Unit 5 controlling

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UNIT 5 -CONTROLLING•The managerial function of controlling is the measurement and correction of performance in order to make sure that enterprise objectives and the plans devised to attain them are being accomplished.•Planning and controlling are closely related.•Planning and controlling may be viewed as the blades of a pair of scissors – scissors can not work unless there are two blades . Without objectives and plans , control is not possible because performance has to be measured against some established criteria.•Control techniques and systems involves three stepsi) Establishing standardsii) Measuring performance against the set standardsiii) Correcting variation from standards and plans.The above are essentially same for controlling cash, office procedure,

product quality and anything else involved under controlling

S.Palanivel Associate Prof./Mech. Kamaraj College of Engg. & Tech. Virudhunagar (Near)

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Establishment of standards• The first step in the control process is establishing plans since

plans are yardsticks against which Managers devise controls.• However, since plans vary in detail and complexity and

managers can not usually watch everything, special standards are established.

• Standards are simply criteria of performance.• They are selected points in an entire planning program at

which measurements of performance are made so that managers can receive signals about how things are going and thus do not have to watch every step in the execution of plans.

• There are many kinds of standards. Among them the best are verifiable goals or objectives.


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Measurement of performance

• The measurement of performance against standards should be ideally be done on a forward looking basis so that deviations may be detected in advance of their occurrence and avoided by appropriate actions.

• The alert, forward looking manager can sometimes predict probable departures from standards.

• In the absence of such ability , however deviations should be detected and made available as early as possible.


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Correction of deviation

• Standards should reflect the various positions in an organisation structure. If performance is measured properly, it is easier to predict deviation and to correct deviations. Managers know exactly where in the corrective measures are to be applied.

• Corrections may be by providing additional staffs, by better selection and training of personnel, by reducing wasteful actions, by changing the process, by changing the method of handling personnel. Another way is to correct through better leading. Fuller explanation of job and effective leadership style.

• Controlling consists of setting standards, measuring performance and taking corrective actions. Controlling must be flexible enough to take into account the organisational and country specific environment.


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Critical control points• Standards are yardsticks against which actual or expected

performance is measured. • A Manager must choose points for special attention and then watch

them to be sure that the whole operation is proceeding as planned.• The points selected for control should be critical, in the sense either

of being limiting factors in the operation or being better indicators than other factors of whether plans are working out.

• In a construction of a power plant drum lifting, erection of pressure of parts, conduct of hydraulic test, refractory & insulation, oil firing,steam blowing out, turbine oil flushing, turbine rolling, synchronisation, coal firing, load test, provisional take over, conduct of PG test and final take over are critical points.

• Any delay or advancement in the above activities will delay or advance the completion of projects.


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• Principle of critical point control• One of the important control principles states that

effective control requires attention to those factors critical to evaluating performance against plans.

• Another way of controlling is comparing company performance with that of other firms through bench marking.

• Types of critical point standards• Every objective, every part of goal, every activity of

a program, every policy, every procedure and every budget can become a standard against which actual or expected performance might be measured.


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Types of critical point standards• Physical standards• Cost standards• Capital standards• Revenue standards• Program standards• Intangible standards• Goals as standards• Strategic plans for strategic control


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Types of critical point standards• Physical standards : These are non monetary measurements and

are common at operating level where materials are used, labour is employed , services s rendered.

• They may reflect quantities such as labour hours used , fuel consumed, products produced, machine running hours, no. of employees present in a shift, day and week, amount of raw materials used.

• From such measurements raw materials used per finished goods, no. of labour hours utilised per output, no. of units produced per hours of operation can be arrived and checked with the standards.

• Example ; No. of vehicles assembled in a shift, no.of units generated in a day in a power station, no. of transactions handled in a day, average no. of units assembled in an hour, no. of units generated averagely in an hour.


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Types of critical point standards• Cost standards : These are monetary measurements like physical

standards. They give the cost involved in the production on account of materials, labour costs, machine running costs, fuel costs. These costs measure direct and indirect costs per unit produced. Cost per unit of sales, labor cost per unit produced, cost per foot of oil well drilled.

