DEPARTMENT OF COMPUTER SCIENCE AND ENGINEERING

R2021 - SEMESTER VII

PROFESSIONAL ELECTIVE IV: GE3751 –

PRINCIPLES OF MANAGEMENT
UNIT V - CONTROLLING

UNIT V CONTROLLING 9

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.

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1. SYSTEM AND PROCESS OF CONTROLLING

1.1 Introduction to Controlling

 Every organization aims at achieving some goals from its business activities and it is essential to
ensure whether or not the firm is performing activities according to the pre-determined goals.
 The controlling function of management helps an organization in ensuring the same.

Definition : Control

 Control is the process through which managers assure that actual activities conform to
planned activities.
 In the words of Koontz and O'Donnell - "Managerial control implies measurement of
accomplishment against the standard and the correction of deviations to assure
attainment of objectives according to plans."

Nature & Purpose of Control

• Control is an essential function of management

• Control is an ongoing process

• Control is forward – working because pas cannot be controlled

• Control involves measurement

• The essence of control is action

• Control is an integrated system

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1.2. Basics on Controlling

What is controlling in Management?

According to different authors, controlling in management is defined as:
Koontz and O'Donell
“The process of measuring and correcting the performance of subordinates to ensure that the
organization's objectives are being accomplished.”

Brech
“A systematic process of comparing actual performance against plans or standards to ensure
progress and record experiences for future use.”

Purpose of controlling

Controlling means to

a) compare the actual performance of an organization with the planned performance and
b) Take corrective actions if the actual performance does not match the planned performance.

Importance of Controlling

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Nature of Controlling

1. Controlling is a goal-oriented function of management

 It aims at ensuring that the resources of the organization are used effectively and efficiently for
the achievement of pre-determined organizational goals.

2. Controlling is a continuous process

 It means that once the actual performance and standard performance of a business are compared
and corrective actions are taken, the controlling process does not end.
 Instead, the firms have to continuously review the performance and revise the standards.

3. Controlling is all-pervasive
 It means that the controlling function is exercised by the firms at all levels of management. The
extent of control and nature of the function may vary at every level.
 Also, a controlling process is required in both non-business and business organizations.

4. Controlling process is both a forward-looking and backward-looking function.

 As a forward-looking function, it aims at improving the future performance of an organization on
the basis of its past experiences.
 However, as a backward-looking function, it measures and compares the actual performance and
planned performance (fixed in past) of the organization.

Importance of Controlling
Controlling function is important for every organization due to the following reasons:

1. Accomplishing Organizational Goals

Controlling is a goal-oriented process as it aims at determining whether the pre-determined plans
are being performed accordingly and whether required progress is made towards the achievemen

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of the objectives.
With the help of controlling, an organization can keep the business activities on the right track and
can achieve the organizational goals effectively and efficiently, and take the necessary corrective
actions if required.

2. Judging Accuracy of Standards

An effective controlling process can help an organisation in verifying whether or not the firm has
set the standards accurate. It also helps in keeping a check on the changes taking place in the
business environment and making required changes in the standards whenever it is necessary.

3. Making Efficient Use of Resources

Controlling helps an organisation in reducing wastage of resources, as it aims at ensuring that eve
activity of the firm is performed according to the pre-determined goals.

4. Improving Employee Motivation

As controlling process includes comparing the pre-determined goals of an organisation with its
actual performance, it properly communicates the role of employees in advance. It means that the
employees know in advance on what standards their performance will be measured, compared, a
appraised. This set of pre-determined goals motivates them to give a better performance.

5. Ensuring Order and Discipline

An efficient control system in an organisation can help its managers in creating an atmosphere of
discipline and order in the firm. Besides, controlling also helps in keeping a continuous check on
the employees so they can minimise undesirable activities, such as theft, corruption, fraud, etc.

6. Facilitating Coordination in Action

Controlling process also helps an organisation in facilitating coordination between different
divisions and departments by providing the employees with unity of direction. In other words,
every employee and department of the organisation is governed by a pre-determined set of goals.

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 also motivates employees in achieving these common goals through coordination to avoid
duplication of efforts.

Features of a Good Control System

a) Suitable: A good control system should be suitable for the needs and nature of the
organisation.

b) Simple: A good controlling system should be easy to operate and understand.

c) Economical: The cost of setting, implementing, and maintaining a control system should not be
more than the benefits gained from it.

d) Flexible: A good control system should have the ability to adjust according to the changing
business environment and internal conditions.

e) Forward Looking: A good control system should move in a forward direction so that the
managers can easily determine the deviations before they actually happen in the organization.

f) Objective: The standards of the organisation, its measurement of performance, and corrective
actions should be impersonal and objective.

g) Management by exception: A good control system should focus its attention on the significant
deviations which are crucial for the organization, instead of looking for the deviation which
does not have much impact on the business.

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1.3 Limitations of Controlling

1. Difficulty in Setting Quantitative Standards

 When an organization cannot define its standards in quantitative terms, the controlling system
becomes less effective.
 For example, it is difficult to measure the human behaviour of employees in quantitative terms,
which makes it difficult for the firm to measure their performance from the standards.

2. Little Control on External Factors

 The controlling system of an organization can effectively control the internal factors; however,
it is not easy to control the external factors of an organization.
 For example, a firm can check and control any change in its production (internal factor), but
cannot keep a check on the changing technological advancement, government policies, etc.
(external factors).

3. Resistance from employees

 The effectiveness of the controlling system highly depends on whether or not the employees
have accepted the process.
 It means that if the employees think of the control system as a restriction on their freedom, they
will resist the system.
 For example, the employees of an organisation might object when they are kept under various
restrictions making them feel their freedom is being taken.

4. Costly Affair
 Controlling is an expensive process, which means that every employee’s performance has to be
measured and reported to the higher authorities, which requires a lot of costs, time, and effort.
 Because of this reason, it becomes difficult for small business firms to afford such an expensive
system.

