CONTROLLING.pptx

MUHAMMED RASHID
21UGECO23
DEPARTMENT OF ECONOMICS

MEANING
Controlling is a process through which management
ensures that the actual performance conforms to the
plan. It verifies whether activities undertaken agree
with the plan, instructions given and results expected.

"Controlling consists of verifying whether
everything occurs in conformity with the plans
adopted, the instructions issued and the
principles established. It has for his object to
point out weakness and errors in order to
rectify them and prevent recurrence.“
-- Henri Fayol --
"Controlling function leads to goal
achievement, an organisation without effective
control is not likely to reach its goal."
-- Ricky W. Griffin--

1. Establishing standard of performance
 The first step in the process of control is to set a
standard for performance.
 Standards are determined on the basis of objectives
to be attained.
2. Measurement of actual performance
 Once performance standards are set, the next step is
measurement of actual performance. There are several
techniques for measurement of performance.
 These include personal observation, Sample
checking, performance report etc.

3. Compare actual performance with standard
 The third step in control process is the comparison
of actual performance with the standard.
 It reveals the deviations from the standards. If the
performance matches the standard, it may assume that
everything is under control.
4. Analyzing Deviations
 At this stage the extent of the deviation and the
causes are determined.
Deviation means gap between actual performance and
standards. Deviation may be positive or negative.

5. Taking Corrective action
 The last but most important step in the control process is of
taking corrective action.
 Corrective action consists of curative as well as preventive
control measures.

TECHNIQUES OR TOOLS OF MANGERIAL
CONTROL

Managerial control techniques may broadly be classified
into two :-

 TRADITIONAL TECHNIQUES: These are
techniques used by companies for long time these
techniques haven't become obsolete and still being used.
These include -:
1. PERSONAL OBSERVATION
 This is the most traditional method of control.
Personal observation enables the manager to collect first
hand information about the employees.

2. STATISTICAL REPORTS
 Statistical analysis in the form of averages, ratios,
correlations etc. are used to present useful information to
the mangers regarding the performance at various areas
of the organization.
 It provides the information for inter firm comparison
and future decision making.

3. BREAK EVEN ANALYSIS
 Break even analysis is a technique used by managers
to study the relationship between costs volume and
profit (CVP).
 The sales volume at which there is no profit or loss is
known as break-even point .

4. BUDGETARY CONTROL
 A budget is a numerical or quantitative statement
for a definite period of time for the purpose of
obtaining a given objectives.
 Budgetary control is a technique of controlling the
activities of an organization with the help of budgets.
 It involves the comparison of actual performance
with the budgetary standards.

Following are the important types of budgets.
Sales Budget : a statement of what an organization
expects to sell in terms of quatity 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 quality
and cost of materials required for production.
Cash Budget :- Anticipated Cash inflows and
outflows for the budgeted period.

Research and Development Budget: Estimated
spending for the development or refinement of
products and processes.
Capital Budget: Estimated spending on major
long term assets like new factory or major
equipment.

MODERN TECHNIQUES : Modern techniques are of
recent origin and new to management literature. It
include the following
1. RETURN ON INVESTMENT (ROI)
 Return on investment is a yardstick for measuring
the efficiency of the business to earn reasonable amount
of return on capital investment.
 ROI can be used for measuring overall profitability
or performance of the organization or its departments.

2. RATIO ANALYSIS
 A ratio is an arithmetic expression of relationship
between two figures. Ratio analysis refers to analysis of
financial statements through computation of ratios.
Commonly used accounting ratios are:
a) Liquidity Ratios : Liquidity ratios are calculated to
determine short term solvency of business. I.e.. Ability
to meet short term obligation. E.g.:- ccurrent ratio,
quick ratio.

b. Solvency ratios:- Ratios which are calculated to determines the
long term solvency of business are known as solvency ratios. Thus
these ratios determine the ability of a business to service its
indebtedness. E.g. Debt- equity ratio, proprietary ratio, Interest
coverage ratio.
c. Profitability Ratios:- These ratios are calculated to analyses the
profitability in relation to sales or capital investment in business.
E.g.: Gross profit ratio, Net profit ratio, Return on capital
employed.
d. Turn over Ratios/ Activity Ratios:- It is calculated to determine
the efficiency of operation based on effective utilization of
resources. Higher turnover means better utilization of resources.
E.g.: Inventory Turnover Ratios, Stock Turnover ratio, Debtors
Turnover Ratios

3. RESPONSIBILITY ACCOUNTING
 It is a system of accounting in which different sections/
departments/divisions in an organization are taken as
'Responsibility Centre's'.
 The person in charge of a Centre is responsible for achieving the
target fixed. Responsibility Centres are of the following types:
a. Cost Centre/Expense Centre:- Cost Centre is a segment of an
organization in which mangers are held responsible for the cost
incurred in the Centre but not for the revenues
b. Revenue Centre :- Responsible for genarating revanue from
sales .

C. Profit Centre:- A profit Centre is a segment
of an organization whose manger is responsible
for both revenues and costs.
d. Investment Centre:- This Centre is not only
responsible for profit but for investment made in
it in the terms of assets .

4. MANGEMENT AUDIT
 Management Audit refers to systematic
appraisal of the overall performance of the
management of an organization.
 The purpose is to review the efficiency and
effectiveness of management and to improve its
performance in future periods.

5. NETWORK TECHNIQUES
 (PERT & CPM) PERT ( Programme Evaluation and
Review Technique) and CPM (Critical Path method) are
important network techniques useful in planning and
controlling.
 These techniques concentrate on time scheduling and
resource allocation and aim at effective project execution
within the time frame and costs.

6. MANGEMENT INFORMATION SYSTEM
(MIS)
 Management Information System is a computer
based information system that provides information and
support for effective managerial decision making.
 MIS provides the required information to the
mangers at the right time so that appropriate corrective
action may take in case of deviation from standards.

CONTROLLING.pptx

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