UNIT 5

CONTROLLING
System and process of controlling – budgetary and non-budgetary control techniques – use of
computers and IT in Management control – Productivity problems and management – control and
performance – direct and preventive control – reporting.

INTRODUCTION
Control is a part of the managerial process. Control is one of the most important elements of management. Control is a
process which guides activity towards some predetermined goals. Planning and controlling are twins of management
functions. It means measuring the actual performance and taking corrective action.
Definition
According to E.F.L. Breach "Control is checking the current performance predetermined standards contained in the
plans with a view to ensure an adequate progress and satisfactory performance".
According to Harold Koontz "Controlling is the measurement and correction of performance in order to make sure
that enterprise objectives and the plans devised to attain them are accomplished".
Characteristics of Control
1. Control process is universal
Control is an essential function in any organization whether it is an industrial unit, university, government hospital etc.
2. Control is a continuous process
Control is a never ending activity on the part of managers. It is a non-stop process. The manager watches the operation
the management and to see whether they are going towards desired end and if not, actions are not taken to correct
them.
3. Control is action based
Action is an essential element of the control. It is the action which ensures the performance according to the decided
standards.
4. Control is forward looking
Control is linked with future not past. A proper control system prevents losses and minimizes wastages. It acts as a
preventive measure.
5. Control is closely related to planning
A plan gives the direction to various business activities while control verifies and measures the performance of these
activities and suggests proper measures to remove the deviations.
Need of Control
1. To minimize dishonest behavior of employees
2. To discover deviations in the management
3. Control can minimize the mistakes
4. To indicate corrective action
Importance of Controlling
1. Policy verification
A control helps to review, revise and update the plans. In this process, organization and management can verify the
quality of various policies.
2. Adjustments in operations
A control system acts as an adjustment in organizational operations. Control provides this clue by finding out whether
plans are being observed and suitable progress towards objective is being made to correct any deviations, if necessary
3. Psychological pressure
A control process puts a psychological pressure on individual for better performance. The sound control system
inspires employees to work hard and gives the be performance.
4. Coordination
A control helps to emerge the coordination of subordinates In the organization. Control ensures coordination of
activities of different departments through unity of direction.
5. Employee morale
A control creates an atmosphere of order and discipline the organization. Control contributes order and discipline in
organization.
6. Efficiency and Effectiveness
Proper control ensures the organizational efficiency and effectiveness. The organization is effective, if it is able to
achieve its objective. Since control focuses on the achievement of organizational objectives, it necessarily leads
organizational effectiveness.
Limitations of Controlling
1. Control is expensive and time-consuming process
2. Control cannot consider the external factors, such as technological changes, political factors, social changes,
government procedures etc.
3. Human behavior and employee morale also cannot be measured.
PROCESS OF CONTROLLING

Fig. Process of control

1. Establishing standards
 This is the first step of the control process.
 Standards may be expressed in quantitative or qualitative terms.
 A standard is a criterion against which results can be measured.
 Generally, standards shall be accurate, precise, acceptable and workable .
 Volume of products, man hour, costs, revenue, investment etc. They are quantitative standards.
 Good will, employee morale, motivation etc . These areas are qualitative standard.
2. Measuring performance
 Measurement of actual performance does not knowing what has happened but also what is likely happen.
 The performance should be in quantitative terms
 The measurement technique may be personal observation, sample checking, performance report etc.
3. Comparing actual with standards
 To find out the deviations and identify the causes of such deviations.
  The employee morale and effectiveness of human resources statements, charts help to compare performance
quantitatively against the already standards which got.
 This approach will give the correct, quick and favorable results.

4. Finding out deviations

 An efficient manager easily finds out to locate deviation points properly.
 To find out the cause of deviations, the manager will have to depend on a proper accurate and timely
information.
 If the deviation between standard and performance is beyond the prescribed limit, an analysis of deviations is
made to identify the causes of deviation.
5. Correction of deviations
 Corrective action is essentially with correcting deviations from planned performance.
 Deviations may be in accurate forecast poor communication, defective machines, lack of motivation etc.
 For the correction of deviations, management should take necessary action and implement them so that in
future these deviations and mistakes are minimized .
 If corrective action is not taken properly on time, it will lead to heavy losses.
 TYPES OF CONTROL
l. Feed back or historical control
Feed back control is known as post action control . It examines what has happened in the past. On the basis of this
feedback corrective action is taken. Feed back control is the process of adjusting future action on the basis of
information about the past performance. For example, disciplinary action, budgetary results and quality inspections are
some feedback controls.

This control can be used to plan future with the aid of past errors or success
2. Concurrent control
It is known as real time control. It provides the measures for taking corrective action or doing adjustments while the
programme meets any obstacle. In the organization control, chart is an example of concurrent control. For example,
riding a bicycle, you must adjust yourself depending on the turns in the road and keep your vehicle up right and move
towards your aim.
3. Feed forward control
This control involves the evaluation of inputs and taking corrective action before a particular operation is completed. It
is preventive in nature. This control allows the corrective action to be taken in advance of the problem.
For example, cash budget in the organization is the type of control. The finance manager prepares the next year flow of
cash budget in the organization. If there is a shortage of finance for a particular month, he is responsible to arrange for
loans or other alternatives,
Feed forward in human system:
There are many examples of feed forward control in human system. A hunter will always aim ahead of a duck's flight
to correct for the time lag between a shot and hoped for hit.

