CONTROLLING

Controlling is the process of checking, regulating, verifying or making adjustments to keep things on track. Controlling is the process by which managers take preventive or corrective action to ensure that the organizations mission and objectives are accomplished effectively and efficiently.

CONTROLLING
controlling is the process of determining what is to be accomplished, that is the standard; what is being accomplished, that is the performance; evaluating the performance; and if necessary, applying corrective measures so that performance takes place according to plans, that is conformity with the standard. A control system should

Be flexible

Provide accurate information about the organization

provide information in a timely manner.

DEFINITION
The measurement and correction of performance in order to make sure that enterprise objectives and the plans devised to attain them are being accomplished. Koontz and ODonnell Control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued, and principles established. It has for object to point out weaknesses and errors in

order to rectify them and prevent recurrence. It operates on

everything; things, people, action - Henry Fayol

N ATURE
1. 2. 3. 4. 5. 6. 7. 8. 9.

OR

C HARACTERI STI CS

Planning and controlling are closely related Controlling is forward looking Controlling is goal oriented Controlling should be simple Controlling should be flexible Controlling should be economically realistic Controlling enables to make quick decisions Controlling should be participative Controlling system should be acceptable

IMPORTANCE OF C ONTROLLI NG

Controlling is the basis for future action

Controlling is helpful to achieve goals

Controlling copes up with Uncertainty

Controlling facilitates Decentralization

Facilitates Co-ordination

Improve morale and Job satisfaction

Facilitates Supervision

PROBLEMS IN C O N T R O L L I N G
I. II. III. IV.

Problem in setting a realistic standard Resistance from employees Lack of good system Degree of change

V.
VI. VII.

Problem in setting qualitative standards

Delay in taking corrective action Expensive

P RO CESS

OF

C O NTRO LLI NG

Establishing standards

Measures actual performance

Compare actual performance against standards

Evaluate results and corrective action

Establishing Standards

Quantitative Standards

Qualitative Standards

1. Productive Standards 2. Cost Standards 3. Time standards

E STABLI SHI NG S TANDARDS

Standards mean criteria of performance.

Standards are yardsticks for controlling current

activities. Standards should be expressed in

variable terms. Standards are classified into two types: 1. Quantitative standards 2. Qualitative Standards

QUANTITATIVE STANDARDS
Standards which are expressed in numerical terms are called quantitative standards

Productivity standards : Expressed in physical

units such as number of products produced per hour, production per day.

Cost Standards: Concerned with cost of making products. For example.. Labour cost per product,

material cost per product.

Time Standards : Concerned with time period required to complete a product. For example, machine hours required to make a product, number of days required to complete a project. QUALITATIVE STANDARDS Standards or criteria of performance can also be expressed in qualitative terms. Setting of qualitative standards is a difficult process and also measuring the qualitative standards is difficult. Ex:- Establishing the standards for measuring the performance of finance vice president is not easy since such standards are in vague terms.

Standards must be consistent with strategy. Managers at each level need to set their own standards.

MEASURE ACTUAL PERFORMANCE

Recording and reporting of actual performance is an important activity in any control system.

Reports such as operating statements, expenditure statements, cash

flow statements, and profit and loss statements are prepared by Finance and accounting department.

Accurate reporting of actual performance increases the value of a control system.

Recent improvements of data processing increasing the speed of

preparing reports.

COMPARE ACTUAL PERFORMANCE AGAINST STANDARDS

Managers compare the criteria of performance with actual performance and determine the deviations in activities.

When comparing actual performance against criterion, most organizations take

corrective action only when the deviation is significant. Otherwise, no action required. This principle is known as Management by Exception.

Techniques such as chart, mathematical techniques, trends and ratios can be used
for comparing actual performance against the Criterion.

Purpose: Not only to identify the mistakes but also to find the cause of the problem.