• Capital standards : They have to do with the capital invested in the firm rather than with operating costs and are primarily related to the balance sheet. Most widely used standard for new investment is return on investment. This will give overall control. Balance sheet will disclose other capital standards such as ratios of current assets to current liabilities, debt to net worth , cash in reserve , receivables to payables, size and turnover of inventories. These standards will give financial healthiness of a company.


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Types of critical point standards• Revenue standards : Revenue standards arise by attaching monetary

values to sales. They may include such standards as revenue per product in a shift, average sales per customer in a day, sales in a year per sales outlet. These standards reflect the total turnover of activities chosen, whether revenue is improving or decreasing and it is an useful parameter to watch to gauge the healthiness of business

• Program standards : Development of new products or program for improving the sales, or improving the quality of sales department may be assigned to manager as a program standard. This may be some time subjective judgment while apprising as whether the expected quality of department has improved or not, whether new products are developed, timing within which it has to be adopted can be used as objective standards. More we set objective standards to achieve, it is easier to measure and adopt proper control techniques.


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Types of critical point standards• Intangible standards : It is difficult to set standards not expressed in

either in physical or monetary measurements. Examples Are supervisors are alert? Company staffs are loyal to company? Whether advertisement program meets both short & long term objectives?. Though it can not be measured in quantities but its impact will be seen by other factors. If the Supervisors are not alert, no. of accidents, Failures in finished goods & defects will increase? .

• Goals as standards: It is better to set verifiable quantitative goals at every stage of company as standards. Goals set will act as standards. Though individual division has different goals, by monitoring the standards fixed for individuals divisions will help to identify whether the organisational’s goal can be achieved or not and where lies correction. Quantitative goals can be used as performance standards and qualitative goals represents important area or effect that will happen to achieve the objective of firms.


Strategic plans for Strategic control• Strategic control requires systematic monitoring at strategic control points and

modifying the organisation’s strategy based on this evaluation.• Planning and controlling are closely related, hence strategic plans require

strategic control. Since control facilitates comparison of intended goals with actual performance , it also provides opportunities for learning which in turn is the basis for organisational change.

• Through the use of strategic control one gains insights not only about the organisational performance but also about the ever changing environment by monitoring it.

• SUN TV initially started their business as production of compilation of important news video cassettes, then started TV channel in Tamil, further extended into other languages. They entered into Cable network and news paper business. Then they bought Spicejet airline business, once they learnt it is not a profitable business like TV channel they decided to sell off and keep them away from facing huge loss. Strategic decisions taken as which business will keep their company growing is helping SUNTV to grow further. They are in the business relating to TV, Cable network, News paper and IPL and came out of airplane business based on the strategic control.

12S.Palanivel Associate Prof./Mech.

Kamaraj College of Engg. & Tech. Virudhunagar (Near)

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Bench marking• It is an approach for setting goals and productivity measures based on best

industry practices. Bench marking developed out of need to have a reference/data against which performance can be measured.

• All can not participate in 100 m race in an Olympics. Criteria set as minimum standard to participate is less than 11 seconds. Where as the same is not case in a local athletic meet , in an national meet it may be 11.5 sec, state it may 12 sec, district meet it may be 12.5 sec and in a local it may 13 to 14 sec. Bench marking is the preferred level of performance it may vary depending upon the competition and it will vary according to time.

• No. of centuries made in a test match was 29 by Bradman, broken by Sunil Gavaskar and again broken by many like Ricky Ponting, Lara and Sachin Tendulkar. Now the 100 centuries in a test and ODI set by Tendulkar is considered as the greatest performance by a cricketer.

• Maximum turnover and maximum profit , more ratio of Profit to turnover, ratio of turnover to no. of employees are some of measurements on which companies can set standards as Bench marking.


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Types of bench marking• Three types of bench marking• Strategic bench marking compares various strategies and identifies the key

strategic elements of success• Operational bench marking compares relative costs or possibilities for products• Management benchmarking focuses on support functions such as market

planning and information systems, logistics, human resource management and so on.

• Benchmarking procedure begins with the identification of what is to be benchmarked, then in that superior performance have to be selected and their relative data are to be gathered & analysed , the best among the lot become the benchmark considered as the performance goal expected in that activity. During implementation performance is periodically measured and corrective actions are taken at that time to meet the benchmarked standard.

