UNIT V - CONTROLLING

System and process of controlling – budgetary and non-budgetary control techniques – use of
computers and IT in Management control – Productivity problems and management – control and
+ performance – direct and preventive control – reporting.

5.1 GENERAL INTRODUCTION

Definition
 Control is a basic managerial function which implies correction of performance of subordinates to
ensure that the predetermined objectives are accomplished.
 Comparing operating results with plans and taking corrective action when results deviate from
plans
 According to Koontz and O’Donnell “The managerial function of controlling is the measurement and
correction of the performance of activities of subordinates in order to make sure that
enterprise objectives and the plans devised to attain them are being accomplished.

5.1.1 Nature and purpose of control

 Control is an essential function of management
 Control is an ongoing process
 Control is forward – working because past cannot be controlled
 Control involves measurement
 The essence of control is action
 Control is an integrated system

5.1.2 Need of control

 To discover deviations in the management
 To minimize dishonest behaviour of the employees
 To indicate corrective action
 To minimize mistakes

5.1.3 Relationship between planning and controlling

Q1. Explain the relationship between controlling and overall management. Discuss the steps in
controlling process. [April 2015]
The management process begins with planning and ends with controlling
 Planning determines the standards for performance
 Control helps in achieving them
 Planning is the first step and control is the last step in the process of management
 Planning and controlling are in separable

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5.2 SYSTEM AND PROCESS OF CONTROL
Q2. Define control. Explain the process of controlling [Dec 2012] (Or) What is control? Discuss
the phase of control [Dec 2014] (Or) What are the steps involved in the process of controlling?
[May 2011] (or) Describe in detail about the three steps in the control process. [May 2017, May
2018][May 2019]
 Control refers to measurement and correction of performance in order to make sure the enterprise
objectives are accomplished.
Process of Controlling
a. Establishing Standards
b. Measurement of actual performance
c. Comparing actual performance with standards
d. Finding out deviation
e. Corrective action

Establishing standards Measurement of actual Comparing with

performance standards

Corrective action Finding out Deviation

a. Establishing standards:
 This is the first step in the control process.
 Standards may be expressed in qualitative or quantitative terms.
 Standards will be accurate, precise and acceptable.
 Units of production, units of sales, costs, revenue, and investment are quantitative standards (which
are capable of expressing in numerical terms).
 Reputation of enterprise, employee morale, and motivation are qualitative standards (which are not
capable of expressing in numerical terms).
b. Measuring performance:
 Performance measurement should be done in quantitative terms.
 Expressed in physical terms such as production, sales volumes, profit etc.,
c. Comparing actual performance with standards:
 Find out the deviation and identify the causes of such deviation.
 Standard deviation is the allowed range of deviation.
 Deviations such as reducing the cost below the standard and improving sales above the standards
must be encouraged.
 Approach will give the correct, quick and favourable results.
d. Finding out deviation:
The causes for deviations might be due to
 External environmental factors – changes in government policies and prices, allocation of raw
materials.

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  Internal environmental factors –inadequate facilities.
 Planning defects-objectives not clear, inappropriate course of action.
 Organisational defects- Improper span of management, imbalance between authority and
responsibility.
 Staffing defects-faulty selection of employee, inadequate training programmes.
 Directing defects-inadequate motivation, unsuitable leadership style, and lack of free flow of
communication.
e. Correction of Deviation:
 To correct the deviation from planned performance.
 Management should take necessary action and implement them so that the deviations and mistakes
are minimized.
 If corrective action is not taken on time, it will lead to heavy losses.

5.2.1 Types of control

Q3. Write short notes on different types of control. [Dec 2012]
 The control systems can be classified into three types namely feed forward, concurrent and feedback
control systems.
INPUT PROCESS OUTPUT

FEED FORWARD CONCURRENT CONTROL FEEDBACK CONTROL

CONTROL
a. Feed forward control or pre-control : - Preventive control
 It is preventive in nature like prevention is better than cure
 Monitor inputs to a process to identify if the inputs are as planned
 Evaluation of the inputs and take corrective action before a particular operation is completed.
 These controls are designed to eliminate the cause for deviation that might occur later in the process.
 Example – a team leader checks the quality, completeness and reliability of their tools prior going to
the site.

b. Concurrent control: - Real time control

 They are sometimes called screening controls
 Taking corrective action or doing adjustment while an activity is taking place.
 Example – the team leader checks the quality or performance of his members while performing.

c. Feedback control: - Post action control

 Measure activities that have already been completed.
 Thus corrections can take place after performance is over.
 The results of completed activity are compared with predetermined standards.
 If there are any deviations, corrective action can be taken for future activities.
 Example – disciplinary action, budgetary results etc.

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5.2.3 Barriers for Controlling:

Q4. Write short notes on barriers for controlling. (or) Describe the potential barriers to
successful controlling.[May 2015]
There are many barriers, among the most important of them:
 Control activities can create an undesirable overemphasis on short-term production as opposed to
long- term production.
 Control activities can increase employees' frustration with their jobs and thereby reduce morale. This
reaction tends to occur primarily where management exerts too much control.
 Control activities can encourage the falsification of reports.
 Control activities can cause the perspectives of organization members to be too narrow for the good
of the organization.
 Control activities can be perceived as the goals of the control process rather than the means by which
corrective action is taken.

5.2.4 Requirements for Effective Control:

Q5. What are requirements of effective controlling? [May/June 2013,11, NOV/DEC2007,12]
The requirements for effective control are
 Stability:
 A sound control system must suit the needs of the enterprise controls must be tailored to the
need of an organization.
 Flexibility:
 Controlling is a continuous activity; it should be flexible enough to be adopted to change
conditions of an organization.
 Economical:
 The control system should be less expensive. Expensive control should be avoided.
 Simple:
 A good control system should be to understand to the administrator.
 Motivation:
 A good control system should give attention to the human factors.
 A control system should increase the performance of the members by motivating them.
 Forward looking:
 A good control system should be directed towards future.
 Objective:
 The good control system should be objective. It is clearly quantifiable and verifiable.
 Controls should reflect the organization structure and needs:
 Effective control system is that which reflects the organizations structure, position, needs and
plans.
 Control should lead to corrective action:
 A good control system must lead to appropriate corrective action. Control system must also
suggest the events of improving the performance.
A good control system should take care of
 Control over organizational structure.

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  Control over personnel.
 Control over costs.
 Control over methods and manpower.
 Control over capital expenditure.
 Control over service department.
 Control over line of product.
 Control over research and development.
 Control over foreign operations.
 Overall control.

5.3 CONTROLLING TECHNIQUES:

Q6. Explain different budgetary and non budgetary control techniques [Dec 2014] (or)
Explain different budgetary and Non budgetary control techniques. [Dec 2016, Dec2014,
Dec2017] (or) Explain the various control techniques. [Dec 2017] (or) What is budgetary
control? Explain in details the different techniques to control budget. [May 2009, May 2014]
[May 2019]
1. Traditional techniques of controlling
i. Budgetary control techniques
ii. Non Budgetary control techniques
 Direct personal observation and supervision
 written reports
 statistical reports and analysis
 Break even analysis
2. Modern techniques of controlling
 Management audit
 Operational audit
 PERT/CPM
 MIS

5.3.1 TRADITIONAL TECHNIQUES

5.3.1.1 BUDGETARY CONTROL
Q7. What is budgetary control? Explain in details the different techniques to control budget.
[May 2009, May 2014] (or) Discuss the various types of budgets in detail. [Dec 2012, April
2015]
 A system which uses budgets as a means of planning and controlling all aspects of producing and
or selling commodities and services.
Objectives of Budgetary Control
 Planning
 Coordination
 Control
 Motivation
 Efficiency

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Budget:
 Statement expressed in financial terms.
 A budget is a detailed plan of operation for some specific future period.
 It is a pre-determined statement of management policy during a given period.
 It provides a standard for comparison with the results actually achieved.
The various types of budgets are as follows:
a. Master budget
b. Functional Budget - Sales budget, Production budget, Material budget, Labour budget, Cash
budget, and Administrative Overhead budget.
c. Capital & Revenue budget
d. Fixed and Flexible Budget – based on activity
e. Short term ,long term and current budget– based on time
f. Zero base budgeting - the budget proposals are considered from the ground up ( zero base)
a. Master budget: It is the budget of the entire organization for a particular period of time.
b. Functional budget:
i. Sales budget
 It is an estimate of sales during a budget period.
 The accuracy of this budget determines the accuracy of other functional budget.
 The sales manager should be made directly responsible for the preparation and execution of the
budget.
 The following data are more important the preparation of budgets.
 Past sales data
 Plant capacity
 Financial resources available
 Raw materials available
ii. Production budget:
 Production budget is a forecast of the output for the period analyzed according to
 Products
 Manufacturing department
 Periods of production
iii. Material budget: The estimation for different types of raw materials is prepared for various products.
iv. Labour budget:
 It is the forecast of the expected labour requirements during the budget period.
 This budget helps to prepare suitable plans for recruitment and training labour
v. Cash budget:
 This budget gives an estimate of the anticipated receipts and payments of cash during the budget
period to find out surplus or shortage during that period.
 This budget is prepared by a chief accountant for the guidance of the management.
vi. Administrative Overhead budget:
 This budget contains the expenses in framing policies, directing the organization and controlling the
business operations.
 It covers the estimated expenditure of administrative offices and management salaries.
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c. Capital and Revenue budget:
 This budgets deals with capital expenditures for plant machinery, equipment and other terms.
 The budget is prepared after consideration of the available production, capacities, assets and possible
production technique.
d. Classification based on Time:
i. Long term budget:
 These budgets are useful for long-term objectives.
 The period of budgets is for 5 to 10 years.
ii. Short term budget:
 The industries such as textile, pharma and cotton etc. use short-term budgets.
 The budgets are for one or two years.
iii. Current budget:
 These budgets are day-to-day activities of the business.
 These budgets are prepared for a few weeks or for a few months.
e. Classification based on activity:
i. Fixed budget:
 In this budget, targets are rigidly fixed.
 This is a forecast of the targets for coming year prepared well in advance or even two or three months
before the year.
ii. Flexible budgets:
 A flexible budget is a budget designed to change in the level of activity.
 It is also known as variable budget.
f. Zero Base Budgeting:
 The purpose of a well operated system of variable budgeting is zero-base budgeting.
 This budget contains a comprehensive analysis and review of budget proposals is made every time.
 Initially, the budget is designed from a zero-base. The main element of ZBB is future objective
orientation.
Advantages of budgetary control
 Tool for planning the activities
 Better utilization of resources.
 Ensures proper communication
 To take corrective action at right time.
 Control of expenditure
 Achievement of goal
Limitations of budgetary control
 Rigidity
 Inaccuracy
 Time consuming process
 Consumes lot of money and effort
 Lack of departmental cooperation
 Danger of over budgeting

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5.3.1.2 NON BUDGETARY CONTROL TECHNIQUES:
Q8. Explain any four Non Budgetary control techniques. [Dec 2011] (or) Give an account of
some popular non budgetary control techniques.(Or) Write Modern Control techniques
[May 2011]
a. Direct personal observation:
 This is the oldest techniques of controlling.
 Here control is exercised by a manager through face to face contact with employees.
 Personal observation has also a psychological impact on the employees.
 They try to achieve better results when they know that they are being observed personally by their
superior.
b. Written reports:
 Each manager prepares written reports on the performance of his sub-ordinates.
 He submits to higher authorities.
c. Statistical reports and analysis
 These reports are prepared and used in large organizations.
 Reports are prepared in quantitative terms.
 Special staff prepares statistical reports and present in the form of tables, ratios, percentages,
correlation analysis.
 Such reports are prepared in areas like production, sales, inventory
d. Break even analysis:
Q9. Discuss briefly about break even analysis. [ April 2015]
 Break-even analysis is a widely used resource allocations technique.
 It points out the relationship between revenues, costs, and profits.
 To compute the break-even point (BE), a manager needs to know the unit price of the product being
sold (P), the variable cost per unit (VC), and total fixed costs (TFC).
 An organization breaks when its total revenue is equal its total cost.
 But total cost has two parts; fixed and variable.
 Fixed costs are expenses that do not change regardless of volume. It includes insurance premiums,
rent, and property taxes.
 Variable costs change in proportion to output. It includes raw materials, labor costs, and energy
costs.
 This is a technique of marginal costing.
 This is based on classification of production costs into variable and fixed cost.
Contribution=Selling price per unit- Variable cost per unit
Suppose fixed cost =Rs 1,00,000
Selling price per unit=Rs 20
Variable cost per unit=Rs 12
Contribution per unit= 20-12 = Rs 8
BEP= fixed cost/ contribution per unit
= 1,00,000/ 8

