Unit V
Controlling:
Accordiing to Harold Koontz, “Controlling is the
measurement and correction of performance in order to
make sure that enterprise objectives and the plans
devised to attain them are accomplished”.
Characteristics of Control:
1. Control process is universal
2. It is a continuous process
3. It is action based
4. Forward looking
5. It is closely related to planning.
Importance of Controlling:
1. Policy verification
2. Adjustments in operations (giving clue)
3. Psychological pressure (better performance)
4. Coordination
5. Employee morale
6. Efficiency and Effectiveness
Process of Controlling:
1. Establishing Standards
a) Standards may be expressed in quantitative or qualitative.
b) It is a criterian against which result can be measured.
c) It shall be accurate, precise, acceptable and workable.
2. Measuring Performance
a) It does not mean knowing what has happened but also what is likely
to happen.
b) It should be in quantitative terms.
c) It can be measured by personal observation sample checking etc.
3. Comparing actual with Standards
4. Finding out deviations
Types of Control:
1. Feed back or Historical Control
It is known as post action control.
2. Concurrent Control
i. It is known as real time control.
ii. Doing adjustments while the programme meets any
obstacles.
3. Feed forward control
It involves the evaluation of inputs and taking
corrective action before a particular operation is
completed.
Budgetary Control Techniques:
Budget:
According to [Link] Meston, “A budget is the
expression of a firms plan is financial form for a
period of time into the future”.
Budgetary Control:
According to [Link], “A system which use
budgets as a means of planning and controlling all
aspects of producing and / or selling commodities
and services”.
Objectives of budgetary Control:
i. It aims maximization of profits.
ii. Controls the expenditure on development and research.
iii. It provides an adequate working capital.
iv. It coordinates all the activities in the organization.
v. To decentralize the responsibility of various individuals in the
organization.
Problems or Limitation of Budgeting:
1. Inflexibility (future is uncertain)
2. Inaccuracy
3. Distortion (bend) of Goals
4. Hiding inefficiencies
5. Expenditure (requires more time, money and effort)
Effective Budgetary Control:
1. Define objectives
2. Support of top management
3. Flexibility
4. Budget committee
5. Budget education
6. Good feedback
7. Participation
8. Communication
9. Reward and Punishment
10. Proper recording of operations
Classification of Budget:
[Link] Budget
i. Sales budget
ii. Production budget
iii. Purchase budget
iv. Long term budget
v. Personnel (employees) budget
vi. Cash budget
vii. Researches and Development budget
viii. Capital Budget
2. Classification based on time:
i. Long term budgets (5 to 10 years)
ii. Short term budgets (1 to 2 years)
iii. Current budgets (day to day budget)
3. Classification based on activity
i. Fixed budget
ii. Flexible budget
iii. Alternative budget
iv. Supplementary (extra) budget
Budgetary Control Methods:
1. Planning Programme Budgetary System (PPBS)
i. Analyzing the basic objectives, policies and each activity in
the organisation.
ii. Measuring the total cost of the programme.
iii. Find out alternatives which is least cost.
iv. Implementing the system
v. Follow up the activities.
2. Zero Base Budgeting
It contains a comprehensive analysis and review of
budget proposals is made every time.
3. Human Resource Accounting:
It attempts accounting to significant costs of
recruitment and training.
Traditional Non Budgetary Control:
1. Reports and Statistical data
2. Personal observation
3. Operational audit
1. Programme Evaluation and Review Technique (PERT)
It was developed primarily to simplify the planning and scheduling
of large and complex projects.
2. Critical Path Method (CPM)
It is base on the perfect time estimation. It aims to reducing cost and
completion of project.
MIS:
It can be defined as “A system of obtaining , abstracting, storing and
analyzing data to produce effective information for use in planning ,
controlling and decision making process”.
Managing Productivity:
It is the measure of how well the resources are brought together in an
organisation and utilized for accomplishing objectives.
Definition: Productivity is a measure of how much input required to
produce a given output (i.e) the ratio output / input is called
productivity.
Factor affecting productivity:
1. Technology
2. Human resources
3. Government policy
4. Machinery and equipment
5. Skill of the worker
6. Materials
7. Plant equipment
8. Land and buildings
9. Capital
10. Research and Development.
Productivity Measures
1. Labour productivity = output / labour input
2. Capital productivity = output / Capital Input
3. Material Productivity = output / material input
Production and Operation Management:
Production is defined as the step by step conversion of
raw material into finished products.
Operation management is necessary to produce and
deliver a service or physical products.
Operation Management System:
Input : Technology, man, machine and Money
Process: Required process of planning, operating and
controlling the system
Output: Product, service
Product Development:
It is the work contributed towards improvement
in the present knowledge by the way of
improved ideas.
Product development procedure:
1. Creation of new ideas
2. Screening of ideas
3. Product analysis
4. To utilize the existing resources
5. Product design
6. Test marketing
7. Commercialization
Product analysis / Product Design
[Link] : analyzing the market situation , demand of the
product and customer acceptability.
2. Economical: Profit margin, Pricing policy, Volume of sales, and
Investment analysis.
3. Production : manufacturing depends upon the coordination of
other departments.
i. Selection of suitable process
ii. Sequence of operation
iii. Application of new techniques
iv. Selection method of reduce cost and waste
4. Product quality and operation : Give better quality product at
reasonable price.
5. Government policy: see whether government policy are
favourable to the product.
6. Technology: analyzing existing and new technology which is
profitable to the product.
Product layout:
The arrangement of machines and equipments according to the
product manufacture is called as product layout.
Operation research:
OR is a mathematical logic to complex problems requiring managerial
decisions.