• In 70s PLF of power plant was about 70 %, in 80s it was 75 to 80 in 2000 it was 80 to 85 % in 2015 it was above 87 %. Bench marked standards are bound to change in due course. It means , once the set standards are achieved, bench mark is normally revised on a upper scale.


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Feedback as control system• Many systems control themselves through information feedback, which

shows the deviations from the standards and initiates changes. Feedback system compares performance with a standard and initiates corrective action.

• This is direct control system, where in actions are taken as a result of finding a deviation in performance identified by feedback

7Desired performance

8Actual performance

1Measurement of actual performance

2Comparison of performance against standards

3Identification of deviations

4Analysis of cause of deviations

5Program of corrective action

6Implementation of correction

A SIMPLE FEED BACK SYSTEMS.Palanivel Associate Prof./Mech.


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Feedback as control system• Management control is perceived as a feedback system

similar to that of operation of thermostat in water heaters, if the temp of water reaches a preset value, electrical supply to heating coil gets disconnected by thermostat , same way when the water temp falls below a set value electrical supply is resumed to the heating coil thus water temp is controlled between range of values.

• Working of feedback control system is shown in the above loop, Managers do measure actual performance, compare this measurement against standards , identify deviations and analyze deviations. Based on the analysis they must plan a corrective action and implement this program in order to achieve at the performance desired.


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Real time information and control• One of the greatest advances we got by the use of

computerisation is electronic gathering, transmission and storage of data , which gives a system of real time information and that enables systems as well as Managers to take effective decision.

• Real time information is information about what is happening while it is happening. Examples : Tickets availability in Flight services, railway services. Any one seeks information about the availability, system will respond with the information. Factory Manager can have a system that reports at any time the status of a production program in terms of such things as the production point is reached. If the load in a power station reduces, consequently fuel input will also gets reduced when the power plant is put on auto mode based on the real time information it gets thro relevant data controls.


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Real time information and control• It is possible in many areas to collect real time data that measure performance. It may

also be possible to many of these cases to compare these data with standards and even to identify deviations. But the analysis of causes of deviations, the development of programs of correction and the implementation of these programs are likely to be time consuming tasks.

• In the case of quality control, it may take considerable time to discover what is causing factory rejects and more time to put corrective measures into effect. Same way it will take time to bring down the level of inventory once it is learned that inventory level is very high.

• The sooner the Managers know that activities for which they are responsible are not proceeding in accordance with plans, the faster they can take action to make corrections.

• There is always the question of whether the cost of gathering real time data is worth the few days saved. In airline business , ready information of availability of seats is crucial in serving customers and filling airplanes.

• Unless the real time information helps immediately the Managers to take decision, gathering real time information will not be useful and the time and money spent in acquiring real time information.

• In analysing the cause of a failure in a process industry recorded data or acquired data will be very useful.

• Black box will be very useful in ascertaining the reasons of failure in aircrafts by analysing the recordings of speech/ instruction/communications made by Pilot with other agencies. S.Palanivel Associate Prof./Mech.


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Feedforward control• The time lag in the management control process shows that control must

be directed toward to future if it is to be effective. • Only using feedback from the output of a system may not be useful in

such cases of reporting in December data as loss or drop in production or in sales in September. This may be considered as a postmortem and measurement and provision of such historical data will not help to prevent such happenings.

• Feedforward systems monitor inputs into a process into a process to ascertain whether the inputs are as planned, if they are not , the input , or perhaps the process, are changed in order to obtain the desired results.

• Examples : A motorist going up a hill would press the accelerator before the speed falls if he wishes to maintain the speed, he will not wait for the drop in speed in speedometer.

• A hunter will always aim ahead of duck’s flight to correct for the time lag between a shot and for hit.


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Comparison of feedback and feedforward system

Inputsprocess

Desired values of outputs (Standards)

Outputs

Feedforward Simple feedback

S.Palanivel Associate Prof./Mech. Kamaraj College of Engg. & Tech. Virudhunagar

(Near)

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Feedforward control

• In a sense a feedforward control system is really a kind of feedback system. However, the information feedback is at the input side of the system so that corrections can be made before the system output is affected.