Sl.No Feed Back Feed forward

1. It measures only output of the process It measures input of the process

2. It is submissive approach It is aggressive approach

3. It is less costly It is costly

4. It involves a time lag in the process on It removes the limitation of time lag in taking
correction corrective action

5. Less benefit to the organization It is most benefit for the organization

 Figure 5.3 Comparison of Feedback and Feed forward system
REQUIREMENTS FOR EFFECTIVE CONTROL
Every manager should have an effective and an efficient control system.
1. Suitability
A sound control system must suit the needs of the enterprise. The control must be tailored to the need of an
organization.
2. Flexibility
Controlling is a continuous activity, it should enough be flexible to be adapted with changing conditions of an
organization.
3. Economical
The control system should be less expensive. Expensive control should be avoided.
4. Simple
A good control system should be simple to understand to the administrator. Complex control system creates confusion
in the organization.
5. Motivation
A good control system should give an attention to the human factors. A control system should increase the
performance of the members by motivating them.
6. Forward looking
A good control system should be directed towards future.
7. Objective
The good control system should be objective. It is clearly quantifiable and verifiable.
8. Controls should reflect the organization structure and needs
Effective control system is that which reflects the organizations structure, position, needs and plans.
9. Control should lead to corrective action
A good control system must lead to an appropriate corrective action. The control system should also suggest the events
for improving the performance.
10. Less time
The good control system takes minimum time and quickly reports the deviations. Actions should be taken without
more time loss.
BUDGETARY CONTROL TECHNIQUES
Introduction
A variety of tools and techniques has been used to help managers to control the activities in their organization

Budget:
A budget is a quantitative statement of the plan for a specified period of time in the future, most typically a period of
one year.
According to J.Fred Meston "A budget is the expression of a firm's plan in financial form for a period of time into the
future ".
Budgetary control
It is the process of determining various budgets for the business unit for future. It serves as a method of control.
According to J.Batty, “A system which uses budgets as a means of planning and controlling all aspects of producing
and / or selling commodities and services”
Advantages of Budgetary Control:
1. The work of different departments in the organizations is properly coordinated.
2. Budgetary Control is a vital role for measuring the managerial performance.
3. Budgetary control improves the planning in the organization.
4. To provide better utilization of resources in organization.
5. It brings out the coordination among business policies, plans and procedures.
6. This system aids to find out the weak areas of operations.
7. This system helps to take corrective action at the right time in the organization.
8. It helps in reviewing current trends the business and determining future policy,
Problems or Limitations of Budgeting
1. Inflexibility
As future is uncertain, the budget may go wrong due to change in situations of the organization. There will really be
deviations from the budgeted figure with actual performance . So, all the efforts are taken to tally the budgeted figure
with the actual performance.
2. Inaccuracy
The budget estimates the price level of particular things for a particular time. It cannot consider inflation or depression
in the market.
3. Distortion of goals
As deviations in the budget figures with the actual performance in the organization, all the efforts are taken to keep
within the budget limits. They overlook goals of the organization. It reduces the goals of the organization.
4. Hiding inefficiencies
Budgets can hide the inefficiency by allowing expenditure without keeping an eye on them. It means, a department
may be inefficient even though its expenses are within budget limits.
5. Expenditure
Budgetary control requires more time, money and efforts. It is not more economical for a small and average
organization.
Effective Budgetary Control
1. Definite objectives
The plans, objectives, policies etc are to be defined clearly and in a simple way.
2. Support of top management
Successful implementation of Budgetary control depends upon the support of top management. Top management
plays a vital role in budget and policy formulation.
3. Flexibility
Budgetary should be prepared to accommodate unforeseen circumstances as well as possible changes in future.
Budgets should allow the changes.
4. Budget committee
A budget committee should form a proper planning and control. Budgets should be designed by talented and
experienced people who are directly responsible for its performance.
5. Budget Education
Every employee in the organization should know the working of the budget programme and its benefits. Budget
manual is given to all employees and awareness of the budgets is created.
6. Good Feedback
Budget cannot be effective unless there is a proper feedback system. Periodical statements, comparing the actual
performance with the budgeted performance should be prepared. To take correct action for the deviations, the proper
remedial measures should be taken by the management at appropriate time.
7. Participation
The successful implementation of budgetary control depends all the members of the organization. Their cooperation is
essential for implementation process.
8. Communication
A quick and proper method of effective communication leads to effective budgetary control.
9. Reward and Punishment
Those who are working effectively for the attainment of successful budget may be rewarded. It improves the efficiency
of the employee. Those who are in poor performance can be punished.
10. Proper recording of operations
In order to make the budgetary control system properly, recording of various operations, such as purchase, sales,
production etc. must be recorded properly and accurately. If it is not done, then inaccurate information when compared
with the targets will lead to wrong conclusions and decisions.
Classifications of Budget

