Professional Documents
Culture Documents
1. A total system
2. Monetary standards
3. Definite pattern
4. Coordinated system
5. Line managers
6. Emphasis
According to Holden, Fish and Smith the main areas of control are as follow:-
Policies control
Control over organization
Control over personnel
Control over wages and salaries
Control over cost
Control over technique
Control over capital expenditure
Production control
Overall control
Control over External relations
Control over Research and Development
1. Policies control:-the success of business hangs on formulation of sound
policies and proper implementation. There is a great need of control over
policies.
2. Control over organization:-for the control over organization the management
uses organization’s manual and organizational chart. Designing and organizing
various departments for smooth running of business is very essential. If any
problem or conflict arises the management control attempts to remove the
causes of such frictions and rationalize the organizational structure as to ensure
its efficient working.
3. Control over personnel :- anything that the business accomplishes is the result
of the action of those people who work in the organization. It is people, not
figure, that get things done. The personnel manager is responsible to draw a
control plan for having control over the personnel of the concern.
4. Control over wages and salaries :-control over wages and salaries is sometimes
assigned to the personnel department or a specially constituted wages and
salary committee.
5. Control over cost:- the cost accountant who is responsible to control cost set
cost standards, labor material and overhead . He makes comparison of actual
cost data with standard cost. Cost control is delicate task and is supplemented
by budgetary control system.
6. Control over technique:- it implies the use of best methods and techniques so
as to eliminate all waste in time, energy and material. The task is accomplished
by periodic analysis and checking of activities of each department with a view
to avoid and eliminate all non essential motions , functions and method.
7. Control over capital expenditure :-various projects entailing huge amounts
require control. This is exercised through a system of evaluation of projects in
terms of capital. Capital budget is prepared for whole concern. Every project is
evaluated in terms of advantage accruing to the firm. For this purpose capital
budgeting, project analysis , study of cost of capital etc are carried on
extensively.
8. Production control:- the function of production control is to plan, organize,
direct and control the necessary activities to provide products and services.
Once the production system is designed and activated the problems arise in the
areas of production, planning and control. Market needs and attitudes of
consumer are studied minutely for revision in product lines and their
rationalizing. Routing, scheduling , dispatching , follow up, inventory control,
quality control are the various techniques in production control.
9. Overall control :- a master plan is prepared for overall control and all the
concerned departments are made to involve in this procedure.
10. Control over External relations:- public relations department should always be
alert in improving external relations. It may also prescribe norms and measure
for other operating departments to insist on cordial relations with all the parties.
11. Control over Research and Development:- research activities , being technical
in nature cannot be controlled directly . But is should be seen that all facilities
are provided to research staff to improve their ability and keeping in touch with
the up-to date techniques and devices . Training facilities should also be
provided by having research budget in the business.
Nature of Management Control:-
Control is an important element of the process of managing. It ensure work
accomplishment according to plans. It is the process that guides and controls
operations towards some predetermined goods.
According to Prof. R.N. Anthony “Management control is the process by which
manager assures that the resources are obtained and used effectively and
efficiently in the accomplishment of the organization’s objectives.”
It is a process by which people in the organization are made to work properly
and most efficiently with a view to obtain best results.
It is concerned with measuring and evaluating performance so as to secure the
best results under the circumstances.
An effort is made to compare the current performance to a predetermined
objective or plan.
Thus control is fundamental function of the management to ensure work
accomplishment according to predetermined plans and standards.
Most controls can be classified as:-
Types of control
Process of Control:-
1. Well defined objective:- the objective and goals of the organization should be
clear and well defined. The organization goals should be split into sub-goals at
departmental level. The operation of various functions and their coordination
should be vested in the hands of executives who are armed with sufficient
authority or power to fulfill their responsibility . The planned goals of the
enterprise or of a particular department serve as standard for performance
measurement.
2. Determination of strategic point of control:-the responsibility centers and
strategic points of control should be selected and fixed. To make the control
process effective , the management should concentrate upon strategic points
only.
3. Establishment of control standards:-these standards are established criteria
against which actual performance can be compared and measured in terms of
money, time ,physical units or some other index. The object of predetermined
standard is that comparison between actual performance and target performance is
made possible. Continuous comparison is very necessary. This requires
tabulating the targets framed, collecting and collating data regarding actual
performance and reporting variations periodically to the controlling authorities.
Controls is not possible unless actual performance and the standards against
which it is being measured are comparable.
4. Determination of controllable costs and control period:-optimum control does
not mean excessive control. Sometimes good results are achieved only if critical
points are identified. Secret of good control is to establish strategic points
where corrective actions will be cheapest and most effective.
5. Strengthening the organization:- the complete framework of control is aimed
at strengthening the organization. Planning is a prerequisites. Control should be
tailored to fit the organization. There should be a system of checks on the
managerial activity of subordinates. The organization should be strengthened
first to overcome the weakness of deviations. Control should incorporate
sufficient flexibility in them so as to remain effective despite the failure of plan.
6. Measurement of performance:- it is not only a process of comparison of actual
performance with objectives, but to initiate steps to achieve the objectives. This
is done without encroaching upon the scope of authority of manager concerned
. The evaluation of performance is very necessary.
it involves the measurement of performance in respect of work and in terms of
control standards. According to Peter F Drucker the measurement of
performance must be clear , simple and rational, relevant and reliable. The
effectiveness of control system depends upon the prompt reporting of past
results to the persons who has power to produce changes . The next step is to
compare the performance of with the planned standards. It is important to
determine the limits within which the variations can be held and still to be
regarded within control when performance is measured accurately. The
management is not only required to find out the extent of variations but the
causes of variation must also be ascertained correctly . The manager should be
able to distinguish between minor and unimportant variation and variations
indicating need for immediate correction. To access whether actual performance
is in accordance with the target comparison with the standards has to be made
and variation is properly analyzed to understand the reason for variation. The
comparison should be done at frequent interval so that immediate corrective
action should be taken.
