A BASIC STUDY ON

MANAGEMENT CONTROL OF PROJECTS

INTRODUCTION, IMPORTANCE AND SIGNIFICANCE:-

This study familiarizes the various conceptual foundations & framework of

management control systems (MCS). The main focus of this study is the nature &
purpose of management control system, elements of management control systems;
inter linkages between, strategic thinking, management & operational controls.
During the recent years a number of new management techniques have
emerged. These include total quality management. (TQM), Activity based costing
(ABC), Enterprises resources planning (ERP), Total knowledge management (TKM)
etc. This study provides a brief outline of linkages of the management techniques
with management control systems. This also highlights the implications of ethical
dimension in deciding and operating the management control system.
When we think about project management in consulting/engineering
organizations the natural picture which comes to mind is the design and construction
of building, Industrial sheds flyovers, bridges, railway lines, roads, thermal, nuclear
power plants etc. While much can be learned from studying such cases whenever
manager tackle smaller but no less important projects every day. The level may differ
among the projects but the underlying principal of delivering the result on time within
specified cost, quality and specification remains the same.
Project management is no more about managing the sequences leading to
completion of projects. It’s about working back word and forward where needs of
customers are incorporated. Creation of system for resolving trade leads to
predomination of efforts. It involves working concurrently in all aspects with cross-
functional team. It also needs to work with some organization like manufacturing,
Logistics, Process, new product development team. Marketing project management
requires high level of co-operation among various organizational units.
Management has following significance and Importance.
Management is important tool to achieve set targets within specific time period and
with desired quality. It also helps in studying and analyzing the causes of delay as far
as delay in project is concerned.
It helps project manager to plan different activities with preferences and also in
execution of various activities of work. Management helps to improve performance of
every individual associated with any company while carrying out works.
“Management control is the process by which manager assures that
resources are obtained, used effectively and efficiently in the accomplishment of
organizational goals”.
Management control may involve variety of activities to achieve different goals.
Planning what organization should do
Co-coordinating the activities of several parts of organization
Communicating information
Evaluating information
Deciding that if any, action shall be taken
Influencing people to change behavior
Thus management control has elements like visioning, decision making, leading,
object setting, strategy formulation and control.
OBJECTIVES OF BASIC STUDY:-
1) To familiarize managers / peoples with the management control system.
2) To explain various concepts control to obtain maximum of output / profit with
optimum solutions in project.
3) Contrast management control with strategic thinking, planning and other
control concepts for project management.
4) Provide an overview of new management techniques for management control
and implications of new dimensions as ethical dimensions for management
control.
5) To understand nature of project, difference between ongoing operation and
project.
6) To control environment of projects.
7) Project planning process, project executions and evaluation process.
8) To understand significance of Research & Development:
9) To understand significance of Customer service

EXPECTED CONTRIBUTION:
It is expected from this study to guide various concepts and techniques of
management controls systems to be used for successful and timely execution of
different projects and in tackling difficulties day to day by providing best possible,
optimum and economical solutions.
From this study it is expected to make managers familiar with techniques and
effective tools of management control.
SIGNIFICANCE:
Nature and purpose of management control system having following elements like
1) What organization should do? i.e vision of organization for future development.
2) Communication, evaluation of information and action plan for making an optimistic
and perfect decision.
3) Influencing people to change their behavior by leading and convincing with sound
decisions and discussions.
There are three types of controls.
a) Action Control
b) Personal and cultural control
c) Result controls
Action control involves ensuring that employees perform certain actions known to be
beneficial to organization.
Personal and cultural controls on taking steps to ensure that employees control
their own behavior. Such controls aims about helping employees to do good job and
based on employees natural tendencies to control themselves.
A result control focuses on results and involves rewarding individual and
sometimes group of individuals for generating good results.
These controls are self monitoring that could include self control intrinsic motivation,
ethics, trust and transparency etc.
It may be indicated that management control system can also be viewed from
functional perspective. In functional approach to management control system the
managerial functions for Marketing, finance ,Human resources development,
Research and development etc. constitute the primary basis for design of
management controls within each function .Every organization needs effective
management control, but important thing is how to create it. In other words what are
the prerequisites of an effective management control system? These are the
questions of considerable interest and significance has been subjects of ceaseless
debates. It is not that we intend to provide you cut and dried answers to the either.
The main attempt is to highlight some broad considerations which should be borne in
mind while designing and implementing management control system in any
organization.
There are various responsibilities like as mentioned below.

