Unit III - Organizing

MG6851 – Principles Of
Management

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Designing Organizational Structure
• Organizing – Arranging and structuring work to accomplish
the organization’s goals

• Organizational Structure – The formal arrangement of

jobs within an organization

• Organizational Chart – The visual representation of an

organization’s structure

• Organizational Design – Creating or changing an

organization’s structure

• Work Specialization – Dividing work activities into

separate job tasks
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 Purposes of Organizing
1. Divides work to be done into specific jobs and departments.
2. Assigns tasks and responsibilities associated with individual
jobs.
3. Coordinates diverse organizational tasks.
4. Clusters jobs into units.
5. Establishes relationships among individuals, groups, and
departments.
6. Establishes formal lines of authority.
7. Allocates and deploys organizational resources.

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 Groups in Organization
Groups - Two or more interacting and interdependent
individuals who come together to achieve specific goals.
• Formal groups are work groups that are defined by the
organization’s structure and have designated work
assignments and specific tasks directed at accomplishing
organizational goals.
• Informal groups are social groups. These groups occur
naturally in the workplace and tend to form around
friendships and common interests.

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 Formal Groups
1. Command Groups — Groups that are determined by the
organization chart and composed of individuals who report
directly to a given manager.
2. Task Groups — Groups composed of individuals brought
together to complete a specific job task; their existence is often
temporary because when the task is completed, the group
disbands.
3. Cross-functional Teams — Groups that bring together the
knowledge and skills of individuals from various work areas or
groups whose members have been trained to do each others’ jobs.
4. Self-managed Teams — Groups that are essentially
independent and that, in addition to their own tasks, take on
traditional managerial responsibilities, such as hiring, planning
and scheduling, and evaluating performance.
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 Informal Groups
• Interest Groups — People working together to attain a
specific objective with which each is concerned.
• Friendship Groups — People brought together because
they share one or more common characteristics.

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 Why and How Organizational
Charts are Used
• A graphic portrayal of a unit’s formal structure, that provides
a clear picture of the area of responsibility and reporting
relationships within the unit.
• Used to define the roles and responsibilities of positions
within a unit; visualize the structure of the workforce; and
establish a structure of authority, communication channels,
and specific operational functions and tasks.
• Used in many human resource related processes to make
decisions including, but not limited to, recruitment,
classification, organizational development activities such as
restructuring, and training.
• Used to establish decision-making processes and specific
operational functions.
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 What Should Be Included?
1. Organization / Department / Unit name
2. Working title, Job Title or Position Title
3. Current incumbent name or indication of vacancy
4. Position number
5. Position FTE [Full-time equivalent – a unit that indicates the
workload of an employed person]
6. Two levels of supervision above the position being reviewed or
established, including dotted line reporting structures.
7. Names and position titles of direct reports, if applicable.
8. Revision date

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Mechanistic and Organic Structures
• Mechanistic Organization – An organizational design
that’s rigid and tightly controlled
• Organic Organization – An organizational design that’s
highly adaptive and flexible

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 Contingency Factors Affecting
Structural Choice
• Strategy and Structure
• Size and Structure
• Technology and Structure
o Unit Production – The production of items in units or
small batches
o Mass Production – The production of items in large
batches
o Process Production – The production of items in
continuous processes
• Environmental Uncertainty and Structure

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Traditional Organizational Designs
1. Simple Structure
– An organizational design with low departmentalization,
wide spans of control, centralized authority, and little
formalization
– Strengths: Fast; flexible; inexpensive to maintain; clear
accountability.
– Weaknesses: Not appropriate as organization grows;
reliance on one person is risky.

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2. Functional Structure
– An organizational design that groups together similar or
related occupational specialties
– Strengths: Cost-saving advantages from specialization
(economies of scale, minimal duplication of people and
equipment); employees are grouped with others who have
similar tasks.
– Weaknesses: Pursuit of functional goals can cause
managers to lose sight of what’s best for the overall
organization; functional specialists become insulated and
have little understanding of what other units are doing.

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3. Divisional Structure
– An organizational structure made up of separate,
semiautonomous units or divisions
– Strengths: Focuses on results—division managers are
responsible for what happens to their products and
services.
– Weaknesses: Duplication of activities and resources
increases costs and reduces efficiency.

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Contemporary Organizational
Designs

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• Example of a Matrix Organization

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• Virtual Organization - An organization that consists of a
small core of full-time employees and outside specialists
temporarily hired as needed to work on projects
• Network Organization - An organization that uses its own
employees to do some work activities and networks of outside
suppliers to provide other needed product components or
work processes

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 Departmentalization
• The basis by which jobs are grouped together

Cross-functional Team – A work team composed of

individuals from various functional specialties

The Five Common Forms of Departmentalization

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 Chain of Command
The line of authority extending from upper organizational levels to
the lowest levels, which clarifies who reports to whom
1. Authority – The rights inherent in a managerial position to
tell people what to do and to expect them to do it
a. Acceptance Theory of Authority – The view that
authority comes from the willingness of subordinates to
accept it
– Barnard contended that subordinates will accept orders
only if the following conditions are satisfied:
1. They understand the order.
2. They feel the order is consistent with the organization’s
purpose.
3. The order does not conflict with their personal beliefs.
4. They are able to perform the task as directed.
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 b. Line Authority – Authority that entitles a manager
to direct the work of an employee
c. Staff Authority – Positions with some authority
that have been created to support, assist, and advise
those holding line authority
2. Responsibility – The obligation or expectation to
perform any assigned duties
3. Unity of Command – The management principle that
each person should report to only one manager

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Line Versus Staff Authority

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Chain of Command and Line
Authority

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 Span of Control
The number of employees a manager can efficiently and
effectively manage

Contrasting Spans of Control

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 Delegation of Authority
The process of granting authority to carry out specific functions
is called the delegation of authority.

Delegation of authority:
• Grants authority to carry out specific functions.
• Is issued by the chief elected official, chief executive officer, or
agency administrator in writing or verbally.
• Allows the Incident Commander to assume command.
• Does NOT relieve the granting authority of the ultimate
responsibility for the incident.

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A delegation of authority may be needed:
• When the incident is outside the Incident Commander’s
jurisdiction.
• When the incident scope is complex or beyond existing
authorities.
• When required by law or procedures.

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A delegation of authority should include the following
elements:
• Legal authorities and restrictions.
• Financial authorities and restrictions.
• Reporting requirements.
• Demographic issues.
• Political implications.
• Agency or jurisdictional priorities.
• Plan for public information management.
• Process for communications.
• Plan for ongoing incident evaluation.

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Centralization and Decentralization
• Centralization is the degree to which decision making takes
place at upper levels of the organization.

• On the other hand, the more that lower-level employees

provide input or actually make decisions, the more
decentralization there is.

• As organizations have become more flexible and responsive to

environmental trends, there’s been a distinct shift toward
decentralized decision making. This trend, also known as
employee empowerment, gives employees more authority
(power) to make decisions.

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Centralization or Decentralization

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 Formalization
• Formalization refers to how standardized an organization’s
jobs are and the extent to which employee behavior is guided
by rules and procedures.
• In highly formalized organizations, there are explicit job
descriptions, numerous organizational rules, and clearly
defined procedures covering work processes.

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 Organizing for Collaboration
1. Internal Collaboration
• Cross-functional Team – A work team composed of
individuals from various functional specialties
• Task Force (or ad hoc committee) – A temporary
committee or team formed to tackle a specific short-term
problem affecting several departments
• Communities of Practice – Groups of people who share
a concern, a set of problems, or a passion about a topic,
and who deepen their knowledge and expertise in that
area by interacting on an ongoing basis

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2. External Collaboration
• Open Innovation – Opening up the search for new ideas
beyond the organization’s boundaries and allowing
innovations to easily transfer inward and outward
• Strategic Partnerships – Collaborative relationships
between two or more organizations in which they combine
their resources and capabilities for some business purpose

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 Flexible Work Arrangements
• Telecommuting – A work arrangement in which employees
work at home and are linked to the workplace by Computer
• Compressed Workweek – A workweek where employees
work longer hours per day but fewer days per week
• Flextime (or Flexible Work Hours) – A scheduling
system in which employees are required to work a specific
number of hours a week but are free to vary those hours
within certain limits
• Job Sharing – The practice of having two or more people
split a full-time job

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 The Human Resource
Management Process
Why Is HRM Important?
• First, it can be a significant source of competitive advantage as
various studies have concluded.
• Second, HRM is an important part of organizational
strategies.
• Finally, the way organizations treat their people has been
found to significantly impact organizational performance.