7. Control period:-the proper control period is the shortest period of time in which
the management can usefully intervene and in which significant changes in
performance are likely. The period is different for different responsibility
centres and for different items within responsibility centres. Spoilage rates
in a production operation may be measured hourly or often. The key cost element
of the centre may be measured daily. Reports on overall performance ,
particularly those going to the levels of management are often on a monthly
basis and sometimes for quarterly or longer intervals, since top management
does not have either the time or the inclination to explore the local temporary
problems.
Control Environment:-
An effective control environment supports and strengthen the other control
elements, whereas a weak control environment undermines the other
elements, rendering them useless. In an effective control environment ,
employees know that doing the right thing is expected and will be supported by
upper level management, even if it hurts the bottom line. In a weak
environment control procedure are frequently overridden or ignored ,
providing an opportunity for fraud.
Traditionally, auditors issue questionnaire to senior management to determine
whether management policies and procedures , such as code of ethics , have
been implemented. The problem with this approach is that it measures
managements effort to create a sound environment and not its effectiveness in
doing so.
The more direct method of evaluating whether management has created an
environment in which ethical behavior is encouraged is for internal auditors to
survey the people who work in that environment. The focus of the assessment
should not be on the message management thinks it is sending, but on the
message employees are actually receiving.
The control environment is one of the key component of an entity’s internal
control it sets the tone of an entity, influences the control consciousness of
people within all organization and is the foundation for all other components of
the internal control system.
Management is responsible for evaluating and reporting on company’s controls.
The external auditors are responsible for auditing management’s assertion and
independently coming to their own conclusion about the company’s internal
control effectiveness. They must evaluate management’s assessment and also
perform their own independent test in many areas, including the control
environment:-
1. The control environment has a pervasive structure that affects many business
process activities. It includes element such as management’s integrity and
ethical values ,operating philosophy and commitment to organizational
competence.
2. Test of control environment will consist of a combination of procedures,
including a review of relevant documentation of design , inquiries of
management and employees and direct observation.
3. Auditor will have to probe for understanding and awareness and try to
understand the company’s attitude toward internal control over financial
reporting. They should also ask management for self assessment.
Concept of Goals and strategy:-
A strategy invariably indicates the long term goals toward which all the efforts
are directed. E.g. long term goals might be to dominate the market to be the
technology leader or to be the premium quality firm. Such enduring goal help
the employees give their best in a unified manner and enable the firm to specify
its competitive position very clearly to its rivals.
strategy is the overall plan of a firm deploying its resources to establish a
favorable position and compete successfully against its rivals.
Strategy describes a framework for charting a course of action.
It explicates an approach for the company that builds on its strength and is a
good fit with the firms external environment. It is basically intended to help
firms achieve competitive advantage.
Competitive advantage comes from a firms unique ability to perform activities
more distinctively and more effectively than rivals. A firm’s distinctive
competence or unique ability here implies those special capabilities , skills,
technologies or resources that enable a firm to distinguish itself from its rivals
and create competitive advantage.
The term “Terrain” is highly relevant in explaining the concept of strategy more
clearly. From the business sense “Terrain” refer to markets, segments and
products used to win over customers.
The essence of strategy is to match strength and products used to win over
customers. The essence of strategy is to match strength and distinctive
competence with terrain in such a way that one’s own business enjoys a
competitive advantage over rivals competing in some terrain.
Element of Strategy
Competitive
Goals Scope Logic
advantage
Elements of Strategy:-
1. Goal:-a strategy invariably indicates the long term goals towards which all the
efforts are directed . For example long term goals might be to dominate the
market , to be the technology leader or to be the premium quality firm. Such
enduring goal help employees give their best in a unified manner and enable the
firm to specify its competitive position very clearly to its rivals.
2. Scope :-a strategy defines the scope of the firm that is the kind of products the
firm will offer, the market ( geographies , technologies , processes) it will
pursue and the broad areas of activity it will undertake. It also laid down the
activities the firm will not undertake
3. Competitive advantage:-a strategy also contains a clear statement of what
competitive advantage the firm will pursue and sustain. Competitive advantage
arises when the firm is able to perform an activity that is distinct or different
form that of its rivals. Firms build competitive advantage when they take steps
that help them gain an edge over their rivals in attracting buyers. These steps
vary for example making the highest quality product , offering the best
customer services , producing at the lowest cost or focusing resources on a
specific segment or niche of the industry.
4. Logic:-this is the most important element of strategy. ‘Why’ is the logic of
strategy.
For example:-
Strategy- a firms strategy is to dominate the market for inexpensive detergents by
being the low –cost, mass market producer.
Goal- goal is to dominate the detergent market
Scope- is to produce low –cost detergent powder for the Indian Mass Market
Competitive advantage- is firms low cost.
But all these fails to answer why this strategy will work. Thus logic is the core of
the strategy .
To see how the logic is the core of the strategy consider the following statement:-
‘our strategy is to dominate the Indian Market for inexpensive detergent powder by
being the low cost producer selling through mass-market channels. Our low
price will generate high volumes,. This in turn will makes us a high volume,
low –cost producer . The economies of scale would help us improve our
bottom-line even with low price.