Controlling

Controlling is one of the important functions of a manager. In order to seek

planned results from the subordinates, a manager needs to exercise effective
control over the activities of the subordinates. In other words, the meaning of
controlling function can be defined as ensuring that activities in an organization are
performed as per the plans. Controlling also ensures that an organization’s
resources are being used effectively & efficiently for the achievement of
predetermined goals.

Control is a primary goal-oriented function of management in an organisation. It

is a process of comparing the actual performance with the set standards of the
company to ensure that activities are performed according to the plans and if not
then taking corrective action.

 Controlling is a goal-oriented function.

 It is a primary function of every manager.

 Controlling the function of a manager is a pervasive function.

Importance of Controlling
1. Accomplishing Organizational Goals:-The controlling function is an
accomplishment of measures that further makes progress towards the organizational
goals & brings to light the deviations, & indicates corrective action. Therefore it
helps in guiding the organizational goals which can be achieved by performing a
controlling function.

2. Judging Accuracy of Standards:-A good control system enables management to

verify whether the standards set are accurate & objective. The efficient control
system also helps in keeping careful and progress check on the changes which help in
taking the major place in the organization & in the environment and also helps to
review & revise the standards in light of such changes.

3. Making Efficient use of Resources:-Another important function of controlling is

that in this, each activity is performed in such manner so an in accordance with
predetermined standards & norms so as to ensure that the resources are used in the
most effective & efficient manner for the further availability of resources.
4. Improving Employee Motivation:-Another important function is that
controlling help in accommodating a good control system which ensures that each
employee knows well in advance what they expect & what are the standards of
performance on the basis of which they will be appraised. Therefore it helps in
motivating and increasing their potential so to make them & helps them to give better
performance.

5. Ensuring Order & Discipline:-Controlling creates an atmosphere of order &

discipline in the organization which helps to minimize dishonest behavior on the part
of the employees. It keeps a close check on the activities of employees and the
company can be able to track and find out the dishonest employees by
using computer monitoring as a part of their control system.

6. Facilitating Coordination in Action:-The last important function of controlling

is that each department & employee is governed by such pre-determined standards
and goals which are well versed and coordinated with one another. This ensures that
overall organizational objectives are accomplished in an overall manner.

Features of Controlling
 An effective control system has the following features:

 It helps in achieving organizational goals.

 Facilitates optimum utilization of resources.

 It evaluates the accuracy of the standard.

 It also sets discipline and order.

 Motivates the employees and boosts employee morale.

 Ensures future planning by revising standards.

 Improves overall performance of an organization.

 It also minimises errors.

Process of Controlling
Control process involves the following steps as shown in the figure:

 Establishing standards: This means setting up of the target which needs to

be achieved to meet organisational goals eventually. Standards indicate the
criteria of performance.

Control standards are categorized as quantitative and qualitative

standards. Quantitative standards are expressed in terms of money. Qualitative
standards, on the other hand, includes intangible items.

 Measurement of actual performance: The actual performance of the

employee is measured against the target. With the increasing levels of
management, the measurement of performance becomes difficult.

 Comparison of actual performance with the standard: This compares the

degree of difference between the actual performance and the standard.

 Taking corrective actions: It is initiated by the manager who corrects any

defects in actual performance.

Controlling process thus regulates companies’ activities so that actual performance

conforms to the standard plan. An effective control system enables managers to
avoid circumstances which cause the company’s loss.
Relationship between Planning and Controlling

Planning and Controlling are inter-related to each other. Planning is a blueprint of

the course of action to be followed in the future. It is also a mental exercise that
requires imagination, foresight and sound judgment. It is thinking before doing. It
is a preparatory step, and it refers to detailed programs regarding the future course
of action. In fact, it is the basic management functions that involve forecasting,
laying down objectives, analyzing the different courses of action, and deciding the
best alternative of those to perform different managerial functions to achieve pre-
determined goals. Thus, it is a continuous process that involves decision-making,
i.e., deciding the course of action for framing and achieving objectives.
Controlling means comparing the actual performance of an organisation with the
planned performance and taking corrective actions if the actual performance does
not match the planned performance. Controlling cannot prevent the deviation in
actual and planned performance; however, it can minimise the deviations by taking
corrective actions and decisions that can reduce their recurrence.