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High-Performance Work Practices
• Self-managed teams
• Decentralized decision making
• Training programs to develop knowledge, skills, and abilities
• Flexible job assignments
• Open communication
• Performance-based compensation
• Staffing based on person–job and person–organization fit
• Extensive employee involvement
• Giving employees more control over decision making
• Increasing employee access to information

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HRM Process

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 Identifying and Selecting
Competent Employees
1. Human Resource Planning
– Ensuring that the organization has the right number and
kinds of capable people in the right places and at the right
times
– HR planning entails two steps: (1) assessing current
human resources, and (2) meeting future HR needs.
– Current Assessment
• An important part of a current assessment is job analysis,
an assessment that defines a job and the behaviors necessary
to perform it.
• A job description is a written statement describing a job
typically job content, environment, and conditions of
employment.

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 • A job specification states the minimum qualifications that
a person must possess to successfully perform a given job. It
identifies the knowledge, skills, and attitudes needed to do
the job effectively.
• Both the job description and job specification are important
documents when managers begin recruiting and selecting.
– Meeting Future HR Needs
• Future HR needs are determined by the organization’s
mission, goals, and strategies.
• Demand for employees results from demand for the
organization’s products or services.

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2. Recruitment and Decruitment
– Recruitment – Locating, identifying, and attracting
capable applicants
– Decruitment – Reducing an organization’s workforce
– Recruiting Sources

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• Decruitment Options

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3. Selection
– Screening job applicants to ensure that the most
appropriate candidates are hired
– Selection Tools / Process
• Application Forms
– Almost universally used
– Most useful for gathering information
– Can predict job performance but not easy to create
one that does
• Written Tests
– Must be job related
– Include intelligence, aptitude, ability, personality,
and interest tests
– Are popular (e.g., personality tests; aptitude tests)
– Relatively good predictor for supervisory positions
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• Performance-Simulation Tests
– Use actual job behaviors
– Work sampling—test applicants on tasks
associated with that job; appropriate for routine or
standardized work
– Assessment center—simulate jobs; appropriate for
evaluating managerial potential
• Interviews
– Almost universally used
– Must know what can and cannot be asked
– Can be useful for managerial positions
• Background Investigations
– Used for verifying application data—valuable
source of information
– Used for verifying reference checks—not a valuable
source of information
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 • Physical Examinations
– Are for jobs that have certain physical requirements
– Mostly used for insurance purposes
– Validity and Reliability
• A valid selection device is characterized by a proven
relationship between the selection device and some relevant
criterion.
• A reliable selection device indicates that it measures the
same thing consistently. On a test that’s reliable, any single
individual’s score should remain fairly consistent over time,
assuming that the characteristics being measured are also
stable.
– Realistic Job Previews [RJP]
• A preview of a job that provides both positive and negative
information about the job and the company
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4. Providing Employees with Needed Skills and
Knowledge
– Orientation
• Introducing a new employee to his or her job and the
organization
• Work Unit Orientation – familiarizes the employee with
the goals of the work unit, clarifies how his or her job
contributes to the unit’s goals, and includes an introduction
to his or her new co-workers.
• Organization Orientation – informs the new employee
about the company’s goals, history, philosophy, procedures
and rules.

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– Employee Training
• Employee training is an important HRM activity. As job
demands change, employee skills have to change.
• Managers, of course, are responsible for deciding what type
of training employees need, when they need it, and what
form that training should take.
– Types of Training

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– Training Methods
• Traditional Training Methods
– On-the-job — Employees learn how to do tasks simply
by performing them, usually after an initial introduction
to the task.
– Job Rotation — Employees work at different jobs in a
particular area, getting exposure to a variety of tasks.
– Mentoring and Coaching — Employees work with an
experienced worker who provides information, support,
and encouragement; also called apprenticeships in
certain industries.
– Experiential Exercises — Employees participate in
role playing, simulations, or other face-to-face types of
training.
– Workbooks / Manuals — Employees refer to training
workbooks and manuals for information.
– Classroom Lectures — Employees attend lectures
designed to convey specific information. 48
• Technology-Based Training Methods
– CD-ROM / DVD / Videotapes / Audiotapes /
Podcasts — Employees listen to or watch selected
media that convey information or demonstrate certain
techniques.
– Video-Conferencing / Tele-Conferencing /
Satellite TV — Employees listen to or participate as
information is conveyed or techniques demonstrated.
– E-learning — Internet-based learning where employees
participate in multimedia simulations or other
interactive modules.

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5. Retaining Competent, High-Performing Employees
– Once an organization has invested significant amount in
recruiting, selecting, orienting, and training employees, it
wants to keep them, especially the competent, high-
performing ones!
– Two HRM activities that play a role in this area are;
• Managing employee performance and
• Developing an appropriate compensation and benefits
program.
– Employee Performance Management
• Establishes performance standards that are used to evaluate
employee performance

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• Performance Appraisal Methods
– Written Essay
» Evaluator writes a description of employee’s
strengths and weaknesses, past performance, and
potential; provides suggestions for improvement.
» (+) Simple to use
» (-) May be better measure of evaluator’s writing
ability than of employee’s actual performance
– Critical Incident
» Evaluator focuses on critical behaviors that separate
effective and ineffective performance.
» (+) Rich examples, behaviorally based
» (-) Time-consuming, lacks quantification

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– Graphic Rating Scale
» Popular method that lists a set of performance
factors and an incremental scale; evaluator goes
down the list and rates employee on each factor.
» (+) Provides quantitative data; not time-consuming
» (-) Doesn’t provide in-depth information on job
behavior
– BARS (Behaviorally Anchored Rating Scale)
» Popular approach that combines elements from
critical incident and graphic rating scale; evaluator
uses a rating scale, but items are examples of actual
job behaviors.
» (+) Focuses on specific and measurable job behaviors
» (-) Time-consuming; difficult to develop
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– Multiperson Comparison
» Employees are rated in comparison to others in work
group.
» (+) Compares employees with one another
» (-) Difficult with large number of employees; legal
concerns
– MBO
» Employees are evaluated on how well they
accomplish specific goals.
» (+) Focuses on goals; results oriented
» (-) Time-consuming
– 360-Degree Appraisal
» Utilizes feedback from supervisors, employees, and
coworkers.
» (+) Thorough
» (-) Time-consuming
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• Compensation and Benefits
– Skill-based Pay - A pay system that rewards employees
for the job skills they can demonstrate. Under this type of
pay system, an employee’s job title doesn’t define his or
her pay category, skills do. Research shows that these
types of pay systems tend to be more successful in
manufacturing organizations than in service
organizations and organizations pursuing technical
innovations.
– Variable Pay - A pay system in which an individual’s
compensation is contingent on performance
– Although many factors influence the design of an
organization’s compensation system, flexibility is a key
consideration.
– However, whatever approach managers use, they must
establish a fair, equitable, and motivating
compensation system that allows the organization to
recruit and keep a talented and productive workforce.
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What Determines Pay and
Benefits

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 Contemporary Issues in
Managing Human Resources
• Downsizing
– The planned elimination of jobs in an Organization
• Sexual Harassment
– Any unwanted action or activity of a sexual nature that explicitly or
implicitly affects an individual’s employment, performance, or work
environment
• Managing Work–life Balance
– Family-friendly Benefits - Benefits that accommodate employees’
needs for work–life balance (such as on-site child care, flextime,
telecommuting, and so on.)
• Controlling HR Costs
– Employee health care costs – through employee health initiatives
– Employee pension plan costs - by eliminating or severely limiting them.
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 Career Planning and
Management
• Introduction

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What is a Career?

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Traditional Vs. Protean Career

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A Model of Career Development

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Career Motivation

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What is Career Management?

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Why is Career Management
Important?

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The Career Management
Process

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Employee’s Role in Career
Management

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Manager’s Role in Career
Management

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Company’s Role in Career
Management

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 How Can I Have a Successful
Career?
• Understand yourself — your abilities and disabilities; your
strengths and weaknesses
• Protect your personal brand — watch what you share online
and in interactions with others, and watch your e-mails
• Be a team player — focus on knowing your peer group and your
organization and on the best ways to work within them
• Dress appropriately — first impressions count, but so do other
impressions that you make every day
• Network — develop and keep your links to other professionals
open and active by participating in professional organizations,
staying in touch with classmates and friends, using online
networking sites, and so forth

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• Ask for help — if you find yourself facing an issue you’re not sure
how to handle, ask someone for advice or guidance; seek out a
mentor
• Keep your skills updated — although you might think you know
it all, you don’t; keep learning about your profession and your
industry
• Set goals and then work hard to achieve them — showing
your boss that you’re able to set goals and reach them is always
impressive
• Do good work — above all, having a successful career means
doing your job well, whatever that job might be

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Unit V - Controlling

MG6851 – Principles of
Management

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 What Is Controlling and Why Is It
Important?
• What is controlling?
– It’s the process of monitoring, comparing, and correcting work
performance.
• Why is control so important?
– Control is important, therefore, because it’s the only way that
managers know whether organizational goals are being met and if
not, the reasons why. The value of the control function can be seen
in three specific areas: planning, empowering employees, and
protecting the workplace.
– The second reason controlling is important is because of employee
empowerment.
– The final reason that managers control is to protect the
organization and its assets. 2
• Planning-Controlling Link

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 The Control Process
• The control process is a three-step process of measuring actual
performance, comparing actual performance against a standard, and
taking managerial action to correct deviations or to address
inadequate standards.