• Even with feed forward system, a manager would still want to measure the final system output, since nothing can be expected to work perfectly enough to ensure that the final output will always as desired.

• In the case of inventory control , if the purchases of the spares are greater than planned and the use of spares turns out to be less than planned, the result will be a higher than planned inventory, unless corrective action is taken.

• One of the problems in all feed forward control system is the necessary of watching for what managers call disturbances. These are factors which have not been taken into account in the input model but which may have an impact on the system and the desire end result.

• Bankruptcy of a large supplier might be an unanticipated and unprogrammed input variable and would delay shipping of supplies. Since unprogrammed events do sometimes occur and may upset a desired output, monitoring regular inputs must be supplemented by watching for and taking into account unusual and unexpected disturbances.


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Requirements of feedforward system1. Make a thorough and careful analysis of the planning and

control system and identify important input variables.2. Develop a model of the system3. Take care to keep the model up to date, model should be

reviewed regularly to see whether input variables identified and their interelationships continue to represent realities

4. Collect data on input variables regularly and put them into the system

5. Regularly assess variations of actual input data from planned for inputs and evaluate the impact on the expected end result.

6. Take action. Like any other technique of planning and control all that the system can do is indicate problems: people must obviously take action to solve them.


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Control of overall performance• Planning and control are increasingly being treated as an interrelated

system. Along with techniques for partial control, control devices have been developed for measuring the overall performance of an enterprise against total goals.

• There are many reasons for control of overall performance, • Firstly just as overall planning must apply to enterprise or major division

goals so must overall control be applied.• Secondly, especially in product or territorial divisions decentralisation of

authority creates semi independent units and these must be subjected to overall control to avoid chaos of complete independence.

• Thirdly, overall control permits the measurement of an integrated area manager’s total effort , rather than the parts of it.

• Many overall control in business is financial control. Finance is the binding force of business and an important gauge of success of plans.


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Financial control• Financial measurements summarizes as a common denominator, the

operation of a number of plans. Further they accurately indicate total expenditure of resources in reaching goals.

• Financial controls like any other control may have to be tailored to the specific needs of an enterprise .

• Doctors, lawyers and managers at different organisationsal levels do have different needs for controlling their area of operation.

• Analysis of various input costs and the value of outputs will give a clear picture of healthiness of an enterprise. A deviation from planned cost may lead a manager to find causes in poor planning, inadequate training of employees, poor availability of machines.

• In a fertilizer plant ammonia, steam , electricity are the major inputs and each one has a got norm for production of one ton of fertiliser. Hence cost of inputs as planned and actually consumed are analysed to find out the variation


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Profit and loss control• The income statement for an enterprise serves

important control purposes mainly because it gives immediate information on revenue, cost of variables and finally gives a clear picture about success or failure of an enterprise.

• If it is first put in the form of forecast, the income statement is an even better control device in that it gives managers a chance to take effective control actions before things to happen, to influence revenues, expenses consequently profits


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Nature and purpose of profit and loss control• Since the survival of the business usually depends on profits and since

profits are a definite standard against which to measure success, many companies use the income statement for divisional or departmental control.

• As it is a statement of all revenues and expenses for a given a time, it is true summary of results of business operations. Profit and loss control, when applied to divisions or departments, is based on the premise that, if it is the purpose of the entire business to make a profit, each part of the enterprise should contribute to this purpose. Thus the ability of a part to make an expected profit becomes a standard for measuring its performance.

• Limitations : profit and loss control suffers from the cost of the accounting and paper transactions involving intracompany transfer of costs and revenues. But the use of computers, computerisation has greatly reduced this cost. Duplication of accounting standards, many overheads , time and effort required to calculate intracompnay sales can make this control costly if it is carried too far.


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Control through Return on Investment• Another control technique is that of measuring both the absolute and

relative success of a company by ratio of earnings to investment of capital. The return on investment approach often referred as ROI, has been the core of the system.

• This yardstick is the rate of return that a company or a division can earn on the capital allocated to it. This tool considers profit not as an absolute but as return on capital employed.

