CONTROL TECHNIQUES

INTRODUCTION
To enable managers effectively control the organizational activities, a large number of controlling techniques are available. They help to produce right quantity and quality of goods at the right time. A manager should know these techniques ,situations in which they apply and variables that should be considered in applying the techniques.

TECHNIQUES OF CONTROL
Traditional Techniques 1. Personal Observation 2. Budgeting 3. Break Even Analysis 4. Financial Statement 5. Statistical Data And Reports 6. Quality Control

Modern Techniques Of Control

1. Management Information System

2. Management Audit
3. Responsibility Accounting

4. Network Analysis-PERT And CPM

5. Balanced Score Card 6. Ratio Analysis 7. Benchmarking

Personal Observation
The simplest way to control organizational activities is that manager take round at work place and observe the progress of work. Defect in employees performance can be spotted and corrected immediately. A face-toface interaction is possible whereby workers can get their doubts solved on-the-job and the necessary guidance and counseling can also be provided to them, then and there. Advantage- creates a psychological pressure on the employees and they tend to perform better. Disadvantage-it demotivates the employees who work under psychological pressure of being watched but who are otherwise conscientious and self-motivates to work.

Budgetary Control
A budget is a statement which reflects future incomes, expenditures and profits of the firm. It is a future projection of the firms financial position. A budget is, "The process of stating in quantitative terms, planned organizational activities for a given period of time. It facilitates comparison of actual performance with planned performance and helps to correct deviations in actual performance. It is a basic technique of control and is used at every level of organization. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee. Purpose of budgets 1) It provides a yardstick for measuring and comparing

3) It provides guidelines about the resource and expectations. 4) It facilitates intra and inter-managerial and divisional performance of an organization. Process of Budgeting The various steps included in the preparation of budget are: 1)Top managers send down to the operating managers their views on the organizational goals, policies , resource position and its relationship with various environmental factors. 2) The lower-level or the operating managers prepare their budget proposals based on the guidelines. 3)The budget so prepared is sent to the top managers for their review , appraisal and approval.

4)If approved, the top managers coordinate these budgets with the overall budgets framed by them and prepare the master budget. 5)The master budget is then sent to the board of directors for their approval. Once approved, it is sent down the hierarchy again for its effective implementation. Benefits of Budgeting 1)Provides standard of performance 2)Facilitates planning 3)Provides basis for coordination at various organizational activities 4)Motivation and job satisfaction 5)Helps in predicting the future 6)Facilitates communication 7)Facilitates delegation of authority 8)Optimum use of scare resources 9)Facilitates control

Limitations of Budgeting 1)Overspending 2)Inflexibility 3)Projection of future 4)Hindrance to innovation and change 5)over-emphasis on budgeted goals

Types of Budgets 1)Operating budget- it relates to the operating activities of an enterprise, which involve both revenue and expenses. 2)Financial budget- It predict various sources and uses of finance. It facilitates the working of operating budget.
Zero Base Budgeting Zero base budgeting does not consider future as projection of the past. The company asses activities of current year ,correlates them with its goals ,carries a cost-benefit analysis for each activity and allocate fresh

resource to each activity. This means preparing budget from scratch , allocating resources based on priorities of activities and not last year's allocation. Zero base, therefore, means that the budgets are not based on earlier year's estimates. Rather, they start from the base zero. The zero base budgeting involves the following three steps : 1) The overall activities of the organization are broken down into units called as decision packages and cost-benefit analysis is made with respect to each package. 2)The packages are arranged in order of priority. 3)The resources are allocated to the different packages.

Break Even Analysis

Break Even Analysis or Cost Volume Profit Analysis defines the relationship between sales volume, costs and profits to find out sales at which sales revenue is equal to cost .The point at which sales revenue is equal to total cost is the break even point. Sales volume beyond the breakeven point will earn profits for the organization and sales volume below the break-even point is a situation of loss. As, a technique of controlling, managers compare their actual performance in terms of output sold with the breakeven point of sales and if they are not able to sell beyond this point, they should improve their performance by increasing their sales or reducing their costs.