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 Besides, a controlling system is effective only when the benefits gained from it exceed the
expenses made on them.

1.4 System and process of controlling

 Controlling is the process of assessing and modifying performance to ensure that the company's
objectives and plans for achieving them are met.
 Control is the final role of management.
 The controlling function will become obsolete if other management functions are properly
carried out.
1.5 Control Process

The basic control process involves mainly these steps as shown in Figure

a) The Establishment of Standards:

 Because plans are the yardsticks against which controls must be revised, it follows logically
that the first step in the control process would be to accomplish plans.

 Plans can be considered as the criterion or the standards against which we compare the
actual performance in order to figure out the deviations.

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Examples for the standards

a) Profitability standards: In general, these standards indicate how much the company
would like to make as profit over a given time period- that is, its return on investment.
b) Market position standards: These standards indicate the share of total sales in a
particular market that the company would like to have relative to its competitors.
c) Productivity standards: How much that various segments of the organization should
produce is the focus of these standards.

d) Product leadership standards: These indicate what must be done to attain such a
position.

e) Employee attitude standards: These standards indicate what types of attitudes the
company managers should strive to indicate in the company‘s employees.
f) Social responsibility standards: Such as making contribution to the society. Standards
reflecting the relative balance between short and long range goals.

b) Measurement of Performance:

The measurement of performance against standards should be on a forward looking basis so

that deviations may be detected in advance by appropriate actions. The degree of
 difficulty in measuring various types of organizational performance, of course,
is determined primarily by the activity being measured.
 For example, it is far more difficult to measure the performance of highway maintenance
worker than to measure the performance of a student enrolled in a college level
management
course.

c) Comparing Measured Performance to Stated Standards:

When managers have taken a measure of organizational performance, their next step in
controlling is to compare this measure against some standard.
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 A standard is the level of activity established to serve as a model for evaluating organizational
performance.
 The performance evaluated can be for the organization as a whole or for some individuals
working within the organization.
 In essence, standards are the yardsticks that determine whether organizational performanc
adequate or inadequate.

d) Taking Corrective Actions:

 After actual performance has been measured compared with established performance standa
the next step in the controlling process is to take corrective action, if necessary.
Corrective action is managerial activity aimed at bringing organizational performance up to the

level of performance standards.
In other words, corrective action focuses on correcting organizational mistakes that hinder
 organizational performance.

Before taking any corrective action, however, managers should make sure that the standards th

 are using were properly established and that their measurements of organizational performance
valid and reliable.
At first glance, it seems a fairly simple proposition that managers should take corrective action to

 eliminate problems - the factors within an organization that are barriers to organizational goa
attainment.
In practice, however, it is often difficult to pinpoint the problem causing some undesirable

 organizational effect.

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1.6 Barriers for Controlling

There are many barriers, among the most important of them:

• Control activities can create an undesirable overemphasis on short-term production as

opposed to long- term production.
• Control activities can increase employees' frustration with their jobs and thereby reduce
morale. This reaction tends to occur primarily where management exerts too much control.
• Control activities can encourage the falsification of reports.

• Control activities can cause the perspectives of organization members to be too narrow for
the good of the organization.
• Control activities can be perceived as the goals of the control process rather than the
means by which corrective action is taken.

1.7 Requirements for effective Control

The requirements for effective control are

a) Control should be tailored to plans and positions

 This means that, all control techniques and systems should reflect the plans they are designed
to follow.

 This is because every plan and every kind and phase of an operation has its unique
characteristics.

b) Control must be tailored to individual managers and their responsibilities

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 This means that controls must be tailored to the personality of individual managers. This
because control systems and information are intended to help individual managers carry
out their function of control.

 If they are not of a type that a manager can or will understand, they will not be useful.

c) Control should point up exceptions as critical points

 This is because by concentration on exceptions from planned performance, controls based

on the time honored exception principle allow managers to detect those places where their
attention is required and should be given.

 However, it is not enough to look at exceptions, because some deviations from standards
have little meaning and others have a great deal of significance.

d) Control should be objective

 This is because when controls are subjective, a manager‘s personality may influence
judgments of performance inaccuracy.

 Objective standards can be quantitative such as costs or man hours per unit or date of job
completion.

 They can also be qualitative in the case of training programs that have specific characteristics
or are designed to accomplish a specific kind of upgrading of the quality of personnel.

e) Control should be flexible

 This means that controls should remain workable in the case of changed plans, unforeseen
circumstances, or outsight failures.

 Much flexibility in control can be provided by having alternative plans for various probable
situations.

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 f) Control should be economical

 This means that control must worth their cost. Although this requirement is simple, its practice
is often complex.

 This is because a manager may find it difficult to know what a particular system is worth, or
to know what it costs.

g) Control should lead to corrective actions


This is because a control system will be of little benefit if it does not lead to corrective action
control is justified only if the indicated or experienced deviations from plans are corrected
through appropriate planning, organizing, directing, and leading.

1.8 Types of Control Systems

The control systems can be classified into three types namely feed forward, concurrent and feedba
control systems.

Types of Control Systems

a) Feed forward controls: They are preventive controls that try to anticipate problems and
take corrective action before they occur. Example – a team leader checks the quality,

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completeness and reliability of their tools prior to going to the site.

b) Concurrent controls: They (sometimes called screening controls) occur while an activity is
taking place. Example – the team leader checks the quality or performance of his members
while performing.
c) Feedback controls: They measure activities that have already been completed. Thus
corrections can take place after performance is over. Example – feedback from facilities
engineers regarding the completed job.
**************************

2. Budgetary and non - Budgetary control techniques

2.1 Budgetary Control

Definition: Budgetary Control

 Budgetary Control is defined as “the establishment of budgets, relating the responsibilities

of executives to the requirements of a policy, and the continuous comparison of actual
with budgeted results either to secure by individual action the objective of that policy or
to provide a base for its revision”.

