UNIT-5

CONTROLLING

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 The Purpose of Control

Adapt to Limit the

environmental change accumulation of error

Control helps
the organization

Cope with organizational

Minimize costs
complexity

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 Levels of Control
• Operational control:
– Focuses on the processes used to transform
resources into products or services.
• Financial control:
– Concerned with financial resources.
• Structural control:
– How the elements of structure are serving the
intended purposes.
• Strategic control:
– How effective are the functional strategies helping
the organization meet its goals.

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Levels of Control

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 Who Is Responsible for Control?

• Control rests with all

managers.
• Large corporations
have a controller.
• What does a
controller do?
– Helps line managers
with their control
activities.

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Controlling
Process
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 Steps in the Control Process
• Establish standards.
• Measure performance.
• Compare performance against standards.
• Determine need for corrective action.
• The sub-steps:
– Maintain status quo.
– Correct deviation.
– Change standards.

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Steps in the Control Process

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 1. Establishing Standards
Measurable or tangible(Output Standards)
• Standards can be measured and expressed
quantitatively are called as measurable standards.
They can be in form of cost, output, expenditure,
time, profit, etc.
Non-measurable or intangible(Input Standards)
• There are standards which cannot be measured
quantitatively. For example- performance of a
manager, deviation of workers, their attitudes
towards a concern. These are called as intangible
standards.

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 2. Measuring Actual Performance
• Measurements must be accurate enough to spot
deviations or variances between what really occurs
and what is most desired.

• Without measurement, effective control is not

possible.

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 3.Comparing Actual with Standard

• Deviation is as the gap between actual

performance and the planned targets.
• For example, if stationery charges increase by
a minor 5 to 10%, it can be called as a minor
deviation.
• On the other hand, if monthly production
decreases continuously, it is called as major
deviation.

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Acceptable Range of Deviation

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 4.Correction of Deviation

• Taking any action necessary to correct or

improve things.

– There are two types of exceptions:

• Problems - below standard
• Opportunities - above standard

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Types of Control

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 BUDGETARY CONTROL

The establishment of budgets, relating

the responsibilities of executives to the
requirements of a policy

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 Salient features:

a. Objectives: Determining the objectives

b. Activities: Determining the variety of activities
c. Plans: Drawing up a plan
d. Performance Evaluation: Laying out a system
of comparison of actual performance
e. Control Action: Ensuring that when the plans
are not achieved, corrective actions are taken

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CLASSIFICATION OF BUDGETS

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• Long Term Budget: prepared for periods longer
than a year ex: R&D Budget
• Short Term Budget: less than year
ex:cash budget
• Basic Budget: remains unaltered
• Current Budget: related to the current conditions
• Fixed Budget: remain unchanged
• Flexible Budget: various budgets for different
levels of activity
• Functional Budget: the individual functions in an
organization
• Master Budget: Profit & Loss Account
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BUDGETARY CONTROL TECHNIQUES

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 1. Revenue and Expense Budgets:

• budgets spell out plans for revenues and

operating expenses in rupee terms.

2.Time, Space, Material, and Product

Budgets:
• Many budgets are better expressed in
quantities rather than in monetary(money)
terms.

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 3. Capital Expenditure Budgets

• capital expenditures for plant, machinery,

equipment, inventories, and other items.

4. Cash Budgets
• cash budget is simply a forecast of cash
receipts

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 5. Variable Budget
• analysis of expense items to determine how
individual costs should vary with volume of
output

6. Zero Based Budget

• By starting the budget of each package from
base zero, budgeters calculate costs

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 NON-BUDGETARY CONTROL TECHNIQUES
• many traditional control devices not connected
with budgets, although some may be related to,
and used with, budgetary controls.

i) Statistical data:
• Analysing the numerical data

ii) Break- even point analysis

• chart depicts the relationship of sales and
expenses
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iii) Operational audit:
• internal audit

iv) Personal observation

• one should never overlook the importance of
control through personal observation.
v) PERT(Program (or Project) Evaluation
and Review Technique):
• one should never overlook the importance of
control through personal observation.
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vi) GANTT CHART:

• a type of bar chart that illustrates a project

schedule
• Gantt charts illustrate the start and finish
dates of the terminal elements and summary
elements of a project.

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 PRODUCTIVITY

• Productivity refers to the ratio between the

output from production processes to its input.

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 Typical Productivity Calculations
a) Physical Productivity
This is a ratio of the amount of product to the
resources consumed.
b) Functional Productivity
This is a ratio of the amount of the functionality
delivered to the resources consumed
c) Economic Productivity
ratio of the value of the product produced to the
cost of the resources used to produce it.
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 COST CONTROL

• Cost control is the measure taken by

management to assure that the cost objectives
set down in the planning stage are attained

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Steps involved in designing process of
cost control system:
• Establishing norms: To exercise cost control it is
essential to establish norms, targets or
parameters
• Appraisal: The actual results are compared with
the set norms.
• 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
• Improves the image of company for long-
term benefits.
• Improve the rate of return on investment.

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 PURCHASE CONTROL
• Purchase control is an element of material
control.
• The advantages derived from a good and adequate system of
the purchase control are as follows:
a) Continuous availability of materials
b) Purchasing of right quantity
c) Economy in purchasing
d) Works as information centre
e) Development of business relationship
f) Finding of alternative source of supply
g) Fixing responsibilities

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 MAINTENANCE CONTROL
• Maintenance department has to excercise effective cost
control, to carry out the maintenance functions in a pre-
specified budget
• First line supervisors must be apprised of the cost
information of the various materials
• A monthly review of the budget provisions and expenditures
actually incurred in respect of each center/shop
• The total expenditure to be incurred can be uniformly
spread over the year
• The controllable elements of cost such as manpower cost
and material cost can be discussed

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 QUALITY
CONTROL
• Quality control refers to the technical process
that gathers, examines, analyze & report the
progress of the project & conformance with
the performance requirements
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 steps involved in quality control process are
1) Determine what parameter is to be controlled.
2) Establish its criticality
3) Establish a specification for the parameter to be
controlled
4) Produce plans for control
5) Organize resources to implement the plans
6) Install a sensor at an appropriate point
7) Collect and transmit data to a place for analysis
8) Verify the results and diagnose the cause of variance.
9) Propose remedies and decide on the action
10) Take the agreed action and check that the variance

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 Advantages and disadvantages

• Advantages include better products and

services
• Disadvantages include needing more man
power/operations to maintain quality control

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 PLANNING
OPERATIONS
• An operational planning is a subset of strategic
work plan. It describes short-term ways of
achieving milestones and explains how, or what
portion of, a strategic plan will be put into
operation during a given operational period, in
the case of commercial application

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 Like a strategic plan, an operational
plan addresses four questions:
• Where are we now?
• Where do we want to be?
• How do we get there?
• How do we measure our progress?

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Operational plans should contain:
• clear objectives
• activities to be delivered
• quality standards
• desired outcomes
• staffing and resource requirements
• implementation timetables
• a process for monitoring progress.

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 References
• www.slideshare.net
• www.docstoc.com
• www.slideworld.com
• www.nptel.ac.in
• www.scribd.com
• http://opencourses.emu.edu.tr/
• http://engineeringppt.blogspot.in/
• http://www.pptsearchengine.net/
• www.4shared.com
• www.eazynotes.com

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 Book References & PPTs
1. Stephen P. Robbins and Mary Coulter,
'Management', Prentice Hall of India.
2. Charles W L Hill, Steven L McCone, 'Principles
of Management', Mcgraw Hill Education
3.Hellriegel, Slocum & Jackson, ' Management -
A Competency Based Approach

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