Ch8 controlling class 12 business studies
- 2. CONTROLLING • Controlling means ensuring that activities in an organisation are performed as per the plans. • Controlling also ensures that an organisation’s resources are being used effectively and efficiently for the achievement of predetermined goals. • Controlling is a goal-oriented function. • Controlling function of a manager is a pervasive function.
- 5. IMPORTANCE LIMITATIONS •Accomplishing organisational goals:- guides the organisation and keeps it on the right track so that organisational goals might be achieved. •Judging accuracy of standards:-to verify whether the standards set are accurate and objective. •It helps to use resources effectively by reducing wastage & spoilage of resources. •It helps to motivate employees because a good control system sets a standard . •Controlling creates an atmosphere to build good order & discipline. •It facilitates coordination to achieve organizational goals. •Difficult to set quantitative standard- All standards cannot be defined in quantitative terms. Ex- employee morale & Job satisfaction. •Organization cannot have control on external factors such as Govt Policy & Technological change. • The employees are resistant to accept any new changes (EX- Setting CCTV cameras in office will not be accepted by employees) •Controlling is very costly & involves lot of time.
- 6. RELATIONSHIP BETWEEN PLANNING AND CONTROLLING • Planning is the first step to everything, it helps in controlling- planning is a base – basis to controlling. • Planning is done to set standard, when there is no planning there is no controlling. • Planning is a mindful process it helps to take action but controlling checks if actions are achieved. • Planning should be done based on facts & information but controlling makes it effective. • Planning & Controlling are inseparable twins of management.
- 7. PROCESS OF CONTROLLING (CONTROLLING PROCESS) STEP1 • SETTING PERFORMANCE STANDARDS STEP2 • MEASUREMENT OF ACTUAL PERFORMANCE STEP3 • COMPARING ACTUAL PERFORMANCE WITH STANDARDS STEP4 ANALYZING DEVIATION STEP5 TAKING CORRECTIVE ACTION
- 8. CONTROLLING PROCESS WITH AN EXAMPLE OF CADBURY CHOCOLATE • STEP1-SETTING PERFORMANCE STANDARDS- Cadbury wants to produce 10,000 pieces of Dairy milk chocolates within 1day. • STEP2-MEASUREMENT OF ACTUAL PERFORMANCE- The production department produces 8000 chocolates within 1 day. • STEP3-COMPARING ACTUAL PERFORMANCE WITH STANDARDS – The actual target was 10000pc but the production department only produced 8000pc. • STEP4-ANALYZING DEVIATION – The production manager needs to understand why there is shortage of 2000. • STEP5-TAKING CORRECTIVE ACTION- The production manager finds out that there was a machinery breakdown hence the production was delayed, hence the old machinery was repaired & employees worked Overtime to fix it.
- 9. TECHNIQUES OF MANAGERIAL CONTROLLING TRADITIONAL Used by companies for a long time -Personal observation -Statistical reports -Break-even analysis -Budget control MODERN Recent ideas & techniques. These are new ways to control the organization -Return on Investment -Ratio Analysis -Responsibility Accounting. -Management Information System. -PERT & CPM
- 10. TRADITIONAL TECHNIQUES 1. PERSONAL OBERVATION 2. STATISTICAL REPORTS •Helps the manager to collect first hand information. •The manager directly observes the work performed by the sub- ordinates. •It also creates a pressure on the employees to perform well as they are being observed •Statistical analysis in the form of averages, percentages, ratios. •It is used to present useful information to the managers. •The information is presented in the form of charts, graphs, tables, etc., helps the managers to analyse data. •Ex- 2016 SALES was 20% & 2018 sales was 18% It can be observed that sales has dropped hence control measures should be taken to increase sales.