A. Functional Budgets
1. Sales Budget
Sales budget forecasts what the company can expect to sell during the budget period. Sales budget considers the factors
such as demand, supply, past sale trends and seasonal changes that affect sales. Sales budget gives the estimate of sales
in the budget period of usually one year. Sales budgets are prepared by sales manager.
2. Production budget
Production budget is prepared on the basis of sales budget. Production budget forecasts the quantity of production. It
aims at maximum utilization of manufacturing resources.
3. Material budget
Material budget is also known as operation budget. Material budget include raw materials required for production and
spare parts required for maintenance.
4. Labour budget
Labour budget provides details about labour requirements in quantity with estimated costs. Labour budget is the
forecast of direct and indirect labour requirements to meet the demands of the company.
5. Manufacturing overheads budget
This budget shows the estimated cost of indirect labour and indirect manufacturing expenses such as electricity
charges, consumables used, insurance premium etc.
6. Administrative overheads budget
Administrative overheads comprises salaries of office staff, stationeries, office expenses etc.
7. Distribution overheads budget
Distribution overheads budget includes selling and distribution expenses to be incurred during the budget period. For
example, transportation expenses, service expenses, advertising expenses and sales promotion expenses.
8.Cash budget
Cash budgets are prepared after the completion of all the functional budgets. Cash budgets are the total sum of all
functional budgets in monetary terms.
B. Transaction Types
1. Operating budget
Budgets related to the current operations of the firm is known as operating budget. Operating budgets include budgeted
profit and loss statement, budgeted balance sheet and monthly cash budget.
2. Capital budget
Capital budget is otherwise known as capital expenditure budget. Capital budget is prepared to cover the estimated
expenditure on capital items (fixed assets) such as machines, equipment and land during the budget period.
C. Activity Types
1. Flexible budget
Flexible budget is otherwise known as variable budget. Flexible budget reflects the changes in expenditure as a result
of changes in volume of production
2. Fixed budget
A fixed budget is a budget designed to remain unchanged. Fixed budget does not change with changes in activities.
Fixed budget can be prepared for a small period of time. “Fixed budget is a budget which is designed to remain
unchanged irrespective of the level of activity actually attained.”
3. Master budget
All the functional budgets are collected into one budget known as master budget. Master budget is a statement of
budgeted profit and loss together with a projected balance sheet. The master budget incorporates all the functional and
operational budgets such as sales budget, production budget, material budget and overheads budget etc.
D. Time Interval Basis
1. Continuous budget
Continuous budget constantly covers a time interval of the same length. Continuous budget does not have a specified
time period and it occurs continuously
2. Periodic budget
Periodic budget covers a specified time period. For example, annual budget.
Budgetary Control Methods
There are three specialized budgetary control methods. They are
1. Planning-programme budgetary systems (PPBS)
2. Zero-Base budgeting
3. Human resource accounting
1. Features of PPBS
(i) Analyzing the basic objectives policies of each activity in the organization.
(ii) Analyzing the each activity of the programme in the organization.
(iii) Measuring the total costs of the programme.
(iv) Find out which alternatives are most effective activity which is least cost. .
(v) Implementing the systems in a preferred manner.
(vi) Follow-up the activities in the organization are important.
2. Zero Base Budgeting
Zero-base budgeting requires the management to take a fresh look at all programmes and activities each year rather
than preparing budgets on the basis of last year‟s buget. The zero base budgeting is constructed from zero base. In
zero-base budgeting, last year‟s budget allocations are not considered as a basis for current year‟s budget. In zero-base
budgeting, a comprehensive analysis is made every time when a new budget is prepared, based on the changed
importance of different variables in the situation. In zero-base budgeting, the key element is future-objective
orientation of past objectives.
ZBB process involves the following steps.
(i). Decision package:
Decision package includes the requirements of work, time schedule etc . The decision package provides a running
commentary of all the activities in a particular project.
(ii). Ranking:
Each decision package is to be ranked against packages for other proposed projects or activities and the projects that
are running currently. Decision packages are ranked on the basis of benefits to the total organization.
(iii). Allocation of resources

Figure Allocation of resources

The final stage is the allocation of resources. It is done by the top management on the basis of recommendations of the
financial manager's. They are responsible e for the design and administration of the process throughout the
organization.
Significance of zero-base budgeting technique:
(i) The basic advantage of this technique is that it forces the managers to plan each programme freight.
(ii)High priority of new programme can be funded totally or in part by rejecting or reducing current activities.
(iii)
Duplication of effort among organizational units will be identified which can result in eliminating.
(iv)Managers tend to evaluate their operations, efficiency and cost effectiveness not only during the budget cycle
but also throughout the operating year.
(v) ZBB is also an educational process that can promote the development of the management team.
3. Human Resource Accounting
In every organization, the costs of recruiting and training personnel are treated as operating expenses. Human resources
attempt accounting to significant costs of recruitment and training. It treats this expenses cost as long term investment
in human resources.
NON BUDGETARY CONTROL TECHNIQUES
The non-budgetary control techniques are given below:
1. Personal Observation: Personal observation is an important and effective technique. Personal observation means
merely observing the performance whether it is going according to the standards or not. It cannot be used as a main
control tool but it can be used as an excellent supplement technique to break-even analysis. It is the direct and
undistorted method of control. Inspite of using other control tools, the manager cannot sit freely and he has to take
help of personal observation. Personal observation has the following drawbacks. It is time consuming, it is subjected
to personal bias of the observer and there is difficulty in attaching meaningful quantitative terms to personal
observations.
2. Statistical data: A very common non-budgetary control technique is statistical analysis and it uses both historical
and forecasted data for control purposes. Most managers like statistical information to be presented in the form of
charts, tabular presentation, ratios, percentages and averages because they are easy to understand. Statistical analysis is
also made in terms of correlation, regression coefficients and standard deviations etc. Statistical reports are very much
useful in specific problem areas and they are in the form of tables, graphs, etc. Statistical data so available may be
used by managers to control areas such as marketing, trends of profits, turnover, production planning and control,
statistical quality control, inventory control etc. It may be noted that statistical data are not perfect, however they add a
dimension of objectivity in measuring and controlling performance.
3. Special reports and analysis: Special reports and analysis are helpful in controlling particular problem areas.
Routine accounting and statistical reports cannot be used for controlling all problem areas. The managers give their
reports and analysis about the performance of employees. Corrective action should be taken immediately. These
reports are in written form or in oral form . Sometimes, specialists are temporarily engaged for giving reports and
analysis on specified matters.
4. Break-even analysis: Break-even analysis is a method of determining the relationship between total revenues and
total costs at various levels of production so as to establish a break-even point (BEP). BEP establishes a level of
production where total revenues equal the total costs and there is neither profit nor loss. Any production above the
BEP would yield profit. Break-even analysis is useful in profit planning and cost control.
The analysis of cost behaviour in relation to changes volume of sales and its impact on profit is called as break-even
analysis. Thus break-even analysis is the inter-relationship between cost, volume of production and profits. So Break-
even analysis is called by cost-volume-profit analysis. Break-even analysis may be shown by a chart as well as a
mathematical formula.
Costs are broken down into three elements.
(a) Fixed Costs: Fixed costs remain constant and they are independent of production. Fixed costs include the cost of
land, buildings, machines and salaries of managers.
(b) Variable Costs: Variable costs changes with the changes in production level. Variable costs include labour wages,
electricity charges, consumable charges, material cost, transportation cost etc.
(c) Total Costs: Total costs are the sum of fixed cost and variable cost. There are two methods of break-even analysis
(i) Chart method (or) graphical method: In the break-even chart, output and sales volume are represented on X-axis
where as cost and revenue are plotted on Y-axis. Here, total cost represents the total revenue. The break-even analysis
is shown in Figure.