• This standard recognizes the fundamental fact that capital is a critical factor in almost all enterprises. It also emphasises the fact that the job of managers is to make the best possible use of assets entrusted to them.

• Healthiness of a companies are not only measured on the quantum of profits they make but also on the Return on Investment . ROI is the real indicator of healthiness of Business. Higher the rate the business is the healthiest.


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Bureaucratic and Clan control• Bureaucratic control : It is characterized by a wide use of rules,

regulations, policies, procedures and formal authority. This type of control requires clear job descriptions, budgets and often standard tasks. Employees are expected to comply with rules and regulations and may have limited opportunities for participation.

Examples : Annual rise in turnover is fixed at 15 % , Annual reduction in spares is fixed at 5 % , Rise in profit is fixed at 25 %

• Clan control : It is based on norms, shared values, expected behavior and other aspects relating to orgnaisation culture. Clan control can be illustrated by the use of teams and by organisations operating in a dynamic environment that requires quick adaptation to changes in that environment.

• Example : Targets are fixed after discussion with concerned. Review of targets at the middle of the year and help needed to achieve targets are extended.


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Computers and IT In Management Control• The development of Information technology greatly

facilitate organisational control at a relatively low cost. Communication and the Management Information System (MIS) are the linkage that makes managing possible.

• One has to realize the distinction between data and information. Data are the raw facts that may not be very much useful until they become information.

• Information technology has promoted the development of MIS which is defined as a formal system of gathering, integrating, comparing analyzing and dispersing information internal and external to the enterprise in a timely , effective, efficient manner to support managers in performing their jobs.


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Management Information system (MIS)• MIS has to be tailored to specific needs and may include routine

information such as monthly reports information that points out exceptions especially at critical points and information necessary to predict the future.

• In a power station variants of units generated are consumption of coal/lignite, DM water, oil, auxiliary power . The following table indicates impact of variants thro MIS. Total units generated = 10 million units

Variants Norm actual variation T. Change value

Lignite 1 kg/Unit 0.98 - 0.02 -200 T - 200 x1600

DM water (3 % ) 17.7T /210 mW

13 T/210 MW

- 4.7 T / 210 MW

- 223. 807T - 4473 (Rs. 20/T)

Oil 2 ml/unit 0 -2 -2 T - 20000

Aux.power 8.5 % 7.8 % -0.7% -7000 (u) -21000

Change Gain in cost of generation of 10 Miliion units -365473MIS will indicate variation in inputs + in variant is an additional cost – is gain in cost


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Productivity Problems and Management• Productivity is the ratio of output to inputs with due consideration to time and

quality• Productivity to get increased there are four ways By increasing outputs with same inputs that means consumption less input for

production of output. By decreasing the inputs with same outputs By increasing outputs and decreasing inputs By reducing the defects thus increasing outputs with the same inputs.Maintaining the productivity is the biggest challenge to Managers. This can be

achieved by adopting proper controls.Standards for each activity has to be firmed up and the standards are really being

the best possible yet achievable.Example : if no. of products finished in CNC machines 100 in a day on an average

and in your competitor company is 110, then the Manager has to set a target of producing minimum of 115 to 120 products in a day as 115 to be achieved in first quarter, 117 to be achieved in second quarter, 118 to be achieved in third quarter and 120 to be achieved in fourth and last quarter.


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Productivity Problems and Management contd..

• Managers has to ensure the availability of raw materials, required machineries, consumables, uninterrupted power and needed tools. Any shortage or delay in getting the above will affect the production and in turn the productivity.

• Managers to monitor all the activities related to the production and he should a have system of measurement of end results at every stage of production and could able to ascertain deviations & take corrective actions. If Managers could anticipate trouble in the line of production in advance and they take corrective actions before happening of deviations, it will be very much helpful to maintain the tempo of production. Some times if a momentum in production is lost midway , it will lead to consequential damages and may lead to face an irreparable loss of morale.


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Productivity Problems and Management• Providing training and motivation to employees is needed to

maintain productivity. If the company changes its products, processes, imposes slight change in sequence of operation, Managers to ensure these changes are brought to the knowledge of concerned employees and they are trained to adopt the changes. If Managers fail to train and equip their employees for changes, it will be very difficult to maintain productivity.

