Transcript
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TopicsThe Control Function: Planning and
Controlling – Importance of Controlling – Levels of Controlling, Control Process - Requirements for Effective Controls.
Control Techniques: Major Control Systems – Financial Control: Financial Statements; Ratio Analysis – Budgetary Control: Responsibility Centers; Uses of Responsibility Centers – Quality Control – Inventory Control.
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controlling
• Definition:Acc. To Koontz: “Managerial control implies the measurement of accomplishment against the standard and the correction of deviations to assure attainment of objective according to plans. “
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controlling
against
Measurement of accomplishment (performance)Ex. 80 cards sold
StandardEx. 100 cards
Deviation (gap)Ex. 20 cards
Corrective measuresEx. -Giving proper training - Facilities of mobile & petrol - incentives
So that performance can be achieved acc. To plan
1
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2. Control process
1. Establishment of standards
2. Collecting data about actual performance
3. Comparing performance with standards
4. Taking corrective steps
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1. Establishment of standards / targets:
- Criteria to measure the performance
Ex. Selling / producing 1000 units
- Types:
(A) Physical standard:
- not expressed in financial terms
- to measure: materials consumed, labor hours, output of the factory
- quantity : production per man-hour, units produced in a day
- quality : hardness of steel, durability of cloth
(B) Cost Standard:
- expressed in monetary terms
- ex. Cost per unit of output, wages/ unit of output, expense / manhour
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(C) Revenue Standard:
- expressed in monetary terms but income side
- ex. Sales per unit of output, contribution of profit earned by an
employee
(D) Capital standard:
- expresses assets in money terms, concerned with balance sheet
- ex. Rate of return on capital invested, return on share holders’ funds,
ratios
(E) Intangible standards:
- not in physical or money terms
- morale/ motivation of the employees, honesty of the supervisor
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2. Collecting data about actual performance - what is done?
- ways to find performance
(A) Personal observation:
- visit of the manager on the sight
- most suitable for intangible results i.e, morale of the employees , response of
buyers
- accuracy is absent
- delay in D.M.
- creates distrust in the empl.
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(B) Oral reports:
- orally taking info at the end of the day
- in the group meeting
- ex. Nu. Of units sold, nu. Of customers. visited
- increases relations with employees
- queries can be solved directly
(C) Written reports:
- detailed info.
- preserved for a record
- routine reports (monthly, weekly, daily) – special reports
- charts & table
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3. Comparing actual performance
- comparison of actual data of performance with the
standard
- if its according to target – no problem
- if its not acc. to target
- finding the deviation (gap) if any
- ex. Actual performance is 200 laptops sold against target of
300 laptops – Deviation : 100 laptops
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4. Taking corrective steps Controlling incomplete without corrective steps
If performance is not acc. to standard – corrective measures need to be taken
Corrective actions involve restructuring organizational set up, training to
employees or reassignment of duties
Should be with future reference
Cost – benefit analysis
Ex. If selling is less than standard :-- corrective steps may be:
- changing advertising copy
- training/ incentives to sales force
- increase frequency of adds.
- improve quality of product
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3. Control Techniques
- Ratio Analysis - Budgetary control - Zero Based Budgeting(ZBB) - PERT - CPM
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Ratio Analysis:
- Only financial statements (P&L acc., Balance sheet) are of little use for
investors, creditors etc.
- But its relationship provides useful hint for financial health and ability of
business to make profit
- “ Relation between two related items of financial statement is known as
Ratio”
- Ex. Banker used current ratio to know the capacity of repaying the loan
- Gross profit ratio, net profit ratio indicates the profitability
- Current ratio, liquid ratio shows the liquidity of the business
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(A) Types of Ratio:
1. Gross Profit Ratio:
Gross Profit 100
Sales
2. Expense Ratio:
Expenses 100
Sales3. Current Ratio: Current Assets 100
Current Liabilities
4. Debt- Equity Ratio:
Outside Liabilities 100
Shareholders’ funds
- Operation ratio, Net Profit Ratio, Stock Turnover Ratio, Quick Ratio etc..
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- Budgetary control :
- Budget: numerical statement expressing the plans , policies, and goals of
org for fix period in future.
- Budgetary control: acc. To G.Terry: “B.C. is a process of finding out what
is being done and comparing actual results with the prepared budget data
to find the difference and taking corrective steps”
- Types of Budget where B.C. is necessary:
- Operating Budget: sales budget, production budget, raw material budget,
labor budget, overhead budget
- Financial Budget: cash budget, capital budget, Projected balance sheet
Managerial Levels and Control Systems
Level of Management
Type of Control
Top level management
Financial control
Middle level management
Budgetary control
Quality control
Lower level management
Inventory control
1.Financial controlsBalance sheetRatio analysisBudget controls: Zero-Base Budgeting
2.Human Resource Controls
3.Marketing Controls
Market research Test marketing
4.Quality Control
5.Inventory Control•ABC analysis
•EOQ
•PERT/CPM
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