Controlling

Control is an essential function Of management in every organisation. the management process is incomplete and sometime useless without the control function.

The control function is concerned with ensuring that planning ,organizing ,staffing ,leading functions results in the attainment of organisational objectives.

Meaning

In management context control refers to the evaluation of performance and the implementation of corrective action to accomplish organisational objectives.

In other words ,control is a tool that helps organisation measure and compare their actual progress with their established plan.

Definition

Acc to Fayol, Control consist of verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established.

Importance of control

1. Coping with uncertainty2. Detecting irregularities3. Identifying opportunities4. Handling complex situations.5. Decentralizing Authority.6. Minimizing cost.

Types of control

There are 5 types of controlFeedback Control

Concurrent ControlFeed forward controlCybernetic Control

Non cybernetic Control

1.Feedback control

Feedback control focuses on organisational activities and operations after they are completed.

This is also called postmortem control.

The aim of feedback control is to identify the deviations that went undectected earlier.

Feedback control plays 3 important roles:

• It provides the necessary information to the operating manager to evaluate overall organisational effectiveness.

• It is useful as a basis for evaluating and rewarding employees.

• It alerts the operating manager to who need to adjust or modify their activities.

2. Concurrent Control

• Concurrent control regulates on going activities that are a part of the transformation process to ensure that they conform to organisational standards.

• Such controls are also known as steering controls.

• They are used during the iplementation of plans

3.Feed Forward Control

• In feedforward control, inputs are monitored to ensure that they meet the standards necessary for process.

• Feedforward control enables managers to prevent serious difficulties from arising in the production process.

• Since feedforward control is future oriented, it is referred to as preaction or preliminary control.

• Feedforward control is considered as preventive control.

• Concurrent control and feedback control are known as corrective controls.

4.Cybernetic Control

It is a self regulating control system.

It can automatically monitor the situation and take corrective action when necessary, thereby doing away with the need for human intervention.

5.Noncybernetic Control

• This type of control system relies on human discretion.

• Some areas require managerial discretion to determine what corrective actions are necessary to minimise deviations from established standards.

CONTROL PROCESS

1. Determine Key areas to be monitored.2. Establishing standards.3. Measuring performance4. Compare Actual performance with the

standards.5. Take no action ,if performance is in

the harmony with standards.6. Take corrective action ,if necessary

Determine Key areas to be monitored.:

• Before initiating the control process, the manager must determine the major areas that need to be controlled.

• The organisational goals and objectives defined during the planning process must form the basis for determining which area to be controlled.

2.Establishing Standards:Standards constitute the foundation

for control process. They state the criteria on the basis of which employees performance and related behaviour can be evaluated

It helps the manager to know how things are progressing in the organisation.

• Establishing standards serves three major purposes-

• It helps employees to understand what is expected of them

• It provides basis for identifying job difficulties• It helps to reduce potential negative effects of

goal incongruence.

3.Measuring performances:Performance may be measured through

quantitative terms or qualitative terms .reports and statement help to measure the actual performance through quantitative terms and managerial observations help s to measure performance through qualitative terms.

Further performance can be measured either annually, half yearly ,weekly, daily, or even hourly. Depending on the criticality of the issue.

4.Compare actual performance against Standards:

In this stage performance measured in step 3 is compared the standards established in step 2.such a comparison enables manager to determine whether actual performance meet the standards or not.

5.Take no action ,if the performance is in harmony with standards:

If the performance of various organisational areas match the standards, the manager need not take any action ,he should just allow the process to continue. however he can try to improve the performance above the standards if possible without having any negative impact on the existing process.

6.Take corrective action if necessary:

IF performance is not in harmony with the standards ,manager has to take corrective action .

• if the deviation is positive i.e. performance is above the standards, revise the standards.

on the contrary if the performance is below standards, take Corrective action

PLANNING

The management function that asses the management

environment to set future objectives and map out activities

necessary to achieve the objectives. OOIUUYTT

CONTROLLING

THE MANAGEMENT FUNCTION THAT MEASURES PERFORMANCE,COMPARES

IT TO OBJECTIVES,IMPLEMENT NECESSARY CHANGES AND PROGRESS.