In the break-even diagram, break- even point is identified by the intersection of total cost and total revenue (income)
line.
(ii) Algebraic method of Break-even analysis
Where,
BEP Break-even point in units
TFC Total Fixed cost
P Selling price per unit
VC Variable cost per unit

Where,
S Sales or demand in units
For example, the total cost of making 1000 products is Rs.10,000 and the total revenue obtained from selling 1000
products is also Rs.10,000. In this point, the total expenses (cost) and revenue are equal and this point is known as
break-even point. If the sales is less than 1000 units, there is a loss. If the sales is more than 1000 units, there is a
profit.
Applications of break-even analysis
(a) Make or buy decisions
(b) Profit approximations
(c) Comparison of budgeted and actual profits
Advantages of break-even analysis
1. Break-even analysis is helpful is understanding the relationship between cost, output and profit relationship.
2. Making inter-firm comparisons
3. Break-even analysis is helpful in forecasting profits
4. It is helpful in selecting the best product mix.
Limitations of break-even analysis
1. It is very difficult to divide costs into fixed costs and variable costs.
2. Break-even analysis is not suitable for a firm involving number of products.
3. Break-even point in rupees or units cannot be determined accurately.
4. Break-even analysis is not applicable in long-range planning.
5. Operational Audit: Operational audit determines whether or not the balance sheet is properly prepared so as to give
a true and fair view of activities of the business. Operational audit also determines whether or not the profit and loss
account gives a true and fair view of profit or loss. Though the audit is usually limited to the examination of accounts
only, it covers the entire business operations and compares actual results with established standards.
6. Financial Statement: Various financial statements such as balance sheet, profit and loss statement, cash flow
statement and funds flow statement are used to measure the financial health of an organisation.
7. Ratio Analysis: Ratio analysis is helpful in evaluation of financial data. Financial ratios such as profit measurement
ratios, liquidity ratios, solvency ratios and activity ratios are expressed in mathematical terms. The ratios are obtained
from information received from balance sheet and profit and loss statement.
(i) Profit measurement Ratios: Profit measurement ratio includes net profit ratio and profit ratio on capital invested.
(ii) Liquidity ratios: Liquidity ratio include current ratio and quick rest ratio.
(iii) Solvency Ratio: Solvency ratio include equity ratio
(iv) Activity Ratio: Activity ratio include stock-sales ratio and ratio of accounts receivables to sales.
8. Logistic Control System: Logistic control system includes the flow of goods from raw material to final delivery of
products to customers passing through various operations. Logistic control involves the following activities:
purchasing, storing, manufacturing, loading, delivery and transportation. Thus logistics control involves estimating
and devising the flows and timing of various resources required for a particular job or project and make sure that the
requirements are met in practice.
Under integrated logistical control system all the activities are grouped into a separate functional department.
Logistics control system utilises computers to achieve the objectives of logistic control.
5.6.1 Modern Techniques on Control
The following are the modern techniques on control
1. Management Audit: Management audit is the systematic evaluation of overall performance of management of an
organisation. It is the systematic review of effectiveness and efficiency.
“Management audit is a comprehensive and constructive examination of an organisational structure of an
organisation and its plans and objectives, it means of operation and its use of human and physical facilities.”
It is a critical examination of the entire management process as a whole. It is a critical evaluation of the decisions
made by the managers of an organisation, quality of management of an organisation, management policies and
procedures of management.
Advantages of Management Audit
(i) Management audit evaluates the overall performance of the management
(ii) Management audit helps to identify potential deficiencies of management. This enables the management
to make structural improvements.
(iii) Constant review of various aspects of organisation helps to improve the performance of an organisation.
(iv) Constant evaluation provides opportunities for continuous innovations based on environmental changes.
(v) Management audit helps to improve the co-ordination and evaluation of control mechanisms.
Disadvantages of Management Audit
(i) Management audit is not suitable for evaluating individual performance.
(ii) Its scope is not well defined. There are no standard techniques of management audit.
(iii) Qualified management auditors are not available.
2. Return-on-investment: Return on shareholder‟s investment is known as ROI. It is an useful technique of
controlling overall performance. Return on Investment does not consider profit but it considers the return on the
capital invested in the business. Return on Investment is given by the formula
ROI=Net profit after paying interest and tax/Shareholder‟s funds
Return on Investment is one of the important ratio used for evaluating overall performance of an organisation. The
main aim of Return on Investment is to maximise profits but only to the extent they will maximise shareholder‟s return
on investment. It helps in determining whether the investment is made in profitable business activities or not. The
return on investment is a yard-stick for comparing the financial performance of an organisation over a period of time.
Return on investment was developed by Dupont Company in USA in the year 1919.
3. Responsibility Accounting: An accounting system which has various responsibilities is known as responsibility
accounting. Responsibility accounting is concerned with the performance of various people which is evaluated by
assessing how far they have achieved targets set for the divisions, departments or sections for which they are
responsible. Costs are assigned not only to products but also to responsibility centres. Thus the budgetary control is
aligned with the responsibility centre of an organisation.
A responsibility centre is a department or division under the management of a person who is responsible for its
operation. Costs incurred by a responsibility centre are classified into two categories. Controllable costs and
uncontrollable costs. The manager responsible for responsibility centre is responsible for controllable costs of his
centre.
The responsibility centres are of the following four types:
(a) Cost Centre: In cost responsibility centre, manager is responsible for controlling the costs. The manager in charge
of cost centre is responsible for salaries, supplies and other costs that are essential for the functioning of the
organisational unit. Departments like accounting, research and development, human resources and personnel are
coming under cost centres.
(b) Revenue Centre: In revenue responsibility centre, manager in charge of the centre is responsible for income or
revenues. Department such as marketing and sales are classified as revenue centres.
(c) Profit Centre: In profit responsibility centre, manager in charge of such centre is responsible for profits. A profit
centre is organised as a self-contained unit i.e. it can control its own costs and revenues. Many large organisations are
divided into product divisions with each division is serving as a profit centre for its products.
(d) Investment Centre: In investment responsibility centre, manager is responsible for return on investment of assets.
Profits are estimated just like in profit centre but controls are based on the amount of profits as a percentage of amount
of assets required to operate the investment centre.
4. Network Techniques (PERT/CPM): Network analysis describes a number of techniques to plan and control
complex projects. In network analysis, sequential relationships between various activities are represented by a network
of lines and circles. In network analysis, a project is broken down into small activities which are arranged in a logical
sequence.
Before drawing the network diagram, two things are important. They are:
(i) the sequence in which various activities are performed.
(ii) the time limit for each activity.
A network diagram is drawn for showing the inter-relationships between various operations involved in the project.
In network analysis, an activity is defined as an operation required to accomplish the goal. It is denoted by a arrow in
the diagram. An activity requires a specific time period for completion. An event is a point of time when an activity is
denoted by a circle in the network diagram. Two important network techniques are PERT/CPM
PERT (Programme Evaluation Review Technique)
PERT network is appropriate for planning, monitoring and controlling complex and unique projects. In PERT, the
entire project is broken down into a large number of activities and are arranged in a logical sequence. PERT technique
is used for problems which have a definite starting point and finishing point. It is not applicable for continuous
production.

