Contol Techniques

8/13/2019 Contol Techniques

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CONTROL TECHNIQUES


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INTRODUCTION

To enable managers effectively controlthe organizational activities, a large

number of controlling techniques are

available. They help to produce rightquantity and quality of goods at the right

time. A manager should know these

techniques ,situations in which theyapply and variables that should be

considered in applying the techniques.


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TECHNIQUES OF CONTROL

Traditional Techniques

1. Personal Observation

2. Budgeting

3. Break Even Analysis

4. Financial Statement

5. Statistical Data And Reports

6. Quality Control


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Modern Techniques Of Control

1. Management Information System

2. Management Audit

3. Responsibility Accounting4. Network Analysis-PERT And CPM

5. Balanced Score Card

6. Ratio Analysis

7. Benchmarking


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Personal ObservationThe simplest way to control organizational activities is

that manager take round at work place and observe the

progress of work. Defect in employees performance

can be spotted and corrected immediately. A face-to-

face interaction is possible whereby workers can get

their doubts solved on-the-job and the necessary

guidance and counseling can also be provided to them,

then and there.

Advantage- creates a psychological pressure on theemployees and they tend to perform better.

Disadvantage-it demotivates the employees who work

under psychological pressure of being watched but

who are otherwise conscientious and self-motivates towork.


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B d t


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Budgetary

Control

A budget is a statement which reflects future incomes,

expenditures and profits of the firm. It is a future projection

of the firms financial position. A budget is, "The process of

stating in quantitative terms, planned organizational

activities for a given period of time. It facilitates comparison

of actual performance with planned performance and helpsto correct deviations in actual performance. It is a basic

technique of control and is used at every level of

organization. Budgetary control is done for all aspects of a

business such as income, expenditure, production, capitaland revenue. Budgetary control is done by the budget

committee.

Purpose of budgets

1) It provides a yardstick for measuring and comparing


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3) It provides guidelines about the resource and expectations.

4) It facilitates intra and inter-managerial and divisional

performance of an organization.

Process of Budgeting

The various steps included in the preparation of budget are:

1)Top managers send down to the operating managers their

views on the organizational goals, policies , resourceposition and its relationship with various environmental

factors.

2) The lower-level or the operating managers prepare their

budget proposals based on the guidelines.3)The budget so prepared is sent to the top managers for their

review , appraisal and approval.


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Benefits of Budgeting

1)Provides standard of performance

2)Facilitates planning3)Provides basis for coordination at various organizational

activities

4)Motivation and job satisfaction

5)Helps in predicting the future6)Facilitates communication

7)Facilitates delegation of authority

8)Optimum use of scare resources

9)Facilitates control

4)If approved, the top managers coordinate these budgets

with the overall budgets framed by them and prepare the

master budget.

5)The master budget is then sent to the board of directors fortheir approval. Once approved, it is sent down the

hierarchy again for its effective implementation.


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Zero Base Budgeting

Zero base budgeting does not consider future as projection

of the past. The company asses activities of current year

,correlates them with its goals ,carries a cost-benefit

analysis for each activity and allocate fresh

Types of Budgets

1)Operating budget- it relates to the operating activities of anenterprise, which involve both revenue and expenses.

2)Financial budget- It predict various sources and uses of

finance. It facilitates the working of operating budget.

Limitations of Budgeting

1)Overspending

2)Inflexibility

3)Projection of future4)Hindrance to innovation and change

5)over-emphasis on budgeted goals


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resource to each activity. This means preparing budget from

scratch , allocating resources based on priorities of activities

and not last year's allocation. Zero base, therefore, means thatthe budgets are not based on earlier year's estimates. Rather,

they start from the base zero.

The zero base budgeting involves the following three

steps :1) The overall activities of the organization are broken down

into units called as decision packages and cost-benefit

analysis is made with respect to each package.

2)The packages are arranged in order of priority.

3)The resources are allocated to the different packages.


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Break Even Analysis

Break Even Analysis or Cost Volume Profit Analysis definesthe relationship between sales volume, costs and profits

to find out sales at which sales revenue is equal to cost

.The point at which sales revenue is equal to total cost is

the break even point. Sales volume beyond the break-even point will earn profits for the organization and sales

volume below the break-even point is a situation of loss.

As, a technique of controlling, managers compare their

actual performance in terms of output sold with the break-

even point of sales and if they are not able to sell beyond

this point, they should improve their performance by

increasing their sales or reducing their costs.