Controlling Elements Of Planning

SETTING STANDARDSMONITORING COMPARISONCORRECTIVE ACTION

1. SETTING STANDARDS

WHERE WE WANT TO BE!WHAT WE WANT TO ACCOMPLISH !WHEN!

2.MONITORING

MUST CONTINUALLY MONITOR THE ACTUAL PERFORMANCE IN RELATION TO THE GOALS AND PLANS.

KEEPS THE WORK IN THE TRACK.BETTER EFFICIENCYSAVES TIME.

3.COMPARISON

DETERMINES THE DEGREE OF VARIATION BETWEEN ACTUAL PERFORMANCE AND THE STANDARD.

4.CORRECTIVE ACTION

AVOIDS BUSINESS FAILURESMINIMIZE COSTSMAX UTILIZATION OF RESOURCES.LIMITS ACCUMULATION OF ERRORS.

CONTROL TECHNIQUES

• Control techniques provide managers with the type and amount of information they need to measure and monitor performance.

Two types of controlling techniques

1. Traditional/Financial Control

2. Modern Control Techniques

Traditional/Financial Control

• Types:

1. Budgetary Control

2. Financial Ratio Analysis

3. Break-even Analysis

4. Cost accounting

5. Auditing

6. Reports, Rules & Personal Observation

Budgetary Control

Budget:

A budget is a financially expressed statement of anticipated results during a designated time period (usually 1 year).

Budgetary Control:

It is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibility, comparing the actual performance with budgeted and acting upon results to achieve maximum profitability.

Types of Budget1. Sales Budgets: It is a sales programme and plan for

developing sales. It shows the sales potential in terms of quantity, value, product etc. Sales forecasting is the basis for preparing this budget.

2. Selling & distribution Budget: All expenses concerned with sale of products to customer are included in this budget.

3. Production Budget: It lays down the quantity of units to be produced during the budget period. The main purpose of this budget is to maintain an optimum balance between sales, production and inventory position of a firm.

4. Production Cost Budget: It lays down the estimated cost of carrying out production plans. It is further divided into:

• Raw material budget• Labour budget• Production overhead budget

5. Capital Expenditure Budget: It outlines specifically, capital expenditures for plant, machinery, inventories and other items. It also points out the plans concerning investment, expansion , growth etc.

6. Cash budget: It gives the estimate of cash receipts and payments for the budget period. It indicates the requirement of cash at various points of time and helps management in planning and arranging cash to meet the needs of business concern.

7. Master budget: It gives the summary of all the budgets and how they affect the business as a whole. It provides detailed particulars regarding production, sales, cash assets etc.

Zero Based Budgeting

The idea behind this technique is to divide enterprise programs into "packages" composed of goals, activities, and needed resources and then to calculate costs for each package from the ground up.

By starting the budget of each package from base zero, budgeters calculate costs afresh for each budget period; thus they avoid the common tendency in budgeting of looking only at changes from a previous period.

Advantages• The different functional budgets clearly indicate the

limits for the expenses and also the result to be achieved in a given period.

• Co-ordinates the work of entire organization.• It leads to cautious utilization of resources.• Through budgetary control deviations from the

predetermined standards are found out.• The budget system helps people learn from past

experience.• It brings together the activities of various department.

Disadvantages• Inaccurate estimates: Budgets are based on

forecasts, hence the success depends on the accuracy of the forecast.

• Inflexibility: Budgets do not respond to internal or external environmental changes.

• Human limitation: The co-operation of employee is needed to make budgetary control successful. But it is not possible to have co-operation all the time.

Financial Ratio Analysis

It examines the relationship between specific figures on the financial statements and helps explain the significance of those figures:

• Liquidity ratios :It measure an organization's ability to generate cash.

• Profitability ratios: It measure an organization's ability to generate profits.