Salient features:

a. Objectives: Determining the objectives to be achieved, over the budget period, and the
policy(ies) that might be adopted for the achievement of these ends.
b. Activities: Determining the variety of activities that should be undertaken for achievement
of the objectives.

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 c. Plans: Drawing up a plan or a scheme of operation in respect of each class of
activity, in physical a well as monetary terms for the full budget period and its parts.
d. Performance Evaluation: Laying out a system of comparison of actual
performance by each person section or department with the relevant budget and
determination of causes for the discrepancies, if any. e. Control Action: Ensuring that
when the plans are not achieved, corrective actions are taken; and when corrective
actions are not possible, ensuring that the plans are revised and objective achieved.

2.2 Classification of Budgets

Budgets may be classified on the following bases –

a) Time Period

b) Conditions

c) Capacity

d) Coverage

Classification of Budgets

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a) BASED ON TIME PERIOD:

(i) Long Term Budget

Budgets which are prepared for periods longer than a year are called LongTerm
Budgets. Such Budgets are helpful in business forecasting and forward planning.
Eg: Capital Expenditure Budget and R&D Budget.

(ii) Short Term Budget

Budgets which are prepared for periods less than a year are known as ShortTerm
Budgets. Such Budgets are prepared in cases where a specific action has to be
immediately taken to bring any variation under control.
Eg: Cash Budget.

b) BASED ON CONDITION:

(i) Basic Budget

A Budget, which remains unaltered over a long period of time, is called Basic
Budget.
(ii) Current Budget

A Budget, which is established for use over a short period of time and is related to
the current conditions, is called Current Budget.

c) BASED ON CAPACITY:

(i) Fixed Budget

It is a Budget designed to remain unchanged irrespective of the level of activity

actually attained. It operates on one level of activity and less than one set of
conditions. It assumes that there will be no change in the prevailing conditions,

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 which is unrealistic.
(ii) Flexible Budget

It is a Budget, which by recognizing the difference between fixed, semi variable and
variable costs is designed to change in relation to level of activity attained. It consists
of various budgets for different levels of activity

d) BASED ON COVERAGE:

(i) Functional Budget

Budgets, which relate to the individual functions in an organization, are known as

Functional Budgets, e.g. purchase Budget, Sales Budget, Production Budget, plant
Utilization Budget and Cash Budget.
(ii) Master Budget

It is a consolidated summary of the various functional budgets. It serves as the basis

upon which budgeted Profit & Loss Account and forecasted Balance Sheet are built
up.

2.3 Budgetary Control Techniques

The various types of budgets are as follows

i) Revenue and Expense Budgets:

 The most common budgets spell out plans for revenues and operating expenses in
rupee terms.

 The most basic of revenue budget is the sales budget which is a formal and detailed
expression of the sales forecast.

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 The revenue from sales of products or services furnishes the principal income to pay
operating expenses and yield profits.

 Expense budgets may deal with individual items of expense, such as travel, data
processing, entertainment, advertising, telephone, and insurance.

ii) Time, Space, Material, and Product Budgets:

 Many budgets are better expressed in quantities rather than in monetary terms. e.g. direct-
labor-hours, machine-hours, units of materials, square feet allocated, and units produced.

 The Rupee cost would not accurately measure the resources used or the results intended.

iii) Capital Expenditure Budgets:

 Capital expenditure budgets outline specifically capital expenditures for plant, machinery,
equipment, inventories, and other items.
These budgets require care because they give definite form to plans for spending the funds

of an enterprise.
Since a business takes a long time to recover its investment in plant and equipment,
 (Payback period or gestation period) capital expenditure budgets should usually be tied in

with fairly long-range planning.

iv) Cash Budgets:

The cash budget is simply a forecast of cash receipts and disbursements against which
actual cash "experience" is measured. The availability of cash to meet obligations as they fall
due is the first requirement of existence, and handsome business profits do little good when tied
up in inventory, machinery, or other noncash assets.

v) Variable Budget:

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The variable budget is based on an analysis of expense items to determine how individual
costs should vary with volume of output. Some costs do not vary with volume,
 particularly in so short a period as 1 month, 6 months,
or a year.
 Among these are depreciation, property taxes and insurance, maintenance of plant
and
equipment, and costs of keeping a minimum staff of supervisory and other key
personnel.
 Costs that vary with volume of output range from those that are completely
variable to
those that are only slightly variable.
The task of variable budgeting involves selecting some unit of measure that reflects
volume; inspecting the various categories of costs (usually by reference to the chart of
accounts);
vi) Zero Based and, by statistical studies, methods of engineering analyses, and other
Budget:
means,
 The idea behind this technique is to divide enterprise programs into "packages" composed
determining
of goals, howand
activities, these costsresources
needed should vary
andwith
thenvolume of output.
to calculate costs for each package from
the ground up.

 By starting the budget of each package from base zero, budgeters calculate costs afresh for
each budget period; thus they avoid the common tendency in budgeting of looking only at
changes from a previous period.

Advantages

There are a number of advantages of budgetary control:

• Compels management to think about the future, which is probably the most important
feature of a budgetary planning and control system. Forces management to look ahead, to
set out detailed plans for achieving the targets for each department, operation and (ideally)

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 each manager, to anticipate and give the organization purpose and direction.

• Promotes coordination and communication.

• Clearly defines areas of responsibility. Requires managers of budget centre‘s to be made

responsible for the achievement of budget targets for the operations under their personal
control.

• Provides a basis for performance appraisal (variance analysis).

• A budget is basically a yardstick against which actual performance is measured and

assessed.

• Control is provided by comparisons of actual results against budget plan. Departures from
budget can then be investigated and the reasons for the differences can be divided into
controllable and non-controllable factors.
• Enables remedial action to be taken as variances emerge.

• Motivates employees by participating in the setting of budgets.

• Improves the allocation of scarce resources.

• Economizes management time by using the management by exception principle.

Problems in budgeting

• Whilst budgets may be an essential part of any marketing activity they do have a number
of disadvantages, particularly in perception terms.