Advantages of break-even analysis 1.Improvement in performance 2.Helps in decision making 3.Helps in reduction in cost Limitations of break-even analysis 1.Assumptions does not hold good in real life 2.Fixed cost does not always remain constant 3.Certain cost cannot be conveniently divided into fixed and variable costs and to that extent, do not form a part of break-even analysis

Financial Statement
Financial statement depict the financial position of the firm over a period of time, generally one year. These statements are normally prepared along with the last years statement so that the firm can compare its present performance with the last years performance and take necessary action to improve its future performance. As these statements are prepared at the end of the financial year , as a measure of control , they provide tips to managers to improve their future performance. These statement offer information on the following aspects 1)Liquidity-The firm can know its cash position 2)Financial Strength-Its assets and liabilities and its equity position 3)Profitability-The excess of revenue over cost

Two commonly used financial statement a)Balance Sheet It is a statement of the companys financial position at a point of time, usually 31st of March. A balance sheet describes a companys assets , liabilities and owners equity. Assets=Liabilities + Equity b)Income Statement While balance depicts a companys financial position at a point of time(31st march), an income statement depicts the companys financial performance over a period of time(financial year : from April to march). It is a statement of companys revenues and expenses. Revenues are the inflows arising out of the companys sale of goods and services. Expenses are the outflows incurred to earn the revenues Revenue>Expenses Profit Revenue<Expenses Loss

Statistical Data And Reports

Data helps in applying statistical techniques of averages,regression,correlation etc. to predict company's performance.

Quality control Quality control uses operational techniques and activities to sustain quality of the product or service to satisfy customer needs. It aims to maintain quality of goods at each stage of the manufacturing process rather than detecting errors at the end of the production cycle where faulty products may have to be discarded or rewarded.

Method of Quality Control

1.Inspection- Inspection means checking the product through visual or testing examination, at the input stage, transformation stage or output stage, in terms of quality against standards. Types Of Inspection : 100% inspection Sample inspection

2. Statistical Quality Control- SQC is a statistical technique used to monitor quality of the products. It is based on statistical theories and methods of probability to control the: incoming materials, processes during production and final products. It can be done in the following ways: A. Acceptance Sampling B. Process sampling Variations due to chance Variation due to assignable causes

Total Quality Management

It is the, management of quality ,totally and fully in all respects, small areas and all activities of organization right from top to bottom. The core of total quality management is that managerial attention is focused on every organizational activity, howsoever small it may be. It aims at continuous improvement of the organization and focuses on total satisfaction of consumers, both internal and external. TQM is a continuous long-term process that involves constant managerial efforts to recognize and reinforce quality trough continuous data collection, evaluation, feedback and improvement programmes.

Modern Techniques Of Control

Management Information System- The
system of obtaining timely, relevant and accurate information based on computer technology is known as information system. The system helps managers in preparing reports for effectively carrying out planning and controlling functions.

According to Weihrich and koontz,MIS is a formal system of gathering,intergrating,comparing,analyzin g and dispersing information interval and external to the enterprise in a timely, effective and efficient manner

Features Of MIS
Timeliness Accuracy Relevance Concise Completeness Advantages Of MIS Accurate Information Relevant Information Facilitates managerial functions Facilitates Coordination

Management Audit
Audit means periodic inspection of financial statements and verifying that the statement and verifying that the statement are honestly and fairly prepared according to accounting principles. Audit thus provides the basis for control. Two types of audit can be conducted by firmExternal Audit- It refers to verification of financial statement. Companys assests,liabilities and capital accounts are checked and deviations are reported to managers for action. Control is thus facilitated through verification of accounts against the standard principle. This is known as financial audit. External audit checks fraudlent practices in preparing financial accounts .Outside parties like , investors , bankers and financial institutions can enter into fair and honest dealing with the firm if its accounts are audited.

Objectives 1. To appraise managerial efficiency with respect to objectives, policies and procedures of the organization. 2. To asses whether organizational policies are being followed or not. 3. To evaluate management's performance with respect to standard performance. 4. If actual performance deviates from standard performance , to find out causes for the same. 5. To suggest remedial measures to remove deviation and improve managerial performance.

Responsibility Accounting
It divides the organization into small units where manager of each unit is responsible for achieving the targets of his unit. These units are called responsibility centers and head of each responsibility centre is responsible for controlling the activities of his centre. Performance of responsibility centre is judged by the extent to which targets of the centre are achieved .

There are four main types of Responsibility Centre

Control centre

Revenue Centre
Profit Centre Investment Centre

PROGRAM EVALUATION AND REVIEW TECHNIQUE(PERT)

PERT- A TIME EVENT NETWORK ANALYSIS

SYSTEM IN WHICH THE VARIOUS EVENTS IN A PROJECT OR PROGRAM ARE IDENTIFIED WITH A PLANNED TIME ESTABLISHED FOR EACH.