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Advantages of break-even analysis1.Improvement in performance

2.Helps in decision making

3.Helps in reduction in cost

Limitations of break-even analysis

1.Assumptions does not hold good in real life

2.Fixed cost does not always remain constant3.Certain cost cannot be conveniently divided into fixed and

variable costs and to that extent, do not form a part of

break-even analysis


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Financial Statement

Financial statement depict the financial position of the firm overa period of time, generally one year. These statements are

normally prepared along with the last years statement so that

the firm can compare its present performance with the last

years performance and take necessary action to improve itsfuture performance. As these statements are prepared at the

end of the financial year , as a measure of control , they

provide tips to managers to improve their future performance.These statement offer information on the following

aspects1)Liquidity-The firm can know its cash position

2)Financial Strength-Its assets and liabilities and its equity

position

3)Profitability-The excess of revenue over cost


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Two commonly used financial statement

a)Balance SheetIt is a statement of the companys financial

position at a point of time, usually 31st of March. A

balance sheet describes a companys assets , liabilitiesand owners equity.

Assets=Liabilities + Equity

b)Income StatementWhile balance depicts a companys

financial position at a point of time(31stmarch), an

income statement depicts the companys financial

performance over a period of time(financial year : from

April to march). It is a statement of companys revenues

and expenses.Revenuesare the inflows arising out of the companys sale of

goods and services.

Expensesare the outflows incurred to earn the revenues

Revenue>ExpensesProfitRevenue


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Statistical Data And Reports

Data helps in applying statistical techniques ofaverages,regression,correlation etc. to predict company'sperformance.

Quality control

Quality control uses operational techniquesand activities to sustain quality of theproduct or service to satisfy customerneeds. It aims to maintain quality of

goods at each stage of the manufacturingprocess rather than detecting errors atthe end of the production cycle wherefaulty products may have to be discarded

or rewarded.


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Method of Quality Control1.Inspection- Inspection means checking the product through

visual or testing examination, at the input stage, transformationstage or output stage, in terms of quality against standards.

Types Of Inspection :

100% inspection

Sample inspection

2. Statistical Quality Control- SQC is a statistical technique usedto monitor quality of the products. It is based on statisticaltheories and methods of probability to control the: incomingmaterials, processes during production and final products.

It can be done in the following ways:

A. Acceptance SamplingB. Process sampling

Variations due to chance

Variation due to assignable causes

o a a


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o a ua yManagement

It is the, management of quality ,totally and fully in all respects,

small areas and all activities of organization right from top to

bottom. The core of total quality management is that

managerial attention is focused on every organizational

activity, howsoever small it may be. It aims at continuous

improvement of the organization and focuses on totalsatisfaction of consumers, both internal and external. TQM is

a continuous long-term process that involves constant

managerial efforts to recognize and reinforce quality trough

continuous data collection, evaluation, feedback andimprovement programmes.


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Modern Techniques Of Control

Management Information System- Thesystem of obtaining timely, relevant andaccurate information based on computertechnology is known as information system.The system helps managers in preparingreports for effectively carrying out planningand controlling functions.

According to Weihrich and koontz,MIS is aformal system of

gathering,intergrating,comparing,analyzing and dispersing information interval andexternal to the enterprise in a timely,effective and efficient manner


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Features Of MIS

TimelinessAccuracyRelevanceConciseCompletenessAdvantages Of MISAccurate Information

Relevant InformationFacilitates managerial functionsFacilitates Coordination


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Management Audit

Audit means periodic inspection of financial statementsand verifying that the statement and verifying that thestatement are honestly and fairly prepared accordingto accounting principles. Audit thus provides the basisfor control.

Two types of audit can be conducted by firm-External Audit-It refers to verification of financial

statement. Companys assests,liabilities and capitalaccounts are checked and deviations are reportedto managers for action. Control is thus facilitated

through verification of accounts against the standardprinciple. This is known as financial audit.

External audit checks fraudlent practices in preparingfinancial accounts .Outside parties like , investors ,bankers and financial institutions can enter into fairand honest dealing with the firm if its accounts areaudited.


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Objectives

1. To appraise managerial efficiency with respect to

objectives, policies and procedures of theorganization.

2. To asses whether organizational policies are being

followed or not.

3. To evaluate management's performance with

respect to standard performance.

4. If actual performance deviates from standard

performance , to find out causes for the same.5. To suggest remedial measures to remove deviation

and improve managerial performance.


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Responsibility Accounting

It divides the organization into small units wheremanager of each unit is responsible for achieving

the targets of his unit. These units are called

responsibility centers and head of each

responsibility centre is responsible for controllingthe activities of his centre. Performance of

responsibility centre is judged by the extent to

which targets of the centre are achieved .