TOP MANAGEMENT RESPONSIBILTY:

It is for design and implementation of management or say co ordination unit.
It is the top management that decides the goals, objectives, strategy and structure of
an organization which indeed serve as boundary constraints for management control
system.
It must be remembered that management control system tends to be highly
situational and organization specific.
Efficient and effective accomplishment of the goal of organization is the aim of
all management process. Each responsibility centre in the organization must then
strive to put up best performance.
A prerequisite for goal congruence in an organization lies in the acceptance of
the goals and sub goals of the organization by its unit managers and adequate
efforts and motivation on their part to achieve them .The motivation of manager
deserve special consideration in designing and implementing a management control
system.
ANALYSIS & STRATEGIC PLANNING:
Success of management control depends on different factors
1) Different strategies
2) Action taken at different stages during execution of any project
3) Motivation
4) Management of resources
Proper strategies in which organizational developments, growth goal is taken
into account for maximizing the profit is an important aspect
Conceptualization and analysis of different activities for solving critical
problems and planning activities is basic tool and strategy of success.
Proper co ordination during life cycle of project by taking proactive measures
and performing day to day activities by utilizing available resources to get desired
output.

EXPECTED CONTRIBUTION:
Basic study of management control system it is quite helpful for project
managers to have a guideline to know different control measures. It also give
practical approach to find out economical, technically sound solutions by carrying out
research surveys by interviewing different project managers from 5 various
Organizations.
Management control system helps in planning, tracking out activities and also
for evaluation of project results. One of the most critical difference between
management controls of ongoing operations and project have limited life cycle.
Ongoing operations continue for long period since functions differ from manage to
manager.
 A project basically consist of three operations
>Planning
>Execution
>Evaluation of project.
Thus this study with certain experience, expertise and management control
systems will be helpful for managers to manage various activities.

BRIEF GUIDELINES FOR PROJECT MANAGERS:

1) Manager should properly know the Management control systems/Tools.
2) Profit maximization is always possible by proper management so project manager
has to aware of same.
3) Management control through strategic planning by using other expert tools will be
effective measures for proper control.
4) Manger should use new, ethical and motivational tools while carrying out
execution as new dimensional techniques.
5) During execution stages manager shall understand concept, nature, complexity &
priority of work
6) To control project environment, manager shall motivate all resources by rewarding
them for effective completion of project.
PROJECT EXECUTION:
The results /output of the planning process acts as guidelines for project
execution. The planning process results into specifying a specification of work
packages, a schedule, and a budget and the manger that is responsible for each
work package is identified. The schedule shows the time associated with each
activity, and the budget estimated shows estimated cost of each project part. If the
resources required are shown in non monetary terms the control budget converts the
same in the monetary terms but for a sizeable aggregation of individual work
packages. In the control process the actual data regarding specification, schedule
and cost are compared with these estimations.
Both the sponsors and the project manager are concerned with three questions.
i. It is project going to be completed by the scheduled completion date?
ii. Is the completed work going to meet the stated specification?
iii. Is the work going to be completed within the estimated cost?

The underlying variables for any project are susceptible to change and the changes
in this variable have as bearing on answer to these questions. If at any point of time
during the course of the project the variations are negative, both the sponsors and
project manager need to know the reasons and alternative corrective actions
undertaken.
These three parameters of specification, time and cost are not independent of
each other and some times a trade-off has to be done among the three variables.
SYSTEMS FOR REPORTING PROJECT CONTROL:
The project managers and sponsors are interested in variance of cost,
schedule and specifications. For any work Breakdown Structure (WBS) the project
manager is interested in the relationship between planned value of work for a given
time period and actual costs of work for the same time period. The difference
between the two will give the variance for the task; by computing more detailed
variances one can trace its course.
These are five potential causes for any total variance.

1) Completion of more less work than scheduled.

