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hoW Can The monITorIng and ConTrol proCess aTTempT To ConTrol rIsKs? 357

Figure 10.9 The reduction in performance during and after the implementation of a
new technology reflects ‘adjustments costs’

New technology
planned to be
Start of new on-stream Forecast performance
Operations performance (quality levels) performance
technology
implementation
Planned

Actual

Planned
implementation performance
period

Time

Type I and type II errors in control
The concept of type I and type II errors is commonly used in operational control and
it is also useful in understanding strategic control. It concerns the possibility of get-
ting the decision of whether to intervene wrong, although one can apply the idea to
any decision. Take the example of a pedestrian waiting to cross a street. He or she has
two main decisions: whether to continue waiting or to cross. If there is a satisfactory
break in the traffic and the pedestrian crosses then a correct decision has been made.
Similarly, if that person continues to wait because the traffic is too dense then he or
she has again made a correct decision. There are two types of incorrect decisions or
errors, however. One incorrect decision would be if he or she decides to cross when
there is not an adequate break in the traffic, resulting in an accident – this is referred
to as a type I error, taking action when one should not. Another incorrect decision
would occur if he or she decides not to cross even though there was an adequate gap
in the traffic – this is called a type II error, not taking action when one should. So type
I errors are those that occur when a decision was made to do something and the situa-
tion did not warrant it. Type II errors are those that occur when nothing was done, yet
a decision to do something should have been taken as the situation did indeed warrant
it. Applied to strategic control, a type I error is when an intervention is made to the
implementation when it was not necessary; a type II error is when there is a failure
to intervene in an implementation even though an intervention is necessary. This is
summarised in Table 10.1.
Managers identifying and interpreting monitoring data face the risk of both type
I and type II errors. Effective operations strategy control prompts the appropriate
response at the appropriate time, avoiding both types of errors. Type I errors can occur
when managers are ‘over-active’, with a bias towards being more interventionist than is

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