The time estimates for each activity are prepared in three types.
(i) Optimistic time
(ii) Pessimistic or longest time
(iii) Most likely time
 After that, the critical path is determined which is the longest path through the network in terms of time. It
represents the sequence of activities i.e., critical for the completion of project. If there are delays in the activities of
critical path, the completion time of entire project will be delayed.
CPM (Critical Path Method)
CPM method consists of the same basic steps and principles similar to PERT. The main differences between PERT
and CPM are given in the table.

PERT CPM

1. PERT consists of three time estimates such as CPM network consists of only one time estimate for
optimistic, pessimistic and most likely made each activity because of each activity is constant.
for each activity because the duration of the
activities are uncertain.
2. PERT is concerned with the time of CPM network involves cost.
completing the project.
3. PERT is applicable where activity timings are CPM is applicable where activity timings are well
relatively unknown. known.
4. PERT is event oriented and it focuses on the CPM is activity oriented and it focuses on operations
point of time when an activity begins or required to achieve goals.
completed .
5. PERT consider one of the activity as critical CPM considers all the activities as critical activities.
activity.
6. Crashing of activities is not possible in PERT. Crashing of operations for reducing the cost of activities
is done in CPM.

Benefits of PERT/CPM
1. The network preparation and critical path analysis identifies problem areas which cannot be identified by
conventional planning methods.
2. In PERT, the element of uncertainty is greatly reduced to a minimum by adapting a three-way estimate.
3. PERT is helpful in implementing the technique known as „Management by Exception‟. The management by
exception concentrates on critical events rather than uncritical events.
4. Bottlenecks and potential trouble shoots in an organisation that can be identified through PERT technique and
preventive measures or corrective actions are taken immediately.
Limitations of PERT/CPM
1. There is an uncertainty about the estimate of time and resources.
2. The costs of PERT/CPM is higher than the conventional methods of planning and control.
3. PERT/CPM is not suitable for relatively simple and repetitive processes.
5. Management by Exception (MBE)
Management by exception states that only exceptional (significant) deviations from established standards
should be brought to the notice of management.
If the actual performance is within an acceptable range of deviation from the standard, it need not be reported
to the management for remedial action.
Superior interfere in the subordinate‟s activities only exceptionally when a major or significant problem
arises. Routine problems are solved only by subordinates.
Proper mechanism has to be devised which may put management „red alert‟ i.e. condition of readiness to deal
with a situation of great danger.
 Danger signals must be transmitted well in time so as to convey the probable arrival of exceptional problems
and thus a great loss may be avoided.
Subordinates should identify the pointers to critical problems so that immediate reporting to the management
may be done well in time and uniformed and impulsive action may be avoided.
MIS facilitates proper delegation and decentralisation of authority and saves time and unnecessary efforts.
INFORMATION TECHNOLOGY IN CONTROLLING
Nowadays, the management needs more advance technology for solving its basic requirements. MIS is used for the
decision making in the various functional areas of business. MIS is a new technique which has brought with increased
accuracy and speed to the management.