2) More or less usage of labor than planed for the actual work.
3) More or less wages paid than planned for the actual labour used.
4) Usage of more or less material than planned for the work completed.
5) Paid more or less than planned for the material actually used.

Trouble reports: Reports both the trouble which had already accrued and also
anticipated future trouble. Critical problems are flagged.
Progress reports: Reports about the status of the project and compares the
actual schedule and cost with planned schedule and cost.
Financial reports: are concerned with project costs. These reports are important
because based on these reports payments to contractors are made under cost
reimbursement contract.
Revisions: Projects are generally complex and lengthy and the probability of not
adhering to project plan in terms of cost, scope and schedule is quite high.
 1) Accept the deviation and proceed as originally planned.
2) Include in a trade-offs between these three aspects via if schedule is
critical authorize use of extra manpower which requires payment of over
time wages which are higher than normal wages or if scope is critical
authorize the cost of increase.
3) Replace the project manager if deviations are unwarranted.
4) Termination the project.

PROJECT AUDITING: Project auditing involves two areas of project (i) cost (ii)
quality. There are two approaches which are followed for auditing purpose. One is to
audit the work as soon as it is completed and another one is to wait for substantial
amount for work to be completed and then start audit work.

PERFORMANCE EVALUATION:
Project evaluation mainly consist of two separate aspects of the project
(1) An evaluation of performance in executing the project
(2) An evaluation of the results obtained from the project.
The former is undertaken shortly after the completion of the project and the
latter is a continuous process and more complex process. For example
computerization of banks is a project .now as far as first aspect of project evaluation
is concerned it is going to measure the cost, time and scope of the project as
against the standards envisaged in the plan. The second aspect is concerned with
operational efficiency, customer satisfaction, manpower reduction, introduction of
new products; strengthening of internal controls etc. again these variables depend
upon other variables. Keeping in view the long term impact of the project, this aspect
of project evaluation is complex and continuous process.
COST OVERRUNS:
When actual costs are more that the budgeted cost, there is said to be a cost
overrun. To some this implies that actual cost was high but an equally plausible
conclusion can be that the budgeted cost was low. If there is an cost overrun due to
change in the scope of the project or other uncontrollable factors the reason could be
inadequacy of planning or underestimate of cost rather that the inefficiency at the
operating level. Interpretation of the costs should be done by analyzing both the
budgeted as well as actual costs.

EVALUATION OF RESULTS:
Based on the nature of the project, the time frame for measurement of actual
benefits may vary. Some projects have a long gestation period and a still longer
period when the benefits of project become visible. Another problem with the
evaluation of results is that the impact can’t be specifically measured as there are
other variables affecting the same.
Evaluation of the project should be done in the following cases.
i. The project should be important enough to warrant the considerable
expenditure of effort that is associated with formal evaluation.
ii. The result should be quantifiable and capable of being attribute to the
project e.g. if increased sales is the result, the contribution of the project
in increased sales should be clearly identifiable.
iii. Results of evaluation should lead to action; the evaluation process
should lead to refinement of planning and procedures.

TOTAL QUALITY MANAGEMENT TECHNIQUE:

A systematic process is adopted to identify and implement solutions to
prioritize opportunities for improvement. The TQM approach highlights the need for
customer oriented approach to management reporting, elimination some of our more
traditional reporting practices.
TQ M seeks to increase customer satisfaction by finding the factors that limit
performance. The practice of TQM in a manufacturing environment has produced
tangible improvements in efficiency and profitability as a result of much small
improvement.
It is generally believed that TQM is exclusively meant for manufacturing sector. But
the reality is that this concept is of universal applicability and can be applied very
comfortable in service sector as well. Let us first understand what is quality?