• Budgets can be seen as pressure devices imposed by management, thus resulting in:

a) bad labour relations

b) inaccurate record-keeping.

• Departmental conflict arises due to:

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 a) disputes over resource allocation

b) departments blaming each other if targets are not attained.

• It is difficult to reconcile personal/individual and corporate goals.

• Waste may arise as managers adopt the view, "we had better spend it or we will lose it".

• This is often coupled with "empire building" in order to enhance the prestige of a
department.

• Responsibility versus controlling, i.e. some costs are under the influence of more than one
person, e.g. power costs.

• Managers may overestimate costs so that they will not be blamed in the future should they
overspend.

2.4 Non-Budgetary Control Techniques

 There are, of course, many traditional control devices not connected with budgets,
although some may be related to, and used with, budgetary controls.

 Among the most important of these are: statistical data, special reports and analysis,
analysis of break- even points, the operational audit, and the personal observation.

i) Statistical data:

 Statistical analyses of innumerable aspects of a business operation and the clear presentation
of statistical data, whether of a historical or forecast nature are, of course, important to contro

 Some managers can readily interpret tabular statistical data, but most managers prefer
presentation of the data on charts.

ii) Break- even point analysis:

 An interesting control device is the break even chart.

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 This chart depicts the relationship of sales and expenses in such a way as to show at what
volume revenues exactly cover expenses.

iii) Operational audit:

 Another effective tool of managerial control is the internal audit or, as it is now coming to
be called, the operational audit.

 Operational auditing, in its broadest sense, is the regular and independent appraisal, by a
staff of internal auditors, of the accounting, financial, and other operations of a business.

iv) Personal observation:

In any preoccupation with the devices of managerial control, one should never overlook the
importance of control through personal observation.

v) PERT:

 The Program (or Project) Evaluation and Review Technique, commonly abbreviated PERT,
is a is a method to analyze the involved tasks in completing a given project, especially the
time needed to complete each task, and identifying the minimum time needed to complete
the total project.

vi) Gantt Chart:

 A Gantt chart is a type of bar chart that illustrates a project schedule.

 Gantt charts illustrate the start and finish dates of the terminal elements and summary

elements of a project.

 Terminal elements and summary elements comprise the work breakdown structure of the

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 project.

 Some Gantt charts also show the dependency (i.e., precedence network) relationships
between activities.

3. Use of computers and IT in Management control

The uses of computers in management control in not an easy to say that Managers use computers
to manage resources for a variety of reasons, including keeping their teams on track, budgeting
and planning projects, monitoring inventory, and preparing documents, proposals, and
presentations.

The role of information technology in management control and the Fundamental Role of IT in
Business Management is that the Information Technology plays a crucial role in improving
efficiency, decision-making, and overall business performance because of automation.

 It lets businesses access information in real time and helps with seamless communication within
the organization.

3.1 Use of IT for controlling

 Information Technology plays a crucial role in improving efficiency, decision-making, and overall
business performance because of automation.
 It lets businesses access information in real time and helps with seamless communication within
the organization.

 Information Technology has gone through a myriad of changes, transforming the way businesses
operate.

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 From basic computers to the internet and now advanced tools like cloud computing and artificial
intelligence, IT has become super important for businesses.

 IT application or program controls are fully automated (i.e., performed automatically by the
systems) and designed to ensure the complete and accurate processing of data, from input throu
output.
 These controls vary based on the business purpose of the specific application.
 IT’s growing significance is mainly because of its ability to automate tasks, enhance
collaboration, and offer real-time insights.
 As businesses jump on the digital transformation bandwagon, IT continues to be a driving force.

Enhancing Communication and Collaboration

When it comes to the role of IT in business management, communication, and collaboration take the
cake.

Unified Communication Systems

 Let’s say, you run a remote organization with team members based in different parts of the
country. You no longer have to operate with a variety of tools that get confusing.

Unified Communication Systems when powered by Information Technology, bring teams closer
by combining various communication tools into one seamless platform.

Email keeps conversations organized, while video conferencing adds face-to-face live
interactions. Messaging apps offer quick, real-time exchanges and make room for hassle-free
collaboration.

 Information Technology makes sure these tools work together smoothly to give businesses a
unified experience.

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 Imagine sharing ideas through emails, discussing projects on video calls, and sending quick
updates via messaging, all in one place. It makes workflow super simple and teams can work
closely, regardless of their locations.

Project Management Solutions

 Information Technology can be a boon when it comes to project management as it can simplify
tasks and boost teamwork.
 There are a variety of digital tools that help businesses organize projects almost effortlessly while
keeping everyone on the same page.

With features like task tracking, file sharing, and real-time updates, teams can collaborate
efficiently.

 When the project is managed smoothly, it allows businesses to focus only on the work without
any worry. From setting deadlines to monitoring progress, Project Management Solutions makes
the entire process easy and efficient.

Streamlining Operations with IT Systems

 IT system can be the backbone of the operations.

Enterprise Resource Planning (ERP)

 Enterprise Resource Planning (ERP) is a type of business management system, which supports the
end-to-end process of the business.
 They integrate different tasks such as finance, HR, and supply chain management into one
dashboard.

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 It’s like a centralized system that connects everything and makes sure that the information flow
smoothly across departments.

 With the right tool, businesses can streamline processes, reduce errors, and improve operational
efficiency.

Customer Relationship Management (CRM)

 It’s safe to say that Customer Relationship Management (CRM) systems are like your friendly
assistants.
 They organize customer information and make interactions smoother. From helping with sales to
fine-tuning marketing strategies, CRM tools are almost like unsung heroes.

 Imagine going to a coffee shop where the barista recognizes you and knows your order. This
personalization makes you feel good. That’s what CRM does.

 It’s not just about attracting new customers all the time. As a business, it’s also about keeping the
old ones happy. And thanks to the role of IT in business management, this process can be
effortless.