- 11. TRADITIONAL TECHNIQUES 3.Break-even analysis 4. Budget control •Is a technique used by managers to study the relationship between costs, volume & profits. •Break even means a no profit no loss situation. •It helps the manager to track the profit & sales & control the activities. •Ex- If Bata company incurs a cost of 100000 rs to manufacture leather shoes and they price each shoes at 1000 rs, then they need to sell 100shoes to earn back 1lakh rs. When the company sells its 100th shoes it makes 1lk however it is a no profit no loss situation. is a technique of control in which all operations are planned in advance in the form of budgets . A budget is an estimate of expense and income. It can be used to compare actual results & budget •Sales Budget: A statement of what an organisation expects to sell in terms of quantity as well as value •Production Budget: A statement of what an organisation plans to produce in the budgeted period • Material Budget: A statement of estimated quantity and cost of materials required for production • Cash Budget: Anticipated cash inflows and outflows for the budgeted period •Capital Budget: Estimated spending on major long-term assets like new factory or major equipment
- 12. MODERN TECHNIQUES 1. RETURN ON INVESTMENT 2. RATIO ANALYSIS Used to calculate how much profit/return has been achieved out of the capital invested by the organization. It can be used to measure the performance of an organisation or of its individual departments or divisions. refers to analysis of financial statements through computation of ratios. •Liquidity Ratios:-ability of the business to pay the amount due to its stakeholders. •Solvency Ratios ability of a business to service its indebtedness. •Profitability Ratios: analyse the profitability position of a business. •Turnover Ratios: Turnover ratios are calculated to determine the efficiency of operations based on effective utilisation of resources
- 13. MODERN TECHNIQUES 3. RESPONSIBILITY ACCOUNTING. 4. MANAGEMENT INFORMATION SYSTEM a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘Responsibility Centres’. The head of the centre is responsible for achieving the target set for his centre. •Cost Centre- Cost incurred in the centre. Ex- production dept. •Revenue Centre- responsible for generation of revenue/income, ex- marketing. •Profit Centre- is responsible for both revenues and costs •Investment Centre- is responsible not only for profits but also for investments made in the centre in the form of assets Is a computer-based information system that provides information and support for managerial decision-making. MIS provides the information to the managers in the form of data at the right time so that appropriate corrective action may be taken. ADVANTAGES •Collection , management of data at different levels. •Supports planning, decision-making And controlling. •Cost effectiveness •Important information are provided by saving time.
- 14. 5. MANAGEMENT AUDIT is a process of judging the overall performance of the management . It checks how efficient & effective the management is. It helps to improve the policies of the management. ADVANTAGES- • It identifies the defects in the performance of management functions. •It helps in improving coordination among the functions of various departments. •Helps to bring changes in policies according to changes in environment. •The continuous monitoring of the performance of management helps in improving control system.
- 15. Modern Techniques – 5) PERT & CPM PERT and CPM:- Programme Evaluation and Review Technique & Critical Path Method are techniques used in both planning and controlling. It is used to calculate the total expected time needed to complete a project. This method helps to identify if there are any problems during the project. It is used in areas like construction projects, aircraft manufacture, ship building etc. STEPS-(i) The project is first divided into various activities. (ii) A network diagram is prepared showing activities from start to end, (iii)Time to be taken for each activity. PERT prepares three time estimates (i) Optimistic (shortest time) (ii) Most likely time & (iii) Pessimistic (longest time). In CPM, only one time estimate is prepared & shows the cost estimates for completing the project. • The most critical path in the network is the longest path. • If required, necessary changes are made in the plan for completing the project on time.
- 16. MANAGEMENT INFORMATION SYSTEM (MIS) •is a computer based information system which provides accurate, timely and up-to-date information to the managers for taking various managerial decisions. • It provides timely information to the managers so that they can take appropriate corrective measures in case of deviations from standards. ADVANTAGES- (a) It provides only relevant information to the managers. (b) It facilitates collection and management of information at different levels and departments of the organisation. (c) It helps in planning, controlling and decision making at all levels of an organisation. (d) It helps in improving the quality of information. (e) It ensures cost effectiveness by providing all important information to the management in time.
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