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 = 12,500 units

 A BEP of 12,500 units indicates that if that business produces and sells 12,500 units, it will recover
fixed cost fully and will have neither profit nor loss.
 After reaching BEP business can earn a profit of Rs 8 per unit.
 BEP is a point where the total sales are equal to fixed cost.
 In this point there is no profit or no loss in the volume of sales.
 This method is helpful in profit planning and controlling by predicting the fixed and variable costs
e. Return on Investment (ROI):
 It is also known as return on capital employed.
 It measures the relationship between the amount of net profits and the size of investment in an
organization.
 It is a key measure of overall performance and an important technique of financial control.
 An important technique of financial control.
5.3.2 MODERN TECHNIQUES OF CONTROLLING (POPULAR TECHNIQUES)
Q10. Discuss about the modern techniques of controlling.
a. Management audit:
 Management audit is a new concept of controlling.
 Independent , overall examination of entire management process
 This is done to judge the success and failures in running and managing an enterprise
 Aim to examine efficiency of the management philosophies, policies, techniques.
 This will critically examining of the entire management process.

b. Operational audit:
 Audit is a careful examination of accounts, financial and other operations of the organization.
 There are two types of audit which are:
i. Internal audits
ii. External audits
i. Internal audit

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  Internal audits are done by an internal auditor who is an employee of the organization.
 He examines the objectives, policies, quality of management and performance of the management.
 Internal auditor finds the defects and recommends their correction.
 The management is responsible to take corrective action.
ii. External audit
 External audit is done by an external auditor who is an accounting personnel from an outside firm.
 It is a major systematic against fraud within the organization.

c. Responsibility accounting:
 This technique of controlling is borrowed from management accounting.
 The performance of managers is judged by assessing how far they have achieved the target set by
their departments or sections.
 Success is judged by his ability in controlling the controllable costs of his center

d. Human Resource Accounting:

 HRA is accounting for people in an organisation.
 Measuring the values of human assets
 This will measure the cost incurred by an enterprise to recruit, select, hire and train employees.
 Measurement of economic value of people to the enterprise.

e. Network techniques: PERT/CPM

 PERT – Program Evaluation and Review Technique
 CPM- Critical Path method
 Though there are differences, both utilise the same principles.
 This is a graphic representation of a project schedule, showing sequence of tasks.
 Both PERT and CPM are primarily oriented towards achieving better managerial control of times
spent in completing a project.
Applications of PERT/CPM
 PERT and CPM have been used for a variety of projects, including the following types.
 Construction of a new plant.
 Research and development of a new product.
 NASA space exploration projects.
 Movie productions.
 Building a ship.
 Government-sponsored projects for developing a new weapons system.
 Relocation of a major facility.
 Maintenance of a nuclear reactor.
 Installation of a management information system.
 Conducting an advertising campaign.
Steps in PERT/CPM
 Identification of components: Identification of all events or key activities necessary to complete the
project.
 Activity: A job or operation to be carried out, which consumes time and resources. It is denoted by
arrow in the network diagram.

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 Event: beginning or completion of an activity. It is denoted by circle in the diagram.
 Sequencing of activities and events: The network diagram shows the number of paths of activities
from the beginning to the completion of the project.
 Determination of estimated time: It is necessary to determine the expected time to complete each
activity.
EXAMPLE FOR CPM:

 We have Critical path: START ABCEFJLN FINISH (Estimated) project duration 44 weeks.
 If no delays occur, the total time required to complete the project should be about 44 weeks.
Scheduling Individual Activities:
 The starting and finishing times of each activity if no delays occur anywhere in the project are called
the earliest start time and the earliest finish time of the activity.
 These times are represented by the symbols ES earliest start time for a particular activity, EF earliest
finish time for a particular activity.
EF =ES (estimated) duration of the activity.
Starting time for project 0.
Since activity A starts Reliable project,
Activity A: ES= 0,
EF =0+ duration (2 weeks)
= 2,
Activity B: ES = EF for activity A
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 = 2,
EF =2 duration (4 weeks)
=6.

The three times estimates under PERT

 Optimistic or shortest time
 Pessimistic or longest time
 Normal or most likely time
Determination of critical path:
 It is required to identify the sequence of activities whose completion is critical for the timely
completion of the project.
 There must be no delay in the completion of activities which lie on the critical path ,otherwise the
entire project will be delayed

Example for PERT

1. In the given table provides activity duration estimates for the network. There are new estimates
for a and b and the original activity duration estimates have been used as the most likely times, m.
i. Calculate the expected duration, te for each activity.
ii. Based on the expected duration te, perform forward pass through the network.
iii. Calculate the standard deviation S for each activity and draw the PERT network.
iv. Calculate standard deviations for each of the event.
Activity Name Precedence Optimistic (a) Most Likely (m) Pessmistic (b) Duration
A - 5 6 8 6
B - 3 4 5 4
C A 2 3 3 3
D B 3.5 4 5 4
E B 1 3 4 3
F - 8 10 15 10
G E,F 2 3 4 3
H C,D 2 2 2.5 2

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Solution
Step 1: Calculate expected time ‘te’ for each activity using formula

Step 2: Calculate Standard deviation ‘σ’ for each activity using formula

Step 1: Calculate expected time ‘te’ for each activity

Activity A:

Activity B:

Activity C:

Activity D:

Activity E:

Activity F:

Activity G:

Activity H:

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Acitivity Labelling

Event Number Target Date

Expected Standard

Time Deviation

Step 2: Calculate Standard deviation ‘σ’ for each activity using formula

A Quantitative measure of the degree of uncertainty of an activate duration estimate may be

obtained by calculating the standard deviation ‘S’ of an activity time, using formula

The standard deviation are,

Activity A:

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Activity B:

Activity C:

Activity D:

Activity E:

Activity F:

Activity G:

Activity H:

Standard Devaitions for ecah of the event

- For event 1, standard devaition is 0.

- For event 2, standard deviation through A is 0.5

- For event 3, standard deviation through B is 0.33

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- For event 4, it takes through 2 path: A+C and B + D

Standard deviation of B + D is 0.41

Standard deviation A + C is 0.53

Therefore, Node 4(event 4) has standard deviation of 0.53 (greater of two)

- For event 5, it takes through 2 path: B + E and F

Standard deviation of F is 1.17

Standard deviation of B + E is 0.6

Therefore, Node 5(event 5) has standard deviation of 1.17 (greater of two)

- For event 6, it takes through two paths => 4 + H amd 5 +G

Standard deviation of 4 + H is 0.54

Standard deviation of 5 + G is 1.22

Therefore, Node 6(event 6) has standard deviation of 1.22 (greater of two)

Now, PERT network with calculated event standard deviations

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Advantages of PERT/CPM:
 Better utilisation of time, effort, capital
 Simultaneous performance of different parts of the project
 Provides feed forward control
Limitations of PERT/CPM:
 Time consuming and expensive
 Errors in estimation can make it unreliable
 Cannot be applied to assembly line operations
Difference between PERT and CPM
Sl.No CPM PERT
1. It is activity oriented. PERT is event oriented.
2. CPM is planning device. PERT is control device.
3. It estimates only one time It continues three times.
4. It is deterministic model. It is probabilistic model.
5. It analysis of cost also It analysis cost very less
6. CPM for construction projects PERT used for R & D programs

5.4 USE OF COMPUTERS AND IT (INFORMATION TECHNOLOGY) IN MANAGEMENT CONTROL

Q11. Discuss the uses of computers and IT in Management control. [May 2017, Dec 2018] (or)
Discuss the impact of Information technology on management control. [Dec 2017] (or) List out
the needs and characteristics of MIS. [May 2016] (or) Discuss the impact of IT in management
concepts. [Dec 2016]
 Information technology is the use of electronic equipment, computers for storing, analyzing and
sending out information
 MIS installed in organization is to help management with adequate and timely information.

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MIS – Management Information Systems
 Information is not only important input for planning purposes.
 It is also needed in controlling.
 To provide necessary information to management for planning and controlling purpose on regular
basis, the system installed in an organisation is known as MIS – Management Information Systems
Meaning of Information Systems
 An information system is an organized combination of people, hardware, software, communications
Networks and data resources that collects, transforms, and disseminates information in an
organization.
 MIS is a system that supplies information to management.
 MIS is a new technique which has brought with increased accuracy and speed to the management.
MIS

Management Information System

Need of MIS
i. Internal factors
 Resources: This involves the analysis of available resources in the organization, such as money,
material, machine etc.
 Planning and control information: To get required information about budgets, sales forecasts etc.
 Operational information: It is required to increase the production, product quality and to reduce
wastages etc.
 Marking information: To obtain the required information for plan sales forecast, advertising, budget,
consumer satisfaction, sales value competitions etc.
ii. External factors
 Political and Government: This involves information about political fiscal polices, government
policies, procedures, rules and regulations.
 Economic condition: To get the required information, such as money value, inflation rate, interest
rate etc.
 Technology: To get information about new advanced machinery, new process etc.

MIS Resources
MIS consist of four major resources
a. Computer hardware - It refers to a computer system and other associated equipment including the
communication link. For example, computers, monitors, disk, printers, optical scanners.
b. Software - Operating system programs, word processing programs and procedures.
c. Data - It is in the form of symbols, digits, alphabets, graph, pictures etc
d. People - Specialist’s system analyst’s programmers and computer operators.

Steps in MIS

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MIS consists of following steps
 Assembly: Collection of data.
 Processing: Editing of data, their classification and summation.
 Storage and retrieval: Coding, filling of information and getting back information.
 Evaluation: determination of accuracy and relevance of data.
 Dissemination: Supplying information in the proper form and at the right time.

Role of MIS :
 The role of MIS in an organization can be compared to the role of heart in the body.
 The information is the blood and MIS is the heart. In the body the heart plays the role of supplying
pure blood to all the elements of the body including the brain.
 The MIS plays exactly the same role in the organization.
 The system ensures that an appropriate data is collected from the various sources, processed, and
sent further to all the needy destinations.
 The MIS satisfies the diverse needs through a variety of systems such as Query Systems, Analysis
Systems, Modeling Systems and Decision Support Systems.
 The MIS helps in Strategic Planning, Management Control, Operational Control and Transaction
Processing

5.4.1 Use of computers in handling the information

Q12. Write short notes on the Use of computers in handling the information.
i. Sales Forecast and Control:
 The computer can prepare an estimate of future sales called sales forecast from sales data.
 It can be programmed to read historical sales data and calculate huge data.
ii. Payroll:
 The computer can process a firm’s payroll.
 It can be programmed to read payroll records, calculate earnings, deductions and with holdings
and printout pay checks.
 Computerized payroll systems can handle hourly or salaried payrolls and commission payments.
iii. Business management:
 The computer can provide reports and data for management.
 Inventory, sales analysis, credit analysis can be calculated.
iv. Accounting:
 Accounting system can be put on the computer using electronically stored ledgers in the machine.
 The computer can print-out customer billings, taxes, reports, profit and loss statements, balance
sheets and other financial information required internally and externally.
v. Personnel management information:
 The computer can provide management with data on the composition of its personnel.
 It can print out information on job classification and personnel capabilities and can list employees
by department, by salary, by schedule or by both.
vi. Cost Accounting:
 The computer can print out an analysis of production costs.
 It can be programmed to perform routing of cost accounting tasks with budgeted hourly costs on

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 individual machine rates and overhead figures.
vii. Manufacturing information control:
 Computer is used in the manufacture and production of goods.
 It can provide ordering, warehousing and cost data based on bills.
 The computer can schedule work for an assembly line based upon labour available by shift.
 It can print out a list of equipment and material needs for the line for a given day and predict
outputs.