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Step 1. Measuring Actual Performance
• To determine what actual performance is, a manager must first get
information about it.
• HOW WE MEASURE. Four approaches used by managers to
measure and report actual performance are personal observations,
statistical reports, oral reports, and written reports.
• WHAT WE MEASURE. What is measured is probably more critical
to the control process than how it’s measured. Why? Because selecting
the wrong criteria can create serious problems. Besides, what is
measured often determines what employees will do.

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• Sources of Information for Measuring Performance

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Step 2. Comparing Actual Performance Against the Standard
• The comparing step determines the variation between actual
performance and the standard.
• Although some variation in performance can be expected in all
activities, it’s critical to determine an acceptable range of variation.
Deviations outside this range need attention.

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Step 3. Taking Managerial Action
• Managers can choose among three possible courses of action: do nothing,
correct the actual performance, or revise the standards.
• Correct Actual Performance.
– Depending on what the problem is, a manager could take different
corrective actions.
– One decision that a manager must make is whether to take immediate
corrective action, which corrects problems at once to get performance
back on track, or to use basic corrective action, which looks at how and
why performance deviated before correcting the source of deviation.
• Revise The Standard.
– It’s possible that the variance was a result of an unrealistic standard — too
low or too high a goal. In that situation, the standard needs the corrective
action, not the performance.
– If performance consistently exceeds the goal, then a manager should look at
whether the goal is too easy and needs to be raised.
– On the other hand, managers must be cautious about revising a standard
downward. 8
• Managerial Decisions in the Control Process

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Controlling Organizational Performance
• What Is Organizational Performance?
– Performance — is the end result of an activity.
– Organizational Performance — the accumulated results of all the
organization’s work activities.
• Measures of Organizational Performance
– Organizational Productivity. Productivity is the amount of goods or
services produced divided by the inputs needed to generate that output.
Organizations and individual work units want to produce the most goods
and services using the least amount of inputs.
– Organizational Effectiveness. Organizational effectiveness is a measure
of how appropriate organizational goals are and how well those goals are
being met.
– Industry & Company Rankings. Rankings are a popular way for
managers to measure their organization’s performance. Rankings are
determined by specific performance measures, which are different for each
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list.
 Types of Control
1.Feedforward Control. The most desirable type of control —
feedforward control — prevents problems because it takes place before the
actual activity. problems can be prevented rather than having to correct
them after any damage (poor-quality products, lost customers, lost
revenue, etc.) has already been done. However, these controls require
timely and accurate information that isn’t always easy to get.

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– For instance, when McDonald’s opened its first restaurant in Moscow, it sent
company quality control experts to help Russian farmers learn techniques for
growing high-quality potatoes and to help bakers learn processes for baking high-
quality breads. Why? McDonald’s demands consistent product quality no matter
the geographical location. They want a cheeseburger in Moscow to taste like one in
Omaha.
2. Concurrent Control. Concurrent control, as its name implies, takes place
while a work activity is in progress.
– For instance, Nicholas Fox is director of business product management at Google.
He and his team keep a watchful eye on one of Google’s most profitable
businesses—online ads. They watch ―the number of searches and clicks, the rate at
which users click on ads, the revenue this generates—everything is tracked hour
by hour, compared with the data from a week earlier and charted.‖ If they see
something that’s not working particularly well, they fine-tune it.
– The best-known form of concurrent control is direct supervision. Another
term for it is Management By Walking Around, which is when a manager
is in the work area interacting directly with employees. All managers can
benefit from using concurrent control because they can correct problems
before they become too costly.
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– For example, Nvidia’s CEO Jen-Hsun Huang tore down his cubicle and
replaced it with a conference table so he’s available to employees at all times to
discuss what’s going on. Even GE’s CEO Jeff Immelt spends 60 percent of his
workweek on the road talking to employees and visiting the company’s
numerous locations.
3. Feedback Control. The most popular type of control relies on
feedback. In feedback control, the control takes place after the activity is done.
Feedback controls do have two advantages. First, feedback gives managers
meaningful information on how effective their planning efforts were.
Second, feedback can enhance motivation. People want to know how
well they’re doing and feedback provides that information.
– For instance, the Denver Mint discovered the flawed Wisconsin quarters using
feedback control. The damage had already occurred even though the
organization corrected the problem once it was discovered.

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 Tools for Measuring Organizational
Performance
1. Financial Controls
a. Ratio analysis
i. Liquidity ratios – measure an organization’s ability to meet its current
debt obligations.
ii. Leverage ratios – examine the organization’s use of debt to finance its
assets and whether it’s able to meet the interest payments on the debt.
iii. Activity ratios – assess how efficiently a company is using its assets.
iv. Profitability ratios – measure how efficiently and effectively the
company is using its assets to generate profits.
– These ratios are calculated using selected information from the
organization’s two primary financial statements (the balance sheet and
the income statement), which are then expressed as a percentage or
ratio.
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b. Budgets
– Budgets are planning and controlling tools.
– When a budget is formulated, it’s a planning tool because it indicates
which work activities are important and what and how much resources
should be allocated to those activities.
– But budgets are also used for controlling because they provide managers
with quantitative standards against which to measure and compare
resource consumption.
– If deviations are significant enough to require action, the manager
examines what has happened and tries to uncover why. With this
information, necessary action can be taken.

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• Classification of Budgets
– Based On Time Period
i. Long Term Budget – Budgets which are prepared for periods longer
than a year are called Long Term Budgets. Eg: Capital Expenditure
Budget and R&D Budget.
ii. Short Term Budget – Budgets which are prepared for periods less
than a year are known as Short Term Budgets Eg: Cash Budget.
– Based On Condition
i. Basic Budget – A Budget, which remains unaltered over a long period
of time, is called Basic Budget.
ii. Current Budget – A Budget, which is established for use over a short
period of time and is related to the current conditions, is called Current
Budget.
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 – Based On Capacity:
i. Fixed Budget – It is a Budget designed to remain unchanged
irrespective of the level of activity actually attained.
ii. Flexible Budget – It is a Budget, which by recognizing the difference
between fixed, semi variable and variable costs is designed to change in
relation to level of activity attained.
– Based On Coverage:
i. Functional Budget – Budgets, which relate to the individual
functions in an organization, are known as Functional Budgets, e.g.
Purchase Budget, Sales Budget, Production Budget, plant Utilization
Budget and Cash Budget.
ii. Master Budget – It is a consolidated summary of the various
functional budgets. It serves as the basis upon which budgeted Profit &
Loss Account and forecasted Balance Sheet are built up.
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• Budgetary Control Techniques
– Revenue and Expense Budgets – The most common budgets spell
out plans for revenues and operating expenses in rupee terms. The most
basic of revenue budget is the sales budget which is a formal and detailed
expression of the sales forecast.
– Time, Space, Material, and Product Budgets – Many budgets are
better expressed in quantities rather than in monetary terms. e.g. direct-
laborhours, machine-hours, units of materials, square feet allocated, and
units produced. The Rupee cost would not accurately measure the
resources used or the results intended.
– Capital Expenditure Budgets – Capital expenditure budgets outline
specifically capital expenditures for plant, machinery, equipment,
inventories, and other items.

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– Cash Budgets – The cash budget is simply a forecast of cash receipts
and disbursements against which actual cash "expenses" is measured.
– Variable Budget – The variable budget is based on an analysis of
expense items to determine how individual costs should vary with
volume of output. Some costs do not vary with volume, particularly in
so short a period as 1 month, 6 months, or a year.
– Zero Based Budget – 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.

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2. Balanced Scorecard
– The balanced scorecard approach is a way to evaluate organizational
performance from more than just the financial perspective.
– A balanced scorecard typically looks at four areas that contribute to a
company’s performance: financial, customer, internal processes, and
people / innovation / growth assets.
– According to this approach, managers should develop goals in each of
the four areas and then measure whether the goals are being met.
– For instance, at IBM Global Services in Houston, managers developed a
scorecard around an overriding strategy of customer satisfaction.
However, the other areas (financial, internal processes, and
people/innovation/growth) support that central strategy.

