CHAPTER 17

CONTROLLING

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.

PLANNING

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”

Areas or scope pf controlControl 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.

Steps in Control process

Measuring performance

Comparison of

actualwith standards

Establishing standards

Taking corrective action

Requirements of effective control system

FeedbackObjectiveSuitabilityPrompt reportingPointing out exceptionsFlexibleEconomyIndelibleSuggest remedial actionMotivation

Techniques of controlTechniques of controlManagement Management

information information systemsystem

Critical path Critical path methodmethod

personal personal observationobservation

ControlControl

Statistical control reports

Cost accounting and cost control

Performance evaluation

Standard costing

Break –even analysis

Special control repots

return on investments

Managerial statistics

Responsibility Accounting

management audit Internal Audit

Production control

Gantt milestone

chart

Zero-based budgeting

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

Pert/Pert/CpmCpm

Advantage of pert/cpmMaking awareness of responsibilities:Securing co-operation:Facilities decision-making:Improved communication:Simultaneous performance of works:Advance control action:Timely completion of a project:

Limitations of pert/cpm

Error in estimation of time and costapplicationTime consuming and expensive

Distinction between pert and cpmPERT 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

Characteristics or features of control

Controlling process An Essence of action

Universal

Dynamic process

Forward looking

Influencing factor

Control involves management

Need of control

Judging the accuracy of standards:Minimize dishonest behavior:Better performance:

Advantages of controlAdjustments in operationverification of policymanagerial accountabilityPsychological pressureMaintaining moralityCo-ordinationEfficiency

Limitations of control

Absence of perfect standardsUncontrollable factorsDifficulty in fixing responsibilityExpensive process

Types of managerial control

Standardizing controlpreserving controlDelegation of authority controlMeasurement controlMotivating control

Budget & Definition of budgetBudget 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”

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.”

Characteristics of budgetary controlThe 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.

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.

Advantages of budgetary control

Tool for planning the activities

Thinking in advance

Control of expenditure

Co-ordination of efforts

Better utilization of resources

Delegation of authority

Solving financial difficulties

promotion of efficiency

Achievement of goals

Criteria of self-examination

Promoters balanced activities

Budgetary

Ensures proper communication

Fixation of responsibility

Encourages exchange of information

Disadvantages, Limitations or problems of budgetary control

Inaccuracypersonal biasNon-availability of Co-operationRigidityResults are not attainable

Disadvantages, Limitations or problems of budgetary control

ConsistencyTime Consuming processIneffective budgetary controlDiscourage the initiativeMore paperwork

Essentials of Effective budgeting system

Efficient organizationPreparing master budgetQuick reportingFlexible

Essentials of Effective budgeting system

Support of top managementBased on reasonable assumptionReward and punishmentAppropriate authority

Techniques of controlTechniques of controlManagement Management

information information systemsystem

Critical path Critical path methodmethod

personal personal observationobservation

ControlControl

Statistical control reports

Cost accounting and cost control

Performance evaluation

Standard costing

Break –even analysis

Special control repots

return on investments

Managerial statistics

Responsibility Accounting

management audit Internal Audit

Production control

Gantt milestone

chart

Zero-based budgeting

Types of budgetsTypes of budgets

Sales budgetSales budget

Types of Types of budgetsbudgets

Master budget

Cash budget Research and

development budget

Selling and distribution cost budget

Production budget

Physical property budget

Supplies budget

Production overhead

budget

Production cost budget

Time and material budget

Balance sheet budget

Budget can also be classified asFixed budgetFlexible budgets

Preparation of a budgetSound forecastingDeveloped accounting systemFixation of responsibility centersFormation of budget committees

Preparation of a budgetClear definition of business policiesStatistical informationSupport of top managementBudget period