Welingkar’s Distance Learning Division

CHAPTER-17

CONTROLLING

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Introduction

• Control is the last function of management. The controlling function will be unnecessary to the management if other functions of management are performed properly. Planning identifies the activities and controlling regulates the activities. Success or failure of planning depends upon the results of success or failure of controlling.

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Definition

• “Control is any process that guides activity towards some pre-determined goal. The essence of the concept is in determining whether the activity is the achieving desire results”

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Areas or scope pf control

• Control over the policies of the concern, organization, the personnel employed in an organization, capital available to the concern, capital expenditure, production, wages and salaries paid to the employed, the cost of production, public relation, research and development, tools and equipment and overall control.

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Steps in Control process

Establishing Measuring standards performance

Taking Corrective action

Comparisonof

actual withstandards

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Requirements of effective control system

• Feedback• Objective• Suitability• Prompt reporting• Pointing out exceptions• Flexible• Economy• Indelible• Suggest remedial action• Motivation

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Techniques of Control

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CONTROL

Critical path method

Statistical control reports

Personal observation

Cost accounting and cost control

Break-even analysis

Special control reports

Zero-based budgeting

Production control

Performance evaluation

Managerial statistics

Standard costing

Gantt milestone

chart

Management information

system

Management audit

Responsibility accounting

Internal audit

Return on investment

Welingkar’s Distance Learning Division

Pert/Cpm

Advantages of pert/cpm• Ensure planning:• identification of favorable factors:• Savings of cost and time:• Taking preventive or corrective actions:• Attention on critical activities:• Everything at right:

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Advantage of pert/cpm

• Making awareness of responsibilities:• Securing co-operation:• Facilities decision-making:• Improved communication:• Simultaneous performance of works:• Advance control action:• Timely completion of a project:

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Limitations of pert/cpm

• Error in estimation of time and cost

• Application

• Time consuming and expensive

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Distinction between pert and cpm

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PERT CPM

Three times estimation done Three times estimation done

It gives importance to time It gives importance to cost

It is suitable where activity timings are not known

It is suitable where activity timings are well known

It is event oriented It is activity oriented

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Characteristics or features of control

Controlling process An Essence ofaction

Universal Influencing factor

Forward looking Control involves management

Dynamicprocess

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Need of control

• Judging the accuracy of standards:

• Minimize dishonest behavior:

• Better performance:

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Advantages of control

• Adjustments in operation• verification of policy• managerial accountability• Psychological pressure• Maintaining morality• Co-ordination• Efficiency

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Limitations of control

• Absence of perfect standards

• Uncontrollable factors

• Difficulty in fixing responsibility

• Expensive process

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Types of managerial control

• Standardizing control

• preserving control

• Delegation of authority control

• Measurement control

• Motivating controlWe Learn – A Continuous Learning Forum

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Budget & Definition of budget

• Budget is derived from the French word ‘Budgette’ which means small leather bag. Budget is a financial and quantitative statement.

• “Budget is a plan for income or outgo or both, of money, personal, purchased items, sales items, or any other entity about which the manager believes that determining the future course of action will assist in the managerial efforts”

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Budgetary control & Definition of budgetary control

• “The term budgetary control is applied to a system of management and according control by which all operations and output are forecast as far ahead as possible and the actual results when known are compared with the budge t estimates.”

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Characteristics of budgetary control

• The activities the organizations are presented department-wise or section-wise.

• Budgets give the extent of expenditure though which cost control is achieved.

• The co-ordination of various departmental activates helps to prepare the determined standards.

• Clear-cut and specific requirement of the organization are expressed in quantitative terms.

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Characteristics of budgetary control

• Determines the deviations by comparisons and causes of such deviations.

• Recommends and implements the corrective actions when ever necessary.

• The future is planned on the basis of past experience.

• Recording the present performance for comparing purpose with the pre-determined standards.

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Advantages of budgetary control Promotion of

Tool for planning efficiencyThe activities Better utilization of

resourcesThinking in advance Promoters

balanced activit

Co-ordination of BudgetaryEfforts

Achievements Criteria of Delegation of Control of of goals examination authority expenditure

Encourages Fixation of Ensures proper Solving financialexchange of responsibility communication

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Disadvantages, Limitations or problems of budgetary control

• Inaccuracy• personal bias• Non-availability of Co-operation• Rigidity• Results are not attainable

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Disadvantages, Limitations or problems of budgetary control

• Consistency• Time Consuming process• Ineffective budgetary control• Discourage the initiative• More paperwork

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Essentials of Effective budgeting system

• Efficient organization

• Preparing master budget

• Quick reporting

• Flexible

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Essentials of Effective budgeting system

• Support of top management

• Based on reasonable assumption

• Reward and punishment

• Appropriate authority

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Techniques of Control

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CONTROL

Critical path method

Statistical control reports

Personal observation

Cost accounting and cost control

Break-even analysis

Special control reports

Zero-based budgeting

Production control

Performance evaluation

Managerial statistics

Standard costing

Gantt milestone

chart

Management information

system

Management audit

Responsibility accounting

Internal audit

Return on investment

Welingkar’s Distance Learning Division

Types of Budgets

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Types of Budget

Sales Budget

Cash budget

Time and material budget

Physical property budget

Research and development

budget

Production overhead budget

Production cost budget

Master budget

Selling and distribution cost budget Supplies budget

Balance sheet budget

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Budget can also be classified as

• Fixed budget

• Flexible budgets

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Preparation of a budget

• Sound forecasting

• Developed accounting system

• Fixation of responsibility centers

• Formation of budget committees

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Preparation of a budget

• Clear definition of business policies

• Statistical information

• Support of top management

• Budget period

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