5.5 PRODUCTIVITY:
Q13. Define productivity. Discuss the factors affecting productivity. (or) What is productivity?
Explain the methods of improving productivity in IT industry. [May 2016]
 Productivity is one of the major concern of every manager of the organisation.
 This measure gives how much input required to produce a given output.
i.e. the ratio of output by input is called productivity.
Factors affecting productivity:
 Technology:
 New technology developments and R & D development improves the productivity.
 Human Resources:
 Education of employee favours the improvement of the productivity.
 Motivation of the employees improves the efficiency of the productivity.
 Government policy:
 Government can eliminate unnecessary regulations and make productivity effectively.
 Machinery and equipment:
 Modern machineries and equipment also increase the productivity.
 Skill of the workers
 Well trained and experienced employees lead to effective productivity.
 Capital:
 Increased capital investment results in increased productivity.
 This capital also increases other factors, such as market share, low cost, high profit.
 Research and development:
 The research includes reduction of cost and wastage, new techniques. These factors help to increase
productivity

 Trade unions:
 Some trade unions create some unnecessary problems in the company and start strike and lock out.
 It decreases the productivity.
 Materials:
 Productivity of materials can also be increased by using correct process, well trained workers, and
storage facilities.
 Plant and equipment:
 Productivity can be increased through modern tools.
 Proper maintenance of tool and equipment increases the productivity.

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Different productivity measurement
Productivity Measures
1. Labour Productivity = Total output /Labour input
2. Capital Productivity = Total output /Capital input
3. Material Productivity= Total output /Material input

Role of productivity;
For management:
 To get high profit
 To improve the resources
 To increase the sales.
For workers
 Job satisfaction
 Promotion
 Higher salary and
 Better working condition.
For customers:
 To get quality products
 Reduced prices
 Easily available.

5.5.1 Production and Operation Management

Production
 Production is defined as the step-by-step conversion of raw materials into finished products through
chemical or mechanical process to create the product.
 For example, copper ore is available in nature. It is converted into copper plates by chemical process.
Operation Management
 It refers to activities necessary to produce and deliver a service or physical products.
 Example: Copper ore undergoes some chemical process to remove the impurities followed by some
mechanical process to get copper place.

Operation Management System

 Input : Technology, Management and labour, Man, Machine, Money, Building
 Process: Required process of planning, operating and controlling the system.
 Output: Product, Service.

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Objectives of operation management:
 Right quality of product
 Right quantity of product
 Less manufacturing cost
 Manufacturing schedule

Product development
 Product development is the work contributed towards improvement in the present knowledge by the
way of improved ideas, system, techniques etc.

Product analysis
 Product analysis is very important for every business enterprises.
 The following factors influence the product design.
i. Marketing
 Once the product is selected, the next important step is analyzing the market situation.
 Analysis of the demand for the proposed product and customer acceptability to the product is
important.
 In the market analysis, one has to consider the following factors.
 Acceptance of the customers
 Competitive product
 Pricing
 Distribution channels
 Advertising
ii. Economical
 Economic analysis is a vital role in product design policy, when economic analysis of proposed
product is made, the following factors must be taken into account.
 Profit margin
 Pricing policy
 Volume of sales
 Investment analysis

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iii. Production
 The manufacturing of the product depends upon the coordination with other departments. The
following factors of production should be evaluated.
 Selection of suitable process.
 Sequence of operation
 Application of new techniques
 Selection of method to reduce cost and waste.
iv. Product quality and operation
 The product quality and cost are important.
 In a highly competitive market, a company has to give better quality products at reasonable price.
 Operation management considers the operation time of the product.
v. Government policy
 Analyze the government policy, rules and procedures to see whether they are procedures favourable
to the product or not.
vi. Technology
 Analyze the existing technology and new technology which is profitable to the proposed product.

Product layout
 The arrangement of machines and equipments according to the product manufacture is called as
product layout.
 In this layout the raw materials arrive at one end and leave the other end as finished product.
 Along this, lines the machines required for various operations to be carried out in the manufacture
are arranged.

5.6 CONTROL AND PERFORMANCE

5.6.1 Tools and techniques used to improve the productivity:
Q14. Discuss various types of tools used to monitor and measure organization performance.
[May 2018]. (or) Write short notes on Control of Productivity problems and management.
[May 2016, Dec 2018]
1. Operation Research
2. Linear programming

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 3. Inventory controlling
4. PERT and CPM
5. Cost Control
6. Quality Control
7. Purchase and preventive control
8. Maintenance control

1. OPERATION RESEARCH
 Operation research is a product of world war II.
 Study of optimization techniques.
 It applies the methods of physical scientists and engineers to economic (Financial) and political
techniques.
Necessity of Operation Research
 Uncertainty(Decision is costlier and time consuming process .OR Tech plays vital role to solve the
uncertainty task)
 Responsibility and authority: (Scattered throughout the organisation)
 Complex organisation(Structure and complex problem split into simple problem)
 Optimization of resources.(Find out the better utilization of resources)
 Minimizing time:(Minimized the time using PERT Method)
 Maximizing profit:( Decision tree)
 Maximizing cost: (Linear Programming)
Roles of Operation Research in business and Management:
 Production Management:
 Finance Management:
 Purchasing and procurement
 Distribution
 Marketing
 Financial
Main Phases of Operation Research:
 Formulation of Problems
 Construction of a mathematical method
 Solving the method
 Controlling and operating
 Testing the model and the solution
 Implementation

2.LINEAR PROGRAMMING:
 It is one of the classical Operation Research technique.
 Objective: Usually to minimize the total cost, maximize the Profit.
 Used in Oil refineries, Railways, airlines, textile industries etc.

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3. INVENTORY CONTROLLING
Q15. Write short notes inventory controlling.
Inventory
 Inventory consists of stores of goods and other stocks.
 Alternatively inventory is the quantity of goods and other stocks held for a specific time period in an
unproductive state waiting for use or sales.
Inventory control:
 The Inventory control refers to the control of raw materials and purchased materials in stores and
regulation of investment in them.
Importance of Inventory control:
 Efficient utilization of resources.
 Useful in minimizing loss
 Economically benefit for purchasing
 It increases coordination with other departments
 It provides and maintains the consumer service.
Inventory costs:
 Operation managers should identity these costs and then minimize their total cost.
 The costs are of four types.
a. Item cost
b. Ordering cost
c. Cost of carrying inventory
d. Fixed overhead costs.
Effective Inventory Control System
 It should provide a proper check against losses.
 Inventories should be classified clearly. Each item should be given a separate code for quick
identification.
 Separate storerooms must be equipped with all facilities.
 Experienced and qualified persons should be appointed in the purchase and other related
departments
 Proper records should be maintained
 The Inventory cost would be high when the stock of the entire quantity of the materials.
 Materials should be reviewed from time to time.
 It should dispose non-moving materials of unnecessary items in time.

Economic Order Quantity

 It is basic fixed order quantity model.
 Let us consider the purchase of the material required for one year.
 To reduce the inventory cost we can purchase material in small quantities.
 In business enterprise, we have to place a number of purchase order.
 It increases the ordering cost.
 Ordering cost includes requisition, transporting, receiving and inspecting enterprise cost. So we have
to determine the ordering quantity so that the total inventory cost.(Inventory carrying cost +

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 ordering cost) is minimum. This quantity is known as Economic Order quantity.

Economic order quantity

From the graph the ordering cost, carrying costs and total costs are planned.
 Carrying cost increases directly with the size of the order.
 Ordering cost vary inversely with size of the order.
 Thus, point ‘EOQ’ represents the optimum order which minimizes the total cost of inventory
management.
Determination of Economic Order quantity (EOQ):

D – Demand per year

S – Ordering cost
C – Annual carrying cost of one unit

Just In Time Inventory System

 This method is also called zero inventory and stockless production.
 This method is first introduced in Japan.
 In this JIT method, the suppliers deliver the materials to the production spot just in time to be
assembled.
 This method reduces the cost of inventory.
 There is no stock of raw materials in stores or in work centre.
Advantages of JIT
 Inventory cost is reduced
 It improves the best plant layout
 It leads to job satisfaction of employees.
 It leads to better balancing of machines.
 Wastage is reduced.
 It improves the efficiency of workers.
 It increases coordination of employees.
 Quality product.
Disadvantages
 Stoppage of any machine will affect the work.
 If the suppliers do not deliver the materials, it will affect the work.
 Unskilled employees affect the process.
Essential requirements for the success of JIT
 Required trained and skilled workers.
 Smooth relationship with suppliers.
 Suppliers should be located near the company.
 Effective maintenance of machineries.
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5. COST CONTROL
Q16. Discuss about cost control.[Dec 2017]
 Managers use financial control method to control an organization’s financial resources
Financial Statements
 Financial statements refers to four basic statements, income statements, balance sheet, statement of
retained earnings and sources and fund statements.
 The Financial Statements reflect the financial position and operating strength or weakness of the
organization.

Users of financial statements:

 Management
 Share holders
 Creditors
 Employees
 Trade unions
 Government departments
 Tax Authorities
 Financial Institutions
 Commercial Banks
Importance of Financial Statements
a. Management
 Financial statement helps the management to understand the financial position, progress and
performance of business.
 It provides accurate and up to date financial information of the company.
 It helps the management to formulate appropriate policies, rules, procedures and course of action for
the future.
b. Shareholders
 Financial statements help the shareholders to know about the efficiency and effectiveness of the
company.
 The statement also gives the information about profit, capacity of the company, present position and
future position of the company.
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  It guides to decide about making their investments in this company.
c. Creditors
 The financial statements serve as a useful guide for the financial analysis of liquidity, long term
solvency, short-term solvency and profit.
 This helps them to take correct decisions.
d. Labours
 The financial statements give information about the net profit of the company.
 In wages negotiations, profit will be important.
e. Public
 Generally, public are interested in knowing the financial position, progress of the company.
 From financial statements, people can analyze, compare and comment upon the company’s financial
statement.
f. Government
 Tax liabilities of business enterprises are assessed using financial statements.

Limitations of financial statements:

 The data given in these statements are only approximate.
 Current price changes are not considered for valuing the assets of the business.
 Non – Monetary factors are ignored while preparing the financial statements.
 Information is incomplete.
 Qualitative information is ignored.

1. Income statement
 The income statement is also known as profit and loss account.
 It reports recording of changes in income, expenses, profit and losses during the period.
 It summarizes the revenues and expenses of the period.
Importance:
 It guides the management to judge business progress period.
 It analyses business success.
 It indicates the reasons for the business profitability or loss.
2. Balance Sheet
 A balance sheet is the statement which sets out the financial conditions of Business Company.
 An analysis of balance sheet together with profit and loss account will give vital information about
the financial position and operation of the company.
 In balance sheet, left hand side contains capital and liabilities and right hand side contains assets. It is
described as a ‘statement showing the sources and application of capital’
 It is a statement not an account.
Capital and Liabilities Amount (Rs.) Assets Amount [Rs.]
Capital ---------------- Fixed Assets ---------------
Reserves and surplus ---------------- Investments ----------------
Long term liabilities ---------------- Current Assets ----------------
Current liabilities and provisions ---------------- Miscellaneous assets ----------------
Total ---------------- Total ----------------

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Importance of balance sheet
 It is more important document than the profit and loss account.
 It gives a clear picture of the financial position of the business.
 It is a cumulative record of the progress of the business.
 A balance sheet is so called because its two sides must always balance i.e. the assets must be equal to
liabilities plus owners capital.

