Unit 5

• Direction is telling people what to do and seeing that they do it to the best of their ability. It consists of
– Communication – Leadership – Motivation – Supervision

Features of direction
• • • • Deals with people Seeks performance Provides a link Pervasive – by all managers at all levels of an organisation • Dynamic and continuous

Importance of direction
• • • • • Initiates action Achieves integration Motivates people Facilitates change Attains balance and stability

Principles of Direction
• • • • • • • • • Principle of unity of command Principle of harmony of objectives Principle of direct supervision Appropriate techniques / style Two way communication Support of informal organisation Principle of maximum individual contribution Use of motivation techniques Principle of followup

Elements of direction
• • • • • Good instruction Follow up of instruction Standard practice and indoctrination Explanations Consultative direction


• Control: It is making something happen the way it was planned to happen. • Controlling: the process of regulating organisational activities so that actual performance conforms to expected organisational standards and goals.

Importance of control
• • • • • • Achievement of goals Execution and revision of plans Brings order and discipline Facilitates decentralisation of authority Promotes coordination Cope with uncertainty and change

Limitations of control
• Its difficult and challenging • Resistance • Compounds problems

Stages in controlling – the control process
1. Establishment of standards • • • • • • Quantitative standards Time standards Cost standards Productivity standards Revenue standards Qualitative standards

– How to set standards?
• Study the characteristics of work • Consider acceptable levels of work

2. Measurement of actual performance
• Completeness • Objectivity • Responsiveness

– When to measure?
• End • Mid term

3. Comparison of actual performance with standards
– The degree of variation – Communication to the top management

4. Taking corrective actions
– Depends on the results

Essentials of control
• • • • • • • • • • Objective Suitable Simple Selective Sound and economical Flexible Forward looking Reasonable Responsibility of failure Acceptable

Techniques of Controlling
• Break even alanysis / CVP Analysis – cost volume profit analysis
– Advantages
• Determines all types of cost • Helps understanding the relationship between costs and profits

– Disadvantages
• Difficult to segregate costs • Difficult in a multi product firm • Limited application in long range planning

Techniques of Controlling
• Budgetary control – the establishment of budgets, relating to responsibilities of executive to the requirements of a policy
• Provides detailed plan of action • Comparing actuals with budgeted • Involvement of all the concerned

Techniques of Controlling
• Budgetary control
– Advantages
• Planning
– Thinking ahead – Pooled judgement and experience – Realistic goals and policies

• Coordination
– Establishes coordination – Relates business activity with general economic trends

• Control
– Indicates weakness – Prevents waste – Facilitates standard costing

– Disadvantages
– Accuracy is a doubt – Constant review needed – Costs may be prohibitive – cost involved in maintenance

Techniques of Controlling
• Zero-Based Budgeting
– In zero-based budgeting, every line item of the budget must be approved, rather than only changes from the past budget
• Decision package – all activities in a particular project • Ranking – each decision is ranked against other packages • Resource allocation – preferential and objective resource allocation

Techniques of Controlling
• Programme or Performance Budgeting
– Emphasis in on output or performance – Time Extends over years – overall performance – Cost effectiveness – costs versus benefits

Techniques of Controlling
• Responsibility accounting
– Each department is treated like a semi autonomous unit – Headed by a responsible person
• Cost centres • Profit centres • Investment centres

Techniques of Controlling
• Human Resource Accounting
– Accounting for people as an organisational resource. It involves measuring the costs incurred by organisations to recruit, select, hire, train and develop human assets and the measuring of economic value of people to the organisation.
• Enables effective monitoring • Finds whether human resource appreciating or depreciating • Assists in development of management practices

– Advantages
• Throws light on strengths and weakness of workforce • Feedback to managers • Helps potential investors make decision

– Disadvantages
• Not easy • No agreement on measurement process • No empirical evidence to support the idea of HRA

Techniques of Controlling
• Standard costing
– Standards are determined in advance and actual costs are compared with the standards – Advantages
• Easier and straight • Forward looking • Assists in formulating price

– Disadvantages
• Unsuitable for small firms • Difficult for non standardised products • May create adverse effect, if standard is not real

Techniques of Controlling
• Management Audit
– Systematic appraisal of overall performance of management by outside consultants
• Advantages
– Identification of major areas of concern – Check on new policies and practices – Effectives of current managerial practices

• Disadvantages
– Does not focus on individual performance – Qualified auditors may not be available – Subjective process

Techniques of Controlling
• Social audit
– Deals with social performance of the organisation, including total CSR expenditure, value of productivity of the organisation’s human resource – Advantages
• Develops goodwill of the organisation • CSR

– Disadvantages
• Not easy • Scope is not clearly defined – intangible social activities go ignored

Techniques of Controlling
• PERT - Programme Evaluation and Review Technique
– Sophisticated mathematical and schematic network technique – Used for problems that occurs once or few times, which has a definite starting and end point – Activity, event and path

• Each activity must have a predecessor and successor, an event may have more than one succeeding or preceding activity • No activity can start until its predecessor even in completed • No event is considered ‘completed’ until all the activities leading to it have been completed • Time estimates to be associated with completion of every activity
– Optimistic – Most likely time – pessimistic
Te = O + 4m + P 6

Techniques of Controlling
• CPM - Critical Path Method
– Similar to PERT – Critical path is the path with more number of events and activities – Has two time estimates
• Normal time (N) • Expedited time (E) /crash time

– Crash time can be accomplished only through crash expenditure

Techniques of Controlling
• Management Information System
– It provides information needed to manage organizations efficiently and effectively. – It involves three primary resources:
• technology, • information, and • people

– It is a subset of the overall internal controls procedures in a business, which cover the application of people, documents, technologies, and procedures – It is used by management accountants to solve business problems such as costing a product, service or a businesswide strategy.

Techniques of Controlling
• TQM – Total Quality Management
– Is a way of creating an organisational culture, committed to the continuous improvement of skills, teamwork, processes, product and service quality and customer satisfaction – Main ideas of TQM
• • • • • • • • • Do it right the first time Be customer cantered Make continuous improvement a way of life Build teamwork and empowerment Benchmarking Quality circle Empowerment Outsourcing Reduced cycle time

– TQM tools

Techniques of Controlling
• Kaizen
– Japanese word meaning continuous and never ending improvement involving everyone in the organisation – Not a single day shall pass without any improvement – Includes
• • • • Improving labour management relationship Marketing practices Supplier relations In-house systems and procedures

– Programme can be broadly divided into 3 parts
• Management oriented kaizen • Group oriented kaizen • Individual oriented kaizen

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