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3. Benchmarking of Best Practices
– Managers in diverse industries such as health care, education, and
financial services are discovering what manufacturers have long
recognized — the benefits of benchmarking, which is the search for the
best practices among competitors or noncompetitors that lead to their
superior performance.
– Benchmarking should identify various benchmarks, which are the
standards of excellence against which to measure and compare.
– For instance, the American Medical Association developed more than
100 standard measures of performance to improve medical care.
– Carlos Ghosn, CEO of Nissan, benchmarked Walmart operations in
purchasing, transportation, and logistics.
– At its most basic, benchmarking means learning from others.
22
4. Information Controls
– Cyber-attackers from China targeted Google and 34 other companies in an attempt to steal
information. The largest-ever criminal stealing of credit-card data—account information
belonging to millions of people—happened to Heartland Payment Systems, a payments
processor. An ex-worker at Goldman Sachs stole “black box” computer programs that Goldman
uses to make lucrative, rapid-fire trades in the financial markets.
– Managers deal with information controls in two ways: (1) as a tool to help
them control other organizational activities, and (2) as an organizational
area they need to control.
– How Is Information Used In Controlling?
• Managers need the right information at the right time and in the right
amount to monitor and measure organizational activities and performance.
• In measuring actual performance, managers need information about what is
happening within their area of responsibility and about the standards in order
to be able to compare actual performance with the standard.
• They also rely on information to help them determine if deviations are
acceptable.
• Finally, they rely on information to help them develop appropriate courses of
action. 23
 • A management information system (MIS) is a system used to provide
managers with needed information on a regular basis.
– Controlling Information.
• Because information is critically important to everything an organization
does, managers must have comprehensive and secure controls in place to
protect that information.
• Such controls can range from data encryption to system firewalls to data
backups, and other techniques as well.
• Problems can lurk in places that an organization might not even have
considered, like blogs, search engines, and Twitter accounts.
• Sensitive, defamatory, confidential, or embarrassing organizational
information has found its way into search engine results.
• For instance, detailed monthly expenses and employee salaries on the
National Speleological Society’s Web site turned up in a Google search.
• Equipment such as laptop computers, smartphones, and even RFID (radio-
frequency identification) tags are vulnerable to viruses and hacking.
24
Use of computers and IT in
Management control

25
26
27
28
29
 Managing Productivity
• At the Evans Findings Company in East Providence, Rhode Island, which makes the tiny
cutting devices on dental-floss containers, one production shift each day is run without
people. The company’s goal is to do as much as possible with no labor. And it’s not because
they don’t care about their employees. Instead, like many U.S. manufacturers, Evans
needed to raise productivity in order to survive, especially against low-cost competitors. So
they turned to “lights-out” manufacturing where machines are designed to be so reliable
that they make flawless parts on their own, without people operating them.
• Although most organizations can’t function without people, improving
productivity has become a major goal in virtually every organization. For
countries, high productivity can lead to economic growth and development.
Employees can receive higher wages and company profits can increase without
causing inflation. For individual organizations, increased productivity gives them
a more competitive cost structure and the ability to offer more competitive
prices.

30
• Organizations that hope to succeed globally are looking for ways to improve
productivity. For example, McDonald’s Corporation drastically reduced the time it takes
to cook its french fries—65 seconds as compared to the 210 seconds it once took, saving
time and other resources.
• Productivity is a composite of people and operations variables. To improve
productivity, managers must focus on both. The late W. Edwards Deming, a
renowned quality expert, believed that managers, not workers, were the
primary source of increased productivity. Deming understood the interplay
between people and operations.
• High productivity can’t come solely from good ―people management.‖ The truly
effective organization will maximize productivity by successfully integrating
people into the overall operations system.

31
 Good Reporting System Principles
• Good Reporting System Principle # 1. Proper Flow of Information:
– A good reporting system should have a proper flow of information. The
information should flow from the proper place to the right levels of
management. The information should be sent in the right form and at a proper
time so that it helps in planning and co-ordination.
– The frequency of reports will depend upon the nature of report, the types of
data required for preparing the information and cost involved in preparing such
reports. The flow of reports should be such that it does not cause delay in taking
decisions. The reports should flow at regular intervals so that informational
needs of different managerial levels are met at a proper time.
– Flow of information is a continuous activity and effects all levels of the
organisation. Information may flow upward, downward or sideways within an
organisation. Orders, instructions, plans etc. may flow from top to bottom.
Reports, grievances, suggestions etc. may flow from bottom to top,.
Notifications, letters; settlements, complaints may flow from outside.
Information also flows sideways from one manager to another at the same level
through meetings, discussions etc. 32
• Good Reporting System Principle # 2. Proper Timing:
– Since reports are used as a controlling device so they should be presented at the
earliest or immediately after the happenings of an event. The time required for
preparation of reports should be reduced to the minimum; for routine reports
the period should be known and strictly adhered to. It will be waste of time and
effort to prepare information which is too late to be of any use. The absence of
information when needed will either mean wrong decisions or deferment of
decisions on matters which may be urgent in nature.
• Good Reporting System Principle # 3. Accurate Information:
– The information should be as accurate as possible. If the information supplied is
inaccurate it may result in making wrong decisions. However, the degree of
accuracy may differ in different reports. Sometimes, part information may be
supplied as a guide for future policy making, so the degree of accuracy may be
less. The supply of exact figures may involve a problem of understanding.
– Approximate figures are more understandable than accurate figures given upto
paisa. Accuracy should also not involve excessive cost of preparation nor it
should be achieved at the sacrifice of promptness of presentation. It will be
better to have approximate figures at a proper time than delayed information
prepared accurately.
33
• Good Reporting System Principle # 4. Basis of Comparison:
– The information supplied through reports will be more useful when it is
supplied in comparison with past figures, standards set or objectives laid down.
The comparison of information with past or budgeted figures will enable the
reader to find out trends of variations. The decision taking authority will be able
to make use of comparative figure while taking a decision. Corrective measures
can also be initiated to improve upon the past performance. The management
accountant can make the reports more useful by giving his own interpretations
to the information.
• Good Reporting System Principle # 5. Reports Should be Clear and
Simple:
– The purpose of preparing reports is to help management in planning,
coordinating and controlling. This purpose can be achieved only when the
reports are easily understood by the readers. The information should be
presented in a clear manner by avoiding extraneous data. Only relevant
important information should become the part of a report. If supporting
information cannot be avoided then it should either be given in appendix or
separate chart should be attached for it.

34
 – The method of presenting information should be such that it attracts the eye,
and enables the reader to form an opinion about the information. The graphic
presentation of information will enable the reader to find out the trends and
also to determine deviations more quickly than in other methods. The
arrangement of presentation should be brief, clear and complete. Simplicity is a
good guide for reports preparation.
• Good Reporting System Principle # 6. Cost:
– The benefits derived from reporting system must be commensurate with the
cost involved in it. Though it is not possible to assess the benefit of this system
in monetary terms, there should be an endeavor to make the system as
economical as possible.
• Good Reporting System Principle # 7. Evaluation of Responsibility:
– The reporting system should enable the evaluation of managerial responsibility.
The targets are fixed for various functional departmental heads. The record of
actual performance is monitored along-with the standards so as to enable
management to assess the performance of different individuals. So,
management reporting should be devised in a way that it helps in evaluating the
work assigned to various persons.

35
• Good Reporting System Principle # 8. Adequacy:
– A good reporting system will be that system of reporting in which adequate
data is given to the management to suggest possible courses of action. Adequate
data provided in reports saves valuable time of management and ensures
prompt attention.
• Good Reporting System Principle # 9. Visual Reporting:
– A good reporting system will have visual reporting. It has been observed that
visual reporting with the help of graphs, charts and diagrams in comparison to
descriptive reporting attracts the eye more quickly and leaves a lasting
impression on the mind of the users.
• Good Reporting System Principle # 10. Principle of Consistency:
– Principle of consistency is followed in a good reporting system. Various formats
being used for the preparation of various reports should not be frequently
changed from time to time. If in certain cases, of any format is changed for
making any improvement, changes in contents or format should be justified.

36
• Good Reporting System Principle # 11. Factual:
– A good reporting system should be based on reports containing factual
information’s. Management has to take decision in future on the basis of the
information contained in various reports. Any false information contained in
the reports will not be helpful in taking correct decisions.
• Good Reporting System Principle # 12. Principle of Brevity:
– Principle of brevity should be followed while reporting since long reports are
very difficult to analyze and long reports generally rely greatly on highlighting
irrelevant minor details and major issues involved are not taken up properly.
• Good Reporting System Principle # 13. Principle of Scheduling:
– Principle of scheduling should also be followed in a way that reports can be
prepared without excess burden on the staff. Employees must be given
sufficient time to do the work well on the preparation of report. Time lag
between collection of data and finished report should not be much longer.

