UNIT – V

CONTROLLING
System and process of controlling – budgetary and
non-budgetary control techniques – use of
computer & IT in management control –
Productivity problems and management – Control
& Performance – direct & preventive control -
reporting
INTRODUCTION
• Control is the management function that involves monitoring activities to
ensure that they are being accomplished as planned and correcting any
significant deviations.
• An effective control system ensures that activities are completed in ways that
lead to the attainment of the organization’s goals.
• The effectiveness of a control system is determined by how well it facilitates
goal achievement.
• According to 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 ongoing process
• Control involves measurement
• The essence of control is action
• Control is an integrated system
System and process of controlling
The control process is a three-step process:
• Measuring actual performance.
• Comparing actual performance against a standard.
• Taking managerial action to correct deviations or to address inadequate
standards.
System and process of controlling
1st process: Measuring actual performance:
• To determine actual performance, a manager must first get information about
it. Thus, the first step in control is measuring.
• Four common sources of information frequently used to measure actual
performance:
– Personal Observation : Intimate knowledge of the actual activity—
information that is not filtered through others.
• Management By Walking Around (MBWA) When a manager is out in
the work area interacting with employees.
– Statistical Reports : The widespread use of computers has led managers to
rely increasingly on statistical reports for measuring actual performance
– Oral Reports : through conferences, meetings, one-to-one conversations, or
telephone calls.
– Written Reports: This formality also often gives them greater
comprehensiveness and conciseness.
System and process of controlling
Measuring actual 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 is determined primarily by the activity being measured.
• For example, it is far more difficult to measure the performance of highway
maintenance worker than to measure the performance of a student enrolled in
a college level management course.
The Establishment of Standards:
• Profitability standards
• Market position standards
• Productivity standards
• Product leadership standards
• Employee attitude standards
• Social responsibility standards
System and process of controlling
2nd Process : Comparing actual performance against a standard:
• The comparing step determines the variation between actual performance and
the standard.
• Although some variation in performance can be expected in all activities, it’s
critical to determine an acceptable range of variation.
• A standard is the level of activity established to serve as a model for evaluating
organizational performance.
• The performance evaluated can be for the organization as a whole or for some
individuals working within the organization.
3rd Process : Taking managerial action:
• Managers can choose among three possible courses of action:
– Do nothing
– Correct the actual performance
– Revise the standards
System and process of controlling
BARRIERS FOR CONTROLLING:

• Control activities can create an undesirable Importance 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.
System and process of controlling
REQUIREMENTS FOR EFFECTIVE CONTROL:
Effective Control should,
• Tailored to plans and positions.
• Tailored to individual managers and their responsibilities.
• Exceptions as critical points
• Objective
• Flexible
• Economical
• Lead to corrective actions
TYPES OF CONTROL SYSTEMS:
The control systems can be classified into three types,
• Feed forward control
• Concurrent control
• Feedback control
System and process of controlling
• FEEDFORWARD CONTROL : This type of control is the most desirable type, as it
prevents problems because it takes place before the actual activity. ( Eg.
Preventive –Maintainance Programs)
• CONCURRENT CONTROL : It takes place while a work activity is in progress.
(Eg. Auto correcting of words).
• FEEDBACK CONTROL : The control takes place after the activity is done. ( Eg.
Return of damaged products and getting back money/ good product)
Feedback controls do have two advantages:
– Feedback gives managers meaningful information on how effective their
planning efforts were
– Feedback can enhance motivation
Budgetary and Non-Budgetary Control Techniques
BUDGETARY CONTROL:
• Definition: 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 of the objective of that policy
or to provide a base for its revision.
Salient features:
• Objectives: Determining the objectives to be achieved, over the budget period, and
the policy(ies) that might be adopted for the achievement of these ends.
• Activities: Determining the variety of activities that should be undertaken for
achievement of the objectives.
• Plans: Drawing up a plan or a scheme of operation in respect of each class of
activity, in physical a well as monetary terms for the full budget period and its parts.
• Performance Evaluation: Laying out a system of comparison of actual performance
by each person or department with the relevant budget and determination of
causes for the discrepancies, if any.
• Control Action: Ensuring that when the plans are not achieved, corrective actions
are taken;
Budgetary and Non-Budgetary Control Techniques
CLASSIFICATION OF BUDGETS
i) BASED ON TIME PERIOD:
a) Long Term Budget : Longer than a year; Eg: Capital Expenditure Budget
b) Short Term Budget : Less than a year; Eg: Cash budget
ii) BASED ON CONDITION:
a) Basic Budget : Remains unaltered ;
b) Current Budget : Established for use over a short period of time for
current situation.
iii) BASED ON CAPACITY:
a) Fixed Budget: remain unchanged irrespective of the level of activity
actually attained.
b) Flexible Budget : designed to change
iv) BASED ON COVERAGE:
a) Functional Budget : Eg: Product budget, sales budget
b) Master Budget : consolidated summary of the various functional budgets.
Budgetary and Non-Budgetary Control Techniques
BUDGETARYCONTROLTECHNIQUES:
i) Revenue and Expense Budgets:
• The most common budgets spell out plans for revenues and operating
expenses in rupee terms.
• Revenue budget is the sales budget which is a formal and detailed expression
of the sales forecast.
• The revenue from sales of products/services furnishes the principal income to
pay operating expenses and yield profits.