METHODOLOGY PREPARATION OF THE NETWORK . NETWORK ANALYSIS. SCHEDULING. TIME COST TRADE OFFS. RESOURCE ALLOCATION. PROJECT CONTROL.

CRITICAL PATH METHOD(CPM)

IT IS USED FOR OPTIMISING RESOURCE ALLOCATION AND

MINIMISING OVERALL COST FOR A GIVEN PROJECT.

PROCEDURE BREAK DOWN THE PROJECT INTO VARIOUS ACTIVITIES SYSTEMATICALLY. NUMBER ALL THE EVENTS AND ACTIVITIES. CALCULATE THE EARLIEST START TIME, EARLIER FINISH TIME, LATEST START TIME AND LATEST FINISH TIME. DETERMINE TOTAL FLOAT TIME. IDENTIFY THE CRITICAL ACTIVITIES AND CONNECT THEM WITH DOUBLE LINE ARROW. CALCULATE TOTAL DURATION OF PROJECT.

What is The Balanced Scorecard?

Balanced

Scorecard
A performance

measurement tool that looks at more than just the financial perspective

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall.

BALANCED SCORECARD
BALANCED SCORECARD: A PERFORMANCE
MEASUREMENT TOOL THAT LOOKS AT FOUR AREASFINANCIAL, CUSTOMER, INTERNAL PROCESSES AND PEOPLE/ INNOVATION/ GROWTH ASSETS THAT CONTRIBUTES TO A COMPANIES PERFORMANCE.

THE FOUR GENERAL PERSPECTIVE WHICH HAVE BEEN PROPOSED BY BALANCED SCORECARD ARE AS UNDER:
FINANCIAL PERSPECTIVE CUSTOMER PERSPECTIVE

 INTERNAL PROCESSES PERSPECTIVE INNOVATION AND LEARNING PERSPECTIVE

LIMITATIONS
SCORES ARE NOT BASED ON ANY PROVEN ECONOMIC OR

FINANCIAL THEORY.
BALANCED SCORECARD DOES NOT PROVIDE A

BOTTOMLINE SCORE.

FINANCIAL RATIO ANALYSIS

RATIO-IN SIMPLE WORDS, RATIO MEANS COMPARISON OF
ONE FIGURE WITH ANOTHER RELEVANT FIGURE OR FIGURES. IT MAY ALSO BE TERMED AS NUMBER EXPRESSED IN TERMS OF ANOTHER NUMBER. NO ANALYSIS IS POSSIBLE ON THE BASIS OF ABSOLUTE FIGURES. HENCE VARIOUD RATIOS ARE CALCUKATED FOR FINANCIAL ANALYSIS AND CONTROL. SOME OF SUCH IMPORTANT RATIOS ARE AS FOLLOWS:-

Exhibit 1810

Popular Financial Ratios

2007 Prentice Hall, Inc. All 1832 rights reserved.

Exhibit 1810

Popular Financial Ratios (contd)

2007 Prentice Hall, Inc. All 1833 rights reserved.

MVA- IT ADDS A MARKET DIMENSON SINCE IT MEASURES THE

STOCK MARKETS ESTIMATE OF THE VALUE OF A FIRMS PAST AND EXPECTED CAPITAL INVESTMENT PROJECTS. IT IS THE DIFFERENCE BETWEEN THE CURRENT MARKET VALUE OF A FIRM AND THE CAPITAL CONTRIBUTED BY INVESTORS. FORMULA:MVA=V-K WHEREV= market value of the firm, including the value of the firms equity and debts K= capital invested in the firm.

BENCHMARKING
BENCHMARKING: THE SEARCH FOR BEST PRACTICES
AMONG THE COMPETITORS OR NON-COMPETITORS THAT LEAD TO THEIR SUPERIOR PERFORMANCE.

BENCHMARK: THE STANDARD OF EXCELLENCE AGAINST

WHICH TO MEASURE AND COMPARE. THE METHADOLOGY ADOPTED IS AS UNDER:

IDENTIFY THE PROBLEM AREAS. IDENTIFY OTHER INDUSTRIES.

IDENTIFY ORGANIZATIONS THAT ARE LEADERS IN THESE AREAS. SURVEY COMPANIES FOR MEASURE AND PRACTICES. VISIT THE BEST PRACTICE COMPANIES TO IDENTIFY LEADING EDGE PRACTICES. IMPLEMENT NEW AND IMPROVED BUSINESS PRACTICES.