Dipen Kadam Roll No.

15

Control

Techniques Of Control

Types of Techniques Of Control

Traditional Techniques Techniques Of Control Modern Techniques

Traditional Techniques
Personal Observation

Good Organized Structures

Unity Of Objectives, policies, procedures and methods Statistical reports and analysis Break-even analysis Budgetary control

Modern Techniques
Management Audit Return on investment (ROI) Responsibility accounting PERT and CPM

Personal Observation

The most effective The oldest The most direct and undistorted Face to face contact Psychological impact Corrective measures on the spot Can not be completely replaced

Time consuming Not possible all the time Negative impact in certain cases Self motivated and enlightened employees hate supervision or interference Personal bias

Good organization structures

An definite idea about the role and responsibility Improves productivity Removes obstacles in performance

Not actual way of control Still aid of the other control system is needed or else misdirection can occur Objectives lose in daily schedule

Unity of plans

Unity of objectives, policies, procedures and methods will make controlling effective. work can be done in predetermined manner Serves as operational giude of daily routine

Can not be measures in quantitative terms

Statistical reports and analysis

Different values like averages, ratios, correlation, etc are helpful for in control of production, quality, inventory, etc. Quick interpretation thus swift decision making Trends can be found out. Monitoring

Lengthy and tedious Sometimes consumes lot of time to prepare reports(especially when previous data is not very easy to fetch)

Break-even analysis
Also known
Inter relationship between cost of production, volume of production and profits. Also known as Cost volume analysis Cost is broken in two categories fixed and variable. Break even point

Break-even analysis

Determines the minimum volume of sales at which costs are fully recovered

Control over variable costs

It can be applied to estimate profits at different levels of activity Estimate turnover for desired profits

Categorizing cost into fixed or variable is very difficult Fixed cost are not constant throughout Cost line and revenue line are not linear always Factor prices, technology and product mix are dynamic

Budgetary control

Financial/quantitative statement prepared prior to a definite period of time of the policy to be pursued during that period for obtaining a given purpose. Future plan of action Expressed in monitory or in physical units Provides standard by which performance can be evaluated and corrective actions can be taken Highly useful in periodical controlling Budget making- planning and administration of budgetcontrolling

Sales Budget Production Budget Materials Budget Labor Budget

Overhead Budget
Cash Budget Capital Expenditure Budget Master Budget

 Flexible Budgeting Performance Budgeting Zero Base Budgeting (ZBB)

Flexible Budgeting

Fixed budgeting doesnt show changes in costs according to level of activity

Flexible budget copes with future changes.

It gives budgeted cost according to level of activity

Realistic and practical (as accurate values of sales and production can not be stated)

Performance Input/output or costs/results Budgeting budget

Steps:
Identify the goals Prepare a schedule Link all expenses Develop measure of performance

Highlights the end results to be achieved than money to be spent

 Correlates financial and physical aspects Improve budget formulation, review and decision making Effective performance audit Annual budgets and development plans become synchronous

Difficulty in setting goals in terms of performance Requires structural changes in organization

Zero-base Budgeting(ZBB)
Traditional system relies too much on past experience Stifles innovation and creativity

In ZBB, comprehensive analysis and review of budget is made

Steps:
Activities are divided in decision packages All activities are evaluated and ranked Resource allocation according to priority

 Constraints of budgetary and organizational goal Freedom and flexibility Objective evaluation Low priority activities can be eliminated

Time consuming Traumatic for budget makers Extensive security may discourage innovation*

Budgetary Control
Is establishment of budget relating to responsibilties of executives to requirements of policy, and continous comparision of actual with budget
Steps : Preparation of budgets Measurement and continous comparion Corrective actions Revision and modification in budgets Obejective in controlling : Provides standard for performance To detect shortcomings and avoid waste of resources

Clarity in planning Means of coordination Control by exception Fixing responsibility Optimum resources utilization

Inflexibility Inaccuracy Distortion of goals Exenditure Hiding inefficiencies No substitute for management

Management audit
Quality of management is very important; it decides success or failure of an organization
Scientific and overall appraisal of quality of management Locates deficiencies Constructive and comprehensive review of management of team of organization

Scope of management audit:

Organizational structure Executive appraisal Functioning of management board Soundness of earnings Economic functioning Service to stockholders Research and development Fiscal policy Production efficiency Sales vigor

 Total and systems view of management process to analyze deficiencies in management Continuous improvement Improvised coordination and performance evaluation

No standard techniques No well defined Can create complexity in authority relationships

Return on investment

Return capital on capital employed The essence of this technique is profit is taken not as an absolute figure but is considered in relation to the invested capital

 Focuses on the basis objectives of business-profit earning and relates it to capital invested Takes account of utilization of resources Alert to wastage and inefficiency Comparison with other firms and with over the years is possible and different divisions/ departments Discusses about allocation of capital

Too much emphasis on financial factors and ignorance towards other factors like PR, executive skills, R&D, etc. Too much calculations and continuous recording expensive and time consuming As valuation of assets changes with time it is difficult to find out standard rate of return Discourages risk taking

Responsibility accounting
It is a system of accounting in whereby the performance is judged by assessing the achievement of every individual.
Types: Cost Centre Profit Centre Investment Centre

PERT and CPM