A Quality product or a service is the one which has the following attributes:
Systematic
Conformity
Zero defects
Cost saving
Customer satisfaction
Safety and reliability

1) Quality policy:
The overall quality intentions and directions of an organization are formally
expressed by the management.
2) Quality management:
That aspect if the overall management function that determines and
implements the Quality policy.
3) Quality system:
 This consists of the organizational structure, responsibilities, procedures,
processes and resources for implementing quality management.
4) Quality control:
It consists of the operational techniques and activities that are used to fulfill
the requirement for quality.
5) Quality assurance:
This includes all those plan and systematic actions necessary to provide
adequate confidence that a product or service will satisfy given requirements for
quality.
6) Product and Service Quality

TOTAL QUALITY MANAGEMENT (TQM)

TQM comprises three main activities
Maintenance of Quality
Quality improvement
Quality renewal
The total quality management approach may constitute of three parts which are as
discussed below.

a) Responsibility for quality:

The traditional view about quality is that, quality problem arises on factor floor
and workers and workmanship are responsible for quality problems. This
philosophy gives rise to quality control departments which looked for or “inspected
Quality into the product.” In contrast to this the TQM approach specifies that
everyone in the organization is responsible for quality. Edward Deming states that
a production process can be separated in to two parts.
1) The system which is under the control of management;
2) The workers who are under their own control.

b) Product design:
Researches have shown that many of the Quality problems are due to design of
the product. Common problems encountered at the design stage are;
i. Manufacturability if the product
ii. Inclusion of part which are unique it the product whereas parts which are
already available, cheap and common to other products would function
satisfactory.
iii. Including more separate parts than are necessary which would result in
more set up time increasing cost.
iv.
c) Relation with suppliers/Vendors:
Few years back the companies preferred to have a host of suppliers for raw
material, sub assemblies and components. With improvement in logistics and
supply chain management the companies should reduce the number of suppliers,
so as to have uniformity in the final product. Managing a large number of suppliers
is always a complicated task and in this process the first casualty is quality. While
managing a small number of suppliers the company can always monitor quality as
well as help suppliers in their R&D efforts and other areas resulting in improved
quality of sub assemblies and components.
 TQM Process:
In order to implement TQM in an organization the whole process can be
subdivided into three parts
(I) Main focus
(II) Implementation process
(III) Tools and methods
The main objective of any TQM process is too created by laying stress on the
following parameters.
a) Customer focus/orientation
b) Process focus
c) Long range planning
d) Institute training
The TQM is a continuous process divided into different programs some of which are
as follows.
Top management commitment
Status analysis
Training
Organizing for improvements
Quality measurements
Improvement projects
Quality awareness
TQM is a continuous and a dynamic process which covers management behavioral
aspects as well as operational aspects. The main method/tools of TQM are as
follows:
SRC (Statistical Process Control)
Team work (Cross functional Quality circles)
 Long term focus on suppliers and customers and integrating them in
development and manufacturing process
Work unit analysis
Quality awareness
For successful implementation of Business reengineering process the following
conditions are desirable;
Leadership and guidance from top management
External focus through customer research competitive and economic
analysis and benchmarking
Top level strategy to guide change and leaders who can implement
change
Method for redesigning processes to meet performance targets
Use of advance information technology
Effective change management and ability to develop organizational
culture.

Business Process Reengineering (BPR) tends to change the operation in a

dramatic way and some of the core focus areas for BPR implementation are listed
below
Customer orientation
Process orientation
Focus on core business
Rule breaking
Devotion for simplification
Creative use of information technology
Rapid payback
Principles of Reengineering:
Rule 1: Organize around outcomes, not Tasks.
Rule 2: Have those who use the output of the process to perform.
Rule 3: Merge information.
Rule 4: Treat geographically dispersed resources as though they were centralized.
Rule 5: Link Parallel Activities instead of integrating their Results.
Rule 6: Put the Decision Point where the work is performed and Build control into
process.
Rule 7: Capture Information Once at the Source.

ERP (Enterprise Resource planning):

To enable the easy handling of the system, ERP has been divided into the
following core subsystems: sales and marketing, master scheduling, purchasing,
shop floor control, accounts payable/receivable, logistics, asset management and
financial accounting.