• Debt ratios: It measure an organization's ability to pay its debts.

• Activity ratios: It measure an organization's efficiency in operations and use of assets.

Breakeven Analysis Breakeven point shows that level of production and

sales where the business suffer neither loss or profit. It is a specific method presenting the inter-relationships between costs, sales volume and profits.

The areas where it can be used for making decisions are:

1. Identifying the minimum sales volume necessary to prevent a loss.

2. Providing information helpful in making decisions on whether to raise or lower the price.

3. Providing data helpful in making decisions to add or drop product lines.

AUDITING

Audit can be of two types• Internal audit• External audit

Internal Audit:

The Internal audit is carried out by the members of the organization. Its objective is to provide reasonable assurance that the assets are properly safeguarded and its financial records reliably kept.

External Audit:

External audit is largely a verification process involving the independent appraisal of organization's financial accounts and statements.

The audit is conducted by accounting personnel employed by an outside CPA firm or by chartered accountants

Responsibility Accounting

Responsibility accounting can be defined as a system of accounting under which each department head is responsible for the performance of his department. The prices at which one profit centre sells its output or services to other profit centers are called transfer prices. The transfer prices for selling the output of one department to other department may be fixed in any one of the following ways:

i)Standard cost: under this method , departments working at less than the standard efficiency would have a lower profit since their costs would be higher than the standard costs.

ii)Market price: under this method, the transfer price is fixed at a price equal to the market price at the time of transfer

iii) Negotiated price: In certain special circumstances, transfer prices may be fixed on the basis of negotiations between departmental heads

Reports and personal observations:

* Reports: A major part of control consists of preparing reports to provide information to the management for purpose of control and planning

The following are the certain type of reports are;1. Top Management a) profit and loss account b) Balance sheet c) position of work d) cash flow statement e) position of working capital

2. sales management: i) Actual sales compared with budgeted sale to measure performance by a)products b)territories

3. Production management: i) To foreman : * Labor utilization report * scrap report

ii) To Works manager : * General works operating system * plant utilization report

* personal observation: In this method a manager can also exercise fruitful control over his subordinates by observing them while they are engaged in work. Moreover when the worker knows that he is being observed by his superior, he will be alert and will not waste his time.

Modern Methods are PERT & CPM

PERT - Project Evaluation & Review Techniques

CPM - Critical Path Method

PERT - Project Evaluation & Review Techniques

• Definition: In PERT activities are shown as a network of precedence relationships using activity-on-arrow network construction– Multiple time estimates – Probabilistic activity times

USED IN : Project management - research and development work , where the time and cost estimates tend to be quite uncertain. This technique uses probabilistic time estimates.

• PERT was developed by the US Navy for the planning and control of the Polaris missile program and the emphasis was on completing the program in the shortest possible time.

• In addition PERT had the ability to cope with uncertain activity completion times (e.g. for a particular activity the most likely completion time is 4 weeks but it could be anywhere between 3 weeks and 8 weeks).

Steps in PERT planning process.1. Identify the specific activities and

milestone.2. Determine the proper sequence of

the activities.3. Construct a network diagram.4. Estimate the required for each

activity.5. Determine the critical path.6. Update the PERT chart as the

project progresses.

CPM - Critical Path Method

• Definition: In CPM activities are shown as a network of precedence relationships using activity-on-node network construction– Single estimate of activity time– Deterministic activity times

USED IN : Production management - for the jobs of repetitive in nature where the activity time estimates can be predicted with considerable certainty due to the existence of past experience.

•CPM was developed by Du Pont and the emphasis was on the trade-off between the cost of the project and its overall completion time

e.g.: For certain activities it may be possible to decrease their completion times by spending more money.

Benefits of CPM/PERT

• Useful at many stages of project management

• Mathematically simple• Give critical path and slack time• Provide project documentation• Useful in monitoring costs

Limitations to CPM/PERT

• Clearly defined, independent and stable activities

• Specified precedence relationships• Over emphasis on critical paths