Key Words of Cost Control

 Assets
 It is the cost which represents the expected future economic benefits to the business.
 Fixed assets
 Assets used in the business are permanent.
 Example: Building, Machineries.
 Current assets
 Assets which are expected to be realized in cash.
 Example: cash in bank, D.D., Bills receivable.
 Liabilities
 Represent obligations which require the settlements in the future.
 Fixed liabilities
 The liabilities that are payable only on the termination of business.
 Current liabilities
 The liabilities that are payable within a year or due date.
 Bills payable, short–term bank overdraft.

3. Cash Flow Statement

 Cash flow statement shows the cash position of the firm and includes all transactions on cash position
of the company.
 The cash flow statement analyses the sources and uses of cash in the company.
Advantages:
 It is useful in the evaluation of cash position of the company.
 It helps the management to plan the repayment of loan.
 It is very much useful in short – term financial analysis.
 It enables the management to account for situation when business has earned huge profits or when it
has suffered a loss.
 A comparison of the past and present cash flow will help the company to rectify the deficiency in the
financial performance.

6.PREVENTIVE CONTROL:
Q17. Discuss about preventive control.
 An efficient manager applies the skills to eliminate undesirable activities which are the reasons for
poor management. This is called preventive control.

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Effective steps for preventive control
Qualified mangers
 Experienced and technically skilled manager is able to forecast the future with a reasonable degree
of accuracy.
 The effective manager performs efficiently and reduces the error in the enterprises.
Management principles to measure performance
 In the basic principles concept theory, basic techniques of management are more important tools for
effective manager.
 The manger should be aware of the measurement concept to handle any tasks in the organization
successfully.
Evaluation
 The evaluation shows the actual performance of the managers.
 In case of dissatisfaction with the evaluation of managers, there will be a need for new recruitment
or train up the managers.
Advantages:
 It is fast and quick
 It enhances a smooth relationship between the superiors and subordinates.
 Prevention is better than cure. This reduces wastages of cost.
 It gives greater accuracy.
Return on Investment:
 The return on Investment is the measure of overall performance of a business.
 The objective is to obtain satisfactory return on capital invested.
 ROI can be used to measure the efficiency of the company.
 ROI is calculated on the basis of three factors.

 Investment Turnover

 Percentage profit on sales

 Retune on capital employed

Advantages:
 ROI measurement shows business efficiency.
 ROI plays a vital role for top management for budget decisions.
 It is used in inter departmental comparison.
 ROI is used for comparing other companies.
 ROI gives ideas for analysis and decisions to bring about effective changes in financial policies.
Limitations:
 In ROI measurements, factors such as inventory valuation, depreciation cannot be considered.
 High or low profits are possible in the concern. In such cases, ROI is not correct judgment of financial
analysis.

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7. PURCHASE CONTROL
Q18. Discuss about Purchase control. [Dec 2017]
 Purchasing is one of the basic functions of organizations.
 Any organization whether it is a cement manufacturing company, sugar mill, insurance company,
hospital, airline ,governmental agency or automobiles producer must have a continuous flow of
materials, suppliers, and services to support operations.

Objectives of Purchasing Department

 Better purchases can save a firm’s financial resources
 By scientific purchasing ,cost would be reduced
 The effectiveness of the purchasing function will have an impact in other operating results.
 Since purchasing uses majority of a firm’s financial resources to purchase materials for
manufacturing processes.
Responsibilities of Purchasing Department
 Selecting the right suppliers
 Obtaining materials at the best prices
 Placing purchase orders with the suppliers
 Enquiring the complaints both from suppliers and from user department

Types of special purchase systems:

The following are some special purchase systems.
a. Forward Buying
b. Tender Buying
c. Blanket Order
d. Zero Stock
e. Rate contract
a. Forward Buying
 In Forward Buying the purchasing decision for a period will be taken in advance and the
organization will commit accordingly in terms of order quantity, rate and delivery schedule.
b. Tender Buying
 In Tender Buying, the steps are preparing bidder’s list, advertising tenders, receiving bids,
evaluating bids and placing order with the bidder with lowest cost.
c. Blanket Order
 In blanket ordering system, the organization will enter into an agreement with its suppliers to
receive items for a required quantity at a particular rate over a period of time.
d. Zero Stock
 Zero Stock Purchase System is same as using the just in time manufacturing system.
 The main idea of the system is to operate the plant with near zero inventory.
 If the suppliers are situated near the company, they are reliable in terms of making supply in time.
e. Rate contract
 It is more used in public sectors and government departments.

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Standard Purchasing Procedure
The standard purchasing procedure consists of the following steps.
a. Processing the requisition.
b. Location and choice of suppliers.
c. Placing of orders.
d. Invoice checkup and clearance.
e. Maintenance of records.
a. Processing the requisition
 The purchase requisition is prepared in duplicate and the original copy is sent to the purchase
department.
 The purchase department processes the requisition and then proceeds to other operations for making
purchases.
Location and choice of suppliers
 The Potential vendors are contracted though authorized representatives.
 On the basis of finding from inspection of samples and analysis of the quoted prices, suppliers are
approved for placing the order.
c. Placing of orders.
 All purchases should be made through a purchase order in a specified form and duly signed by some
authorized person.
 The purchase order must contain the details about the supplier description of the items required,
corresponding prices and amount required.
d. Follow up of orders
 Receiving the ordered material at the right time is most important for an organization.
 The priority of follow-up operations should be given according to the importance of items.
e. Maintenance of records.
 The record of the purchasing department should be updated so that they will be timely and accurate
for future use.
 These records can be maintained in either a computerized or a manual database.

Methods of Purchasing
The following are some popular methods of purchasing
i. Purchasing according to the requirement
ii. Price forecasting method
iii. Purchasing for some definite future period
iv. Market Purchasing
v. Speculative Purchasing
vi. Contract Purchasing
vii. Scheduled Purchasing
viii. Public Purchasing
ix. Tender Purchasing

i. Purchasing according to the requirement

 In such cases an order is placed only when there is some need for the product.
 This method is appropriate for those items which are not regular and common use in the production
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 process.
ii. Price forecasting method.
 Forecasting is nothing but prediction of future event.
 The prediction of prices would keep us in buying the materials in right time and of right quantity.
iii. Purchasing for some definite future period
 This method is used for those items which are regularly consumed but the consumption is
comparatively low and the price changes for these items are not much.
iv. Market Purchasing
 The purchases are at a time when the price of the items provide advantages to the purchaser is known
as market Purchasing.
v. Speculative Purchasing
 Excessive purchases are made when market is low for the items with the hope of earning profit by
selling the items purchased in excess at higher price.
 This produce is most suitable in case of stable commodities e.g., cotton for textiles.
vi. Contract Purchasing
 The purchase department enters into an agreement with various suppliers to supply the items at
some future period or periodically.
 The organization enters into the contract when prices are comparatively low.
 Here the supply is ensured per scheduled requirements as well as there is protection against frequent
price fluctuations e.g., car manufacturers, coal consumers, flour mills, etc.,
vii. Scheduled Purchasing
 The purchasing is scheduled according to requirements of various departments of the organization.
 Vendors are known in advance about the future demand of the purchasers.
viii. Public Purchase System
 Whenever an order is to be placed, there is a minimum lead time involved to get the items in addition
to the minimum time required to source a supplier.
ix. Tender Purchasing System
 Tender is an offer made by a seller in writing to execute work or supply f goods at fixed prices to a
buyer.
 The system of purchasing through tender is followed by government departments, public sector
undertakings and also many private sector undertakings.

8. MAINTENANCE CONTROL
Q19. Explain in detail about Maintenance control.
 A large amount of money is invested in machineries and equipments.
 If these machineries and equipments are kept idle then it will be a great loss to that company.
 So, they have to be kept always in good working conditions. Then only they
will work efficiently for more number of years.
 Maintenance is the process of keeping the machine and equipment in good working condition
so that the efficiency of machine is retained and its life is increased.

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Functions of Plant Maintenance
The basic functions of maintenance is as follows:
i. Inspection
ii. Repair
iii. Overhaul
iv. Lubrication
v. Salvage
i. Inspection
 Inspection involves periodic checking of machines and equipment to ensure safe and efficient
operation.
 Inspection implies detection of faults before they develop to breakdown of the equipment.
ii. Repair
 When any item or components fails , then the process of repairing the component or replacing the
item or part by another item to restore the item in working order is known as repair.
iii. Overhaul
 This is a routine and regular maintenance function.
 The frequency of overhauling is less than lubrication and inspection.
iv. Lubrication
 Proper lubrication plays a vital role in maintaining the machine accuracy and increasing its life.
 The cleaning and lubrication of the machine are normally done by the operator itself.
v. Salvage
 Any equipment is said to be salvage when it cannot be repaired or cannot be brought to desired level
of performance.

Types of Maintenance:
Maintenance practices can be broadly classified into following two types.
a. Breakdown maintenance
b. Preventive maintenance
a. Breakdown Maintenance
 In the case of breakdown maintenance, the equipment is generally attended only when it breaks
down.
 Only when is becomes out of order, it is repaired and set right.
 Next maintenance is done when it breaks down again.
Breakdown maintenance system may be suitable in certain condition, such as
 Where plant capacity exceeds market demand.
 Standbys are available and quick switching over is possible.
 Economical for non-critical equipment

Disadvantages of breakdown maintenance:

 Planning of maintenance work is not possible
 Distribution of work load is difficult.
 Result is imbalanced utilization of maintenance staff.
 May result in overstaffing the maintenance department.
 Increased overtime.
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 Excessive inventory of spares.
 Poor working conditions for maintenance staff

b. Preventive Maintenance
 Preventive maintenance is based on “Prevention is better than care” or “a stitch in time saves
nine”.
 Preventive maintenance is a systematic maintenance procedure where the condition of the plant is
constantly watched though a systematic inspection and preventive action is taken to reduce the
incidence of breakdown.
Objectives
 To minimize the possibility of unanticipated breakdown.
 To make plant and machines always available for ready use.
 To maintain optimum productivity.
 To ensure safety to workmen.
Procedure
 Maintaining machine records.
 Preparing inspection checklist.
 Inspection as per check list and corrective action.
Advantages of Preventive Maintenance
 Reduced breakdown and down time.
 Lesser overtime to maintenance people.
 Greater safety to workers.
 Low maintenance and repair cost.
 Reduced production cost.
 Better product quality.
 Increased equipment life.
 Less material wastages.
Advantages of good maintenance control:
 Life of machinery and equipments increases.
 Production takes place as per the schedule.
 Machines are in good condition. Hence quality of the products will be good.
 No production loss.
 Machinery is not damaged.
Disadvantages of poor maintenance control:
 Machines may be damaged.
 More wastage of materials.
 Poorly maintained machines will produce poor quality products.
 Poor maintenance causes accidents
 Due to poor maintenance, life of machine is reduced.