Data-Driven Decision-Making
Information Technology can support businesses make the right decisions based on the data and rat
than just your gut.

Business Intelligence (BI)

 Business Intelligence (BI) tools are super crucial for business.
 They are like your own Sherlock Holmes, who sifts through data and unlocks the right insights
so businesses can make the right decisions.

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  BI can analyze markets and also predict future trends.
 It helps businesses gain a clear vision to make informed choices.
 Whether it’s understanding customer behavior or forecasting market changes, BI tools help
businesses stay ahead of the curve.

Analytics And Reporting

 IT is great when it comes to analytics and reporting because it converts raw data into
meaningful insights. Even if you are not a numbers person, IT helps you out.

 Analytics tools crunch the numbers and highlight the necessary trends and patterns.
 These insights help businesses make informed decisions.
 You even have visualization tools that turn these insights into easy-to-understand charts and
graphs so businesses can share them with the team and come to a collaborative conclusion.
This again is a crucial role of IT in business management.

Ensuring Cybersecurity in Business Management

As we live in the digital era, the risk of cybercrime also goes up a notch. However, Information
Technology can help you out.

Security Measures
 IT helps businesses implement robust cybersecurity measures. Encryption is a key tool that
transforms data into unreadable code. It adds an almost impenetrable layer of protection agains
unauthorized access.

 Firewalls act as virtual barriers that monitor and control all the incoming and outgoing network
traffic. They filter and block any potential threats and help with data integrity.

 Finally, secure access protocols, like multi-factor authentication, enhance user verification and

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 prevent unauthorized entry. When all the cybersecurity measures are combined, businesses are
able to protect themselves from cyber threats.

Risk Management
 IT helps with risk assessment and management by detecting any threats and also preventing
them.
 It makes use of advanced tools and monitoring systems. So, IT professionals are able to
identify potential risks such as malware, phishing, or data breaches.

When businesses address these vulnerabilities immediately, they can prevent cyber threats
from compromising sensitive information.

 IT’s constant vigilance, coupled with proactive measures, helps businesses curb and manage
risks effectively.

The Evolution of IT in Business Management

Finally, let’s take a quick look at the evolution of Information Technology and the role of IT in
business management.

Cloud Computing
 Cloud-based solutions are a game changer. They offer unparalleled scalability, accessibility, and
cost-effectiveness. Unlike traditional methods, cloud services provide on-demand resources and
help businesses scale up or down swiftly as per the requirements.

 This flexibility improves efficiency and responsiveness. Also, there is a sense of flexibility
as the data and applications can be accessed from anywhere with an internet connection.
This makes sure collaborative efforts with the team are never interrupted.

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 It is cost-effective too, thanks to the pay-as-you-go model. It erases the need for extensive
physical infrastructure.

Artificial Intelligence (AI) And Machine Learning (ML)

 AI is everywhere and it is slowly becoming the norm. However, it is also crucial in business
management.
 Artificial Intelligence and Machine Learning bring forth automation and predictive analytics.
Automation simplifies repetitive tasks, boosts efficiency, and allows human resources to focus on
strategic activities.

 Whereas, predictive analytics uses ML algorithms to analyze vast datasets. This helps
businesses make informed decisions and foresee trends, for example, Amazon’s
recommendation engine. By automating tasks and offering predictive capabilities,
businesses can optimize business operations, giving it an innovative touch.

 Information Technology has been a boon. It has transformed business management through a
variety of solutions such as cloud computing, cybersecurity measures, and more.
 These innovations enhance scalability, accessibility, and efficiency, which is imperative for
business growth. Embracing the advanced technology is the need of the hour.

4. Productivity problems and management

4.1 PRODUCTIVITY

 Productivity refers to the ratio between the output from production processes to its input.
 Productivity may be conceived of as a measure of the technical or engineering efficiency of
production. As such quantitative measures of input, and sometimes output, are emphasized.

29
4.2 Typical Productivity Calculations

 Measures of size and resources may be combined in many different ways.

 The three common approaches to defining productivity based on the model are referred to
as physical, functional, and economic productivity.
Regardless of the approach selected, adjustments may be needed for the factors of

diseconomy of scale, reuse, requirements churn, and quality at delivery.

a) Physical Productivity

This is a ratio of the amount of product to the resources consumed (usually effort). Product
may be measured in lines of code, classes, screens, or any other unit of product.
 Typically, effort is measured in terms of staff hours, days, or months.
 The physical size also may be used to estimate software performance factors (e.g., memory
utilization as a function of lines of code).

b) Functional Productivity

 This is a ratio of the amount of the functionality delivered to the resources consumed
(usually effort). Functionality may be measured in terms of use cases, requirements,
 features, or function points
(as appropriate to the nature of the software and the development method).
 Typically, effort is measured in terms of staff hours, days, or months. Traditional
measures of
 Function Points work best with information processing systems.
The effort involved in embedded and scientific software is likely to be underestimated

with
these measures, although several variations of Function Points have been developed that
attempt to deal with this issue. 30
 c) Economic Productivity

 This is a ratio of the value of the product produced to the cost of the resources used to
produce it.
 Economic productivity helps to evaluate the economic efficiency of an organization.
 Economic productivity usually is not used to predict project cost because the outcome can
be affected by many factors outside the control of the project, such as sales volume,
inflation, interest rates, and substitutions in resources or materials, as well as all the other
factors that affect physical and functional measures of productivity.
 However, understanding economic productivity is essential to making good decisions
about outsourcing and subcontracting.

The basic calculation of economic productivity is as follows:

Economic Productivity = Value/Cost

4.3 Problems in measurement of Productivity of Knowledge Workers

Productivity implies measurement, which in turn, is an essential step in the control process.

 Although there is a general agreement about the need for improving productivity, there is littl
consensus about the fundamental causes of the problem and what to do about them.
The blame has been assigned to various factors. Some people place it on the greater proporti

of less skilled workers with respect to the total labor force, but others disagree.
There are those who see cutback in research and the emphasis on immediate results as the
 main culprit.

