Unit v

Unit v

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  UNIT V CONTROLLING DEFINITION Control is the process through which managers assure that actual activities conform to planned activities. In the words of Koontz and O'Donnell - "Managerial control implies measurement of accomplishment against the standard and the correction of deviations to assure attainment of objectives according to plans." Nature & Purpose of Control • Control is an essential function of management • Control is an ongoing process • Control is forward – working because pas cannot be controlled • Control involves measurement • The essence of control is action • Control is an integrated system CONTROL PROCESS The basic control process involves mainly these steps as shown in Figure a) The Establishment of Standards: Because plans are the yardsticks against which controls must be revised, it follows logically that the first step in the control process would be to accomplish plans. Plans can be considered as the criterion or the standards against which we compare the actual performance in order to figure out the deviations. b) Measurement of Performance: The measurement of performance against standards should be on a forward looking basis so that deviations may be detected in advance by appropriate actions. The degree of difficulty in measuring various types of organizational performance, of course, is determined primarily by the activity being measured c) Comparing Measured Performance to Stated Standards: The performance evaluated can be for the organization as a whole or for some individuals working within the organization. In essence, standards are the yardsticks that determine whether organizational performance is adequate or inadequate. d) Taking Corrective Actions: Corrective action is managerial activity aimed at bringing organizational performance up to the level of performance standards. In other words, corrective action focuses on correcting organizational mistakes that hinder organizational performance BARRIERS FOR CONTROLLING 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
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  control. • Control activitiescan 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. REQUIREMENTS FOR EFFECTIVE CONTROL The requirements for effective control are a) Control should be tailored to plans and positions This means that, all control techniques and systems should reflect the plans they are designed to follow. b) Control must be tailored to individual managers and their responsibilities This means that controls must be tailored to the personality of individual managers. c) Control should point up exceptions as critical points This is because by concentration on exceptions from planned performance, controls based on the time honored exception principle allow managers to detect those places where their attention is required and should be given. d) Control should be objective This is because when controls are subjective, a manager’s personality may influence judgments of performance inaccuracy. e) Control should be flexible This means that controls should remain workable in the case of changed plans, unforeseen circumstances, or outsight failures.Much flexibility in control can be provided by having alternative plans for various probable situations. TYPES OF CONTROL SYSTEM
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  BUDGETARY CONTROL Definition: BudgetaryControl is defined as "the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision. CLASSIFICATION OF BUDGETS Budgets may be classified on the following bases – a) BASED ON TIME PERIOD: (i) Long Term Budget Budgets which are prepared for periods longer than a year are called LongTerm Budgets. Eg: Capital Expenditure Budget and R&D Budget. (ii) Short Term Budget Budgets which are prepared for periods less than a year are known as ShortTerm Budgets Eg: Cash Budget. b) BASED ON CONDITION: (i) Basic Budget A Budget, which remains unaltered over a long period of time, is called Basic Budget. (ii) Current Budget A Budget, which is established for use over a short period of time and is related to the current conditions, is called Current Budget. c) BASED ON CAPACITY: (i) Fixed Budget It is a Budget designed to remain unchanged irrespective of the level of activity actually attained. (ii) Flexible Budget It is a Budget, which by recognizing the difference between fixed, semi variable and variable costs is designed to change in relation to level of activity attained. d) BASED ON COVERAGE: (i) Functional Budget Budgets, which relate to the individual functions in an organization, are known as Functional Budgets, e.g. purchase Budget, Sales Budget, Production Budget, plant Utilization Budget and Cash Budget. (ii) Master Budget It is a consolidated summary of the various functional budgets. It serves as the basis upon which budgeted Profit & Loss Account and forecasted Balance Sheet are built up. BUDGETARY CONTROL TECHNIQUES The various types of budgets are as follows i) Revenue and Expense Budgets: The most common budgets spell out plans for revenues and operating expenses in rupee terms. The most basic of revenue budget is the sales budget which is a formal and detailed expression of the sales forecast. ii) Time, Space, Material, and Product Budgets:
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  Many budgets arebetter expressed in quantities rather than in monetary terms. e.g. direct-labor-hours, machine-hours, units of materials, square feet allocated, and units produced. The Rupee cost would not accurately measure the resources used or the results intended. iii) Capital Expenditure Budgets: Capital expenditure budgets outline specifically capital expenditures for plant, machinery, equipment, inventories, and other items. iv) Cash Budgets: The cash budget is simply a forecast of cash receipts and disbursements against which actual cash "experience" is measured. v) Variable Budget: The variable budget is based on an analysis of expense items to determine how individual costs should vary with volume of output. Some costs do not vary with volume, particularly in so short a period as 1 month, 6 months, or a year. vi) Zero Based Budget: The idea behind this technique is to divide enterprise programs into "packages" composed of goals, activities, and needed resources and then to calculate costs for each package from the ground up. NON-BUDGETARY CONTROL TECHNIQUES There are, of course, many traditional control devices not connected with budgets, although some may be related to, and used with, budgetary