Techniques of Planned Maintenance Control:

 In order to set up planned maintenance system for an organization, it is necessary to make a general
appraisal of all the maintenance work to be carried out and the resource available for this work.
 The basic techniques in designing a planned maintenance system are as follow:
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i. Inventory Facilities
 A list is prepared for all facilities – plant, buildings machines and equipments in the organization
which need to be maintained.
ii. Marking the equipment
 Identification Symbol should be marked clearly and followed standard method.
iii. The facility register
 The facility register is record of all machinery, plan, equipment, and building which has to be
maintained.
iv. Marking schedule
 A maintenance schedule is a list of maintenance work to be done specifying the frequency, the
maintenance worker and the estimated time required to complete the maintenance work.
v. Job Specification
 After scheduling maintenance work to be carried out an each facility, the details of the work are to be
carried out on each facility, the detail of the work to be performed.
vi. Maintenance Program
 The techniques are maintenance planning charts or visible records.
vii. Job Report
 Job report is a statement regarding the work done and the conditions of the facility.

9. QUALITY CONTROL
Q20. Discuss about Quality control. [Dec2017] (or) Explain the steps involved in quality
control process with advantages and disadvantages. [May 2014/Dec 2011]
Quality:
 Quality is defined as the degree to which a set of inherent characteristic fulfills requirements. Degree
means that quality that can be used with adjectives such as poor, good and excellent. Inherent is
defined as existing in something especially as a permanent characteristic.
Q = P/E
Q = quality
P = Performance
E = Expectations
Quality control:
 Quality Control is the procedure that is followed to achieve and maintain the required quality.
 Quality Control aims at prevention of producing defective products.
 For this, statistical methods like sampling plans and control charts are used.
Dimension of Quality:
 Performance
 Features
 Conformance
 Reliability
 Durability
 Service
 Response

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  Reputations
Steps in Quality Control:
It consists of following steps.
 Fixing the quality standards.
 Evaluation of measurement of quality.
 Comparing the measured quality with the standard quality.
 Finding out the deviation.
 Reasons for variation.
 Taking corrective action

Statistical Quality Control:

 Statistical methods can be used to control the quality.
 Statistical quality control means controlling the quality characteristics of a product or process using
statistical method.
Types of control charts:
a. Control charts for variables.
b. Control charts for attributes
a. Control charts for variables.
 They are used when the parameter under control is some measurement of a variable such as
dimension of a part, the time for work.
b. Control charts for attributes
 Control charts for attributes are used when the parameter under control is the proportion or fraction
of defectives

Procedures for Statistical Quality Control

 Fixing the quality standards for the incoming material, product in manufacture and finished products.
 Checking the quality of the incoming materials by sampling techniques.
 Controlling the production process during production by using X and R chart, P chart and C chart.
 Checking the finished products by using sampling methods.
 Taking suitable corrective measures.
 The optimum quality which can be obtained in a machine or a process determined before production.
 Developing quality consciousness in the organization.

Advantages of Statistical Quality Control

Improvement in product quality
 This is achieved by maintain quality of the incoming materials, the manufacturing process and the
finished products.
Reduction of scrap and re-work
 SQC uses sampling inspection method to check the incoming materials.
 Quality of the product at different stages of production is controlled by using control charts.
 It prevents or reduces production of defective products.
Product quality in uniformly maintained
 Using control charts the quality of the product is maintained within limits.
 R-chart indicates the uniformity of quality.

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Product design can be improved
 Process capability is the ability of the process or machine to produce products within the tolerance
limits specified in design.
SQC develops quality
 A tool of SQC, the acceptance sampling plan creates quality consciousness of vendors who supply
materials to industry.
 By suitable inspection method, the defects are discussed as and when they occur.
SQC satisfies production departments and the customer
 This generally achieved by selection the suitable procedure’s risk and consumer’s risk for the
sampling plan.

5.7 DIRECT AND PREVENTIVE CONTROL

Q21. Discuss briefly about direct and preventive control. [May 2016, Dec 2018]
1. Direct control
 Finding out the employees performance and if it is poor then correcting their performance and
achieve the organization goals is called direct control.
Factors influencing the direct control
The following factors influence the direct control
i. Uncertainty
ii. Lack of knowledge experience
iii. Lack of communication
iv. Lack of coordination
i. Uncertainty
 In every business enterprise, all managerial activities contain risk, facts and uncertainties.
 Compared to risk and facts, uncertainty is an important element.
 Uncertainty creates negative deviations in the performance. Uncertainty reduces the actual plan.
 Future cannot be predicted accurately. In this situation, direct control is not effective.
ii. Lack of knowledge and experience
 Organization managerial position is an important device to attain their goals.
 Inexperienced, untrained managers are unable to control process effectively.
 Qualified experienced persons should be appointed as a manger for effective direct control.
iii. Lack of communication
 It is the communication gap between the different units in the enterprises affecting the managerial
activities.
 It also affects the direct control.

Effective steps for direct control

Success of direct control in an organization depends upon the following factors.
i. Performance can be measured
 In every enterprise, some standards can be fixed.
 Input, Output, Price, Cost, Time and Quality are subject to numerous standards.
 If there is any deviation from standards, skilled managers find out the deviations and correct it.
 Technical skills, creativity skills and problem solving skills are useful to measure the performance

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 of each employee.
 Effective manager is able to locate the poor performance area to control it effectively so that it is
possible is minimize the cost.
ii. Effectively utilizes time
 Managers conduct various enquiries and meetings and they consume more time.
 The effective utilization of time increases the effective control.
iii. Errors can be discovered in time
 Generally, errors have taken place in areas such as cash, inventories, production etc.
 The able mangers can find out the mistakes in correct time and take necessary steps to correct the
mistakes.
 The feed ward technique is used for effective control.
 This technique is used to correct the mistakes rather than avoiding the mistakes.
iv. Participation
 The involvement of the employees in all activities of the enterprises leads to effective control.
v. Coordination
 Increased coordination of all units increases the effective management.
 Effective coordination leads to effective control.

2. Preventive Control
 An efficient manager applies the skills to eliminate undesirable activities which are the reasons for
poor management. This is called preventive control.

Effective steps for preventive control

i. Qualified mangers
 Experienced and technically skilled manager is able to forecast the future with a reasonable degree
of accuracy.
 The effective manager performs efficiently and reduces the error in the enterprises.
ii. Management principles to measure performance
 In the basic principles concept theory, basic techniques of management are more important tools
for effective manager.
 The manger should be aware of the measurement concept to handle any tasks in the organization
successfully.
iii. Evaluation
 The evaluation shows the actual performance of the managers.
 In case of dissatisfaction with the evaluation of managers, there will be a need for new recruitment
or train up the managers.

Advantages:
 Better than direct control
 It is fast and quick
 It enhances a smooth relationship between the superiors and subordinates.
 Reduces wastages of cost.
 It gives greater accuracy.

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Developing Excellent Managers – The key to quality control
a. Efforts required on the part of managers themselves
 Willingness to learn.
 Planning for Innovation & Inventions.
 Tailoring Information.
b. Efforts required on the part of the Organization
 Acceleration of Managerial Development programmes.
 Measuring Managerial programmes and rewarding it.
 Need for management R & D.
 Need for Intellectual Leadership.

5.8 REPORTING
Q22. Write short notes on Reporting.
 Management reporting may be defined as “A system of communication, normally in the written form,
of facts which should be brought to the attention of various levels of management who use them to
take suitable action”. The process of providing information to the management is known as
management reporting.
Objectives of management Reporting:
 To obtain the required information relating to the business to discharge its managerial function
efficiently and effectively.
 To ensure the operational efficiency of the concern.
 To facilitate the maximum utilization of resources.
 To secure industrial understanding among people who are engaged in various aspects of work of
enterprise.
 Improving discipline and morale.
 To help the management for effective decision making.
Essentials of good reporting system:
 Proper form
 Contents
 Promptness
 Accuracy
 Comparability
 Consistency
 Relevancy
 Simplicity
 Cost-Benefit analysis
 Controllability
 Principle of exception
 Flexibility
Classification of reports:
Basically, there are two ways to report to the management. They are
1. Oral Report

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 2. Written Reports
The written reports may be classified in to number of ways.
1. According to object or purposes:
a. External Reports
b. Internal Reports
2. According to period:
a. Routine reports
b. Special reports
3. According to functions:
a. Operating reports
b. Financial reports
External Reports:
 These reports prepared for persons outside the business such as Government, Shareholders, Bankers,
investors and financial institutions etc.,
 External reports usually represent published annual reports.
 Annual reports of trading, Profit and loss accounts and balance sheet of the Indian companies are to
be prepared in terms of Schedule VI of the Indian companies Act of 1956
Internal Reports:
 Internal reports are those which are prepared for internal uses of different levels of management.
These reports are not meant for disclosure to those who are outsiders to the business. They do not
have to comply with any statutory requirements.

Report meant for top level of management:

 The Top Management consists of board of directors, chief executive or managing director.
 The top management is the ultimate source of authority and it manages goals and policies for an
enterprise.
 The usual reports sent to this level of management are capital budget, Master budget, Profit report,
Machine and labour utilization report etc.,

Report meant for Middle level of management:

 The middle level management is constituted of the heads of all departments.
 This level of management is concerned with functioning and control of their departments. Hence they
require more detailed information about their departments at frequent intervals.
 Eg. Purchase manager is keen on reports on material price and usuage variance, reports on material
carrying cost, storage cost etc.

Report meant for Junior level of management:

 Lower level is also known as supervisory / operative level of management.
 It consists of supervisors, foreman, section officers, superintendent etc. they are concerned with
direction and responsible for executing various policies assigned by top management.
 The report meant for this level are mainly in terms of physical units.
 The usual reports sent to this level of management are reports on labour efficiency variance, overtime
and machine utilization, reports on material usage etc.,

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CASE STUDY:
1. Modern Manufacturing Company has been using a budgetary control system for the last three years.
When asked to explain the system, Mr. John, the Managing Director of the company, observed : "We're
pretty flexible in our budgetary system Every manager is given a total amount that he or she can spend for
the next year. We don't care how it is used as long as the total isn't exceeded and organizational objectives
are achieved". [Dec 2017]
i. Discuss the merits and demerits of the company's approach to budgeting. (8)
ii. Do you agree or disagree with this approach? Explain your view. (7)

i. Discuss the merits and demerits of the company's approach to budgeting.

Advantages of budgetary control
 Tool for planning the activities
 Better utilization of resources.
 Ensures proper communication
 To take corrective action at right time.
 Control of expenditure
 Achievement of goal
Limitations of budgetary control
 Rigidity
 Inaccuracy
 Time consuming process
 Consumes lot of money and effort
 Lack of departmental cooperation
 Danger of over budgeting
ii. Do you agree or disagree with this approach? Explain your view.
 Yes, Budgeting is very important and it determines the way in which the organization can attain its
financial and other goals. The data analysis indicates that budgetary control system is implemented
in most of the organizations but somehow it should be improved.
 Most of the respondents agreed that there is a strong relationship between budgetary control
system and organizational efficiency.
 Interestingly, finding of the study revealed that budgetary control system serves different purposes
within organizations, in some organizations budgetary control system is used for cost reduction
and in other cases it used for maximize profitability as well as to minimize variances.
 Eventually, most of the respondents agreed that there are some barriers in proper implementation
of budgetary control system in their organizations.
 The findings indicated that most significant barrier in BCS implementation is senior management.
Hence, the senior management plays prominent role in implementation of budgetary control
system and the problems involved the management should be addressed in order to achieve
organizational goals.
 It recommends that in order to increase organizational efficiency, senior management should put
in place measures to solve the problems associated in budgetary control system procedure.
 Moreover, budget participation should be take place within organizations in order to enhance
employee’s perception in regards to budgeting and planning.

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 UNIT – V CONTROLLING
PART A (2 MARKS)
1. What is control? [May’05]
 Control is a basic managerial function which implies correction of performance of subordinates
to ensure that the predetermined objectives are accomplished.

2. What is the meaning of controlling? [May 2019]

 Controlling is the process of determining what is to be accomplished, what is being accomplished,
evaluating performance and taking corrective measures so that the gap between the desired result
and actual result is minimized.