37
 MG8591- PRINCIPLES OF MANAGEMENT
UNIT V – CONTROLLING
Controlling consists of verifying whether everything occurs in confirmation with the plans
adopted, instructions issued and principles established. Controlling ensures that there is
effective and efficient utilization of organizational resources so as to achieve the planned
goals. Controlling measures the deviation of actual performance from the standard
performance, discovers the causes of such deviations and helps in taking corrective actions.
In the words of Koontz and O'Donnell "Managerial control implies measurement of
accomplishment against the standard and the correction of deviations to assure attainment of
objectives according to plans." Controlling can also be viewed as detecting and correcting
significant variations in the results obtained from planned activities.

According to Brech, “Controlling is a systematic exercise which is called as a process of

checking actual performance against the standards or plans with a view to ensure adequate
progress and also recording such experience as is gained as a contribution to possible future
needs.”

FEATURES OF CONTROLLING FUNCTION

 Controlling is an end function- A function which comes once the performances are
made in conformities with plans.
 Controlling is a pervasive function- It is performed by managers at all levels and in
all type of concerns.
 Controlling is forward looking- Effective control is not possible without past being
controlled. Controlling always look to future so that follow-up can be made whenever
required.
 Controlling is a dynamic process- Since controlling requires taking reviewal
methods, changes have to be made wherever possible.
 Controlling is related with planning- Planning and Controlling are two in separable
functions of management. Without planning, controlling is a meaningless exercise and
without controlling, planning is useless.

PROCESS OF CONTROLLING

 Establishment of standards- Standards are the plans or the targets which have to be
achieved in the course of business function. They can also be called as the criterions
for judging the performance. Standards generally are classified into two-

 Measurable or tangible - Those standards which can be measured and expressed are
called as measurable standards. They can be in form of cost, output, expenditure,
time, profit, etc.
 Non-measurable or intangible- There are standards which cannot be measured
monetarily. For example- performance of a manager, deviation of workers, their
attitudes towards a concern. These are called as intangible standards.

Controlling becomes easy through establishment of these standards because

controlling is exercised on the basis of these standards.

1
 Steps in Controlling Process

 Measurement of performance- The second major step in controlling is to measure

the performance. Finding out deviations becomes easy through measuring the actual
performance. Performance levels are sometimes easy to measure and sometimes
difficult. Measurement of tangible standards is easy as it can be expressed in units,
cost, money terms, etc. Quantitative measurement becomes difficult when
performance of manager has to be measured. Performance of a manager cannot be
measured in quantities. It can be measured only by-

 Attitude of the workers

 Their morale to work
 The development in the attitudes regarding the physical environment, and
 Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly,
yearly reports.
 Comparison of actual and standard performance- Comparison of actual
performance with the planned targets is very important. Deviation can be defined as
the gap between actual performance and the planned targets. The manager has to find
out two things - extent of deviation and cause of deviation. Extent of deviation means
that the manager has to find out whether the deviation is positive or negative or
whether the actual performance is in conformity with the planned performance. The
managers have to exercise control by exception. He has to find out those deviations
which are critical and important for business. Minor deviations have to be ignored.
Major deviations like replacement of machinery, appointment of workers, quality of
raw material, rate of profits, etc. should be looked upon consciously.
Once the deviation is identified, a manager has to think about various cause which has
led to deviation. The causes can be-
 Erroneous planning
 Implementation of plans is defective
 Supervision and communication is ineffective, etc.
 Taking remedial actions- Once the causes and extent of deviations are known, the
manager has to detect those errors and take remedial measures for it. There are two
alternatives here
 Taking corrective measures for deviations which have occurred; and
 After taking the corrective measures, if the actual performance is not in conformity
with plans, the manager can revise the targets. It is here the controlling process comes
to an end. Follow up is an important step because it is only through taking corrective
measures, a manager can exercise controlling.

2
TYPES OF CONTROL

 FEED FORWARD CONTROL: The objective of feed forward control or

preliminary control is to anticipate the likely problems and to exercise control even
before the activity has started or problem has occurred or been reported. It is future
directed. This kind of control is very popular in airlines. They go in for preventive
maintenance activities to detect and prevent structural damage, which may result in
disaster. These controls are evident in the selection and hiring of new employees. It
helps in taking action beforehand.

Feed forward controls are future-directed and they attempt to detect and anticipate
problems or deviations from the standards in advance of their occurrence. They are in-
process controls and are much more active, aggressive in nature, allowing corrective
action to be taken in advance of the problem. Feed forward controls thus anticipate
problems and permit action to be taken before a problem actually arises.

 CONCURRENT CONROL: Concurrent control is also called steering control

because it allows people to act on a process or activity while it is proceeding, not after
it is proceeding, nor after it is completed. Corrections and adjustments can be made as
and when the need a rises. Such controls focus on establishing conditions that will
make it difficult or impossible for deviations from norms to occur.

It involves the regulation of ongoing activities that are part of transformation process
to ensure that they conform to organizational standards. The technique of direct
supervision is the best-known form of concurrent control. Concurrent control is
designed to ensure that employees’ activities produce the correct results and to correct
the problems, if any, before they become costly. In case of computer typing, if the
spelling is wrong or construction is incorrect, the programme immediately alerts the
user.

An example of concurrent control is the development by companies of job

descriptions and job specifications. It may be recalled that job description identifies
the job that has to be done, thus clarifying working relationships, responsibility areas,
and authority relationships. It thus assists in preventing unnecessary duplication of
effort (work) and potential organisational conflict.

 FEEDBACK CONTROL: Feedback control is future-oriented. It is historical in

nature and is also known as post-action control. The implication is that the measured
activity has already occurred, and it is impossible to go back and correct performance
to bring it up to standard. Rather, corrections must occur after the act.

Corrective action is taken after analysing variances with the planned standards at the
end of the activity. It is also known as ‘post action control’, because feedback control
is exercised after the event has taken place.Such control is used when feed forward or
concurrent is not possible or very costly; or when exact processes involved in
performing a work is difficult to specify in advance.

3
BUDGETARY AND NON-BUDGETARY CONTROL TECHNIQUES

A budget is a financial or quantitative statement prepared for a definite period of time. It

provides standards for comparison with the results actually achieved. According to George R.
Terry, "Budget is an estimate of future needs, arranged to an orderly basis, covering
some or all of the activities of an enterprise for a definite period of time". Budgeting is
the process of preparing budgets whereas budgetary control is a device or technique of
managerial control through budgets. According to J.Batty, "Budgetary control is a
system which uses budgets as a means of planning and controlling all aspects of
producing and/or selling commodities or services". Thus, budgetary control is planning in
advance of the various aspects of business can be controlled. The important characteristics of
budgetary control are: planning of activities of each department, co-ordination among various
departmental plans, recording of actual performance, comparison between budgets standards
and actual performance, determining the deviations, if any, finding out the reasons for
deviations and taking of follow-up action.

CLASSIFICATION OF BUDGETS

Budgets may be classified on the basis of purposes for which they are prepared. On this basis,
we have the following types of budgets.

 Cash budget: Cash budget gives the estimated receipts and payments for the budget
period and indicates the position of cash arising from it. It shows the cash
requirements at various times of the budget period and helps the management in
planning and arranging cash for the business concern. Cash budget helps the
management in controlling and coordinating the activities concerned with receipts
and payments.
 Capital Budget: Capital budget gives the estimates in respect of the capital
resources of the business concern. It also states the plans with the estimated cost for
investment, expansion, replacement, etc. Thus the budget serves as a device for
planning capital expenditure.
 Fixed and Flexible Budget: The budget, which remains constant, regardless of the
actual output levels is known as Fixed Budget. The flexible budget is a budget
which can be easily adjusted according to the output levels. Fixed Budget is static in
nature while Flexible Budget is dynamic
 Short Range and Long Range Budgets: Short-range budgets may cover periods
of three, six or twelve months depending upon the nature of the business. Most
manufacturing firms use one year as the planning period. Wholesale and retail firms
usually employ a six-month budget which is related to their selling seasons. A long-
range budget is defined as a systematic and formalised process for purposefully
directing and controlling future operations toward a desired objective for periods
extending beyond one year.
 Functional / Operating Budget: The cost and income plan created for a particular
process or department operating within a business. For example, a functional
budget for the manufacture of a product line might include estimated costs of
production, marketing, sales, labor, equipment and materials, as well as projected
sales income.
 Performance-based budgeting : It is the practice of developing budgets based on
the relationship between program funding levels and expected results from that

4
 program. The performance-based budgeting process is a tool that program
administrators can use to manage more cost-efficient and effective budgeting outlays.
 Sales Budget: Sales budget gives a comprehensive sales programme and plans for a
specific period. It states the sales potential in terms of quantity, values, period,
product, etc. Sales budget is one of the important budgets because it is the basis for
preparing other types of budgets. For preparing the sales budget, factors such as the
price trend of the product, population trend, customer's purchasing power, extent of
advertising, past sales, nature of competition, economic situation in the country etc.
are considered.
 Production Budget: This budget is also known as output budget and is based on
sales budget. It indicates the quantity of units to be produced during the budget
period. This budget helps in maintaining optimum balance between production, sales
inventory position of the firm. This budget is prepared by the production manager.
 Production Cost Budget: Production cost budget which is based on the production
budget, lays down the estimated cost of carrying out the plans relating to production.
Production cost budget is sub-divided in to various sub-budgets like labour budgets,
raw material budget, production overhead budget, etc.