Figure Management information system

Definition:
MIS can be defined as "A system of obtaining, abstracting, storing and analyzing data to produce effective information
for use in planning, controlling and decision making process".
The man machine combination helps to solve complex business and industrial problems and that too quickly.
Characteristics of Good Management Information System:
1. Information must be clear and conciseness.
2. The information should be relevant to the business organization. Unnecessary information's should be avoided.
3. MIS must be simple and easy to understand.
4. It must help the process in decision-making corrective actions.
5. MIS should help in solving the complicated effectively.
Need of MIS
1. Internal factors
(i) Resources:
This involves the analysis of available resources organization, such as money, material, machine etc.
(ii) Planning and control information:
To get required information about budgets, sales forecasts etc.
(iii) Operational information:
The techniques evaluate the overall operations of the business.
(iv) Production function:
It is required to increase the production, product quality and to reduce wastages etc.
(v) Marking function:
To obtain the required information for plan sales forecast, advertising budget consumer satisfaction, sales value
competitors etc.
1. External Information Needs
(i) Political and Government:
This involves information about political fiscal policies, government policies, procedures, rules and regulations.
(ii) Economic condition:
To get the required information, such as money value, GNP, inflation rate interest rate etc.
(iii) Technology:
To get information about new advanced machinery, new process etc.
MIS Resources
MIS consists of five major resources.
1. Computer hardware
It refers to a computer system and other associated equipment including the communication link. For example,
computers, monitors, disk, printers, optical scanners.
2. Software
Programs: Operating system programs, word processing programs and procedures.

Figure MIS resources

3. Data
It is in the form of symbols, digits, alphabets, graph pictures etc.
4. People
Specialists system analyze programmers and computer operators.
Implementation of MIS
Management information system is implemented following step.
1. Input data
The necessary data can be collected. The object is development of better information system for management
 Figure Implementation of MIS
2. Information stored and retrieval
The necessary data can be stored and utilized, when required. The information can be indexed and classified for quick
accessibility of the management.
3. Analysis
To utilize the data effectively it is necessary to analyze them, such as analyzing the problem, developing alternatives
and selecting the best one.
4. Output
Output in the form of reports, charts, tables, graph etc.
5. Decision making
The output information is used for decision-making process.
6. Action
After decision, the output information is taken and it is converted into action.
Application of MIS
1. To provide long term plans
2. To find out new opportunities
3. To allocate resources
4. To provide planning and control
5. To provide sales forecasting
6. To help management decision about, quality, quantity and market price etc
7. To provide government policy and regulation
8. To provide effective managerial activities
Important Devices for Information System
1. Speech Recognition devices
Instead of keyboard input data to the computer is through speech by normal manner. It can be used several companies
for several uses. Clear communication is also possible some disadvantage also in this system. Similar sound words like
„to‟ 'too' and 'two' are complex problems.
2. Network
It is one of the most important information technology. Computer is connected by internet and other communications
network. The network serves as a share processing, software and database.
Computer networks enable end users and work groups to communicate and collaborate electronically and share the use
of hardware, software and data resources. The networks have become the primary information technology that supports
the business operations of many organizations.
Importance of MIS or Role of MIS
MIS can be used for the decision making process of an organization in the following areas.
 Sl.no Major Subsystem Application
1. Marketing Sales planning, sales analysis, sales forecasting
2. Manufacturing Production planning, cost control analysis
3. Logistics Planning and control
4. Finance and accounting Cost analysis, planning, income measurement
5. Top management Strategic planning, policy, resource allocation
1. The MIS increases the knowledge of manager and can function effectively.
2. MIS provides decision-making process.
3. MIS provides a successful achievement of organization objectives.

Fig. Role of MIS

5.5.5. Management and MIS
MIS supports the management activity. Information system provides information to managers of three levels of
responsibilities. MIS helps to guide managers to carry out their planning, organizing, directing, controlling and
coordinating the functions effectively.
1. Operational control
Operation control provides a detailed information and accurate on a daily or weekly basis. A market manager must
know the past and present sales record, consumer's behavior, and advertising budget. The MIS must provide him
timely and detailed information obtained from daily operations.
2. Middle management
Middle levels managers, such as department's heads are concerned with the current and future performance. For
example, information about marketing level problems with customer's reduction in sales and quality of product is
needed by middle managers. They required information within and outside organization.

Figure Management of MIS

3. Top level-strategic planning
MIS must provide information to top management for strategic planning and control. They need the following external
source of information
1. Economic condition
2. Technological condition
3. Government policy
 4. Actions of Competitors Company
They need the following internal sources of information.
1. Sales volume
2. Financial analysis
3. Human resources
4. Product quality, customer's satisfaction.
MIS should provide information to the managers accurately and correct time. So MIS should be designed in a suitable
way depending upon the organization. The top managers receive overall financial analysis and summarized
comparisons of department performance.
USE OF COMPUTERS INFORMATION IN HANDLING
Sales Forecast and Control:
The computer can prepare an estimate of future sales called sales forecast from sales data. It can be programmed to
read historical sales data and calculate huge data. The marketing department can make predictions about among
business cycles, useful in planning advertising campaigns, stocking retailers, tooling up assembly lines, and contracting
with suppliers.
Payroll:
The computer can process a firm's payroll. It can be programmed to read payroll records, calculate earnings,
deductions and with holdings and printout pay checks. Computerized payroll systems can handle hourly or salaried
payrolls and commission payments,
Business Management:
The computer can provide reports and data for management. Inventory sales analysis, credit analysis can be calculated.
Accounting:
A comprehensive accounting system can be put on the computer by using electronically stored ledgers in the machine.
The computer can print-out customer billings, taxes, reports, profit and loss statements, balance sheets and other
financial information required internally and externally.
Personnel management information:
The computer can provide management with data on the composition of its personnel. It can print out information on
job classification and personnel capabilities, and can list employees by department, by salary schedule or by both.
Cost Accounting:
The computer can print out an analysis of production costs. It can be programmed to perform routing of cost
accounting tasks with budgeted hourly costs on individual machine rates and overhead figures.
Manufacturing information control:
The computer is used in the manufacture and production of goods. It can provide ordering, warehousing and cost data,
based on art numbers or bills leading.
The computer can schedule work for an assembly line based upon labour available by shift. It can print out a list of
equipment and a list of equipment and materials needs for the line for a given day and predict output. The saved
information in the machine can then report the number, and unit produced and a provide follow up for cost data.
Banking and Credit:
The computer is used in the finance, credit and collection industry. It can process deposits, commercial and consumer
loans, and revolving charge accounts for banks and department stores.
MANAGING PRODUCTIVITY
Productivity
Productivity is one of the major concerns of every manager of the organization. Productivity of a production system is
same as the efficiency of a machine.
Definition:

