UNIT-4-
CONTROLLING
INTRODUCTION
In Management literature, the word “control” has a
special meaning. It means setting standards,
measuring actual performance, and taking corrective
action
Control refers to assessing the progress of work from
time to time so that the actual progress of work is
according to the expected progress.
If actual progress is not in accordance with expected
one, deviations are found out, and corrective action is
taken so that mistakes are not repeated.
Control is applicable to all business functions, e.g.
finance, purchase, production, marketing, materials,
cost, quality etc
DEFINITION
• Philip Kotler, “control is the process of
taking steps to bring actual results and
desired results closer together.”
• Koontz and O’Donnel “as the
measurement and correction of
performance of activities of subordinates
in order to make sure that enterprise
objectives and plans devised to attain
them are being accomplished’.
NEED/SIGNIFICANCE
1) Basis for future action.
2) Facilitates decentralization
3) Helps in improving efficiency
4) Psychological pressure
5) Achieving organisational objectives.
6) Coping with changes
7) Efficient use of resources
8) Determining the accuracy of standards
9) Helps in decision making
10) Motivates employees.
11) Maintains discipline and order
12) Improves coordination
THE PREREQUISITES AND CHARACTERISTICS
OF EFFECTIE CONTROL SYSTEMS
Pointing Out Reflection of Promptness in
Exceptions at Organizational Reporting
Crucial Points Needs Deviation
Forward
Simple Economical
looking
Timeliness Emphasis on
Motivation
Exception
Corrective
Flexibility Integration
Action
Techniques of Controlling
• Personal Observation
Personal observation is the oldest and most important controlling
techniques. Under this technique, managers or superiors personally
visit the work place regularly and observe the performance of
employees. They check if the work is going as per plans or not. If
any discrepancy is found, they give instructions on the spot
immediately.
• Statistical Data
Data is collected and presented in the form of tables, charts,
figures, and graphs. Then it is analysed with the help of various
statistical techniques like measures of central tendency, measures
of dispersion, correlation, regression etc. to take certain decisions in
the fields of production, quality, inventory, sales etc.
• Special Reports and Records
Special reports and records relating to different operations of the
concern are also prepared in addition to normal reports and
records. Experts prepare these reports. The investigation reports
relating to a specific problem or area are the examples of special
reports and records
• Operational Audit
Operational audit refers to audit of internal operations of the organisation.
The organisation conduct internal audit with the help of some specialised
internal staff or may also hire the services of external audit team. Audit
gives a review of overall working of the organisation. It depicts whether
organisational policies, plans, procedures etc. are being adopted by the
employees in their day to day working or not.
• Cost Accounting and Cost Control
Cost accounting is a technique to determine the cost of a product,
process, or a unit and cost control. Cost control includes control over
costs by using various techniques. One such technique is standard
costing. It includes determination of standard (or predetermined) costs.
Standard costs are determined in respect of total cost as a whole as well
as for each element of cost, i.e., material, labour and overheads. When
actual costs are incurred, these are compared with standard costs and
variations, if any, are found.
• Break-Even Analysis
It is used to find out breakeven point where the total cost is equal to
total revenue, i.e. the point of no loss no profit. This point is used to
identify the number of units of a product that must be sold to generate
enough revenue to cover costs. Any production above this point will
yield profits. This technique basically shows relationship between cost-
volume-profit.
The formula to calculate beak even point is as follows:
• Budgets and Budgetary Control
Budgets are used as a controlling technique by most of the
organisations. A budget represents a statement of expected
results expressed in numerical terms. It is formed in
advance for the period to which it will apply.
Budgeting is the process of making budgets. Budgets are
prepared for various operations of the organisation, like,
sales budget, production budget, financial budget,
overheads budget, personnel budget, etc.
Budgetary control is a technique to use budgets for
controlling activities. It is the process of establishing various
budgets for different operations of the concern for the
future period, and then actual results are recorded. The
actual figures are compared with the budgeted one and
discrepancies are found out and remedial actions are taken
MODERN CONTROL TECHNIQUES
1- Return on Investment
• Return on Investment (ROI) is the profit earned
by invested capital. It is analyzed to attain
financial control in the business. It is also known
as the Du-Pont System of financial analysis.
• To measure the generated return, we calculate
the rate of ROI. This rate helps assess the
financial position of the business.
2- Responsibility Accounting
It is an accounting system that depends upon the
responsibility assigned to the employee. So businesses
conduct an evaluation of the employee’s ability to fulfil the
assigned responsibility as per set standards. This control
technique is suitable for large organizations containing many
departments.
3- Management Information System (MIS)
MIS is a scientific way of collecting, organising, processing,
and storing and communicating information to various levels
of management so that decisions can be taken by the
managers in time. The information obtained from MIS is
accurate and facilitates decision-making.
4- Zero Base Budgeting (ZBB)
Zero base budgeting or ZBB is a new approach of budgeting. Under
ZBB, in determination of budgets, information or figures of previous
periods is not taken into account. Budgets are prepared in light of
current situation without considering the information from previous
years or periods. ZBB starts with a base taken as zero. In this
technique, all activities are analysed in terms of their needs and
costs. In the budget, every expense has to be justified in the
5- Program evaluation review
technique (PERT)
A program evaluation review technique (PERT) a procedure
through which activities of a project are represented in its
appropriate sequence and timing.
It is a graphical representation of a project's timeline that
displays all the individual tasks necessary to complete the
project.
A PERT chart uses circles or rectangles, called nodes, to
represent project events or milestones. The nodes are linked by
vectors or lines that represent various tasks.
6-Critical Path Method (CPM)
• Critical Path Method (CPM) is a method used in
project planning, generally for project scheduling
for the on-time completion of the project. It actually
helps in the determination of the earliest time by which
the whole project can be completed.
• There are two main concepts in this method namely
critical task and critical path.
• Critical task is the task/activity which can’t be delayed
otherwise the completion of the whole project will be
delayed.
• Critical path is a sequence of critical tasks/activities and is
the largest path in the project network. It gives us the
minimum time which is required to complete the whole
project
7- Management Audit
8- TQM
Total quality management (TQM)
is the continual process of
detecting and reducing or
eliminating errors in
manufacturing, streamlining
supply chain management
improving the customer
experience, and ensuring that
employees are up to speed with
training.
TQM aims to hold all parties
involved in the production
process accountable for the
overall quality of the final
product or service.
9- SIX-SIGMA
Six Sigma is a set of techniques and tools
for process improvement developed by a
scientist in the 1980s at Motorola. Its
methodology focuses on statistical
improvements to a business process and
advocates for qualitative measurements
of success.
Six Sigma practitioners are
businesspeople who use statistics,
financial analysis, and project
management to achieve improved
business functionality and quality control
by reviewing mistakes or defects.
The five phases of the Six Sigma method,
known as DMAIC, include defining,
measuring, analyzing, improving, and
controlling.
10- H R Accounting
11- Performance budgeting