3. Define control.
 According to Koontz,” The managerial function of controlling is the measurement and correction
of the performance of activities of subordinates in order to make sure that enterprise
objectives and the plans devised to attain them are being accomplished”.

4. List out the nature and purpose of control.

 Control is an essential function of management
 Control is an ongoing process
 Control is forward – working because past cannot be controlled
 Control involves measurement
 The essence of control is action
 Control is an integrated system
5. What is the Need of control? (or) Why do we need of control in the organization?
 To discover deviations in the management
 To minimize dishonest behaviour of the employees
 To indicate corrective action
 To minimise mistakes
6. What are the characteristics of control? (or) State the features of control in the organization.
[May 2018]
 Control process is universal.
 Control is a continuous process.
 Control is action based
 Control is forward looking.
7. Name the objectives of the control. (or) What are the objectives of control?
The objectives of the control are
 To stimulate action
 To facilitate coordination
 To direct activities
 To re-define objectives and policies
8. What are the Inter –relationship between planning and with control ?
 The management process of adjusting future action on the basis of Information about past
performance.
 Control helps in achieving them is said to be inter –relationship between planning and end with
control.

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9. List out the Process of Controlling. (or) Name the steps in process control.[Dec 2018]
a. Establishing Standards
b. Measurement of actual performance
c. Comparing actual performance with standards
d. Finding out deviation
e. Corrective action
10. What are the importance’s of controlling? (or) Why controlling is important? [May 2017]
 Control helps to review, revise and update the policy of the organization.
 The sound control system inspires employees to work hard and give a better performance.
 Control helps to increase the co-ordination of the subordinates in the organization.
 A proper control ensures the organizational efficiency of effectiveness.

11. How does control helps in other management functions?

 Control helps in planning, helps in coordination, controls other managerial functions, evaluates
performance, and compares actual results.
12. What is the disadvantage of control? (or) State the limitations of control.
 Control is expensive and time-consuming process.
 Difficult in settling standards
 Human behaviour and employee morale also cannot be measured.
 Time consuming and expensive.
 Resistance and difficulty in pinpointing responsibility.
13. What is Critical point control? [May’09]
 The points selected for control process is called critical points. The principle of critical point
control is one of the most important control principles states. The effective control requires an
attention to those factors critical to evaluate the performance against plans.

14. Give some critical point standards of control.

 Cost standards
 Reverse standards
 Goals standards
 Progress standards
15. List any four types of control. [May’10, May/June 2013]
 Feedback control
 Concurrent control
 Feed forward control
 Continuous control
16. What is feedback control?
 Feedback control is the process of adjusting future course of action in the basis of information about
past performance.
17. What is Concurrent control?
 The control measures for taking corrective action while any programme meets any obstacle in these
activities.

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18. What is feed forward control? (Nov/Dec 2008)
 It is a preventive technique in nature. This control involves the evaluation of inputs and taking
corrective action before a particular operations completed.
19. Compare Feedback control and Feed Forward Technique.
Sl.No Feedback Feed Forward
1. It measures only the output of process. It measures the input of process
2. It is submissive approach. It is aggressive approach.
3. It gives less benefit. It gives more benefit.

20. Write short notes on barriers for controlling.

 Control activities can create an undesirable overemphasis on short-term production as opposed to
long- term production.
 Control activities can increase employees' frustration with their jobs and thereby reduce morale.
 Control activities can encourage the falsification of reports.
 Control activities can cause the perspectives of organization members to be too narrow for the good
of the organization.
 Control activities can be perceived as the goals of the control process rather than the means by which
corrective action is taken.

21. What are requirements of effective controlling? [May/June 2013,11, NOV/DEC2007,12]

The requirements for effective control are
 Stability
 Flexibility
 Economical
 Simple
 Motivation
 Forward looking
 Objective
 Controls should reflect the organization structure and needs
 Control should lead to corrective action
22. Mention any two good features of controlling.
The features of controlling are
• Economical
• Flexible
23. State some features of a good control system.
The features for a good control system are
 Control over organizational structure.
 Control over personnel.
 Control over costs.
 Control over methods and manpower.
 Control over capital expenditure.
 Control over line of product.
 Control over research and development.
 Overall control.

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24. What is management by exception?
 Actual performance compare with the standard performs deviations which cannot significant
should be avoid is said to be management by exception.
 The deviations by comparing the actual performance with the standard performance deviations
cannot significantly be avoided.
25. Write some advantages of management by exception.
 This used to identify important problems.
 It reduces unnecessary burden of the management.
 It provides a better unitization of managerial talent and knowledge.
26. What is feedback in controlling?
 For the control function to be effectively performed there must be prompt flow of information to
the manager about the actual performance. The necessary corrective action must also be promptly
followed. Such a system of communication is called ‘feedback’.

27. “Control is forward-looking” – Explain

 The control system should be directed towards the future. It should report the deviations from the
plans quickly in order to safeguard the future. If the control reports do not relate to the future, they
are of no use as they will not be able to suggest the type of measures to be taken to rectify the past
deviations.

28. “Control is looking back” – Explain

 Control involves a post-mortem of what has happened. It is therefore considered looking back. But
the corrective action is designed to improve performance in the future as the past cannot be
controlled. Thus the control is looking at the future through the eyes of the past.

29. What are traditional techniques of control?

i. Budgetary control techniques
ii. Non Budgetary control techniques
 Direct personal observation and supervision
 written reports
 statistical reports and analysis
 Break even analysis
30. What are modern techniques of control?
 Management audit
 Operational audit
 PERT/CPM
 MIS
31. Define Budget. (Nov/Dec 2012, May/June 2012)
 According to J.Fred Meston.”A budget is the expression of a firm’s plan in financial form for a
period of time into the future”.

32. What is Budget?

 Statement expressed in financial terms.
 A budget is a detailed plan of operation for some specific future period.
 It is a pre-determined statement of management policy during a given period.

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33. What is budgetary control? [May’07][Nov/Dec 2017] (Nov/Dec 2012, May 2012)
 According to J. Batty, “A system which uses budgets as a means of planning of controlling all
aspects of producing and/or selling commodities and services”.

34. List the types of budgets. (Nov/Dec 2008, May 2014)[May 2019]
The various types of budgets are as follows:
a. Master budget
b. Functional Budget - Sales budget, Production budget, Material budget, Labour budget, Cash
budget, and Administrative Overhead budget.
c. Capital & Revenue budget
d. Fixed and Flexible Budget – based on activity
e. Short term ,long term and current budget– based on time
f. Zero base budgeting - the budget proposals are considered from the ground up ( zero base)

35. Write some objectives of budgetary control.

 It aims at the maximization of profits.
 To plan and control the income and expenditure of the organization.
 To provide an adequate working capital.
36. What are the steps for the effective implementation of budgetary control?
 Support to top management
 Flexibility
 Budget education
 Participation
37. What are the classifications of budget?[May/June14]
 Functional classification
 Time classification
 Activity level
38. What is Master budget?
 It is the budget of the entire organization for a particular period of time.

39. What are the various types of functional budgets? [Dec’07]

 Sales Budget
 Production Budget
 Cash Budget
 Capital Budget
 Master Budget
40. What is Sales budget?
 It is an estimate of sales during a budget period.
 The accuracy of this budget determines the accuracy of other functional budget.

41. What is Production budget?

 Production budget is a forecast of the output for the period analyzed according to
 Products
 Manufacturing department
 Periods of production

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42. What are the factors which will be considered for the production budget?
 Production stability
 Plant capacity
 Time
 Sales requirements
43. What is Material budget?
 The estimation for different types of raw materials is prepared for various products.

44. What is Labour budget? (or) What is Direct labour Budget?

 It is the forecast of the expected labour requirements during the budget period.
 This budget helps to prepare suitable plans for recruitment and training labour

45. What is cash budget?

 The budget gives an estimate of the anticipated receipts and payments of cash during the budget
period.

46. What is Administrative Overhead budget?

 This budget contains the expenses in framing policies, directing the organization and controlling the
business operations.
 It covers the estimated expenditure of administrative offices and management salaries.

47. What is meant by Capital and Revenue budget?

 This budgets deals with capital expenditures for plant machinery, equipment and other terms.
 The budget is prepared after consideration of the available production, capacities, assets and possible
production technique.

48. How do you classify budgets based on time?

 Short term Budget - one or two years
 Current Budgets - few weeks or for a few months
 Long term Budgets – 5 to 10 years
49. Give examples for activity level Budgets.
 Fixed Budget
 Flexible Budget
50. What is fixed budget?
 In this budget, targets are rigidly fixed. This is a forecast of the targets for coming prepared well in
advance.

51. What do you understand by ‘flexi-budgets’? [Dec’09 & May’10]

 A flexible budget is a budget designed to change in the level of activity.
 It is also known as variable budget.

52. Write some advantages of flexible budgets.

 It is a useful tool for controlling costs.
 It is more realistic and practical.
 It traces the impact of various levels of activity on profits.

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53. What is zero base budgeting? [May’09, May 2007] (or) What do you understand by Zero base
budgeting? (May/June 2007)
 The purpose of a well operated system of variable budgeting is zero-base budgeting.
 This budget contains a comprehensive analysis and review of budget proposals is made every time.
 Initially, the budget is designed from a zero-base. The main element of ZBB is future objective
orientation.

54. What are the steps involves in ZBB process?

 Decision package
 Ranking
 Allocation of resources
55. Write some significance of ZBB.
 ZBB is also an educational process that can promote the development of the management team.
 Mangers tend to evaluate in their operations, efficiency and cost effectiveness not only during the
budget cycle but also the throughout the operating year.

56. What the data required for preparation of roles budget?

 Past sales data
 Plant capacity
 Financial resources available
 Raw material available.
57. What are the advantages of budgetary control? (April/May 2011)
 Tool for planning the activities
 Better utilization of resources.
 Ensures proper communication
 To take corrective action at right time.
 Control of expenditure
 Achievement of goal
58. What are the limitations of budgeting? [Dec’04]
 Rigidity
 Inaccuracy
 Time consuming process
 Consumes lot of money and effort
 Lack of departmental cooperation
 Danger of over budgeting
59. How do you use of personal observation of budgetary control?
 Managers observed their subordinated characters, attitudes and skill. Mistakes committed by the
workers can be corrected by the manager directly.

60. How do you use of written reports in non budgetary control?

 Each manager prepares written reports on the performance of his sub-ordinates.
 He submits to higher authorities.

61. How do you use of Statistical reports and analysis in non budgetary control?
 These reports are prepared and used in large organizations.

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 Reports are prepared in quantitative terms.
 Special staff prepares statistical reports and present in the form of tables, ratios, percentages,
correlation analysis.
 Such reports are prepared in areas like production, sales, inventory

62. Write short notes about break even analysis.

 Break-even analysis is a widely used resource allocations technique.
 It points out the relationship between revenues, costs, and profits.
 To compute the break-even point (BE), a manager needs to know the unit price of the product being
sold (P), the variable cost per unit (VC), and total fixed costs (TFC).
 But total cost has two parts; fixed and variable.

63. Define fixed and variable cost.

 Fixed costs are expenses that do not change regardless of volume. It includes insurance premiums,
rent, and property taxes.
 Variable costs change in proportion to output. It includes raw materials, labor costs, and energy
costs.
64. Write short notes about Return on Investment (ROI).
 It is also known as return on capital employed.
 It measures the relationship between the amount of net profits and the size of investment in an
organization.
 It is a key measure of overall performance and an important technique of financial control.
 An important technique of financial control.

65. How is ROI calculated?

 Investment Turnover

 Percentage profit sales

 Return capital employed

66. What are the advantages of ROI?

 ROI measurement shows business efficiency.
 It is used in inter-dependent comparison.
 ROI is used for top management for budget decisions.
67. What are the limitations of ROI?
 Depreciation cannot be considered
 It does not give a correct judgment of financial analysis.
68. What is Direct Control?
 Finding out the poor performance of employees and then correct their performance is called direct
control.