• Managers to ensure proper awareness and motivation among all concerned in maintaining the factors affecting the productivity within the desired values otherwise employees in the shop floor may not give proper attention and ready practice productivity norms. Adoption of an announced measurable incentive scheme department wise as well as unit wise will ensure practice of norms.


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Budget as a control device• Budgeting is the formulation of plans for a given

future period in numerical terms.• As such budgets are statements of anticipated

results either in a financial terms – as revenues, expenses- or in anon financial terms – direct labour hours, materials , physical sales volumes, units of production.

• Budget will indicate turnover, earnings, costs involved, provisions such as for depreciations, taxes, profits, dividend pay out to share holders and transfer of fund to reserves


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Types of Budgets• Budgets are estimated things expressed in numerical terms as a forecast. It is a

part of planning process. Budgets may be done for• Material – quantification of various materials required for production to meet

the objectives- week , month wise, quarter wise & annually. • Machineries – Types and no. of machineries required to meet the objectives -

week , month wise, quarter wise & annually.• Manpower – Types of skilled, semi skilled and unskilled labour required to

meet the objectives - week , month wise, quarter wise & annually.• Money – Amount of money required and source of acquiring the same to meet

the objectives - week , month wise, quarter wise & annually.• Training – Types of training and deputation of personnel for outside trainings

required - week , month wise, quarter wise & annually.• Preparation of budgets are normally done based on requirements and on past

experiences. It is always better to have budgets on a periodical way like week, month , quarter and annual manner.

• Tracking of budgets with actual happenings against the planned one have to be done on a continual basis to have an effective control of things to take immediate corrective actions for achieving the goals of the company


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BUDGET of a company


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Zero base budgeting• The idea behind this technique is to divide enterprise

programs into “packages” composed of goals, activities and the needed resources and then to calculate the costs for each package from startup.

• By starting the budget of each package from base zero, budgeters calculate costs as fresh for each period : thus avoid the common tendency in budgeting of looking only of changes from previous period.

• Main advantage of this technique is of course the fact that it forces managers to plan each program package a fresh.

• As Managers do so, they review established programs and their costs in their entirety, along with newer programs and their costs.


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Non-budgetary control devices

• There are many traditional control devices not connected with budgets, although some may be related to and used with budgetary controls. Among the more important of them are

• Use of statistical data of many aspects of operation• Special reports and analysis of specific areas• Operational audit and independent appraisal by

Internal and external auditors.


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Time – event network analysis• Time event network analysis called the programme evaluation

and review technique (PERT).• Before emerging of PERT, GANTT chart, milestone charts used.• GANTT Chart : This chart showing the relationships between the

events of a program on a time scale.• Total program divided into measurable tasks, all represented on a

time scale with an indication start and the end of the tasks• Total program goals should regarded as a series of interrelated

supporting plans that people can comprehend and follow.• The most important factor is this chart reflect the simple principle

as well as basic principles of control such as picking out the most critical elements of plan to watch carefully


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Gantt chart indicates start and end of eight tasksSimple indication of planned start and planned end of tasks


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GANTT CHART

Activities Vs Time duration Blue colored bar indicates – activities as PlannedYellow colored bar indicates – activities happened actual


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Milestone chart

14 activities of Lunar expedition programme drawn as Mile stone activitiesCompletion of each Mile stone activity proceed to the next mile stone activity. If there is delay or advancement in any Milestone activity it will effect change in the programme accordingly


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PERT CHART

ACTIVITY A – 4 days : B- 58 days : C & D are parllel – 2 days


44S.Palanivel Associate Prof./Mech. Kamaraj College of Engg. & Tech. Virudhunagar (Near)

45S.Palanivel Associate Prof./Mech. Kamaraj College of Engg. & Tech. Virudhunagar (Near)

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PERT WITH EARLY & LATEST SCHEDULE


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PERT- CPM

S.Palanivel Associate Prof./Mech. Kamaraj College of Engg. & Tech. Virudhunagar

(Near)

Unit 5 controlling

Leadership & Management