 Labour Budget: Labour budget gives the estimated requirements of labour

for carrying out the estimated production during the budget period. It may
state both direct and indirect labour requirements. Generally, the personnel
department prepares the labour budget in coordination with other concerned
departments.
 Raw Material Budget: This budget which is prepared by the production
department gives the estimated requirements of raw materials of different
types for carrying out production during the budget period.
 Production Overhead Budget: This budget lays down the estimates of all
production overheads to be incurred for carrying out the estimated production
during the budget period. It breaks up the production overheads into fixed
overheads, variable overheads and semi-variable overheads.

 Master Budget: Master budget is summary of all functional budgets and indicates
how they affect the business as a whole. A master budget generally includes
particulars regarding sales, production, cash position, fixed assets, labour, factory
overhead, administration overhead, and selling and distribution overhead, major
financial ratios and profit.
 Zero-based budgeting (ZBB) : It is a method of budgeting in which all expenses
must be justified for each new period. The process of zero-based budgeting starts
from a "zero base," and every function within an organization is analyzed for its
needs and costs. Zero-based budgeting (ZBB) is an approach to making a budget
from scratch. The budget is not based on previous budgets.

NON-BUDGETARY CONTROL TECHNIQUES

 COST ACCOUNTING: Profits of a business enterprise depend very much on the

cost of production. Because of this, cost accounting and cost control are given much
importance by the business concerns. Costs are incurred by an enterprise for different
types of activities. Management uses a number of systems for determining the cost of
products and services. The management by keeping in view the nature of each

5
 industry, designs the cost accounting procedures, methods and records for effective
cost control and cost reduction.

Advantages: The costing system provides a number of benefits to the management.

They are:

 By avoiding all types of wastes and by more effective utilisation of labour and
machine, it helps in reducing real cost of production.
 It helps in ascertaining the reasons for variation in the rate of profit
 By highlighting the costs incurred and the profit earned by different departments, it
provides a basis for future production policies.
 It helps in discovering the activities of the enterprises that are profitable and are
unprofitable. The management may eliminate unprofitable activities in order to reduce
losses.
 It helps the management in making decisions. For example a decision relating to
whether to make or buy a product can be taken with the help of cost accounts.

 STANDARD COSTING: Standard Costing is a costing method, that is used to

compare the standard costs and revenues with the actual results, in order to arrive at
the variances along with its causes, to inform the management about the deviations
and take corrective measures, for its improvement. Standard costing is one of the
important techniques of cost control used by the business concerns. Standard Costing
can be defined as “the preparation and use of standard costs, their comparison
with actual cost and the analysis of variances to their causes and points of
incidence”. Standard Costing discloses the cost of deviations from standards and
clarifies these as to their causes, so that management is immediately informed of the
sphere of operations in which remedial action is necessary.

 The term ‘standard cost’ can be defined as the expected cost per unit of the
products produced during a period, which is based on various factors. It aims at
measuring the performance, controlling the deviations, inventory valuation and
deciding the selling price of the product especially when quotations are prepared.
 The three main elements of standard cost are Direct Material Cost, Direct
Labour Cost and Overheads.

The steps involved to standard costing are as follows.

 Deciding cost standards for various components of costs such as labour overheads,
raw materials etc.
 Management of actual performance.
 Comparison of actual cost with the standard cost and finding out the variances.
 Finding out the causes of variances and taking measures to prevent the occurrences of
variances in future.

Standard costing involves the setting of predetermined cost estimates in order to

provide a basis for comparison with actual costs. A standard cost is a planned cost for
a unit of product or service rendered. Standard costing is universally accepted as an
effective instrument for cost control in industries.

6
 BREAK- EVEN POINT ANALYSIS: Break-even analysis is a useful tool of
management control over business profits. It is mainly concerned with the cost-
volume-profits analysis. In the words of Matz and Curry, "Break-even analysis
indicates at which level costs and revenue are in equilibrium". It is the point at which
total revenue is equal to total cost, i.e., the point of no profit and no loss. It helps in
finding out the probable profit at any level of production and the relationship of
different volumes, costs sales prices and sales mix to profits.

 The breakeven analysis is used to calculate the value of a variable at which the
expenditures and revenues of a project or alternative are equal. This value of
the variable is known as the breakeven point. Corresponding to the breakeven
point, profit or loss can be determined if the expected value of the variable is
higher or lower than the breakeven value. In this regard the breakeven point
governs the economic acceptability of the project or the alternative.
 The breakeven analysis is also used for comparing two alternatives by
determining the breakeven point i.e. the quantity of a factor (common to both
the alternatives) at which the total equivalent worth of both alternatives are
equal.
 The examples of some of the factors which are used in the breakeven analysis
are quantities produced per year, hours of operation per year, rate of return per
year and useful life etc. and the breakeven value of these factors are calculated
to find out the economical acceptability of a single alternative or to select the
best one between the alternatives.

Applications of Break Even Analysis

 For calculation of profit for different sales volume

 For calculation of sales volume to produce desired profits
 For calculation of the sales required to offset reduction in price
 For finding out the most profitable alternatives
 For finding out the selling price per unit for a particular break-even point
 For taking decision relating to the expansion of productive capacity
 For determining the most profitable prices for the products of an enterprise
 For maximum utilisation of resources and
 For optimisation of profit.

 INTERNAL AUDIT: This is one of the traditional non-budgetary control devices in

vogue. Through internal audit various operations are appraised and deviations are
detected. The internal audit activity helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control and governance processes.”
 Internal audit (IA) is an organizational initiative to monitor and analyze its own
business operations in order to determine how well it conforms to a set of specific
criteria.
 Internal audit is carried out by managers themselves or by special staff appointed
for this purpose
 Internal audit is much broader in scope and encompasses the whole range of
activities of the organization. By measuring performance and evaluating results in
the light of the standard , internal audit makes suitable recommendations for
managerial actions.

7
  NETWORK ANALYSIS- PERT: PERT is an acronym for Programme Evaluation
and Review Technique, in which planning, scheduling, organising, coordinating
and controlling of uncertain activities take place. The technique studies and
represents the tasks undertaken to complete a project, to identify the least time for
completing a task and the minimum time required to complete the whole project. It
was developed in the late 1950s. It is aimed to reduce the time and cost of the project.
PERT uses time as a variable which represents the planned resource application
along with performance specification. In this technique, first of all, the project is
divided into activities and events. After that proper sequence is ascertained, and a
network is constructed. After that time needed in each activity is calculated and the
critical path (longest path connecting all the events) is determined. Under this
technique a project is divided into various units in a time sequence. For each event
the 'critical path' is found, which is a sequence of events which takes the longest time
and which involves the least slack time. Summarised events are given for top-
management's perusal.
PERT emphasizes the relationship between the time each activity takes, the costs
associated with each phase, and the resulting time and cost for the anticipated
completion of the entire project. PERT is an integrated project management
system. PERT is appropriate for the projects where time needed to complete
different activities are not known. These systems were designed to manage the
complexities of major manufacturing projects, the extensive data necessary for such
industrial efforts, and the time deadlines created by defense industry projects. Most
of these management systems developed following World War II, and each has its
advantages.

 MANAGEMENT INFORMATION SYSTEM

Management Information System (MIS) is the use of information technology, people,

and business processes to record, store and process data to produce information that
decision makers can use to make day to day decisions. MIS is the acronym for
Management Information Systems. In a nutshell, MIS is a collection of systems,
hardware, procedures and people that all work together to process, store, and produce
information that is useful to the organization.

The purpose of a management information system -- often referred to simply as MIS -

- is to help executives of an organization make decisions that will help in the
accomplishment of organization's goals. An effective MIS assembles data available
from company operations, external inputs and past activities into information that
shows what the company has achieved in key areas of interest, and what is required
for further progress. The most important characteristics of an MIS are those that give
decision-makers confidence that their actions will have the desired consequences.

MANAGING PRODUCTIVITY
Productivity refers to the ratio between the output from production processes to its input.
Productivity may be conceived of as a measure of the technical or engineering efficiency of
production. As such quantitative measures of input, and sometimes output, are emphasized.