Relationship between Planning and Controlling

Planning and controlling are like two sides of a coin and cannot be separated from
each other. The relationship between planning and controlling is as follows:

1. Both Planning and Controlling are Interrelated and Interdependent:-

Planning and controlling are interdependent as planning is useful only when the
controlling function is performed, and the controlling function starts and ends with
a new plan.
Controlling is based on planning. If an organisation does not plan its objectives
in advance, it will not have any basis or planned performance to compare the actual
performance with. Therefore, to perform the controlling process it is essential to
first perform the planning process. Planning without controlling is useless. If an
organisation plans its objectives and does not compare the actual performance with
the pre-determined goals or objectives, then there is no use to perform the planning
process. After comparing the actual performance with the planned performance an
organisation can make new plans or revise the existing plans for better
performance. Therefore, controlling is essential to fulfil the pre-determined plans.

Planning without control is meaningless and control without planning is blind.

2. Planning is Prescriptive and Controlling is Evaluating:-As the planning

process prescribes a firm the course of action, it should take to accomplish the
organisational objectives, it is prescriptive in nature. However, controlling
evaluates the actual performance of the organisation and checks whether or not the
actual performance is up to the desired goals of the firm. Therefore, controlling is
an evaluating process.

Hence, it can be said that the controlling process starts where the planning
process ends.

3. Both are Backward-looking as well as Forward-looking Functions:-It is

usually said that planning is a forward-looking function, as it provides a plan for
the future and is based on future forecast conditions, and controlling is a backward-
looking function, as it measures the actual performance of the organisation and
compares it with the pre-determined or fixed standards. However, planning is also
a backward-looking function because the plans of an organisation are prepared
after taking past experiences into consideration. Similarly, controlling is also a
forward-looking function of management because its basic aim is to improve the
future performance of an organisation by taking past experience into
consideration.

Therefore, planning and controlling are both forward-looking as well as

backward looking.
Types of control
1. Feedback Control: This process involves collecting information about a
finished task, assessing that information and improvising the same type of
tasks in the future.

2. Concurrent control: It is also called real-time control. It checks any

problem and examines it to take action before any loss is incurred. Example:
control chart.

3. Predictive/ feedforward control: This type of control helps to foresee

problem ahead of occurrence. Therefore action can be taken before such a
circumstance arises.

Advantages of Controlling
 Accomplishment of Objectives on Time:-The first and foremost advantage
of having a control mechanism in place is that it leads to accomplishments of
objectives set by the planning department of the company on time. In simple
words just like in case of highway if you do not apply brakes you can go
ahead of your destination or if you are driving too slowly then you will reach
your destination late in the same way control ensures that company achieves
its objectives timely that is neither too fast which leaves scope for errors nor
too slow.
 Efficient Use of Resources:-It ensures that resources of the company are
used efficiently because it is the control function which seeks to reduce
wastage of resources by ensuring that all activities are done according to set
standard or norms which can go a long way in ensuring that company
minimizes the losses from wastage of resources.
 Timely Correction of Deviations:-In case of a highway if you take the
wrong intersection and go ahead 200 miles and then you realize the mistake
than it is of no use, however after going 10 or 20 miles in the wrong
direction you check Google maps and realize the mistake then it can be
timely corrected. In the same way, if controlling is done properly than minor
deviation can be easily corrected on time by the management thus ensuring
 that minor deviation does not become major and puts the whole company in
the jeopardy.

