
1. In the manufacturing plant, the production manager is not happy with the motors that the purchasing manager has been purchasing. In May, the production manager stops requesting motors from the supply warehouse and starts purchasing them directly from a different motor manufacturer. Actual materials costs in May are higher than budgeted.
2. Overhead costs in the manufacturing plant for June are much higher than budgeted. Investigation reveals a utility rate hike in effect that was not included in the budget.
3. Gasoline costs for each van are budgeted based on the service area of the van and the expected driving for the month. The driver of van 3 routinely exceeds the budgeted gasoline costs. The service manager finds that the driver has been using the van for personal use.
4. Regency Mall, a customer, calls the service team only for emergencies, not routine maintenance. Consequently, the materials and labor costs for these emergency service calls exceed the monthly budget for this contract customer.
5. Prestige’s service technicians are paid a flat hourly wage of $22, regardless of experience or time with the company. An analysis shows that first-year technicians take 20% longer to complete tasks than experienced technicians. Billing is per service call, not per hour.
6. The cost of health insurance for service technicians has increased by 40% this year, causing actual costs to significantly exceed the budgeted health insurance expenses.
For each situation, determine where (a) responsibility and (b) controllability lie. Suggest ways to solve the problem or improve the situation.
Sample Paper For Above instruction
The evaluation of responsibility and controllability in managerial settings is crucial in understanding performance and implementing effective control systems. In each of the cited scenarios involving Prestige Fountains, clear distinctions between responsibility and controllability can inform managerial actions and corrective measures.
Situation 1: Direct Purchasing of Motors
Responsibility lies primarily with the purchasing manager and the production manager. The purchasing manager bears responsibility for procurement decisions, while the production manager controls the quality and suitability of the materials used. The production manager's decision to bypass the supply warehouse introduces a controllability issue, with the production manager exercising control over the choice and quality of the motors used. The higher-than-budgeted costs stem from this deviation and lack of coordination.
To improve this situation, the company should enforce strict procurement policies that require all purchasing decisions to go through the supply warehouse unless explicitly authorized. Establishing approval protocols and integrating the purchase process into the company's internal controls can prevent unauthorized procurement, ensuring responsibility is clearly assigned and controllability maintained.
Situation 2: Overhead Costs Due to Utility Rate Hike
The responsibility for the overhead increase lies with the management of the manufacturing plant, particularly those involved in budgeting and cost estimation. Controllability over this expense, however, is limited because external utility rate hikes are beyond management’s direct influence.
Proactive managerial control could involve establishing flexible budgets that incorporate potential rate increases or using hedging strategies to mitigate utility cost fluctuations. Regular reviews of utility usage and costs, along with negotiations with utility providers, can also help control expenses within the limits of external factors.
Situation 3: Personal Use of Van and Fuel Costs
The service technician driving van 3 is responsible for the personal use, with controllability over the vehicle's use to a significant extent. The service manager, however, bears responsibility for supervising employee conduct and enforcing policies regarding vehicle use.
Addressing this issue requires implementing and communicating clear policies on personal use of company vehicles. Monitoring fuel consumption and conducting periodic audits can help control costs. Deterring personal use through disciplinary actions or cost-sharing measures for personal fuel expenses can enhance responsibility assignment.
Situation 4: Emergency Calls and Budget Overruns
The responsibility resides with the service team and the management overseeing customer service protocols. Since emergency calls are unpredictable, controllability over this aspect is limited; however, scheduling and preventive maintenance could reduce emergency incidents.
To better control costs, the company could implement regular maintenance schedules to minimize emergency calls, thereby aligning costs with budgets. Enhancing customer communication to encourage routine maintenance can also mitigate unforeseen expenses, balancing responsibility with controllability.
Situation 5: Flat Wage and Technician Efficiency
The responsibility for productivity and performance lies with the technicians, influenced by their skill and experience. The flat wage system limits controllability over individual performance variability but invites managerial intervention.
Implementing performance-based incentives or differential wages for experienced technicians can motivate efficiency. Additionally, investing in training programs to accelerate learning curves for new technicians enhances controllability over productivity outcomes.
Situation 6: Increased Health Insurance Costs
The responsibility for managing health insurance costs largely rests with the company's human resources and finance departments. While the increased health insurance premiums are externally driven, controllability exists in selecting insurance plans, negotiating rates, or implementing wellness programs to contain costs.
Handling this situation may involve renegotiating insurance contracts, increasing employee contributions, or implementing wellness initiatives to reduce claims. These actions enhance controllability and help manage future expenses more effectively.
Conclusion
Effective management requires clear delineation of responsibility and controllability. External factors such as utility rate hikes and insurance costs pose control challenges, whereas internal actions, including purchasing policies and employee conduct, are within direct control. Strategically aligning responsibility with controllability ensures better performance evaluation and fosters accountability across organizational activities.
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