TAKE C O RRECTI VE A CTI O N

The purpose of any control system is not only to identify the deviation but also to take corrective action.

Managers can make two types of mistakes while taking corrective

action. Take action when no action is needed. Take no action when action is needed.

o o

Additional training to workers or establishing new equipments. It can also be in the form of encouraging employees to work harder, redesigning the production process, firing employees or formulating the objectives.

S YSTEM S
1. 2.

OR

T YPES

OF

C O NTRO L

3.

Feed forward control systems Real time information control system Feed back control system (Post action control)
Inputs Conversion process Outputs

Feed forward control

Concurrent control

Feed back control

Managers predict problem before they arise It identifies and prevents the problems before they occur.

It consists of analyzing inputs and taking corrective

action before a problem arises.

It is preventive in nature.

Example: Selection and hiring of new employees. Organizations identify the skills present in the employees by conducting tests,GD,interviews.

It gives immediate feed back on how inputs are converted into outputs. It allows managers to correct problems as they arise. It involves monitoring and correcting ongoing activities to ensure compliance with standards. This information helps to take corrective action immediately, that is, as and when a deviation from plan occurs. Ex. System in a retail shop that uses a computerized cash register to show cash balance, inventory levels etc as soon as data is fed.

This is also called as historical control

The manager examines the past and get a feedback. Based on the feed back corrective action is initiated. Gathering information about a finished activity, assessing that information and taking corrective measures to improve similar process in the future.
Examples : Disciplinary Action Quality implications and actions

1.Understandable Measures 2.Acceptable by employees

3.Linkage to strategies
4.Balance of objective and preventive data

5.Accuracy
6.Flexibility 7.Timeliness 8.Ecnomical 9.Responsibility for failures

Techniques

Traditional Techniques

Modern Techniques

Budgetary Control

Non-Budgetary Control

TRADITIONAL TECHNIQUES
1. 2.

Budgetary Control Non Budgetary Control Budgetary Control

Budget is a formal expression of policies, objectives and goals

laid down in advance by the top management for the organization as a whole. budget can be stated in monetary terms or it can be expressed in non financial terms such as units of production and physical sales volume.

TYPES OF BUDGET

Functional Types

Transactions Types
Activity Types

Time interval basis

BUDGETS

Functional

Transaction

Activity

Time interval Basis

1.Sales 2.Production 3.Material 4.Labour 5.Manufacturing overheads 6. Administrative overheads 7.Distribution overheads 8. Cash

Operating
Capital

Flexible Fixed Master

Continuous
Periodic

METHODS OF BUDGETING
Methods

Zero -base

Performance

Zero base Budgeting

Management to take a fresh look at all programmes and activities

each year rather than preparing budgets on the basis of last year budgets. It is constructed from a Zero base Last years budget allocations are not considered as a basic for current

years budget.

PERFORMANCE OR PROGRAMME BUDGET

Programme budget is input or output budget or costs/ results budget.

it is mainly used in government.

NON BUDGETARY CONTROL

Personal observation Statistical data Special reports and analysis

Break even analysis

Operational Audit Financial Statement Ratio Analysis Logistic Control System

1.Personal Observation
> 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

2. Statistical Data
> Information to be presented in the form of charts, tabular presentations, ratios , percentages and average because they are easy to understand. > Statistical data are not perfect, however they add a dimension of objectivity in measuring and controlling performance.

3. Special reports and analysis

Routine accounting and statistical reports cannot be used for controlling all problem areas. These reports are in

written form or oral form. Sometimes, specialists are

temporarily engaged for giving reports and analysis.

4. Break even Analysis

It determines the relationship between total revenues and total cost at various levels of production.

Where total revenues equal the total costs and there is neither profit nor loss.
production above the BEP would yield profit.