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69. What is management audit?
 Management audit is a new concept of controlling.
 Independent , overall examination of entire management process
 This is done to judge the success and failures in running and managing an enterprise
70. What is meant by Operational audit?
 Audit is a careful examination of accounts, financial and other operations of the organization.
 There are two types of audit which are:
i. Internal audits
ii. External audits
71. What is Internal Audit?
 Internal audit is done by internal auditors who are an employee of the organization. He examines
the objectives, policies, plans, procedures and performance of the management.
72. What is External audit?
 External audit is done by an external auditor who is an accounting personnel from an outside firm.
 It is a major systematic against fraud within the organization.
73. What is Responsibility accounting?
 This technique of controlling is borrowed from management accounting.
 The performance of managers is judged by assessing how far they have achieved the target set by
their departments or sections.

74. What is Human Resource Accounting?

 HRA is accounting for people in an organisation.
 Measuring the values of human assets
 This will measure the cost incurred by an enterprise to recruit, select, hire and train employees.

75. Give some examples for New Control Technique.

 PERT and CPM
 Human Resource Accounting
76. Write any two HR related controlling technique. (Nov/Dec 2007, May 2016, Dec 2018)
The HR related controlling technique are
• Management Information System(MIS)
• Network analysis techniques – PERT / CPM
77. What is PERT and CPM?
 PERT – Program Evaluation and Review Technique
 CPM- Critical Path method
 This is a graphic representation of a project schedule, showing sequence of tasks.
 In both techniques, a project is decomposed into activities and then all activities are integrated in a
highly logical sequence to find the shortest time required to complete the entire project.
78. Write some uses of PERT and CPM.
 It forces the right actions, right point and right time in the organization.
 It is used to work out the cost estimates of a project.
 It is used determine manpower, material and capital requirements.
79. List out the Steps in PERT/CPM.

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  Identification of components
 Activity
 Event
 Sequencing of activities and events
 Determination of estimated time
80. What are the three types of time for PERT technique?
 Optimistic or shortest time
 Pessimistic or longest time
 Normal or most likely time
81. What is optimistic time?
 It is the shortest time in which every activity goes exceptionalness well.

82. What is pessimistic time?

 This is the time estimate, if everything goes wrong.

83. What are the advantages of PERT and CPM?

 Better utilisation of time, effort, capital
 Simultaneous performance of different parts of the project
 Provides feed forward control
84. What are the disadvantages of PERT and CPM?
 Time consuming and expensive
 Errors in estimation can make it unreliable
 Cannot be applied to assembly line operations
85. What are the differences between PERT and CPM.
Sl.No CPM PERT
1. It is activity oriented. PERT is event oriented..
2. CPM is planning device. PERT is control device.
3. It estimates only one time It continues three times.
4. It is deterministic model. It is probabilistic model.

86. What is MIS? (Management information system)

 MIS is more advance technology for solving its basic requirements. MIS used for decision making in
the various function areas of business.
87. Define: MIS.(Management information system) (May/June 2013)
 An information system is an organized combination of people, hardware, software, communications
Networks and data resources that collects, transforms, and disseminates information in an
organization.
 MIS is a system that supplies information to management.
 MIS is a new technique which has brought with increased accuracy and speed to the management.

88. What are the Needs of MIS?

i. Internal factors
 Resources
 Planning and control information
 Operational information
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  Marking information
ii. External factors
 Political and Government
 Economic condition
 Technology
89. What are the characteristics of MIS?
 MIS is must be simple.
 MIS helps in decision making process.
 MIS should be clear.
 MIS should help in resolving the complicated problem effectively.
90. What are MIS Resources?
 Computer Hardware
 Software
 Data
 People
91. What are the applications of MIS?
 To find out new opportunities
 To provide sales forecasting.
 To allocate resources.
 To provide effective managerial activities.
92. Mention the Steps in MIS.
MIS consists of following steps
 Assembly: Collection of data.
 Processing: Editing of data, their classification and summation.
 Storage and retrieval: Coding, filling of information and getting back information.
 Evaluation: determination of accuracy and relevance of data.
 Dissemination: Supplying information in the proper form and at the right time.
93. What are the roles of MIS?
 The role of MIS in an organization can be compared to the role of heart in the body.
 The information is the blood and MIS is the heart. In the body the heart plays the role of supplying
pure blood to all the elements of the body including the brain.
 The system ensures that an appropriate data is collected from the various sources, processed, and
sent further to all the needy destinations.
 The MIS helps in Strategic Planning, Management Control, Operational Control and Transaction
Processing

94. What is a decision support system?

 A DSS is a specialized MIS designed to support a manger’s skill at all stages of decision making,
identifying the problem, choosing the relevant data, and evaluating the alternative courses of
action.
95. What are the objectives of MIS?
 To provide the information up to date.
 To take effective decision making.
 To provide the right information available in the right form at the right time.
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96. How to use of MIS for Middle Management?
MIS gives information about marketing level, problems with customers, and reduction in sales, and
quality of product.
97. What are the uses of computers in handing the information? [Dec’06, May 2016, Dec 2016]
Computers are used for the following purposes in handling the information
 Sales Forecast and Control
 Payroll
 Business management
 Accounting
 Personnel management information
 Cost Accounting
 Manufacturing information control
98. Define Productivity. [Dec’05 & May’09,14], May 2007/May 2009/May 2014/Dec 2017
Productivity is a measure of how much input is required to produce a given output .i.e. the ratio
(output/input) is called productivity.
Total productivity= Total output/ Total input
Labour productivity= Total output/ number of workers
Capital productivity= Total output/capital employed
Material productivity = Total output/ materials consumed.

99. What are the factors affecting productivity? (or) Discuss the productivity problems in a
management. [Dec 2016]
 Technology
 Human resources
 Government Policy
 Machinery and equipment
 Skill of the worker
 Capital
 Research and development
100. State the importance of productivity. (Nov/Dec 2007)
The importance of productivity are
 Higher profitability.
 Employee welfare.
 Higher return to share holders.
 Customer satisfaction.
 Less employee turnover

101. Define Production.

 Production is defined as the step-by-step conversion of raw materials into finished products through
chemical or mechanical process to create the product.
 For example, copper ore is available in nature. It is converted into copper plates by chemical process.

102. Define Operation Management.

 It refers to activities necessary to produce and deliver a service or physical products.

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 Example: Copper ore undergoes some chemical process to remove the impurities followed by some
mechanical process to get copper place.

103. Write short notes about Operation Management System.

 Input : Technology, Management and labour, Man, Machine, Money, Building
 Process: Required process of planning, operating and controlling the system.
 Output: Product, Service.

104. Mention the objectives of operation management.

 Right quality of product
 Right quantity of product
 Less manufacturing cost
 Manufacturing schedule
105. Define Product development.
 Product development is the work contributed towards improvement in the present knowledge by the
way of improved ideas, system, techniques etc.

106. What are the factors to be considered for product design?

 Marketing
 Economical
 Government policy
 Production
 Technology
 Product quality and operation
107. What are the benefits of increasing productivity for workers? [May’10]
 Job satisfaction and Job security
 Promotion
 Higher salary
 Better working conditions
108. Mention the tools and techniques available for making operations more productive. [May’09]
 Linear programming.
 Assignment problem
 Transportation model
 Game theory
 PERT/CPM method
 Decision tree approach
109. List out the various types of tools used to monitor and measure organization performance.
1. Operation Research
2. Linear programming
3. Inventory controlling
4. PERT and CPM
5. Cost Control
6. Quality Control
7. Purchase and preventive control
8. Maintenance control

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110. What is Operation Research?
 OR (Operation Research) is an applied decision theory which uses scientific, mathematical and
logical means to take decisions.

111. Define Operation Research. [Dec’05]

 Operation Research is a systematic analysis of a problem through scientific methods, carried out by
appropriate specialists, working together as a team, finding an optimum and the most appropriate
solution to meet the given objective under a given set of constraints.

112. What is the Necessity of Operation Research? (or) What are the important functions of
Operation Research?
 Uncertainty
 Responsibility and authority
 Complex organisation
 Optimization of resources
 Minimizing time
 Maximizing profit
 Maximizing cost
113. What are the steps involved in solving a problem though Operation Research?
 Formation of a problem
 Making a model
 Solving the model.
 Controlling and Operating
 Testing the model and its solution
 Implementation
114. What are the advantages of Operation Research?
 It is not qualitative
 It does not consider the human factors
 It can be used only for specified problems.
115. What are the techniques used in Operation Research?
 Limited
 Assignment problem
 Transportation model
 Game theory
 PERT/CPM method
 Decision tree approach
116. What are the applications of Operation Research?
 National planning and budgeting
 Defiance service operations
 R & D engineering
 Agriculture and irrigation
 Business management and completion
 Education and training.
117. Give the applications of Operation Research in the defense.
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  Development of new technology
 Inventory control
 Optimization of cost and time in defense projects.
 Effective battle “Strategies” and “Tactics”.
118. What are the applications of Operation Research in the area of Business management?
 Selection of business and are of operation.
 Decision making under competition.
 Optimum advertisement turtle.
 Market survey and analysis.
 Market research technique.
 Capital investment and returns
119. How is Operation Research used in the field of education and training?
 Optimum mix of student/teachers ratio.
 Optimum number and location of examination centers.
 Demand and supply of textbooks and stationary etc.
120. Define Linear programming.
 Linear programming is a versatile mathematical technique in Operation Research and a plan of
action to solve a given problem involving linearly related variables in order to achieve the laid
down objective in the form of minimizing or maximizing the objective function under given set of
constraints.

121. Give some uses of Linear programming?

 Optimum product mix to maximize the profits.
 Optimum schedule of orders to minimize the total cost.
 Optimum allocation of capital to obtain maximum ROI.
 Optimum staffing in Hostels, Police Stations and Hospitals to maximize the efficiency.
 Optimum facilities in telephone exchange to have minimum breakdowns.
122. What is Inventory Control?
 The inventory control refers to the control of raw materials and purchased materials in store and
regulation of investment in them.

123. Write any four importance of Inventory Control.

 Efficient utilization of resources.
 Useful in minimizing loss
 Economically benefit for purchasing
 It increases coordination with other departments
 It provides and maintains the consumer service.
124. List out the types of Inventory cost?
 The costs are of four types.
a. Item cost
b. Ordering cost
c. Cost of carrying inventory
d. Fixed overhead costs.
125. What is Economic Order Quantity? (Nov/Dec 2011)

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  Economic Order Quantity is a basic fixed order quantity model.

D – Demand per year

S – Ordering cost
C – Annual carrying cost of one unit

126. What is JIT?

 In Just in Time Inventory system, the suppliers deliver the materials to the production spot just in
time to be assembled. This method reduces the cost of inventory.
 This method is also called zero inventory and stockless production.

127. Write some advantages of JIT?

 Inventory cost is reduced.
 It leads to job satisfaction of employees
 It improves the efficiency or workers.
 Quality product.
128. What are the Disadvantages of JIT?
 Stoppage of any machine will affect the work.
 If the suppliers do not deliver the materials, it will affect the work.
 Unskilled employees affect the process.
129. What are the Essential requirements for the success of JIT?
 Required trained and skilled workers.
 Smooth relationship with suppliers.
 Suppliers should be located near the company.
 Effective maintenance of machineries.
130. Define financial controls.
 Financial controls helps the managers to control an organization’s financial resources.