• Expense budgets may deal with individual items of expense, such as travel,
data processing, entertainment, advertising, telephone, and insurance.
ii) Time, Space, Material, and Product Budgets:
• Many budgets are better 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.
Budgetary and Non-Budgetary Control Techniques
iii) Capital Expenditure Budgets:
• Capital expenditure budgets outline specifically capital expenditures for plant,
machinery, equipment, inventories, and other items.
• They give definite form to plans for spending the funds of an enterprise.
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.
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.
• By starting the budget of each package from base zero, budgeters calculate
costs afresh for each budget period;
Budgetary and Non-Budgetary Control Techniques
Advantages of budgetary control:
• Compels management to think about the future.
• Promotes coordination and communication
• Defines areas of responsibility.
• Provides a basis for performance appraisal (variance analysis).
• Enables remedial action to be taken as variances emerge.
• Motivates employees by participating in the setting of budgets.
• Improves the allocation of scarce resources.
• Minimizes the management time by using the management by exception
principle.
Limitations in budgeting:
• Budgets can be seen as pressure devices imposed by management, thus
resulting in:
– Bad labor relations
– Inaccurate record-keeping
Budgetary and Non-Budgetary Control Techniques
Limitations in budgeting:
• Departmental conflict arises due to:
– Disputes over resource allocation.
– Departments blaming each other if targets are not attained.
• Waste may arise when managers adopt "empire building" in order
to enhance the prestige of a department.
• Responsibility versus controlling. i.e. some costs are under the
influence of more than one person, e.g. power costs.
• Managers may overestimate costs so that they will not be blamed
in the future should they overspend.
Budgetary and Non-Budgetary Control Techniques
NON-BUDGETARYCONTROLTECHNIQUES
• There are many traditional control devices not connected with budgets,
although some may be related to, and used with, budgetary controls.
• The most important factors are:
– Statistical data
– Special reports and analysis
– Analysis of break- even points
– The operational audit
– The personal observation.
• 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 important to control.
• Break- even point analysis: An interesting control device is the break even
chart, which depicts the relationship of sales and expenses in such a way as to
show at what volume revenues exactly cover expenses
Budgetary and Non-Budgetary Control Techniques
• Operational audit ( Internal Audit) : It is the regular and independent
appraisal, by a staff of internal auditors of the accounting, financial, and other
operations of a business.
• Personal observation : In any pre occupation with the devices of managerial
control, one should never overlook the importance of control through personal
observation.
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
• In virtually every business, a computer is an essential tool for running the day-
to-day operations, enhancing productivity and communicating with customers,
suppliers and the public. 
• Managers use computers for a variety of reasons, including keeping their teams
on track, budgeting and planning projects, monitoring inventory and preparing
documents, proposals and presentations. 
• Managers need to understand not only the basic functions of the corporate
software tools used in the office but also the Internet and other external
computing tools that can improve the way they manage their departments.
Computer are mainly used in,
• Sales Forecast & Control.
• Accounting
• Personnel Management Information.
• Inventory Control.
• Banking
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Use of IT in Management Control:
• Managers deal with information controls in two ways:
(1) As a tool to help them control other organizational activities.
(2) As an organizational area they need to control.
• Managers need the right information at the right time and in the right amount
to help them monitor and measure organizational activities.
• Most of the information tools that managers use come from the organization’s
management information system.
• Management Information System (MIS) : A system used to provide
management with needed information on a regular basis. (manual or computer
based)
• MIS focuses specifically on providing managers with information (processed
and analyzed data), not merely data (raw, unanalyzed facts).
• An MIS collects data and turns them into relevant information for managers to
use.
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
• MIS is used for decision making in various functional areas of business.
• Objectives of MIS:
– Providing right information at right time
– To allocate appropriate resources.
– To provide sales forecasting, planning and better controlling.
– To provide information confidentiality.
– To provide adequate information for better managerial activities.
• Pre – Requisites of MIS:
– Information must be clear & Concise.
– Information must be relevant to business organization.
– Information must be simple & understandable.
– It must facilitate decision making & taking corrective actions.
– It must help in solving complicated problems.
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Need for MIS:
1.Internal Factors:
• Provides information about resource availability.
• Provides information for preparing budgets, sale forecast,
marketing strategies ,etc.
• Plays vital role in evaluating the overall performances.
2. External Factors:
• Provides information about government policies , laws, etc.
• Provides information about economic scenario.
• Provides information about recent technological up-gradation.
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Resources used in MIS:
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Installation of MIS:
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Functions of MIS:
1. Determination of Information need:
– MIS determines kind of info required.
– Identifies the person who requires the info.
– Information needed for various functions of organization.
2. Information gathering:
– Internal sources: documents, survey, observation,etc
– External sources: Reference journals, newspaper,
surveillance ,etc.
3. Processing:
– Evaluation, abstraction, dissemination and storage.
4. Information usage:
– Depends on factors like accuracy, timely supply and format.
USE OF COMPUTER & IT IN MANAGEMENT CONTROL
Tools of MIS:
• Speech recognition software
• Network server
Roles of MIS in management:
• Strategic planning.
• Tactical planning.
• Operational planning
Applications of MIS:
• Marketing : Sales planning & forecasting
• Manufacturing: Production planning & cost control
• Logistics : Inventory Control
• Finance & Accounting : Revenue & expenditure details
• Top management : Policy formulation & resource allocation.