OR is an experimental and applied science developed for observing
understanding the purposeful man machine system and operations
research workers are actively engaged in applying this knowledge to
practical problems in business government and Society”. Operation
Research Society of America.
Necessity of OR:
1. Uncertainty
2. Responsibility and authority (to attain a goals)
3. OR models (selecting best course of action)
4. Complex organization (complex problems can split into simple)
5. Optimization or resources
6. Minimizing time
7. Maximizing profit
8. Minimizing cost
Role of OR in Business and Management:
1. Production management
Allocation of resources , Project scheduling, Inventory policy,
equipment replacement and maintenance.
2. Finance management:
Fund flow analysis, credit policies and capital requirement
3. Purchasing and procurement:
Rules of purchasing and determining quantity
4. Marketing:
Product selection, competitive strategy, advertising strategy
5. Financial:
Fund flow analysis.
Inventory Control:
It refers to the control of raw materials and purchased materials in store
and regulation of investment in them.
JIT:
It is also called Zero Inventory and Stockless production. The suppliers
deliver the materials to the production spot just in time to be
assembled.
Cost Control:
It is used by the managers to control an organizations financial
resources.
Financial statement: it refer to four basic statements of profit and loss
account, balance sheet, statement of retained earnings and sources
and fund statements. It reflect the strength and weakness of the
organization.
1. Income statement: it is also known as profit and loss account. It
summarizes the revenues and expenses of the period.
2. Balance sheet:
it set outs the financial condition of a company.
It together with profit and loss account will give financial position of
the company.
In balance sheet, left hand side contains liabilities and right hand
side contain asset.
Key words of cost control:
1. Assets: the expected future economic benefits to the business.
2. Fixed asset: building, Machineries
3. Current Assets: Bank in cash, DD.
4. Liabilities: settlement in future
5. Fixed liabilities: only payable on the termination of business.
6. Current liabilities: bills payable.
Direct and Preventive control:
Some employees performance is poor. Finding out the employees
and then correcting their performance and achieve the organization
goals is called direct control.
An efficient manager applies the skills in managerial philosophy to
eliminate undesirables activities which are reason for poor
management. It is called preventive management.
Factors influencing the direct control:
1. Uncertainty
2. Lack of knowledge experience
3. Lack of Communication
4. Lack of Coordination
Effective steps for direct control:
1. Performance can be measured
2. Effectively utilizes time
3. Errors can be discovered in time
4. Participation
5. Coordination
Effective steps for Preventive control
1. Qualified managers
2. Management principles to measure performance
3. Evaluation
Reporting:
Every enterprise has its own objectives. Submission of
budget and reports play an important role. These are the
resume of the particular company. It includes company
sales volume, profit, credit, cost, purchase and return on
investment.
Return on Investment:
It is the broadest measure of overall performance of a
business. The prime objective of a business is to obtain
satisfactory return on capital invested.
1. Investment turnover = sales / Investment
2. Percentage of profit on sales = profit / sales * 100
3. Return on capital employed = profit / capital employed * 100
Purchase control:
It is one of the basic functions of organizations.
Objectives of purchasing Department:
1. Better purchase can save a firms financial resources.
2. It would be reduced and in turn it will also reduce the inventory
asset base.
3. It will have an impact in other operating results.
4. It procure materials for manufacturing process.
Types of special purchase system:
1. Blanket order
2. Forward buying
3. Tender buying
4. Zero stock
5. Rate contract
1. Forward Buying: the purchasing decision for a period will be taken
in advance in terms of order quantity, rate and delivery schedule by
taking in to consideration the availability of fund and the
requirements.
2. Tender Buying: the steps are preparing bidders (proposal) list,
advertising tenders, receiving bids, evaluating bids and placing order
with the bidder with the lowest cost.
3. Blanket ordering system: the organization will enter into an
agreement with its supplier to receive for a required quantity at a
particular rate over a period of time.
4. Zero stock purchase system: it is line with using in time
manufacturing system. The main idea of the system is to operate the
plant with near zero inventory.
Standard Purchasing Procedure:
1. Processing the requisition (purchase requisition)
2. Location and choice of suppliers
3. Placing of orders
4. Follow up and expediting
5. Invoice checkup and clearance
6. Maintenance of records.
Methods of Purchasing:
1. Purchasing according to the requirement
2. Price forecasting method
3. Purchasing for some definite future period
4. Market purchasing
5. speculative (unsure) purchasing
6. Contract purchasing
7. Scheduled purchasing
8. Public buying
9. Tender purchasing
Maintenance Control:
It is the process of keeping the machine and equipment
in good working condition so that the efficiency of
machine is retained and its life is increased.
Functions of Plant Maintenance
1. Inspection
2. Repair
3. Overhaul (service)
4. Lubrication
5. Salvage (recover)
Types of Maintenance:
1. Breakdown maintenance
2. Preventive maintenance
Breakdown maintenance:
The equipment is generally attended only when it breakdown.
Preventive maintenance
It is a systematic maintenance procedure where in the condition of the
plant is constantly watched through a systematic inspection and
preventive action is taken to reduce the incidence of breakdown.
Techniques of planned maintenance control:
1. Inventory facilities
2. Marking equipment
3. The facility register
4. Marking schedule
5. Job specification
6. Maintenance program
7. Job report
Quality Control:
Quality is defined as the degree (quality) to which a set of inherent
(permanent) characteristic fulfills requirements.
According to Deming, “it is the predictable degree of uniformity at
low cost and suited to the market”.
Quality Control: it is the procedure that is followed to achieve and
maintain the required quality.
Steps in quality control:
1. Fixing the quality control
2. Evaluation of measurement of quality
3. Comparing the measure quality with the standard
quality
4. Finding out the deviation
5. Reasons for variation
6. Taking corrective action