131. What are the users of financial statements?

 Management
 Share holders
 Creditors
 Employees
 Trade unions
 Government departments
 Tax Authorities
 Financial Institutions
 Commercial Banks
132. What are the limitations of financial statements?
 The data given in these statements are only approximate.
 Current price changes are not considered for valuing the assets of the business.
 Non – Monetary factors are ignored while preparing the financial statements.
 Information is incomplete.
 Qualitative information is ignored.
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133. What is Income statement?
 The income statement is also known as profit and loss account.
 It reports recording of changes in income, expenses, profit and losses during the period.
 It summarizes the revenues and expenses of the period.
134. Write the Importance of Income statement.
 It guides the management to judge business progress period.
 It analyses business success.
 It indicates the reasons for the business profitability or loss.
135. What is Balance Sheet?
 Balance Sheet contains profit and loss amount which will give vital information about the financial
position and operation of the company.
136. Write the Importance of balance sheet.
 It is more important document than the profit and loss account.
 It gives a clear picture of the financial position of the business.
 It is a cumulative record of the progress of the business.
137. List out the Key Words of Cost Control.
 Assets
 Fixed assets
 Current assets
 Liabilities
 Fixed liabilities
 Current liabilities
138. What is Fixed Assets?
 Those asses used in the business that is of permanently.
 Example: Building, Machineries.

139. What are current Assets?

 They are assets which are reasonably expected to be realized in cash.
 Example: Bank in cash, D.D

140. What is Liabilities?

 Represent obligation which require a settlement in the future.

141. What is fixed liabilities?

 The liabilities that are payable only one the termination of business.
 Example: Paid up capital.

142. What are current liabilities?

 The liabilities that are payable within a year or due date.
 Example: Bills payable, short term bank over draft.

143. What is cash flow statement?

 Cash flow statement shows the cash position of the firm and includes all transactions on cash position
of the company.

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  The cash flow statement analyses the sources and uses of cash in the company.
144. What are the advantages of cash flow statement?
 It is useful in the evaluation of cash position of the company.
 It helps the management to plan the repayment of loan.
 It is very much useful in short – term financial analysis.
145. What is preventive control? [May’05, May/June 2012, May 2017]
 An efficient manager applies the skills to eliminate undesirable activities which are the reasons for
poor management. This is called preventive control.

146. What are the Effective steps to be followed in preventive control?

 Qualified mangers
 Management principles to measure performance
 Evaluation
147. What are the Advantages of preventive control?
 It is fast and quick
 It enhances a smooth relationship between the superiors and subordinates.
 Prevention is better than cure. This reduces wastages of cost.
 It gives greater accuracy.
148. What is purchase control?
 Purchase control is an element of material control. It is a continuous flow of materials, suppliers
and services to support operations.

149. List any two objective of purchasing department.

 Better purchases can save a firm’s financial resources
 By scientific purchasing ,cost would be reduced
 The effectiveness of the purchasing function will have an impact in other operating results.
 Since purchasing uses majority of a firm’s financial resources to purchase materials for
manufacturing processes.

150. Mention the Responsibilities of Purchasing Department.

 Selecting the right suppliers
 Obtaining materials at the best prices
 Placing purchase orders with the suppliers
 Enquiring the complaints both from suppliers and from user department
151. What are the types of purchase system?
 Forward buying
 Tender buying
 Blanked order
 Zero stock
 Rate contract
151. What are the standard procedures followed in Purchasing Department?
The standard purchasing procedure consists of the following steps.
a. Processing the requisition.
b. Location and choice of suppliers.

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 c. Placing of orders.
d. Invoice checkup and clearance.
e. Maintenance of records.
152. Mention the various methods of Purchasing.
The following are some popular methods of purchasing
i. Purchasing according to the requirement
ii. Price forecasting method
iii. Purchasing for some definite future period
iv. Market Purchasing
v. Speculative Purchasing
vi. Contract Purchasing
vii. Scheduled Purchasing
viii. Public Purchasing
ix. Tender Purchasing
153. What is maintenance control?
 Maintenance is the process of keeping the machine and equipment in good working condition so that
the efficiency of machine is retained and its life is increased.

154. What are the basic functions of Plant Maintenance?

The basic functions of maintenance is as follows:
i. Inspection
ii. Repair
iii. Overhaul
iv. Lubrication
v. Salvage
155. What are the types of maintenance?
Maintenance practices can be broadly classified into following two types.
a. Breakdown maintenance
b. Preventive maintenance
156. Give short notes about Breakdown Maintenance.
 In the case of breakdown maintenance, the equipment is generally attended only when it breaks
down.
 Only when is becomes out of order, it is repaired and set right.
 Next maintenance is done when it breaks down again.

157. In which condition Breakdown maintenance system is more suitable?

Breakdown maintenance system may be suitable in certain condition, such as
 Where plant capacity exceeds market demand.
 Standbys are available and quick switching over is possible.
 Economical for non-critical equipment

158. What are the Disadvantages of breakdown maintenance?

 Planning of maintenance work is not possible
 Distribution of work load is difficult.
 Result is imbalanced utilization of maintenance staff.
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 May result in overstaffing the maintenance department.
 Increased overtime.
 Excessive inventory of spares.
 Poor working conditions for maintenance staff

159. What is meant by Preventive Maintenance?

 Preventive maintenance is based on “Prevention is better than care” or “a stitch in time saves
nine”.
 Preventive maintenance is a systematic maintenance procedure where the condition of the plant is
constantly watched though a systematic inspection and preventive action is taken to reduce the
incidence of breakdown.

160. Mention the Objectives of Preventive Maintenance.

 To minimize the possibility of unanticipated breakdown.
 To make plant and machines always available for ready use.
 To maintain optimum productivity.
 To ensure safety to workmen.
161. What are the Procedures of Preventive Maintenance?
 Maintaining machine records.
 Preparing inspection checklist.
 Inspection as per check list and corrective action.
162. What are the advantages of Preventive Maintenance?
 Reduced breakdown and down time.
 Lesser overtime to maintenance people.
 Greater safety to workers.
 Low maintenance and repair cost.
 Reduced production cost.
 Better product quality.
 Increased equipment life.
 Less material wastages.
163. What are the advantages of good maintenance control?
 Life of machinery and equipments increases.
 Production takes place as per the schedule.
 Machines are in good condition. Hence quality of the products will be good.
 No production loss.
 Machinery is not damaged.
164. Mention the disadvantages of poor maintenance control?
 Machines may be damaged.
 More wastage of materials.
 Poorly maintained machines will produce poor quality products.
 Poor maintenance causes accidents
 Due to poor maintenance, life of machine is reduced.
165. What are the techniques followed in designing a planned maintenance?
 The basic techniques in designing a planned maintenance system are as follow:

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  Inventory Facilities
 Marking the equipment
 The facility register
 Marking schedule
 Job Specification
 Maintenance Program
 Job Report
166. What is cost control?
 Cost control is the measure taken by management to control the organisation’s financial resources.

167. Define Quality.

 Quality is defined as the degree to which a set of inherent characteristic fulfills requirements. Degree
means that quality that can be used with adjectives such as poor, good and excellent.
Q = P/E
Q = quality
P = Performance
E = Expectations

168. What is quality control? (Nov/Dec 2012)

 Quality control is a process used to ensure a certain level of quantity in a product or service.
 Quality control involves the examination of a product, service or process for certain minimum
levels of quality

169. What are the Dimensions of Quality?

 Performance
 Features
 Conformance
 Reliability
 Durability
 Service
 Response
 Reputations
170. What are the Steps followed in Quality Control?
It consists of following steps.
 Fixing the quality standards.
 Evaluation of measurement of quality.
 Comparing the measured quality with the standard quality.
 Finding out the deviation.
 Reasons for variation.
 Taking corrective action
171. What is meant by Statistical Quality Control?
 Statistical methods can be used to control the quality.
 Statistical quality control means controlling the quality characteristics of a product or process using
statistical method

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172. List out the Types of control charts.
c. Control charts for variables.
d. Control charts for attributes
173. What is Control charts for variables & attributes?
Control charts for variables.
 used when the parameter under control is some measurement of a variable such as dimension of a
part, the time for work.
b. Control charts for attributes
 Control charts for attributes are used when the parameter under control is the proportion or fraction
of defectives

174. Give the advantages of Statistical Quality Control.

 Improvement in product quality
 Reduction of scrap and re-work
 Product quality in uniformly maintained
 Product design can be improved
 SQC develops quality
 SQC satisfies production departments and the customer
175. What is meant by Direct control?
 Finding out the employees performance and if it is poor then correcting their performance and
achieve the organization goals is called direct control.

176. What are the factors which affect the direct control?
 Uncertainty
 Lack of knowledge
 Lack of communication
 Lack of coordination
177. What are the effective steps for direct control?
 Performance can be measured
 Effectively utilizes time
 Errors can be discovered in time
 Coordination
178. Define Reporting.
 Management reporting may be defined as “A system of communication, normally in the written form,
of facts which should be brought to the attention of various levels of management who use them to
take suitable action”. The process of providing information to the management is known as
management reporting.

179. What are the Objectives of management Reporting?

 To obtain the required information relating to the business to discharge its managerial function
efficiently and effectively.
 To ensure the operational efficiency of the concern.
 To facilitate the maximum utilization of resources.
 Improving discipline and morale.

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 To help the management for effective decision making.

180. What are the Essentials of good reporting system?

 Proper form
 Contents
 Accuracy
 Comparability
 Consistency
 Simplicity
 Cost-Benefit analysis
 Controllability
 Flexibility
181. Give the Classification of reporting.
Basically, there are two ways to report to the management. They are
a. Oral Report
b. Written Reports
182. List out the categories of written reports.
The written reports may be classified in to number of ways.
i. According to object or purposes:
a. External Reports
b. Internal Reports
ii. According to period:
a. Routine reports
b. Special reports
iii. According to functions:
a. Operating reports
b. Financial reports
183. What is meant by External Reports?
 These reports prepared for persons outside the business such as Government, Shareholders, Bankers,
investors and financial institutions etc.,
 External reports usually represent published annual reports.

184. What is meant by Internal Reports?

 Internal reports are those which are prepared for internal uses of different levels of management.
These reports are not meant for disclosure to those who are outsiders to the business. They do not
have to comply with any statutory requirements.

185. What is value engineering? [Dec’04]

It is a special type of cost reduction and product improved technique.

186. What are the objectives of value engineering?

 Modify and improve product design
 Reduce the product cost
 Increase the profit
 Simplify the product

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187. What are the uses of value of engineering?
 It prevents over design
 It increases the profits
 Job satisfaction to the employees.

188. What is value analysis?

Value analysis is applied to the existing product with a view to improve its value.

189. What is Quality circle?

Quality circle to improve the productivity and quality, everyone in the organization, the circles
present the solutions to the top management.

190. What are the advantages of quality circles?

 Increases productivity
 Reduction of costs
 Reduction of wastes
 Increases the self confidence and job satisfaction

191. What is CAD?

 Computer aided design is CAD. With the use of computer, creation, modification, analysis and
optimization of designs are done for productivity.

192. What are the steps in value engineering?

 Blast
 Create
 Refine
193. What is Gantt chart?
 Gantt chart involves the representation of work progress over a period of time in the form of bar chart.
194. What is meant by operations management? (Nov/Dec 2007)
 Operation management refers to the activities necessary to produce and deliver a service as well as
a physical product.
195. What are the natures of management control?
The natures of management control are
 Universal
 Closely related to planning
 Continuing activity
 Forward looking process
 Action oriented process
 Process of influence

196. What is Ethno Centric Organization? May 2008

 The management orientation and managerial activities operations are based on that of the parent
company. This type of management may not be workable in all types of environment.
197. What is meant by performance appraisal? [Dec 2007, Dec 2016, Dec 2017, May 2018]
 Performance appraisal evaluates the performance of worker and also his potential for
development.
UNIT –V CONTROLLING
Prepared By, S.BARATH, AP / MCA, 4213-KCET Page 66