Disadvantages of Controlling
 Difficulty in Measuring Qualitative Factors:-The first and foremost
limitation of controlling is that it measures actual performance with the
planned performance which is in quantitative terms and thus it cannot be
applied effectively when you have to measure and control the performance
of qualitative variables and goals. Hence for example factors like human
emotions, the motivation level of employees, satisfaction level of workers,
etc. are beyond the purview of control function.
 No control over External Factors:-Controlling works best when
management has to control only internal factors but if one takes into account
external factors like government policies, technological factors, change in
consumer taste and so on, then one can say that controlling cannot be a
success because controlling assumes that external factors will remain same
or won’t change in a big way.
 Employees Dissatisfaction:-People who bear the most brunt of control
function are the employees because controlling is mostly applied on the way
employees of the company work whether it’s related to their attendance or
monitoring their work through cameras or reducing their rest time and so on.
In simple words, too much of controlling can lead to employee
dissatisfaction which in turn can lead to lower morale of the employees of
the company which in the long run can do more harm than good as far as the
company is concerned.

Features of a Good Control System

(i) Suitability:-A good control system is one which is most suitable (or
appropriate) to the needs of the organization. The significance of the notion of the
suitability of the control system could be highlighted with reference to the
following aspects of discussion:

(1) A control system which is appropriate for an industrial enterprise; might not be
suitable to a commercial one.
(2) A control system which is appropriate for a large scale organization; might be
wholly unsuitable to a small scale enterprise.

(3) A control system which is appropriate for the upper levels of management of
an organization; might not meet the requirements of controlling at lower levels of
management, in the same organization.

(ii) Objectivity:-A good control system must be objective i.e. it must be based on
the scientific methods of analysis, and free from the bias, opinions and values of
managers; so far as setting standards of performance and comparison of actual
performance against standards are concerned.

(iii) Numerical expression:-A good control system must be, as far as possible,
numerically expressed – to facilitate its communication and implementations. Even
the qualitative aspects of managing must be ‘reasonably’ quantified to give
meaning and precision to those aspects of controlling; which otherwise are difficult
to measure and control.

(iv) Based on enterprise goals, policies and strategies:-A good control system
must be based on the fundamental goals, policies and strategies of the enterprise;
so that the working of the system makes substantial contribution to the attainment
of enterprise objectives.

(v) Economical:-A good control system is one which is economical in its

designing and implementation. It should be a worthwhile investment of the
precious organizational resources. Applying the usual ‘cost-benefit formula’ to the
working of the control system, a good control system is one whose benefits exceed
the costs involved in its designing and enforcement.

(vi) Simplicity:-A good control system must possess simplicity; as greatest things
in the world are always the simplest.

(vii) Flexibility:-A good control system must be flexible, to retain its validity
despite changed circumstances. Flexibility, into a controlling system, could be
infused through making a provision for alternative standards of performance – each
alternative to be valid, under a different set of assumed circumstances.
(viii) Forward –looking:-A good control system must be forward looking. It must
anticipate deviations and undertake preventive remedial steps, before deviations
actually take place.

(xi) Self-controlling system:-An ideal control system is one which does not
impose itself on others; rather people prefer to be regulated by it on the basis of the
notion of ‘self-control’. A self-controlling system is facilitated; when standards of
performance are jointly agreed on between superiors and subordinates- through the
process of mutual goal-setting.

CONTROL BY EXCEPTION

Control by exception is an important principle of organisational control. This

principle holds that only significant deviations (exceptions) from standards of
performance should be brought to the managements attention. If actual
performance is according to planned performance (i.e., standards already laid
down), it need not be brought to the attention of the concerned managers as no
follow-up action is necessary. But if there is a major deviation from the standard, it
should be reported to the manager.

For example, a manager establishes a quality control standard which says that five
defects per 100 units produced are permissible. Under the management by
exception principle, only significant deviations from this standard-six or more
defects per 100 units in this case should be brought to the notice of the manager.

The exception principle has been devised to conserve managerial time, effort and
talent and apply these in more important areas. It is a technique of separating
important information from the unimportant information. Only such information
which is critical for management control is sent to the management. This facilitates
the installing of an effective control system.

Control by exception recognises an old saying that an attempt to control everything

may end up in controlling nothing. An executive who wants to have an eye on each
and every minor operation will prove to be ineffective. He will not be able to
devote much time to the critical problems. The principle of control by exception
suggests that manager's attention should be drawn only when there are significant
deviations in performance in the critical areas of business. It will ensure better
control in the organisation also facilitate delegation of authority.

The benefits of control by exception are as follows:

(i) It helps the managers to concentrate better on exceptional or critical matters.