Productivity is a measure of how much input required to produce a given output i.e.. the ratio is called
productivity.
Productivity is the measure of how well the resources are brought together in an organization and utilized for
accomplishing a set of objectives.
Factors affecting Productivity
1. Technology
2. Human resources
3. Government policy
4. Machinery and equipment
5. Skill of the worker
6. Materials
7. Plant equipment
8. Land and Buildings
9. Capital
10. Research and Development
1. Technology
New technology developments and R&D development improve the productivity.
2. Human resources
Education of the employee's favours the improvement of the productivity . Motivation of the employees improves the
efficiency of the productivity.
3. Government policy
Government can eliminate unnecessary regulations and make productivity effectively.
4. Machinery and Equipment
Modern machineries and equipment also increase productivity.
5. Skill of the workers
Well trained and experienced employees lead to effective productivity.
6. Capital
Increased capital investment results in increased productivity. This capital also increases other factors, such market
share, low cost, high profit.
7. Research and Development
Research and development play a vital role in determining the productivity. The research includes the reduction of cost
and wastage, new techniques etc. All these factors must help the concern to increase productivity.
8. Trade unions
Some trade unions create some unnecessary problems in the company and start strike and lock out the
Company. It decreases the productivity. Efficient top management executives smoothly handle the trade unions to
carry out the positive effect.
9.Materials
Productivity of materials can also be increased by using correct process, well trained workers, and storage facilities.
10. Plant, equipment
Productivity can be increased through modern tools. A proper maintenance of plant and equipment increases the
productivity.
11. Land and Buildings
Working environment must be suitable for employees. A poor plant layout and construction will affect the
productivity.
Productivity Measures

Role of Productivity
a) For management
1. To get high profit
2. To improve the resources
3. To increase the sales
b) For workers
1. Job satisfaction and Job security
2. Promotion
3. Higher salary
4. Better working conditions
c) For customers
1. To get quality products
2. Reduced prices
3. Easily available
Production and Operations Management
Production
Production is defined as the step-by-step conversion of raw material into finished products through chemical or
mechanical process to create the product.
For example, copper ore is existed in nature. It converted into copper plate by chemical process.
Operation management
It refers to activities necessary to produce and deliver service or physical products.
Example; Copper ore undergoes some chemical process to remove the impurities followed by some mechanical
process to get copper plate.
Operation Management System

Fig. Operation management system

INPUT : Technology, Management and labour, Man, Machine, Money, Building.
PROCESS : Required process of planning, operating and controlling the system.
OUTPUT : Product, Service
Objectives of operation management:
1. Right quality of product
2. Right quantity of product
3. Less manufacturing cost
4. Manufacturing schedule
DIRECT AND PREVENTIVE CONTROL
Direct Control
In this organization, some employee's performance is poor. Finding out the employees and then correcting their
performance and achieve the organization goals is called direct control.
Factors influencing the direct control:
The following factors influence the direct control.
1. Uncertainty
2. Lack of knowledge experience
3. Lack of communication
4. Lack of coordination
1. Uncertainty
In every business enterprise, all managerial activities contain risk, facts and uncertainties. Compared to risk and facts,
uncertainty is an important element. Uncertainty creates negative deviations in the performance. Uncertainty reduces
the actual plan.
Managerial errors are caused by unforeseeable events. Futures cannot be predicted accurately. In this situation, direct
control is not effective.
2. Lack of knowledge and Experience.
Organization managerial position is an important device to attain their goals. Inexperienced untrained managers are
unable to control process effectively. Qualified experienced persons should be appointed as a manager for effective
direct control.
J. Lack of communication
It is the communication gap between the different units in the enterprises affects the managerial activities. It also
affects the direct control.
Effective steps for direct control
Success of direct control in an organization depends upon the following factors.
1. Performance can be measured
In every enterprise, some standards can be fixed. Input, Output, Price, Cost, Time and Quality are subject to numerous
standards. If there is any deviation from standards, skilled managers find out the deviations and correct it. Technical
skill, creativity skills and problem solving skills are useful to measure the performance of each employee.
Effective manager is able to locate the poor performance area to control it effectively so that it is possible to minimize
the cost.
2. Effectively utilizes time
Generally, managers conduct various enquiries and meetings and they consume more time. The effective utilization of
time increases the effective control.
3. Errors can be discovered in time
Generally, errors have taken place in the major areas, such as cash, inventories, production etc. The able managers can
find out the mistakes in correct time and take necessary steps to correct the mistakes. The feed ward technique is used
for effective control. This technique is used to correct the mistakes rather than avoiding the mistakes.
4. Participation
The involvement of the employees in all activities of the enterprises leads to effective control.
5. Coordination
Increased coordination of all units increases the effective management. Effective coordination leads to effective
control.
Preventive Control
An efficient manager applies the skills in managerial philosophy to eliminate undesirable activities which are the
reasons for poor management. This is called preventive control.
Effective steps for preventive control
1. Qualified managers
The position of a manager is important for every organization. He must take a problem solving and decision making
process. Experienced, technical skillful manager is a forecast the future with a reasonable degree of accuracy. The
effective manager performs efficiently and reduces the error in the enterprises.
2. Management principles to measure performance
In the basic principles concept theory, basic techniques of management are more important tools for effective manager.
The manager should be aware of the measurement concept to handle any tasks in the organization successfully. These
principles concepts are used to measure the performance.
3. Evaluation
A proper evaluation of managers is an essential part of preventive control. The evaluation shows the actual
performance of the managers. In case of dissatisfaction with the evaluation of managers , there will be a need for new
recruitment or train up the managers.
Advantages:
1. It is better than direct control.
2. This control is fast and quick.
3. This control enhances a smooth relationship between the superiors and subordinates
4. Prevention is better than cure. This reduces wastages of cost.
5. It gives greater accuracy.
REPORTING
Budget summaries and reports
Every enterprise has its own objectives. Submission of budget and reports play an important role. Budget and reports
are the resume of the particular company. It includes company sales volume, profit, credit, cost, purchase and return on
Investment.
Purpose of budget and reports:
The manager should compare a planned budget with actual budget. Minor deviations can be ignored. The manager is
responsible to take corrective action or report it to the top management. When the major deviation is taken place,
budgets reflect the company's objectives or goals, Every budget is influenced by uncertainty. Every enterprise meets
some unexpected events in the course of action that time budget, changes is uncontrollable. The deviation between
planned budget and actual budget can be controlled by an efficient manager.
The budget summaries and reports are the major tools for top managements to find out where the deviation has
occurred.
Return on Investment
The return on Investment is the broadest measure overall performance of a business. The prime objective of business is
to obtain satisfactory return on capital invested. ROI can be used to measure the efficiency of the company.
ROI is calculated on the basis of three factors.