BREAK EVEN ANALYSIS CHART

Total revenue Sales or cost BEP BEP (in RS)

Total Cost Profit Variable Cost

Total Fixed Cost Loss Fixed Cost

BEP (in units)

Output (in units)

Costs are broken down into three elements 1. Fixed Cost 2. Variable Cost 3. Total Coat Algebraic method of Break-even analysis BEP (in units) = TFC / P VC Where, BEP Break Even point TFC Total Fixed cost P Selling Price Per Unit VC Variable Cost Pet Unit BEP (in rupees) = (TFC / P VC) x S Where, S Sales or demand in units.

5. Operational Audit
It determines whether the balance sheet is properly prepared or not. So as to give a true and fair view of activities of the business. 6. Financial Statement Various financial statements such as balance sheet, profit and loss statement, cash flow statement are used to measure the financial health of an organization.

7. Ratio Analysis
It is helpful in evaluation of financial data. The ratios are obtained from information received from the balance sheet and profit and loss statements. 8. Logistic Control System It involves purchasing, storing, manufacturing, loading and transportation. Thus it involves estimating and devising the flows and timing of various resources required for a particular job.

MODERN TECHNIQUES ON CONTROL

1. Management Audit 2. Return on Investment 3. Responsibility Accounting > Cost Centre > Revenue Centre > Profit Centre > Investment Centre 4. Network Techniques 5. Management By Exception (MBE)

MANAGEMENT AUDIT

It

is

the

systematic

evaluation

of

overall

performance of management of an organization.

It is a critical examination of the entire management

process as a whole.

Evaluation of the decision made my the managers of an organization, quality of an organization.

RETURN ON INVESTMENT (ROI)

Return on share holders investment is known as ROI.

It does not consider the profit but it considers the

return on capital invested in the business.

ROI = Net Profit after Paying Interest and Tax Shareholders Fund

Helps in determining whether the investment is made in profitable business activities or not.

It was developed by DuPont Company in USA in

the year 1919.

RESPONSIBILITY ACCOUNTING

An

accounting

system is

which as

has

various

responsibilities

known

responsibility

accounting.

It is concerned with the performance of various people which is evaluated by assessing how far they have achieved targets set for the divisions.

Costs are assigned not only to products but also to

responsibility centre.

Costs incurred by the following types..

Cost Centre (A/c,RD,HRD)

Revenue Centre(Mkg,Sales) Profit Centre Investment Centre

NETWORK TECHNIQUES (PERT / CPM)

Network analysis describes a number of techniques to plan and control complex projects. In network analysis, a project is broken down to small activities which are arranged in a logical sequence. Before drawing the network diagram, two things are important. They are: 1. The sequence in which various activities are performed. 2. The time limit for each activity.

PERT (PROGRAMME EVALUATION REVIEW TECHNIQUE)

It is appropriate for planning, monitoring and controlling complex and unique projects.

The entire project is broken down into a large

number of activities and are arranged in a logical

sequence.

It is used for problems which has a definite starting point and finishing point.

The time estimates for each activity are prepared in three types. Optimistic time Longest time Most likely time
C A B F D G E H

CPM CRITICAL PATH METHOD

CPM method consist of the same basic steps and principles similar to PERT.

It consist of only one time estimate for each activity

is constant.

It is applicable where activity timings are well known

MANAGEMENT BY EXCEPTION

MBE states that only exceptional (significant) deviations from established standards should be brought to the notice of management.

If the Actual Performance is with in acceptable

range of deviation from the standard, it need not be

reported to the management.

USE OF COMPUTERS IN HANDLING THE

INFORMATION
1.Mainframe Computer

It is otherwise known as super computer.

Capable of handling large amounts of data. used for simulation and manipulation of large

databases. 2.Mini Computer Smaller than mainframe computer and it has less memory than mainframe computer.