(ii) It saves the valuable time of managers which could be taken in dealing with
minor problems.

(iii) It helps the manager in taking quick decisions whenever required.

(iv) It facilitates delegation of authority for routine work to the subordinates.

(v) It allows the subordinates to take decisions on routine matters. Thus, it can be
used to develop executives for the future.

Techniques of Managerial control

Control is a fundamental managerial function. Managerial control regulates the
organizational activities. It compares the actual performance and expected
organizational standards and goals. For deviation in performance between the
actual and expected performance, it ensures that necessary corrective action is
taken. There are various techniques of managerial control which can be classified
into two broad categories namely-

 Traditional techniques

 Modern techniques

Traditional Techniques of Managerial Control

Traditional techniques are those which have been used by the companies for a long
time now. These include:

1. Personal Observation:-This is the most traditional method of control. Personal

observation is one of those techniques which enables the manager to collect the
information as first-hand information. It also creates a phenomenon of
psychological pressure on the employees to perform in such a manner so as to
achieve well their objectives as they are aware that they are being observed
personally on their job. However, it is a very time-consuming exercise & cannot
effectively be used for all kinds of jobs. Browse more Topics under Controlling

 Meaning of Controlling

 Responsibility Accounting, Management Audit and Pert and CPM

2. Statistical Reports-Statistical reports can be defined as an overall analysis of

reports and data which is used in the form of averages, percentage, ratios,
correlation, etc., present useful information to the managers regarding the
performance of the organization in various areas. This type of useful information
when presented in the various forms like charts, graphs, tables, etc., enables the
managers to read them more easily & allow a comparison to be made with
performance in previous periods & also with the benchmarks.

3. Break-even Analysis:-Breakeven analysis is a technique used by managers to

study the relationship between costs, volume & profits. It determines the overall
picture of probable profit & losses at different levels of activity while analyzing the
overall position.

The sales volume at which there is no profit, no loss is known as the breakeven
point. There is no profit or no loss. Breakeven point can be calculated with the help
of the following formula:

Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit

4. Budgetary Control:-Budgetary control can be defined as such technique of

managerial control in which all operations which are necessary to be performed are
executed in such a manner so as to perform and plan in advance in the form of
budgets & actual results are compared with budgetary standards. Therefore, the
budget can be defined as a quantitative statement prepared for a definite future
period of time for the purpose of obtaining a given objective. It is also a statement
which reflects the policy of that particular period. The common types of budgets
used by an organization.

Some of the types of budgets prepared by an organisation are as follows,

 Sales budget: A statement of what an organization expects to sell in terms

of quantity as well as value
  Production budget: A statement of what an organization plans to produce
in the budgeted period

 Material budget: A statement of estimated quantity & cost of materials

required for production

 Cash budget: Anticipated cash inflows & outflows for the budgeted period

 Capital budget: Estimated spending on major long-term assets like a new

factory or major equipment

 Research & development budget: Estimated spending for the development

or refinement of products & processes

5.Budget Summaries:-A budget summary is resume of all individual budgets of

the organisation. It overall business loans and identifies limitations and
deficiencies. It helps the top management in visualizing how the organisation is
functioning in the direction of its objectives. Budget summaries must be
accompanied by the reports of actual performance of various departments. This
will help in comparing the actual performance with the budget targets and taking
corrective actions in case of wide deviations.

6.Profit and Loss Control:-Profit and Loss statement shows all the revenue,
expenses and income for a given period. This is the most widely used means of
control of overall performance of an enterprise. The control. This technique can
prove more effective if it is used with the profit and loss.For better results, the
management may supplement profit and loss control with budgetary statements of
the previous year. By highlighting increases or decreases of various expenditures
and incomes from year to year, these statements help the management in
controlling certain expenditures and emphasizing generation of revenues.

7. QUALITY CONTROL:- The 'term' quality refers to the degree of excellence

of a product. In other words, the quality of a product means the degree of
excellence of the characteristics it possesses. It is a relative term, like high, low, or
inferior grade or in terms of conformity with certain specifications. The word
'control' is used to denote the process of setting standards, measuring the
performance and taking corrective action "Quality Control deals with the
determination of quality standards and measurement and control necessary to see
that the established standards are maintained, and practised".

