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 uncertainty
2. Detecting irregularities
3. Identifying opportunities
4. Handling complex situations.
5. Decentralizing Authority.
6. Minimizing cost.
 Types of control
There are 5 types of control
Feedback Control
Concurrent Control
Feed forward control
Cybernetic 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 performance
4. 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 STANDARDS
MONITORING
 COMPARISON
CORRECTIVE 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 EFFICIENCY
 SAVES TIME.
 3.COMPARISON
 DETERMINES THE DEGREE OF VARIATION
BETWEEN ACTUAL PERFORMANCE AND THE
STANDARD.
 4.CORRECTIVE ACTION
 AVOIDS BUSINESS FAILURES
 MINIMIZE COSTS
 MAX 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 Budget
1. 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