3. Micro Computer
It is much smaller and it may be in the form of desk computer, personal computer and portable computer. Major Applications:

Telecommunications & Electronic devices

Internet E-Commerce M-Commerce

Banking & Credit

Manufacturing

Sales forecast

Cost Accounting

Computer

Payroll

Personal management

Business Management

Accounting

Sales forecast and control:

prepare an estimate of future sales. Programmed to read historical sales data Marketing Dept. can take predictions about among business cycles, Stocking retailers.

Payroll:
Programmed to read payroll records, calculate earnings, deductions and with holdings.

Business Management:
It can provide reports and data for management. Inventory sales analysis, credit analysis calculated.

Accounting:
Using electronically stored ledgers in the machine. Bills, Taxes, P/L statements, Balance sheet.

Personnel management Information:

Info on job classification and personnel capabilities. List employees by department, by salary schedule.

Cost Accounting
Print out on analysis of production cost.
Programmed to perform routing cost with budgeted hrs on individual machine rates.

Manufacturing information Control

Schedule work for an assembly line based upon labour available by shift.

Banking and Credit

Credit and collection industry. It can process deposits, commercial and consumer loans and revolving charge accounts for banks and department stores.

Management needs more advance technology for solving its basic requirements. MIS is used for

decision making in the various functional areas of

business . MIS is a new technique which has brought accuracy and speed to the management.

MIS

Management

Information

System

 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

Information must be clear and conciseness.

Information should be relevant the business.

MIS must be simple and easy to understand. It must help in the process of decision making and corrective actions.

MIS should be help in solving the complicated

problems effectively.

MIS RESOURCES

Computer Hardware

software

Data

people

Computer hardware
Computer system and other associated equipments including communication link. Computers, Monitors, disk, printers.

Software operating system programs, word processing programs

and procedures.

Data Symbols, digit, alphabets, graph, pictures.

Person Specialists system analysts programmers and computer operators.

IMPLEMENTATION OF MIS
Informations Stores & Retrievals

Input Data

Analysis

Output

Decision Making

Actions

Input data
The necessary data can be collected. The object is the development of better information system for management.

Information Stored and retrieval

Necessary data can be stored and utilized. The info can be indexed and classified for quick accessibility of the management.

Analysis
To utilize the data effectively it is necessary to analyze them. Develop alternatives and select the best one.

Output
Reports, Charts, tables, graph.

Decision Making
Output info is used to decision making process

Action : After decision is taken it is converted into action.

APPLICATION OF MIS

To providing long term plans To find out new opportunities To allocate resources To provide planning and control

To provide sales forecasting

To help management decision about, quality, quantity and market price etc.

To provide government policy and regulation To provide effective managerial activities.

Production Productivity Meaning :

: Absolute Quantity : Ratio Between output & Input

The human resource efforts to produce more

and more with less and less input of resources as a

result of which the benefits of production are distributed more equally among maximum number of

people.
Productivity can be improved only if management and employees put join effort.

PRODUCTIVITY AND OPERATIONS MANAGEMENT

Productivity =

output produced Input resources

Input resources :

Men
Material Machine Money Method

Purpose

For Management
Earn more Profits

For Workers
Get Higher Wages

For Customers
Reduced price of Articles Better quality products.

Clear the Debts

Sell more number of products

Improve working Conditions

Improve standard of Living Get job security and satisfaction

Survive in the Market

PURPOSE TO INCREASE PRODUCTIVITY

FACTORS AFFECTING PRODUCTIVITY

Factors

External
External Environment Topography Natural Resources Size of the Market Degree of Competition Laws and Customs

Internal
Related to Product Related to Methods Related to management Related to Workers

Policy of the Government

PRODUCTION AND OPERATION MANAGEMENT

Resource Inputs

Transformation process

Product Output

Men Material Money Management

Manufacturing, Design,
Providing Service.

Goods Service Information

Methods

PRODUCTION

Production is defined as the step-by-step conversion of raw materials into finished products through chemical or mechanical process to create the product.

Ex: Copper ore is existed in nature. It is converted into copper plate by chemical process. Operation Management It refers to activities necessary to produce and deliver a service or physical product.