a)
b)
c)

Advantages of ROI:
1. ROI measurement shows business efficiency.
2. ROI plays a vital role for top management for budget decisions.
3. It is used in inter departmental comparison.
4. ROI is used for comparing other companies.
5. ROI gives ideas for analysis and decisions to bring about effective changes in financial policies.
Limitations:
1. In ROI measurements, some factors, such as inventory valuation, depreciation cannot be considered.
2. In a high rate of ROI, the managers may not be interested in the business activities due to the fear of decrease
in ROI.
3. High or low profits are possible in the concern. In such cases, ROI is not correct judgment of financial
analysis.
QUESTION BANK
PART A
1. Define control?
According to Knootz “Controlling to the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished”.
2. Why need of control in the organization?
Control process is universal.
Control is a continuous process.
Control is action based.
Control is forward looking.
3. Why need of control in the organization?
Control can minimize the mistake.
To discover the deviations in the management
To minimum dishonest behaviors of employees.
4. What are the Inter –relationship between planning and end with control?
The management process of adjusting future action on the basis of information about past performance. Control helps
in achieving them
5. What is Feedback Control?
Feedback control is the process of adjusting future action on the basis of information about past performance.
6. What is management by exception?
Actual performance compare with the standard performs deviations which can not significant should be avoided.
7. What is concurrent control?
This control measures for taking corrective action while a programme meet any obstacle in this activities.
 8. What is feed forward control?
It is preventive in nature. This control involves evaluation of inputs and taking corrective action before a particular
operation is completed.
9. What is direct labour Budget?
Direct labor Budget reveals the expected labor requirements during the budget period
10. What is fixed Budget?
In this budget in which targets are rigidly fixed .This is a forecast of the targets for the coming fear prepared well in
advance.
11. What is flexible budget?
A flexible budget is a budget designed to change in the level of activity.
12. What is Internal Audit?
Internal audit is done by an internal auditor who is an employee of the organization. He examines the objectives,
policies, plans procedures and performance of the management
13. Define Productivity?
Productivity is a measure of how much input is required to produce a given output .i.e. the ratio (output/input) is called
productivity.
14. Define: OR
Operation Research is a systematic analysis of a problem through scientific methods ,carried out by appropriate
specialists ,working together. As a team, finding an optimum and the most appropriate solution to meet the given set of
constraints.
15. What is JIT?
Just in Time Inventory system. In this method the suppliers deliver the materials to the production spot just in time to
be assembled .This method reduces cost of inventory.
16. What is value engineering?
It is a special type of cost reduction and product improved technique.
17. What is preventive control?
An efficient manager applies the skills in managerial philosophy to eliminate undesirable activated which are the
reasons for poor management.
18. define: Multinational Corporation?
“An enterprise which own or control production or service facilities outside the country in which they are based “.
19. What is ethnocentric attitude?
The manager orientation and managerial activities, operations was based on that of the parent company.
20. What is polycentric attitude?
Polycentric attitude manager orientation was host country orientation.
21. What is geocentric attitude?
This type of managers is trained to balance central, local and global objectives.
PART B
1. Explain the difference between Japanese and US Management. (16)
2. Explain in detail about MNCs. (16)
3. Discuss in detail about the techniques used for improving Productivity. (8)
4. Explain the term „Reporting”. (8)
5. Explain in detail the preventive control mechanism towards achieving a unified global management theory.
(16)
6. Impact of IT in Management concept – Discuss. (16)
7. Discuss in briefly about the various functions of MNC. (16)
8. Explain in detail about the Globalization and Liberalization. (16)
9. Explain in detail reporting and ROI. (16)
10. Write down the management concept in Germany. (8)
11. Explain in detail the various forms of International business. (8)