CONTROLLING

Dr. Deepa R
Controlling
https://www.youtube.com/watch?v=8tRAazkVW3w
The Control Process
1. Establishing Standards to measure performance

2. Measuring actual performance

3. Comparing performance with standards – Sales report of last year

compared to this year

4. Taking corrective action

Types of Control
General Control System
Control of the Organisation
Control of people
Control of machine systems
Types of Control
• Feedforward or Preventive control
• Feedback or Corrective Control – Closed-loop control
• Concurrent Control - It is also called real-time control.
The Management Control Process
1. Establishing Standards to measure performance
- Goal-setting (Long and short-term)
- Financial, Production, Customer-satisfaction, Employee performance

2. Measuring actual performance

- Creating measuring tools to collect data – Balance sheet, Sales report,
Customer satisfaction survey, Employee performance appraisal

3. Comparing performance with standards – Sales report of last year compared

to this year

4. Taking corrective action

Management Control System
Based on levels in the organisation

Strategic Control – Reassessing existing strategy

Operational Control – Interim decisions – Over one or two years

Tactical Control – Various parts of the organisation – Less than one year
Based on Organisation Behaviour
Details Political Control
Conformity to national goals and
objectives
Goals
Organisation’s contribution to
quality and other societal
obligations pollution control,
Performance Criteria waste management etc
Investigative journalism, audit to
indicate defaults in the
Feedback
organisation
National / Industry level awards
Rewards for and ranking for excellence in
compliance management
Government ordering the closure
Punishments for
of the plant, criminal
non-compliance or
proceedings, imprisonment of
sanctions
top executives
Organisational
Social Control Self-control
Control
Organisational Strategy,
Profits, Market share, Service Mutual commitment Personal goals and
quality, response to and group ideals aspirations
competitive pressures
Budgets, standard costs, Self-expectations and
Group norms
sales targets inter-mediate targets
Perceived impending
Quantitative variances Deviant Behaviour
failure, missed targets
Peer approval,
Commendation, monetary Satisfaction of being
membership,
incentives, promotions in control, elation
leadership
Sense of
Condemnation, explanation, Kidding, ostracism,
disappointment,
dismissal hostility
feeling of failure
Based on Functional area
• Financial Controls

• Production Control

• Inventory Control

• Marketing Control

• Distribution Control

• Control in Human Resource Management

Financial Control
Financial Control
Financial Control Methods
Comparative Financial Statements – Balance sheet and Income
statement
Ratio Analysis
Balance Sheet ratio:
Current Ratio / Working Capital Ratio = Current Assets / Current Liabilities (2:1)
Liquidity Ratio = Liquid Assets / Liquid Liabilities (1:1)
(Current Assets – Inventories) (Current Liabilities – Bank Overdraft)
Profit and loss account ratios:
Gross Profit Ratio = Gross Profit / Net Sales *100
Operating Profit Ratio = Operating profit / Net Sales *100
Debt / Equity Ratio
Debt/Equity= Liabilities / Total Shareholders’ Equity
​ und Flow and Cash flow analysis
F
Cash Flow – All cash related transactions – receipts and disbursements
Fund Flow – The current operating profit, issue of shares and debentures, long &
medium-term borrowings, sale of fixed assets and income from investments.
Break-even Analysis
At Break- even point : Revenues = Variable cost + fixed cost
Fixed cost = Depreciation, rent, insurance, salaries etc.,
Variable cost= Raw material cost, direct wages, salesman commission
Break-Even Point
ROI
• It provides the basics and guides for measuring whether or not invested capital has
been used effectively for generating a reasonable amount of return. ROI can be
used to measure the overall performance of an organization or of its individual
departments or divisions.

• It can be calculated as Net Income / Invested Capital

• Net income before or after tax may be used for making comparisons.
• Total investment includes both working as well as fixed capital invested in the
business.
Control Mechanism
Budgetory Control
Different Types
• Sales budget: A statement of what an organization expects to sell in terms of quantity as well as
value
• Production budget: A statement of what an organization plans to produce in the budgeted period
• Material budget: A statement of estimated quantity & cost of materials required for production
• Cash budget: Anticipated cash inflows & outflows for the budgeted period
• Capital budget: Estimated spending on major long-term assets like a new factory or major
equipment
• Research & development budget: Estimated spending for the development or refinement of
products & processes

Zero-base Budgeting – Activities identified as decision-packages – examines an activity

from scratch
Control Mechanism
External audit
Financial Audit – Book of accounts – P&L statements, Balance Sheet
Cost Audit – Wages & Salary, power, food,water, overheads, depreciation
CAG Audit – Government Departments
Internal Audit
Management Audit – Objectives, Organisation structure, Performance
of each responsibility centre, Systems and procedures, Review of
functional areas
Control Mechanism
MBO – Objectives – Organisational, Departmental, Team, Individual –
KRAs- Action plan – Performance review-

MIS – DSS- ERP-Big Data-Smart Systems-AI-Chatbots

Statistical Reports - Statistical reports can be defined as an overall

analysis of reports and data which is used in the form of averages,
percentage, ratios, correlation, etc., present useful information to the
managers regarding the performance of the organization in various areas.
Management Control System
Production Control
Estimating raw materials, parts, machines, tools required
Routing-Loading-Scheduling-Dispatching-Expediting and follow-up-Corrective measures

Quality Control – Raw material, In-process, Final inspection – Control charts- SQC

Inventory Control – ABC Analysis (No of items, % of items, % of usage value), EOQ
(Balance holding cost and ordering cost) , JIT (Materials brought and finished products
delivered JIT)

Marketing Control – Qualitative std – Sales volume, Market share

Qualitative std –Customer satisfaction, Brand image
Management Control System
Control in Human Resource Management – Budgets, Policies, Reports,
records, HRIS, HRA,

HR Metrics
Cost per hire = Cost of recruitment / No of recruitees
Training cost per employee = Total training expenditure / No of employees
Labour turnover ratio (%) = No of separations / Average no of employees
Contemporary Issues in Control
Workplace Privacy Vs Monitoring

Cross-cultural issues – Legal constraints on corrective action in

foreign countries

Corporate Governance – Disclosure and Transparency

Employee Theft

Violence