Systems Design Approach to Management Control

Implement a Systems Design Approach to Management Control

Background

A striking characteristic of the federal government is its constant
struggle to control a conglomerate of agencies several times larger than
any existing holding corporation. It uses a labyrinth of disjointed
mechanisms--put in place by both the executive branch and Congress--in
an attempt to achieve control. The existing control mechanisms were
developed at different points in time, primarily as individual reactions
to specific problems. In aggregate, they were patterned after corporate
control structures of the Industrial Era in the 1930s--large,
centralized, top-down. These premises are no longer appropriate in an
Information Age environment of rapid change and technology that makes
information readily accessible to managers and employees at many
different levels in an organization. The existing system provides the
illusion of control. But in fact, these mechanisms overlap, duplicate,
confuse, and sometimes contradict each other. Even a cursory look at the
federal approach to management reveals an overly layered and poorly
coordinated set of controls characterized by ambiguity and often focused
on unimportant things.  And its cost is enormous--one estimate places it
conservatively at $35 billion a year. As a result, the existing system
steals precious resources from the real job of government: serving the
customer.

Line Versus Staff Controls.

Control in the federal government is exerted by two groups--line
management and staff offices. Line management, or "line control," is
exercised by each agency's program offices, such as the managers in a
local Social Security office. Typically, line managers monitor
performance and appraise their employees, and they write procedures and
ensure they are complied with. They also conduct formal program
evaluations, and they develop internal controls. Oversight of line
managers is performed by management levels above the program office
within the agency, such as a regional Social Security office.

The sum total of line management control and oversight is very large
and, many believe, overdone. There are over 278,000 supervisors and
managers in the federal government--about 1 in 7 federal employees.
This has contributed to horror stories of over-management; for example,
the lengthy "chop chains" for sending an official letter, entailing as
many as 10 or 15 formal check points, any one of which can change the
contents. The result: A simple letter may take months to get sent.

Staff offices, on the other hand, can be both internal or external to an
organization. "Internal" staff offices exert control in at least two
ways--granting permission to act or second-guessing decisions.  The
first, granting permission to act, would include actions such as the
general counsel staff saying that a proposed action is legal; a
procurement office awarding a contract; or a personnel office
classifying a job at a certain grade level. Staff control can also be
exerted through second-guessing, or "oversight," which usually is a
formal assessment of compliance with rules. Most internal staff
oversight is conducted by program evaluation offices, the procurement
office, the personnel office, and financial managers. Oversight methods
include investigations, audits, reviews, evaluations, and inspections.

A variety of "external" organizations also have a direct or indirect
role in staff oversight. These include Congress, the General Accounting
Office (GAO), the Office of Personnel Management (OPM), the Office of
Management and Budget (OMB), the General Services Administration (GSA),
the Equal Employment Opportunity Commission (EEOC), the Environmental
Protection Agency (EPA), the Merit Systems Protection Board (MSPB), the
Office of Government Ethics (OGE), and the Offices of Inspectors General
(OIG's). Currently, over 36,000 federal employees--not including
Congress--conduct "external" oversight (see Appendix B for an
illustrative listing of most of these staff organizations).

Control functions grew faster than other functions.  Over the past
decade, control functions grew faster than the executive branch as a
whole. While executive branch personnel grew seven percent between 1980
and 1990-91, employment in the personnel function increased 11 percent.
In financial management, the increase was 27 percent and, in
procurement, it jumped 60 percent. (See figure 1.)

Need for Change

Despite the fact that billions are spent on control, the public still
considers waste, fraud, and abuse to run rampant in the federal
government. The average American believes the government wastes 48
percent of every tax dollar.(1) Ironically, a contributing factor is the
existing system of fragmented controls. A lack of accountability and the
inappropriate focus of existing controls contribute to, rather than
erase, this perception.

There are models of effective control systems. The worldwide quality
movement clearly has proven that control systems with minimal layers and
clear roles and responsibilities are far superior to the federal
government's system of over-control.(2) In contrast, a control system
with multiple layers of supervision, inspection, and other forms of
"checking," existing simultaneously in both line management and staff
support offices, results in less control and very high costs. Over-
control results in less control because those responsible for oversight
assume that others also responsible for oversight are performing their
functions thoroughly. However, in reality, multiple versions of guidance
from multiple groups diffuses accountability and confuses line staffs
about what is expected and important.