Benefits of Enterprise Resource planning:

In an industry that is sensitive to dynamic market forces, cost fluctuations and
manufacturing responsiveness, there are many benefits to be gained from investing
in ERP.ERP application have shifted from assisting after-the fact monitoring to real-
time analysis, control and forecasting; and from facilitation standardization,
economies of scale and cost reduction in product, to enable, fast, flexible and
accurate response and customization. The benefits accruing to any business
enterprise by implementing an ERP package are unlimited.
1. product Coasting
2. Inventory Management
3. Distribution & Delivery
Reasons for the Implementation of ERP by the Companies
1. Improve company’s business performance
2. Standardize manufacturing processes
3. Integrate Financial data
4. To standardize HR information

VALUE ANALYSIS:
Value analysis is particularly directed at reducing cost in products and materials
while maintaining of improving the products or process function. It is used after the
product has been put into production.
Value analysis generally proceeds through seven stages;
1. Introduction, specifying the objectives, identifying the process or the product
and identifying the individuals who are going to be involved in the study.
2. Collecting information regarding usage cost, demand, quality, standards and
process.
3. Collecting analysis and brainstorming which leads to multiple ideas and
suggestions.
4. Evaluation of ideas and suggestions generated in the previous step and
selection of the most promising one.
5. Detailed study of each idea selected.
6. Proposals are made to senior managers for decision.
7. Executing the recommended change.
STRATEGIC ASPECTS:
For the strategic purpose the value chain analysis may highlight three profit
improvement areas
1. Linkage with suppliers/Vendors
2. Linkage with customers
3. Process/Service linkage within the value chain of the firm.

VALUE ADDED ANALYSIS/ACTIVITY ANALYSIS:

Activity analysis of V AA is an approach to operations control that began to
enjoy extensive use during the 1980s. An activity is any discrete task that an
organization undertakes to make or deliver a product or service. Specifically, activity
analysis has four steps:
1. Identity the process objectives that are defined by what the customer wants,
or expects, from the process.
2. Record by charging from start to finish the activities used to complete the
product or service.
3. Classify all activities as value added or nonviable added.
4. Continuously improve the efficiency or all activities and develop plans to
eliminate non value-added activities.
PROGRAMME AND PERFORMANCE BUDGETING (PPB):
1. Program Accounting an accounting system with an ability to attach
accounting data to specific programmed to show the resources used or
budgeted for each of the objective.
2. Multi-year costing it attempts to identify costs with a project for its total life
rather than just for the future budget period.
3. Detailed Description of Activities it involves designing and developing of
activity description of each program against which on-going programmers and
new programs are evaluated.
4. Zero-Base budgeting a budgeting approach that attempts to review and
evaluate on-going programs as well as new programmers to justify all
resources. The evaluation process of the programmers begins without a
resource commitment even it is an on-going program.
5. Benefit-Cost analysis a formal technique that evaluates alternative course of
action by comparing costs with benefits.

OBJECTIVES OF PROGRAMME BUDGETING:

The following are the main objectives of program budgeting:
To identify national goals with greater precision and determine the priority
among goals.
To develop and analyze alternative means of achieving the goals.
To project long term costs and relate them to the benefits of each program.
To specify plans for several years ahead that will achieve the stated
objectives.
To strengthen control over program and budgets through improved
measurement and analysis of programmer performance in relation to cost.
OBJECTIVES OF PERFORMANCE BUDGETING:
The performance budgeting seeks to achieve the following objects:
1. To make budget formulation process simple.
2. To bring coordination between various physical and financial aspect of the
programmer.
3. To improve the efficiency and quality of performance audit.
4. To make management more accountable for its actions.
5. To serve as controlling tool for financial operations.

ACTIVITY BASED COSTING (ABC):

ABC or Activity Based costing is an accounting methodology that assigns the
costs, both overhead and direct, to various products and services on some scientific
bases.
In order to correctly associate costs with products and services, ABC assign
cost to activities based on there use of resources. It then assign cost to cost objects
such as products or customers based on their use of activities. ABC can track the
flow of activities in organization by creating a link between the activities (resource
consumption).
1. Cost object.
2. Cost drivers
3. Resource Cost drivers
In order to understand how ABC operation it is necessary to understand the meaning
of above terms.
Cost Object- It is an item for which cist measurement is required e.g. a product or a
customer.
Cost Drivers- It is a factor that causes a change in the cost of an activity. There are
two categories of cost driver.
Resource Cost Driver- It is measure of the quantity of resource consumed by an
activity. It is used to assign a resource to an activity or cost pool.
Activity Cost Driver- It is measure of the frequency and intensity of demand, placed
on activities by cost objects. It is used to assign activity costs of cost objects.