Another reason given for the productivity dilemma is the growing affluence of people, which

 makes them less ambitious.

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 Still others cite the breakdown in family structure, the workers‘ attitudes, and government
policies and regulations.

 Another problem is that the measurement of skills work is relatively easy, but it becomes more
difficult for knowledge work.
The difference between the two kinds is the relative use of knowledge and skills.


5. CONTROL AND PERFORMANCE

5.1 Introduction
In management, control and performance are related to ensuring that an organization's goals are
achieved and that operations are carried out as planned.

Control
 A management function that compares actual performance to predetermined standards and
takes corrective action to ensure that goals are met.
 Control is a continuous process that involves analyzing actual and planned performance.

Performance management
 A strategic business management pillar that aims to align employee activities with the
company's goals and strategy.
 Performance management should ensure that goals are achievable and that the criteria for
rewards and awards are specific and simple.
 Performance Management and Controlling are more than just the collection and analysis of
financial metrics.
 They are pivotal pillars of strategic business management, aiming to align the operational and

32
 strategic activities of employees with the overarching goals and the overall strategy of th
company.

The control process involves five steps:

a) Set standards
b) Measure performance
c) Compare performance to standards
d) Determine the reasons for any deviations
e) Take corrective action as required

 Concurrent control is a type of control that involves monitoring during the process or activity.
 For example, fleet tracking allows managers to monitor company vehicles, plan efficient
routes, and alert drivers to avoid heavy traffic.

5.2 COSTCONTROL

Cost control is the measure taken by management to assure that the cost objectives set
down in the planning stage are attained and to assure that all segments of the organization
function in a manner consistent with its policies.

Steps involved in designing process of cost control system:

• Establishing norms: To exercise cost control it is essential to establish norms,

targets or
parameters which may serve as yardsticks to achieve the ultimate objective. These
• standards, norms or targets may be set on the basis of research, study or past actual.

Appraisal: The actual results are compared with the set norms to ascertain the

degree of 33
utilization of men, machines and materials. The deviations are analyzed so as to
arrive at
 the causes which are controllable and uncontrollable.
• Corrective measures: The variances are reviewed and remedial measures or revision of
targets, norms, standards etc., as required are taken.

Advantages of cost control

a) Better utilization of resources

b) To prepare for meeting a future competitive position.

c) Reasonable price for the customers

d) Firm standing in domestic and export markets.

e) Improved methods of production and use of latest manufacturing techniques which have the
effect of rising productivity and minimizing cost.

f) By a continuous search for improvement creates proper climate for the increase efficiency.

g) Improves the image of company for long-term benefits.

h) Improve the rate of return on investment.

5.3 PURCHASE CONTROL

 Purchase control is an element of material control. Material procurement is known as the

purchase function.

 The functional responsibility of purchasing is that of the purchase manager or the purchaser.

 Purchasing is an important function of materials management because in purchase of

materials, a substantial portion of the company's finance is committed which affects cash flow
position of the company.

 Success of a business is to a large extent influenced by the efficiency of its purchase

34
 organization.

The advantages derived from a good and adequate system of the purchase control are as
follows:

a) Continuous availability of materials: It ensures the continuous flow of materials. So

production work may not be held up for want of materials. A manufacturer can complete
schedule of production in time.
b) Purchasing of right quantity: Purchase of right quantity of materials avoids locking up of
working capital. It minimizes risk of surplus and obsolete stores. It means there should not be
possibility of overstocking and understocking.
c) Purchasing of right quality: Purchase of materials of proper quality and specification avoids

waste of materials and loss in production. Effective purchase control prevents wastes and
losses of materials right from the purchase till their consumptions. It enables the management
to reduce cost of production.
d) Economy in purchasing: The purchasing of materials is a highly specialized function. By
purchasing materials at reasonable prices, the efficient purchaser is able to make a valuable
contribution to the success of a business.

e) Works as information centre: It serves as a function centre on the materials knowledge

relating to prices, sources of supply, specifications, mode of delivery, etc. By providing
continuous information to the management it is possible to prepare planning for production.

f) Development of business relationship: Purchasing of materials from the best market and
from reliable suppliers develops business relationships. The result is that there may be smooth
supply of materials in time and so it avoid disputes and financial losses.
g) Finding of alternative source of supply: If a particular supplier fails to supply the materials
in time, it is possible to develop alternate sources of supply. the effect of this is that the
production work is not disturbed.
h) Fixing responsibilities: Effective purchase control fix the responsibilities of operating units

35
and individuals connected with the purchase, storage and handling of materials.

In short, the basic objective of the effective purchase control is to ensure continuity of supply
of requisite quantity of material, to avoid held up of production and loss in production and at
the same time reduces the ultimate cost of the finished products.

5.4 MAINTENANCE CONTROL

 Maintenance department has to exercise effective cost control, to carry out the
maintenance functions in a pre-specified budget, which is possible only through the
following measures:

First line supervisors must be apprised of the cost information of the various materials
so that the objective of the management can be met without extra expenditure on
maintenance functions

A monthly review of the budget provisions and expenditures actually incurred in respect of
each center/shop will provide guidlines to the departmental head to exercise better cost
control.
The total expenditure to be incurred can be uniformly spread over the year for better
budgetary control. However, the same may not be true in all cases particularly where
overhauling of equipment has to be carried out due to unforseen breakdowns. some
budgetary provisions must be set aside, to meet out unforeseen exigencies.

 The controllable elements of cost such as manpower cost and material cost can be
discussed with the concerned personnel, which may help in reducing the total cost of

36
 maintenance.
 Emphasis should be given to reduce the overhead expenditures, as other expenditures
cannot be compromised.