Quality control refers to the systematic control of various factors that affect the
quality of the end product. The quality of the end product depends on the quality of
raw materials used, the manufacturing tools and equipment, the degree of skill and
proficiency of the workers, working conditions, etc. The purpose of quality control
is to regulate these factors to the extent that the end product conforms to the
predetermined standards.

A good quality control programme involves the following steps:

(i) Establishing the standards and specifications of products on the basis of the
preferences of the customers and the cost of manufacture.
(ii) Design and use of measures for making production conform to the standards.
(iii) Selection of the process of manufacture.
(iv) Establishing a logical inspection plan and collection and analysis of data It also
includes evaluation of methods and processes of manufacture.
(v) Coordination of activities to improve the quality.

Significance of Quality Control

(i) Quality control brings quality consciousness in the enterprise which

discouragesthe manufacture or production of sub-standard products.
(ii) Quality control ensures better utilisation of resources.
(iii) Quality control helps in providing greater satisfaction to customers. If the
customers are satisfied, the sales are increased.
(iv) Since there is less waste, the cost of production is reduced.
(v) The morale of the employees is increased. They feel that they are working in an
enterprise producing goods of higher quality.
(vi) Quality control creates a good public image of the enterprise by helping it to
provide goods and services of the higher quality to the society.
Modern Techniques of Managerial Control

Modern techniques of controlling are those which are of recent origin & are
comparatively new in management literature. These techniques provide a
refreshingly new thinking on the ways in which various aspects of an organization
can be controlled. These include:

1. Return on Investment:-Return on investment (ROI) can be defined as one of

the important and useful techniques. It provides the basics and guides for
measuring whether or not invested capital has been used effectively for generating
a reasonable amount of return. ROI can be used to measure the overall
performance of an organization or of its individual departments or divisions. It can
be calculated as under-Net income before or after tax may be used for making
comparisons. Total investment includes both working as well as fixed capital
invested in the business.

2. Ratio Analysis:-The most commonly used ratios used by organizations can be

classified into the following categories:

 Liquidity ratios

 Solvency ratios

 Profitability ratios

 Turnover ratios

3. Responsibility Accounting:-Responsibility accounting can be defined as a

system of accounting in which overall involvement of different sections, divisions
& departments of an organization are set up as ‘Responsibility centers’. The head
of the center is responsible for achieving the target set for his center.
Responsibility centers may be of the following types:

 Cost center

 Revenue center

 Profit center

 Investment center
4. Management Audit:-Management audit refers to a systematic appraisal of the
overall performance of the management of an organization. The purpose is to
review the efficiency &n effectiveness of management & to improve its
performance in future periods.

Management audit may be defined as a comprehensive and constructive review of

the performance of management team of any organisation. It is an important aid for
evaluation of management techniques and performance. It undertakes a systematic
search of the effectiveness and efficiency of the management. It investigates
formally and in depth the performance of management as contrasted with day-to-
day informal impressions. Management performs many functions like planning,
organising, staffing, directing and controlling. The chief objective of management
audit is to see whether these functions are being performed efficiently or not.
Management audit locates deficiencies in the performance of various functions and
suggests possible improvements. This will help the management in managing the
operations of the enterprise under its control in the most efficient manner.

The scope of management audit is very wide. Economic outlook, adequacy of

organisation structure. Flexibility of planning, reliability of systems of control,
efficiency of communication and motivation, effective utilization of manpower and
equipment, etc. all come under the purview of management audit. The scope of
management audit should be clearly laid before such audit is initiated. The benefits
which the management may derive from the management audit are given below:

(i) It would locate present and potential danger spots.