8
FACTORS INFLUENCING PRODUCTVITY IN ORGANIZATIONS
Organization’s Productivity is influenced by diversified factors. The key factors that
influence productivity in Organizations are as follows:

 Technical factors : Productivity largely depends on technology. Technical factors are

the most important ones. These include proper location, layout and size of the plant
and machinery, correct design of machines and equipment, research and development,
automation and computerization, etc. If the organization uses the latest technology,
then its productiveness will be high.
 Production factors : Productivity is related to the production-factors. The production
of all departments should be properly planned, coordinated and controlled. The right
quality of raw-materials should be used for production. The production process should
be simplified and standardized. If everything is well it will increase the
productiveness.
 Organizational factors : Productivity is directly proportional to the organizational
factors. A simple type of organization should be used. Authority and Responsibility of
every individual and department should be defined properly. The line and staff
relationships should also be clearly defined. So, conflicts between line and staff
should be avoided. There should be a division of labor and specialization as far as
possible. This will increase organization's productiveness.
 Personnel factors: Productivity of organization is directly related to personnel
factors. The right individual should be selected for suitable posts. After selection, they
should be given proper training and development. They should be given better
working conditions and work-environment. They should be properly motivated;
financially, non-financially and with positive incentives.
 Finance factors : Productivity relies on the finance factors. Finance is the life-blood
of modem business. There should be a better control over both fixed capital and
working capital. There should be proper Financial Planning. Capital expenditure
should be properly controlled. Both over and under utilization of capital should be
avoided.
 Management factors: Productivity of organization rests on the management factors.
The management of organization should be scientific, professional, future-oriented,
sincere and competent. Managers should possess imagination, judgement skills and
willingness to take risks. They should make optimum use of the available resources to
get maximum output at the lowest cost.
 Government factors: Productivity depends on government factors. The management
should have a proper knowledge about the government rules and regulations. They
should also maintain good relations with the government.
 Location factors: Productivity also depends on location factors such as Law and
order situation, infrastructure facilities, nearness to market, nearness to sources of
raw-materials, skilled workforce, etc.

TYPICAL PRODUCTIVITY CALCULATIONS

Measures of size and resources may be combined in many different ways. The three common
approaches to defining productivity are referred to as physical, functional, and economic
productivity. Regardless of the approach selected, adjustments may be needed for the factors
of diseconomy of scale, reuse, requirements churn, and quality at delivery.

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Physical Productivity - This is a ratio of the amount of product to the resources consumed
(usually effort). Product may be measured in lines of code, classes, screens, or any other unit
of product. Typically, effort is measured in terms of staff hours, days, or months. The
physical size also may be used to estimate software performance factors (e.g., memory
utilization as a function of lines of code).
Functional Productivity- This is a ratio of the amount of the functionality delivered to the
resources consumed. Functionality may be measured in terms of use cases, requirements,
features, or function points .Typically, effort is measured in terms of staff hours, days, or
months. Traditional measures of Function Points work best with information processing
systems. The effort involved in embedded and scientific software is likely to be
underestimated with these measures, although several variations of Function Points have been
developed that attempt to deal with this issue.
Economic Productivity-This is a ratio of the value of the product produced to the cost of the
resources used to produce it. Economic productivity helps to evaluate the economic
efficiency of an organization. Economic productivity usually is not used to predict project
cost because the outcome can be affected by many factors outside the control of the project,
such as sales volume, inflation, interest rates, and substitutions in resources or materials, as
well as all the other factors that affect physical and functional measures of productivity.
However, understanding economic productivity is essential to making good decisions about
outsourcing and subcontracting. The basic calculation of economic productivity is as follows:
Economic Productivity = Value/Cost

COST CONTROL
Cost control is the measure taken by management to assure that the cost objectives set down
in the planning stage are attained and to assure that all segments of the organization function
in a manner consistent with its policies. Cost control is the practice of identifying and
reducing business expenses to increase profits, and it starts with the budgeting process. A
business owner compares actual results to the budget expectations, and if actual costs are
higher than planned, management takes action.

Cost Control can be defined the process or activity on controlling costs associated with an
activity, process, or company. Cost control typically includes

 Investigative procedures to detect variance of actual costs from budgeted costs

 Diagnostic procedures to ascertain the cause(s) of variance, and
 Corrective procedures to effect realignment between actual and budgeted costs.

STEPS INVOLVED IN DESIGNING PROCESS OF COST CONTROL SYSTEM

 Establishing norms: To exercise cost control it is essential to establish norms,

targets or parameters which may serve as yardsticks to achieve the ultimate objective.
These standards, norms or targets may be set on the basis of research.
 Appraisal: The actual results are compared with the set norms to ascertain the degree
of utilization of men, machines and materials. The deviations are analyzed so as to
arrive at the causes which are controllable and uncontrollable.
 Corrective measures: The variances are reviewed and remedial measures or revision
of targets, norms, standards etc., as required are taken.

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ADVANTAGES OF COST CONTROL

 Better utilization of resources

 To prepare for meeting a future competitive position
 Reasonable price for the customers
 Firm standing in domestic and export markets
 Improved methods of production and use of latest manufacturing techniques which
have the effect of rising productivity and minimizing cost
 Improves the image of company for long-term benefits
 Improve the rate of return on investment

PURCHASE CONTROL

Purchase control is an element of material control. Material procurement is known as the

purchase function. The functional responsibility of purchasing is that of the purchase
manager or the purchaser. Purchasing is an important function of materials management
because in purchase of materials, a substantial portion of the company's finance is committed
which affects cash flow position of the company. Success of a business is to a large extent
influenced by the efficiency of its purchase organization. The advantages derived from a
good and adequate system of the purchase control are as follows:

 Continuous availability of materials: It ensures the continuous flow of materials. So

production work may not be held up for want of materials. A manufacturer can complete
schedule of production in time.
 Purchasing of right quantity: Purchase of right quantity of materials avoids locking up of
working capital. It minimizes risk of surplus and obsolete stores. It means there should not be
possibility of overstocking and under stocking.
 Purchasing of right quality: Purchase of materials of proper quality and specification
avoids waste of materials and loss in production. Effective purchase control prevents wastes
and losses of materials right from the purchase till their consumptions. It enables the
management to reduce cost of production.
 Economy in purchasing: The purchasing of materials is a highly specialized
function. By purchasing materials at reasonable prices, the efficient purchaser is able
to make a valuable contribution to the success of a business.
 Works as information centre: It serves as a function centre on the materials
knowledge relating to prices, sources of supply, specifications, mode of delivery, etc.
By providing continuous information to the management it is possible to prepare
planning for production.
 Development of business relationship: Purchasing of materials from the best
market and from reliable suppliers develops business relationships. The result is that
there may be smooth supply of materials in time and so it avoid disputes and
financial losses.
 Finding of alternative source of supply: If a particular supplier fails to supply the
materials in time, it is possible to develop alternate sources of supply. the effect of
this is that the production work is not disturbed.
 Fixing responsibilities: Effective purchase control fix the responsibilities of
operating units and individuals connected with the purchase, storage and handling of
materials. In short, the basic objective of the effective purchase control is to ensure
continuity of supply of requisite quantity of material, to avoid held up of production

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 and loss in production and at the same time reduces the ultimate cost of the finished
products.

MAINTENANCE CONTROL
Maintenance is the process of attending to the product or system after its operation and usage.
Maintenance control refers to the set of activities, tools and procedures utilized to coordinate
and allocate maintenance resources to achieve the objectives of the maintenance system.

Maintenance department has to excercise effective cost control, to carry out the maintenance
functions in a pre-specified budget, which is possible only through the following measures:
 First line supervisors must be apprised of the cost information of the various materials
so that the objective of the management can be met without extra expenditure on
maintenance functions
 A monthly review of the budget provisions and expenditures actually incurred in
respect of each center /shop will provide guidelines to the departmental head to
exercise better cost control.
 The total expenditure to be incurred can be uniformly spread over the year for better
budgetary control. However, the same may not be true in all cases particularly where
overhauling of equipment has to be carried out due to un foreseen breakdowns. some
budgetary provisions must be set aside, to meet out unforeseen exigencies.
 The controllable elements of cost such as manpower cost and material cost can be
discussed with the concerned personnel, which may help in reducing the total cost of
maintenance.
 Emphasis should be given to reduce the overhead expenditures, as other expenditures
cannot be compromised.
 It is observed through studies that the manpower cost is normally fixed, but the same
time increases due to overtime cost. However, the material cost, which is the prime
factor in maintenance cost, can be reduced by timely inspections designed, to detect
failures. If the inspection is carried out as per schedule, the total failure of parts may
be avoided, which otherwise would increase the maintenance cost. Proper handling of
the equipment by the operators also reduces the frequency of repair and material
requirements. Operators, who check their equipment regularly and use it within the
operating limits, can help avoid many unwanted repairs. In the same way a good
record of equipment failures/ maintenance would indicate the nature of failures, which
can then be corrected even permanently.