 It is observed through studies that the manpower cost is normally fixed, but the same
way increase due to overtime cost. however, the material cost, which is the prime
factor in maintenance cost, can be reduced by timely inspections designed, to detect
failures.
 If the inspection is carried out as per schedule, the total failure of parts may be avoided,
which otherwise would increase the maintenance cost.
 The proper handling of the equipment by the operators also reduces the frequency of repair
and material requirements.
 Operators, who check their equipment regularly and use it within the operating limits, can
help avoid many unwanted repairs.
 In the same way a good record of equipment failures/ maintenance would indicate the
nature of failures, which can then be corrected even permanently.

5.5 QUALITY CONTROL

Quality control refers to the technical process that gathers, examines, analyze & report
the progress of the project & conformance with the performance requirements

The steps involved in quality control process are

1) Determine what parameter is to be controlled.

2) Establish its criticality and whether you need to control before, during or after results
are produced.
3) Establish a specification for the parameter to be controlled which provides limits of
acceptability and units of measure.

4) Produce plans for control which specify the means by which the characteristics will be

37
 achieved and variation detected and removed.

5) Organize resources to implement the plans for quality control.

6) Install a sensor at an appropriate point in the process to sense variance from

specification.
7) Collect and transmit data to a place for analysis.

8) Verify the results and diagnose the cause of variance.

9) Propose remedies and decide on the action needed to restore the status quo.

10) Take the agreed action and check that the variance has been corrected.

Advantages and disadvantages

 Advantages include better products and services ultimately establishing a good

reputation for a company and higher revenue from having more satisfied customers.
 Disadvantages include needing more man power/operations to maintain quality control and
adding more time to the initial process.

5.6 PERFORMANCE
 Performance Management and Controlling are more than just the collection and analysis of

financial metrics.
 They are pivotal pillars of strategic business management, aiming to align the operational

and strategic activities of employees with the overarching goals and the overall strategy of
the company.

What is Performance Management?

 An ongoing, continuous process of communicating and clarifying job responsibilities, priorities,
38
 performance expectations, and development planning that optimize an individual's performanc
and aligns with organizational strategic goals.

 An effective performance management process involves much more than just the annual

evaluation.
 Human Resources has established modules to assist in managing employee performance.

Human Resources recommends in addition to setting goals at the beginning of the evaluation
period and evaluating performance at the end of the evaluation period, that feedback sessions
are held throughout the year.

Performance Appraisal
 Performance Appraisal:- The terms "performance management" and "performance

appraisal" are often treated as synonyms.

 Effective performance management is essential for driving employee engagement,

productivity, and overall organizational success.

 At the heart of any successful performance management system are clear goals and

objectives that align individual, team, and organizational priorities.

5.7 Ten Key Principles of Performance Management

1. Clear Goal Setting Clear goal setting is a cornerstone of effective performance

management, and the OKR (Objectives
and Key Results) framework is a powerful tool to achieve this. The OKR methodology
emphasizes
setting ambitious objectives and defining measurable key results to achieve those
objectives.
2. Continuous Feedback
Continuous feedback entails ongoing discussions about performance, progress, and areas for

39
improvement. This principle should be embedded in regular one-on-one meetings and project
evaluations.

3. Objective Measurement
Objective measurement involves using quantifiable data and metrics to assess performance. This
principle is best employed during periodic performance reviews and project assessments.

4. Development and Training

Development and training encompass identifying skill gaps and providing relevant learning
opportunities. This principle is integral throughout an employee’s journey, ensuring their skills
align with organizational demands.

5. Recognition and Reward

Recognition and rewards involve acknowledging exceptional performance through praise, bonuse
or promotions. Celebrating achievements during monthly or quarterly reviews and upon reaching
milestones is key.

6. Employee Involvement
Employee involvement refers to actively engaging employees in goal-setting, feedback, and
performance discussions. This principle should be ingrained in performance planning, ongoing
feedback sessions, and reviews.

7. Alignment with Organizational Goals

Alignment with organizational goals ensures that individual objectives resonate with the
company’s overarching mission. This principle begins during the initial goal-setting phase and
continues periodically.

40
8. Data-Driven Insights
Data-driven insights involve using performance data to gain valuable insights. These insights are
crucial during periodic performance reviews and strategic decision-making processes.

Utilizing data provides informed insights into performance trends, strengths, and areas for
improvement.

9. Customization
Customization tailors performance management approaches to individual roles and needs. This
principle should be applied during the goal-setting process and throughout performance
discussions.

10. Managerial Training

Managerial training involves equipping managers with coaching skills for effective feedback and
guidance. This principle should be integrated into leadership development programs and ongoing
administrative training initiatives.

**********************************

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6. Direct and preventive control

6.1 Direct and preventive control in management

Direct control: the procedure that traces the causes of an unsatisfactory result back to the persons
responsible for it and get them to correct their practices.

Preventive control: the procedure that traces the causes of an unsatisfactory result back to manage
management skill and knowledge.

Direct control is a procedure that involves immediately making decisions and holding people
responsible for the results.

Preventive control is a procedure that aims to prevent errors or undesirable events from
happening.

Here are some examples of direct control and preventive control:

Directive controls

 Directive Controls are activities that direct employee behavior.

 Examples are policy and procedures, law and regulations, training seminars, and job
descriptions. They are designed to ensure a particular outcome is achieved.
 Example:- You might hire a real estate broker to sell a property you own and sign the
transaction documents.
 Thus, Directive controls are those designed to establish desired outcomes:

42
 1. Cause of negative Deviations from standards.

 Un certain, Lac of knowledge, experience or judgment

2. Questionable assumptions underlying direct control

a) Assumption that that performance can be measured

b) Assumption that personal responsibility exists
c) Assumption that time expenditure if warranted
d) Assumption that mistake can be discovered in time
e) Assumption that the person responsible will take.

Preventive control

Preventative controls are designed to prevent errors, irregularities or undesirable events from
occurring; and detective controls are those designed to detect and correct undesirable event
which have occurred.

 An example of preventive control is segregating duties among different people.