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PROGRAM EVALUATION AND

REVIEW TECHNIQUE(PERT)

PERT- A TIME EVENT NETWORK ANALYSISSYSTEM IN WHICH THE VARIOUS EVENTS IN APROJECT OR PROGRAM ARE IDENTIFIED WITH APLANNED TIME ESTABLISHED FOR EACH.

METHODOLOGY PREPARATION OF THE NETWORK .

NETWORK ANALYSIS.

SCHEDULING.

TIME COST TRADE OFFS. RESOURCE ALLOCATION.

PROJECT CONTROL.


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CRITICAL PATH METHOD(CPM)

IT IS USED FOR OPTIMISING RESOURCE ALLOCATION ANDMINIMISING OVERALL COST FOR A GIVEN PROJECT.

PROCEDURE-

BREAK DOWN THE PROJECT INTO VARIOUS ACTIVITIESSYSTEMATICALLY.

NUMBER ALL THE EVENTS AND ACTIVITIES.

CALCULATE THE EARLIEST START TIME, EARLIER FINISHTIME, LATEST START TIME AND LATEST FINISH TIME.

DETERMINE TOTAL FLOAT TIME.

IDENTIFY THE CRITICAL ACTIVITIES AND CONNECT THEMWITH DOUBLE LINE ARROW.

CALCULATE TOTAL DURATION OF PROJECT.


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What is The Balanced

Scorecard?

BalancedScorecard

A performance

measurement toolthat looks at more

than just the

financial

perspective

Copyright 2011 Pearson

Education, Inc. Publishing asPrentice Hall.


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BALANCED SCORECARD

BALANCED SCORECARD:A PERFORMANCEMEASUREMENT TOOL THAT LOOKS AT FOUR AREAS-

FINANCIAL, CUSTOMER, INTERNAL PROCESSES AND

PEOPLE/ INNOVATION/ GROWTH ASSETS THAT

CONTRIBUTES TO A COMPANIES PERFORMANCE.

THE FOUR GENERAL PERSPECTIVE WHICH HAVE BEEN

PROPOSED BY BALANCED SCORECARD ARE AS UNDER:

FINANCIAL PERSPECTIVE

CUSTOMER PERSPECTIVE


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INTERNAL PROCESSES PERSPECTIVE

INNOVATION AND LEARNING PERSPECTIVE

LIMITATIONS

SCORES ARE NOT BASED ON ANY PROVEN ECONOMIC OR

FINANCIAL THEORY.

BALANCED SCORECARD DOES NOT PROVIDE A

BOTTOMLINE SCORE.


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FINANCIAL RATIO ANALYSIS

RATIO-IN SIMPLE WORDS, RATIO MEANS COMPARISON OFONE FIGURE WITH ANOTHER RELEVANT FIGURE OR

FIGURES. IT MAY ALSO BE TERMED AS NUMBER

EXPRESSED IN TERMS OF ANOTHER NUMBER.

NO ANALYSIS IS POSSIBLE ON THE BASIS OF ABSOLUTE

FIGURES. HENCE VARIOUD RATIOS ARE CALCUKATED

FOR FINANCIAL ANALYSIS AND CONTROL.

SOME OF SUCH IMPORTANT RATIOS ARE AS FOLLOWS:-


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MVA- IT ADDS A MARKET DIMENSON SINCE IT MEASURES THESTOCK MARKETS ESTIMATE OF THE VALUE OF A FIRMS PAST

AND EXPECTED CAPITAL INVESTMENT PROJECTS. IT IS THE

DIFFERENCE BETWEEN THE CURRENT MARKET VALUE OF AFIRM AND THE CAPITAL CONTRIBUTED BY INVESTORS.

FORMULA:-

MVA=V-K

WHERE-V= market value of the firm, including the value of the firms equity and

debts

K= capital invested in the firm.


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BENCHMARKING

BENCHMARKING: THE SEARCH FOR BEST PRACTICESAMONG THE COMPETITORS OR NON-COMPETITORS

THAT LEAD TO THEIR SUPERIOR PERFORMANCE.

BENCHMARK: THE STANDARD OF EXCELLENCE AGAINSTWHICH TO MEASURE AND COMPARE.

THE METHADOLOGY ADOPTED IS AS UNDER:

IDENTIFY THE PROBLEM AREAS.

IDENTIFY OTHER INDUSTRIES.


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IDENTIFY ORGANIZATIONS THAT ARE LEADERS INTHESE AREAS.

SURVEY COMPANIES FOR MEASURE AND PRACTICES.

VISIT THE BEST PRACTICE COMPANIES TO IDENTIFY

LEADING EDGE PRACTICES.

IMPLEMENT NEW AND IMPROVED BUSINESS

PRACTICES.

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Contol Techniques