(ii) It would high possible opportunities.
(iii) It would evaluate the performance of control mechanics.
(iv) It would reduce costs by suggesting how to reduce unnecessary wastes and
losses.
(v) It would review the overall plans and policies of the business.
(vi)It would determine whether or not the enterprise is operating as efficiently as it
should.
(vii) It would detect the cases where organisational policies and procedures are not
dainom being complied with.
(viii) It would evaluate the progress made by the enterprise through the
introducation of new techniques and ideas.
5. Internal Audit:- Internal audit, also called the operation audit, has become one
of the important tools of was limited to the verification of accounting transactions.
But now the scope of internal management control. Internal auditing evolved as a
branch of accounting and its scope auditing has been enlarged and is considered to
be associated closely but objectively with every activity of the enterprise which
contributes to its profitability.

According to Koontz and O' Donnell, Internal auditing in its broadest sense is the
regular and independent appraisal, by a staff of internal auditors, of the accounting,
financial, and other operations of the business. Although limited to the auditing
accounts, in its most useful aspect, internal auditing involves appraisal of
operations generally, weighing actual results in the light of planned results. Thus,
internal auditing control is not only concerned with the effectiveness of the
accounts department, but it also concerns itself with all the departments such as
purchasing, marketing, production and personnel. The functions of internal
auditing control very considerably from organisation to organisation depending
upon its size and nature. However, the internal auditor must be independent of all
those departments which come under his purview.

5. PERT & CPM:-PERT (programmed evaluation & review technique) & CPM
(critical path method) are important network techniques useful in planning &
controlling. These techniques, therefore, help in performing various functions of
management like planning; scheduling & implementing time-bound projects
involving the performance of a variety of complex, diverse & interrelated
activities.

 Programme Evaluation and Review Technique (PERT):-PERT/cost is an

integrated management system designed to provide managers with the
information they need in planning and controlling schedules and costs in
development projects. Thus, PERT/cost system is directed towards the
dynamic management of projects. It specifies techniques and procedures to
assist project managers in:

(i) planning schedules and costs.

(ii) determaining time and cost status.
(iii) forecasting manpower skill requirements.
(iv) predicting schedule slippages and cost overruns.
(v) developing alternate time cost plans.
(vi) allocating resources among tasks.

Applications of PERT

PERT was developed as a research and development planning tool to estimate

limiting of various activities with enough certainty. It is now used by many big
organisations for conducting the initial review of new projects. It helps in planning
the time and resources in case of projects. It can be employed with great advantage
in those cases (e.g., non- repetitive project research and development and defence
project) where a project cannot be easily defined in terms of the resources required.

PERT is employed in the construction of ships, buildings and highways, the

planning and launching of new products, the publications of books and in the
installation and debugging of computer systems. A computer programme is
employed that permits calculations to be made without reference to a flow chart or
diagram.

 Critical Path Method (CPM):-CPM is the most versatile planning and

control technique used in business. It was first employed in U.S.A., in 1958
by the E.I. du Pont de Nemours Company. Unlike PERT, it is applied in
those projects where activity timings are relatively well known. It is used for
planning and controlling the most logical sequence of activities for
accomplishing a project.

Under CPM, the project is analysed into different operations or activities and their
relationships are determined and shown on the network diagram. The network or
flow plan is then used for optimising the use of resources and time. CPM marks
critical activities in a project and concentrates on them. It is based on the
assumption that the expected time is actually the time taken to complete the
project. CPM is suitable for construction projects and plant maintenance. The
application of CPM leads to the following advantages:

(i) It provides an analytical approach to the achievement of project objectives

which are defined clearly.
(ii) It identifies most critical elements and pays more attention on these activities.
(iii) It helps in ascertaining the time schedules.
(iv) It makes use of better and detailed planning.
(v) It assists in avoiding waste of time, energy and money on unimportant
activities.
(vi) It provides a standard method for communicating project plans, schedules and
costs.

Steps in PERT/CPM
The application of network techniques in project management involves the
following steps:
1. Identification of Activities or Events. The first step in the application of
PERT/CPM is identification of all key activities and phases or events necessary for
the completion of project. The term 'activity' may be defined as an operation or a
job to be carried out which consumes time and resources. It is denoted by an arrow
in network diagram. An event may be defined as the beginning or completion of an
activity. It is denoted by a circle in the network diagram. For example, a
construction company having a project for the construction of a two-storeyed
commercial complex can identify the broad activities.