 For example, you might divide responsibilities for authorizing transactions, recording
transactions, and handling the related asset.
 Preventive controls are considered to be more pragmatic than detective controls, which
are designed to detect and correct undesirable events that have already occurred.

Assumption :

Qualified managers make a minimum of errors.

Management fundamental can e used to measure performance

43
 Application of management fundamentals can be evaluated.

Advantages:

a) Greater accuracy
b) Encourage self control
c) Lighten the managerial burden
d) Impressive
6.2 Direct control Vs preventive control

Direct control Preventive control

Direct control focuses on monitoring and Preventive control focuses on preventing
supervising employees and their activities inproblems or deviations from occurring.
real-time.
Directive controls are those designed to Directive controls are those designed to
establish desired outcomes. preventive measures for good product or
service establishment.
Detective controls are those designed to detect Preventative controls are designed to prevent
and correct undesirable events which have errors, irregularities or undesirable events
occurred. from occurring

Directing – Managers must supervise, Controlling – Managers must control their

motivate, lead and maintain communicationsdepartmental employees and operations to
with their employees. ensure that organizational goals are achieved.

Directing is the process of providing focus for Controlling involves comparing actual to
employees and motivating them to achieve expected performance and taking corrective
organizational goals. action when necessary.

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7. REPORTING

7.1 Introduction to Management Reporting

What is management reporting?

Definition: Management Reporting:-

 Management reports keep internal stakeholders "in the know" of company activities.
 They're among the internal reports managers and senior executives use to run the organization
make business decisions, and monitor progress.
 Management reports help leadership monitor their department.
 Employees submit reports to their managers, who then use those reports to inform executive
management of progress and make strategic decisions.
 Management reports come from every department: marketing, customer service, IT, finance,
sales, and operations.

Goal of management reporting

The goal of management reporting is to:

a) Measure and monitor specific performance metrics and KPIs

b) Understand the status and health of an objective and determine next steps
c) Establish benchmarks and goals
d) Ensure better communication between stakeholders, colleagues, and executives
e) Guide your next steps
f) Force you to have an action plan
g) Monitor performance frequently

45
Examples of management reports

The category of management reporting extends to virtually every department.

The following are all examples of management reports:

a) Financial reports
b) Project reports
c) HR and personnel reports
d) Compliance reports
e) Cash reports
f) Variance analysis
g) Status reports
h) Forecast reports
i) Board reports and packages
j) Budget books
k) Variance reports
l) KPI reports
m) Systems reports
n) Internal audit reports

7.2 Rules for making an effective Management Report

Effective management reporting is all about clear, frequent communication.

 Does the management report tell a story?

 Does it prompt action?

46
  Does it give decision-makers critical information promptly?

 Does it identify problems or opportunities?

 Does the report contain information relevant to the manager and their decision-making?

Universally, effective management reports communicate the following:

a) Clear communication of objectives: What is the purpose of the management report, and how
does it contribute to department or company goals?
b) Key performance indicators (KPIs): How will you measure success? What performance are
you monitoring, and what is the threshold you're trying to reach? Key performance indicators
reveal if the tactics you're using work. KPIs might be related to effectiveness, quality, sales,
budget, timeliness, financials, or people (prospects, customers, etc.).
c) Think critically about the report's structure and content: Start backward. What exactly
does management need to do with the information in this report? What do they want to know
in this report? What's the progress been from one reporting period to the next? Creating the
report with the end in mind allows you to get to the point and avoid extraneous, distracting
information.
d) Make it visual: Facilitate at-a-glance analysis by making your management report tell a story
through visualizations. Charts, graphs, heat maps, and big, bold percentages show quickly
communicate results to managers. If metrics are dynamic, management can explore them if
they’re compelled to investigate
e) Key in the frequency: Depending on the project or reporting function, weekly, monthly, or
quarterly reporting might be necessary. Choose a reporting interval that gives you enough
time to take remedial efforts to address unwanted results and identify performance trends
without inundating management. Dynamic data automation has huge advantages during repo
creation. When reporting is automated, performance data automatically updates, removing th
need for creators to manually cut and paste the latest figures.

47
 f) Real-time KPI dashboards: Reporting mechanisms should be put in place before the final
output so that reporters can take steps to improve activities to meet KPIs. Reporting
dashboards help you keep a real-time eye on KPIs to monitor progress and, if necessary, take
steps to improve performance before the report gets into your manager's hands.

7.3 Creating management report

How to create a management report (in a nutshell)

 There is no one way to prepare a management report.

Every management report has a different purpose.


No matter what type of management report you're creating, your management report should
contain the following sections:

a) Set specific goals and understand the results you desire before doing anything else.
b) Determine the most relevant KPIs for your management and lay out the performance metrics
you should monitor. Remember: Managerial views will be broader and more long-term. Your
perspective might be narrower and short-term.
c) Visualize the data's story by adding visuals to the report using graphs, pie charts, dashboards,
whitespace, heat maps, etc.
d) Create a colorful but direct narrative to help executives understand your findings. Use a
combination of hard data and storytelling to present your results. Your storytelling should be
clear and concise, and seek to answer all potential questions from your superior before they
ask.
e) Compare real-time information and historical information over given periods. In other words:
Showcase past KPI performance, progress, and current progress.
f) Make sure your data is correct and up to date. (A single, automated source of data ensures
accuracy.).

48
 g) Outline next steps and action items based on results.

Management Reporting Systems

What are management reporting systems?

 Management reporting systems are control systems that standardize the communication of

business information.
 They seek to expedite the production of reports while improving the accuracy of performance

reported.

Management reporting systems:

 Automate low-value tasks, like data collection, to help users create reports faster and

accurately so they can focus on high-value tasks, like analysis.

 Reduce data redundancy, data duplication, and data quality issues by centralizing and

automating the distribution of performance data.

 Improve management responsiveness by promptly generating reports, providing reporters wit
dynamic visualizations and customizable templates, and automating the delivery of reports to
relevant stakeholders.

*******************

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