QUALITY CONTROL
Quality control is the set of measures and procedures to follow in order to ensure that the
quality of a product is maintained and improved against a set of benchmarks and that any
errors encountered are either eliminated or reduced. The focus of quality control is to ensure
that the product and product manufacturing are not only consistent but also in line with
customer requirements. Quality control (QC) is a procedure or set of procedures intended to
ensure that a manufactured product or performed service adheres to a defined set of quality
criteria or meets the requirements of the client or customer. In order to implement an
effective QC program, an enterprise must first decide which specific standards the product or
service must meet. Then the extent of QC actions must be determined (for example, the
percentage of units to be tested from each lot). Next, real-world data must be collected (for

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example, the percentage of units that fail) and the results reported to management personnel.
After this, corrective action must be decided upon and taken (for example, defective units
must be repaired or rejected and poor service repeated at no charge until the customer is
satisfied). If too many unit failures or instances of poor service occur, a plan must be devised
to improve the production or service process and then that plan must be put into action.
Finally, the QC process must be ongoing to ensure that remedial efforts, if required, have
produced satisfactory results and to immediately detect recurrences or new instances of trouble.

The steps involved in quality control process are

 Determine what parameter is to be controlled.
 Establish its criticality and whether you need to control before, during or after results
are produced.
 Establish a specification for the parameter to be controlled which provides limits of
acceptability and units of measure.
 Produce plans for control which specify the means by which the characteristics will
be achieved and variation detected and removed.
 Organize resources to implement the plans for quality control.
 Install a sensor at an appropriate point in the process to sense variance from
specification.
 Collect and transmit data to a place for analysis.
 Verify the results and diagnose the cause of variance.
 Propose remedies and decide on the action needed to restore the status quo.
 Take the agreed action and check that the variance has been corrected.

STATISTICAL QUALITY CONTROL: Statistical Quality Control (SQC) is the term

used to describe the set of statistical tools used by quality professionals. SQC is used to
analyse the quality problems and solve them. Statistical quality control refers to the use of
statistical methods in the monitoring and maintaining of the quality of products and services.
All the tools of SQC are helpful in evaluating the quality of services. SQC uses different tools
to analyse quality problems.
 Descriptive Statistics
 Statistical Process Control (SPC)
 Acceptance Sampling

Descriptive Statistics involves describing quality characteristics and relationships. SPC

involves inspect random sample of output from process for characteristic. Acceptance
Sampling involve batch sampling by inspection.

INSPECTION CONTROL: It is applied at the stage of raw materials as well as at the stage
of finished goods or in between. Inspection is made by comparing the quality of the product
with the standard, commonly known as specification. Sometimes, inspection reverts to a
sorting procedure that classifies acceptable products from unacceptable ones. The frequency
of carrying out the inspection mainly depends on the cost that is involved in carrying out the
inspection. If inspection is carried out for every product it involves lot of cost , but if
inspection is not carried out it results in defective products. Hence there is a trade off between
inspection and no inspection. In order to solve this problem organizations usually go for
sampling and the sample size is determined on the basis of degree of precision required in
product

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QUALITY CONTROL THROUGH QUALITY CIRCLES: Quality Circles can be
described as a small group of employees of the same work area, doing similar work that
meets voluntarily and regularly to identify, analyse and resolve work related problems .This
small group with every member of the circle participating to the full carries on the activities,
utilising problem solving techniques to achieve control or improvement in the work area and
also help self and mutual development in the process.

Quality Circle concept provides an opportunity to the circle members to use their wisdom,
creativity and experience in bringing about improvements in the work they are engaged in by
converting the challenging problems into opportunities and it contributes to the development
of the employees and in turn benefits the organisation as well.

MANAGING OPERATIONS
Operations management is chiefly concerned with planning, organizing and supervising in
the contexts of production, manufacturing or the provision of services. As such, it is delivery-
focused, ensuring that an organization successfully turns inputs to outputs in an efficient
manner. Operations management is the administration of business practices to create the
highest level of efficiency possible within an organization. It is concerned with converting
materials and labour into goods and services as efficiently as possible to maximize the profit
of an organization.

Operations management focuses on carefully managing the processes to produce and

distribute products and services. Other activities that receive special attention are product
creation, development, production and distribution. Related activities include managing
purchases, inventory control, quality control, storage, logistics and evaluations of processes.
A great deal of focus is on efficiency and effectiveness of processes. Therefore, operations
management often includes substantial measurement and analysis of internal processes.

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 PART A
1. What is Feed Forward Control?
Feed forward controls are future-directed and they attempt to detect and anticipate
problems or deviations from the standards in advance of their occurrence. Feed
forward controls thus anticipate problems and permit action to be taken before a
problem actually arises.
2. List the Objectives of Controlling.
 To ensure that activities are performed in accordance with the predetermined
standard that is to see that activity is achieving the desired result.
 To know what is happening or what has actually happened in the organisation.
 To determine the corrective action, if any, required for the achievement of
goals with a minimum of time, effort and expense.
 To coordinate the diverse activities and efforts.
 To improve the efficiency of operations by minimizing unnecessary &
wasteful actions.
3. What is meant by Cost Control?
Cost control is the measure taken by management to assure that the cost objectives set
down in the planning stage are attained and to assure that all segments of the
organization function in a manner consistent with its policies.
4. What is Preventive Control?
Preventive controls are used to keep a loss or an error from occurring. Examples of
preventive controls are segregated duties and the physical protection of assets. These
controls are typically integrated into a process, so that they are applied on a continual
basis.
5. What is Budgetary Control?
Budgetary control refers to how well managers utilize budgets to monitor and control
costs and operations in a given accounting period. In other words, budgetary control is
a process for managers to set financial and performance goals with budgets, compare
the actual results, and adjust performance, as it is needed.
6. Explain PERT
Program evaluation and review technique (PERT) is a technique adopted by
organizations to analyze and represent the activity in a project, and to illustrate the
flow of events in a project. PERT is a method to evaluate and estimate the time
required to complete a task within deadlines.
7. What is Balance Score Card?
A balanced scorecard is a performance metric used in strategic management to
identify and improve various internal functions of a business and their resulting
external outcomes. It is used to measure and provide feedback to organizations.
8. Write down the steps in the Control Process
Establishment of Standards, Measurement of Performance, Comparison of actual
performance with standard performance, Identify Deviation, Take corrective action
9. State the different types of control
 Feedback Control: This process involves collecting information about a finished
task, assessing that information and improvising the same type of tasks in the
future.

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  Concurrent control: It is also called real-time control. It checks any problem and
examines it to take action before any loss is incurred. Example: control chart.
 Predictive/ feed forward control: This type of control helps to foresee problem
ahead of occurrence. Therefore action can be taken before such a circumstance
arises.
10. What could be the major pitfalls in a budget?
 Budget provides only approximate estimates. Hence results cannot be measured
accurately.
 Over-budgeting - This means the minor expenses are worked out in detail. This
will not allow the managers to delegate even minor powers to their subordinates.
 Budget may also be used to hide inefficiencies. Unnecessary boosting of certain
expenditure and deliberately omitting needed items are quite a common practice.
 Quick results cannot be achieved as it is prepared for a year.
 One of the important limitations of budget is its inflexibility. The figures
mentioned are not final. As prices change very often estimates mentioned in the
budget may become absolute.
 Budget has psychological reaction and restricts freedom of action.
11. Explain the purpose/ applications of Break Even Analysis
 For calculation of profit for different sales volume
 For calculation of sales volume to produce desired profits
 For calculation of the sales required to offset reduction in price For determining the
most profitable prices for the products of an enterprise
 For maximum utilisation of resources and
 For optimisation of profit.
12. What are Quality Circles?
Quality Circles can be described as a small group of employees of the same work
area, doing similar work that meets voluntarily and regularly to identify, analyse and
resolve work related problems .
13. Define Maintenance Control.
Maintenance is the process of attending to the product or system after its operation
and usage. Maintenance control refers to the set of activities, tools and procedures
utilized to coordinate and allocate maintenance resources to achieve the objectives of
the maintenance system.
14. Define Productivity.
Productivity refers to the ratio between the output from production processes to its
input. Productivity may be conceived of as a measure of the technical or engineering
efficiency of production.
15. What is Zero Based Budgeting?
Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must
be justified for each new period. The process of zero-based budgeting starts from a
"zero base," and every function within an organization is analyzed for its needs and
costs.

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