Controlling

Controlling Prof. Smita.Verma

What is Controlling?Controlling consists of verifying whether

everything occurs in confirmities with the plans adopted, instructions issued and principles established. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. Controlling measures the deviation of actual performance from the standard performance, discovers the causes of such deviations and helps in taking corrective actions

According to Brech,

“Controlling is a systematic exercise which is called as a process of checking actual performance against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs.”

According to Donnell,

“Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on right course.”

Controlling has got two basic purposes

◦It facilitates co-ordination

◦It helps in planning

Features of Controlling FunctionControlling is an end.

Controlling is a pervasive function.

Controlling is forward looking.

Controlling is a dynamic process.

Controlling is related with planning.

Importance of Controlling Coping with uncertainty.Detecting Irregularities.Identifying Opportunities.Handling complex situations Decentralizing Authority .Minimizing Costs.

Basic Control ProcessDetermine areas of control Establishing StandardsMeasuring performanceComparing performance against

standardsRecognizing good or positive

performance Taking corrective action when necessary Adjusting standards and measures when

necessary

Organizational Control Techniques

Financial controlsBudget controlsQuality Control Inventory Control Other types of control

Marketing controls Human resource controls Computers and information controls

Financial controls

Financial Statements.Balance sheets .Income statement Cash flow – Sources and uses of

funds statements.Ratio – Analysis

◦Liquidity ratio .◦Asset Management Ratio.◦Debt Management Ratio.◦Profitability Ratio.

Financial StatementsA financial statement facilitates

the monitoring of an organization's liquidity ,general financial condition, profitability etc .

Financial statements contains information that is necessary to maintain financial control over organization.

Balance sheets .

A balance sheet shows the financial condition of a business at a given point of time.

Balance sheet is a snapshot of the financial position of an organization

Income Statement Balance sheet focuses on the

overall financial worth of the organization at a specific point of time , the income statement summarizes the company’s financial performance over a given interval of time

Cash Flow – Sources and uses of funds statements

The statement of cash flow summarizes the financial performance of an organization in terms of the sources of origin of cash or funds during the year and areas where they were utilised

Ratio Analysis It is a process of determining and

evaluating financial ratios.It is used by managers to assess the

significance of financial data collected from various sources by studying the ratios between various items in a financial statement.

A ratio is an index that measures one variable relative to another and is generally expressed in terms of percentage or a rate

Liquidity ratioLiquidity ratio are the financial

ratios that measures the ability of an organization to meet its short term obligations ( current liabilities ) by sing its current assets .

Some of the liquidity ratios used by organizations are acid test ,working capital ,tangible net worth and current ratios.

Asset management ratioIt is also called as activity ratios.It measures effectiveness of an

organization in managing its assets .

Activity ratio is a test of the relationship between the sales and various assets of the firm .

The higher the activity ratio ,the better the profitability and lesser the investment needed in assets .

Debt management ratiosDebt management ratio also

called as leverage ratios.

It determines the extent of debt used by a company to finance its investment.

Profitability ratios The operating efficiency of an

organization and its ability to ensure adequate returns to its shareholders ,depends on the profits it earns .

Profitability ratios measures the profitability of an organization in relation to variables such as sales and assets

Budget controls

Budgeting is the process of formulating future plans for the organization for a given period of time and estimating the amount of resources required to carry out the planned activities.

Financial controlsResponsibility Centers –

◦Standard Cost Centers.◦Discretionary expense centers .◦Revenue Centers.◦Profit centers .◦Investment centers .

Requirement for effective Controls Control should reflect plans,

positions and structure.They should be understandable .They should be const-effective They should identify only important

/major expectations.Control systems should be flexible .Control system should provide

accurate information.