controls. Among the most important of these are: statistical data, special reports and analysis, analysis of break- even points, the operational audit, and the personal observation. i) Statistical data: Statistical analyses of innumerable aspects of a business operation and the clear presentation of statistical data, whether of a historical or forecast nature are, of course, important to control. Some managers can readily interpret tabular statistical data, but most managers prefer presentation of the data on charts. ii) Break- even point analysis: An interesting control device is the break even chart. This chart depicts the relationship of sales and expenses in such a way as to show at what volume revenues exactly cover expenses. iii) Operational audit: Another effective tool of managerial control is the internal audit or, as it is now coming to be called, the operational audit. Operational 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 a business. iv) Personal observation: In any preoccupation with the devices of managerial control, one should never overlook the importance of control through personal observation. v) PERT: The Program (or Project) Evaluation and Review Technique, commonly abbreviated PERT, is a is a method to analyze the involved tasks in completing a given project, especially the time needed to complete each task, and identifying the minimum time needed to complete the total project. vi) GANTT CHART: A Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the
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  start and finishdates of the terminal elements and summary elements of a project. Terminal elements and summary elements comprise the work breakdown structure of the project. Some Gantt charts also show the dependency (i.e., precedence network) relationships between activities. PRODUCTIVITY Productivity refers to the ratio between the output from production processes to its input. Productivity may be conceived of as a measure of the technical or engineering efficiency of production. As such quantitative measures of input, and sometimes output, are emphasized. COST CONTROL Cost control is the measure taken by management to assure that the cost objectives set down in the planning stage are attained and to assure that all segments of the organization function in a manner consistent with its policies. Steps involved in designing process of cost control system: • Establishing norms: To exercise cost control it is essential to establish norms, targets or parameters which may serve as yardsticks to achieve the ultimate objective. These standards, norms or targets may be set on the basis of research, study or past actual. • Appraisal: The actual results are compared with the set norms to ascertain the degree of utilization of men, machines and materials. The deviations are analyzed so as to arrive at the causes which are controllable and uncontrollable. • Corrective measures: The variances are reviewed and remedial measures or revision of targets, norms, standards etc., as required are taken. PURCHASE CONTROL Purchase control is an element of material control. Material procurement is known as the purchase function. The functional responsibility of purchasing is that of the purchase manager or the purchaser. Purchasing is an important function of materials management because in purchase of materials, a substantial portion of the company's finance is committed which affects cash flow position of the company. Success of a business is to a large extent influenced by the efficiency of its purchase organization. QUALITY CONTROL Quality control refers to the technical process that gathers, examines, analyze & report the progress of the project & conformance with the performance requirements The steps involved in quality control process are 1) Determine what parameter is to be controlled. 2) Establish its criticality and whether you need to control before, during or after results are produced. 3) Establish a specification for the parameter to be controlled which provides limits of acceptability and units of measure. 4) Produce plans for control which specify the means by which the characteristics will be achieved and variation detected and removed. 5) Organize resources to implement the plans for quality control. 6) Install a sensor at an appropriate point in the process to sense variance from
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  specification. 7) Collect andtransmit data to a place for analysis. 8) Verify the results and diagnose the cause of variance. 9) Propose remedies and decide on the action needed to restore the status quo. 10) Take the agreed action and check that the variance has been corrected. PLANNING OPERATIONS An operational planning is a subset of strategic work plan. It describes short-term ways of achieving milestones and explains how, or what portion of, a strategic plan will be put into operation during a given operational period, in the case of commercial application, a fiscal year or another given budgetary term. An operational plan is the basis for, and justification of an annual operating budget request. Therefore, a five-year strategic plan would need five operational plans funded by five operating budgets. Operational plans should establish the activities and budgets for each part of the organization for the next 1 – 3 years. They link the strategic plan with the activities the organization will deliver and the resources required to deliver them. An operational plan draws directly from agency and program strategic plans to describe agency and program missions and goals, program objectives, and program activities. Like a strategic plan, an operational plan addresses four questions: • Where are we now? • Where do we want to be? • How do we get there? • How do we measure our progress? The OP is both the first and the last step in preparing an operating budget request. As the first step, the OP provides a plan for resource allocation; as the last step, the OP may be modified to reflect policy decisions or financial changes made during the budget development process. Operational plans should be prepared by the people who will be involved in implementation. There is often a need for significant cross-departmental dialogue as plans created by one part of the organization inevitably have implications for other parts. Operational plans should contain: • clear objectives • activities to be delivered • quality standards • desired outcomes • staffing and resource requirements • implementation timetables • a process for monitoring progress.