2. Sequencing of Activities and Events. A network diagram is prepared to show

the sequence of activities and events. It has a beginning point and a termination
point for the project. It also depicts a number of paths of activities from beginning
to convenience. It may be noted that some activities have to be undertaken
sequentially while others are to be carried out concurrently.

3. Determination of Estimated Time. For the completion for the project during
the contract period, it is essential to determine the expected time required to
complete each activity. Three estimated of time span for the completion of each
activity are made, viz, (i) optimistic or shortest time, (ii) pessimistic or longest
time, and (iii) normal (most likely) time. These estimated are combined into a
single workable time value known as expected time. The tree estimates of time are
used in PERT because the originator of PERT thought that the estimated time for
an activity is better described by a probability distribution than be a single
estimate.

4. Determination of Critical Path. Under this stage, it is required to identify the

sequence of those activities whose completion is critical for the timely completion
of the project. The line in the network diagram connecting the critical activities
from start to finish of the project is the critical path. Once the critical path is
known, the manger will be in a position to deploy resources more fruitfully, to
troubles early and to apply controls where it is more essential.
There should be no delay in the completion of activities which lie on the critical
path, otherwise the entire project will be delayed. If it is desired to reduce the
completion time of the project, action has to be taken to reduce the completion
time to activities on the critical path. Such an action is known as 'crashing'. More
time, energy and resources have to be devoted to the critical activities. It is also
required to avoid putting pressure on those activities which will not help quick
completion of the project.

5. Modification in Initial Path. The project analysis should not stop after the
critical path has been identified. The potential exists for substantially improving
upon the initial plan. There is sometimes the possibility of resequencing of some
activities that lie along the critical path, resulting in a shorter expected project
completion time.

6. Controlling the Project. In order to control the project, the emphasis has to be
given to the activities along the critical path. If there are delays in these activities,
the completion of entire projects will be delayed. Thus, the consequences will be
serious. However, slippages of activities that are not on the critical path are less
serious. The project manager has to be in constant touch with the persons engaged
on the critical activities. If there have been any difficulties or obstacles, these are to
be removed.

BALANCED SCORE CARD

R.S. Kapalan and D.P. Norton came out with a balanced approach known as
Balanced Score Card to facilitate managers to evaluate the performance of their
firms from complementary perspectives like customers, financial, operations and
organisational. Balanced score card combines both qualitative and quantitative
measures, acknowledges the expectations of different stakeholders and relate an
assessment of performance to choice of strategy. It analyses the performance of a
firm from the following perspectives:

i. Financial Perspective. While evaluating the performance of a company

from the financial angle, its return on investment, economic value added or
other profitability indices are considered. Return on investment is the ratio
between profit and capital employed. Here, the profit may be before or after
tax depending on the purpose of calculation and the capital employed
includes both owned and borrowed. Economic value added is the excess of
net profit after tax over the total cost of capital. It speaks of the maximum
rate of return which a source of finance, say equity, preference shares,
debentures should generate to justify its use in the organisation. To gauge
 the financial health of the organisation, variety of ratios such as profitability,
liquidity, leverage, activity and the like are calculated.
ii. Customers' Perspective. Financial performance of a company rests on
superior performance from the customers' perspective in providing benefits
to them in the form of cheaper, better, more and faster products or services.
In evaluating the firm's strengths and weaknesses from the customers' angle,
its capacity to provide any of the three values in terms of low price, product
differentiation and quick response is considered.
iii. Business and Production Process Perspective. A company's ability to
satisfy customers' perspective is dependent upon company's operations
concerned with product development, demand management order fulfillment
and the like. In order to evaluate company's strengths and weaknesses from
the operational angle, efficiency and effectiveness of cost processes are
considered. The scope for improvement and change warranted for producing
greater customer value is also considered.
iv. Learning and Innovation Perspective. The efficiency and effectiveness of
firm's operations in meeting customers' expectation are dependent upon the
skills, learning and creativity of the organisation. To assess the company's
strengths and weaknesses from the point of view of organisation, company's
ability to learn and change rapidly, and organisational leadership are
considered.