Fragmented Controls Contribute to an Ambiguity of Responsibility.  With
so many roles to be played and so many individuals and organizations
involved, overlap and confusion of responsibilities has grown. Many
strongly differing points of view exist about what roles these groups do
play and should play. Clear roles and focus are needed. One premise is
that, because line management's own oversight has been allowed to
atrophy, staff groups have had to assume these functions. For example, a
few Inspectors General now have inspection offices in addition to their
standard audit and investigation offices. These inspection offices vary
widely in purpose, staffing, and operations, but they do have some
common features. They concentrate on shorter-term studies, producing
more timely results.  These reviews range from quick responses to
congressional inquiries, to on-site management reviews, to in-depth
evaluations of program practices. These latter evaluations concentrate
on program effectiveness and efficiency (how well and at what cost
programs are achieving their objectives) and program integrity (how well
programs are protected from wrongdoing). GAO on occasion has conducted
the same kinds of evaluations, sometimes for the same reasons.

Lamentably, this activity by some parts of the audit community reflects
the type of program evaluations some managers believe line management
should be conducting internally. It is better in the long term to insist
that line managers properly execute their control and oversight
functions. To foster this, external overseers should reorient their
focus to evaluating the effectiveness of the control and oversight
systems put in place by management.

Inappropriate Focus.

Most staff controls are focused on "before the fact" control mechanisms
on inputs, such as controls over outlay budgets and staffing levels, and
compliance with rules. Most high-performing organizations have shifted
their focus to "after the fact" controls on outcomes, such as
results-oriented budgets and performance measures. Studies of
organizations that have made the shift show decreases in the costs of
delivering services, largely because of the ability to reduce the cost
of the control systems. While there are some organizations where "before
the fact" controls may be appropriate, there are many where a change in
approach can improve services and cut costs.(3)

Costs of This Approach to Control are Too High.

The existing management controls system swallows untold millions of
staff hours and requires an estimated 660,000 "control" employees at a
cost of approximately $35 billion dollars. This estimate includes all
line and staff managers and employees performing appraisals, audits,
reviews, investigations, evaluations, inspections, and monitoring.(4) It
does not include the costs imposed on those that are being appraised,
audited, reviewed, investigated, evaluated, inspected, or monitored.

There is no upper limit imposed on how much "management control" is
imposed on a given organizational unit or program. Formal audits,
reviews, investigations, and inspections in a single governmental
organization can easily total hundreds per year and can be initiated at
any hierarchical level in the system, from Congress, the central
management agencies, or a department headquarters on down. And there are
no accounting systems to adequately document these costs.  Notably, no
one is assigned responsibility for controlling these costs or ensuring
these resources are being spent wisely. There is no control over the
controls.

There is an alternative that seems to have proven successful in the
private sector. The quality management approach--which focuses on
preventive actions and results-oriented measures (e.g., customer
satisfaction) --can provide a systematic framework for gaining control
over the controls. It can help sort out the proper functions of doing
vs. monitoring work, of line vs. staff, of internal vs.  external
control, and of the use of inspection vs. prevention methods.

Cross References to Other NPR Accompanying Reports

Creating Quality Leadership and Management, QUAL02: Improve Government
Performance Through Strategic and Quality Management.

Endnotes

1. Senator William Roth, Congressional Record, Vol. 138, No. 51 (April
7, 1992).

2. Deming, W. Edwards, The New Economics (Cambridge, MA:  Massachusetts
Institute of Technology, 1993).

3. Thompson, Fred, "Matching Responsibility with Tactics:
Administrative Controls and Modern Government," Public Administration
Review, Vol. 53, No. 4 (July/August 1993), p. 303.

4. See NPR Accompanying Report Transforming Organizational Structures
for additional information.

5. AT&T Quality Steering Committee, "Process Quality Management &
Improvement Guidelines," AT&T Bell Laboratories, 1987, p. 33.

6. Shewhart, Walter A., Economic Control of Quality Manufactured Product
(New York: D. Van Nostrand Company, Inc., 1931).

7. Scherkenbach, William W., The Deming Route to Quality and
Productivity (Rockville, MD: Mercury Press/Fairchild Publications,
1986), pp. 40-46.