PRODUCT DEVELOPMENT
Product development is the work contributed towards improvement in the present knowledge way of improved ideas, system, techniques. Product Development procedure: Creation of new ideas Screening of ideas Product analysis To utilize existing resources Product design Test marketing Commercialization

P R O D U C T A N A LY S I S

PRODUCT DESIGN

PRODUCT LAYOUT
The arrangement of machines and equipments according to the product manufactured is called as

product layout.
Raw materials arrive at one end leave the other end as finished product. Along this line the machines are require for various operations to be carried out in the

manufacture are arranged.

CONTROL OF OVERALL PERFORMANCE

Every organization has its overall goals or objectives, so that overall controls are applied. Many overall controls in business are finance controls. Apart from financial control, sales volume, market share can also used to control the overall performances. Two important types of overall control:
1. 2.

Profit and loss control Control through Return On Investment (ROI)

DIRECTIVE AND PREVENTIVE CONTROL

Direct Control : In this organization some employees performance is poor. To find out the employees and then correct their performance and achieve the organization goals. This is called direct control.

Factors influencing the direct control: 1. Uncertainty 2. Lack of knowledge experience 3. Lack of Communication 4. Lack of coordination

P REVENTI VE C O NTRO L
An efficient manager applies the skills in managerial philosophy to eliminate undesirable activities which are the reason for poor management. This is called preventive control. Effective steps for preventive control:
1. 2. 3.

Quality Managers Management principles to measure performance Evaluation

REPORTING
Submission of budget and reports play a very important role. Reports are the resume of the particular company It includes company sales volume, profit, credit, cost, purchase & Return on investment.

Purpose: Reports are the major tools for top managements to find out where the deviation has occurred. Minor deviation can be ignored The deviation between planned budget and actual budget can be controlled by an efficient manager.

THE GLOBAL ENVIRONMENT

Suppliers

Competitors

Forces yielding opportunities and threats

Distributors

Customers

FACTORS AFFECTING GLOBAL ENVIRONMENT

1.Economic factors - Economic Development - Infrastructure - Resource and product markets - Exchange Rates - Nature of economic system 2. Legal Political Factors - Political Risk - Political Instability - Laws and Regulations - Tariffs

3. Socio Cultural Factors

- Social Values power distance uncertainty avoidance Individualism and collectivism

- Cultural factors

INTERNATIONAL MANAGEMENT
International management involves conducting business and industrial operations in foreign countries and is affected by cultural and national influence. It involves free flow of ideas, technology, goods, information and management talent. Generally, these who run an international management will have their head office in one country and business activity in another country.

Ex: ONIDA TVs head office is in Japan but their business activities are mostly in India.

MULTINATIONAL NATIONAL COMPANIES

Multinational corporate are companies that manufacture and market products or services in

several countries. It operates a number of plants

abroad and markets products through a large network.

An enterprise which own or control production or service facilities outside the country in which they are based

F ACTORS I NFLUENCI NG MN C
Political and Legal factor Imports Law Exports Law Foreign Exchange Govt. Rules Economic Factors GNP, Local Financial Resources, Trade Unions Problems, Unemployment, Infrastructure, Inflation, Money Value. Socio Cultural factors ( Beyond the companys gate) Wealth, Family, Religion, Education.

GLOBALIZATION
The fact that different cultures and economic systems around the
world are becoming connected and similar to each other because of the influence of large multinational companies and of improved communication.

The government attitude towards the business has undergone a drastic

change beginning from the later years of eighties. The change can be seen from the various policies announced by the govt. particularly.
1. 2. 3.

Industrial Policy Statement Long term Fiscal policy Exim Policy

All the polices measured clearly reflect the

changing attitude of Government towards business and the commitment of Government to Integrate Indian economy with the worlds economy is called Globalization.

GLOBALISATION MEANING

A process in which firms co-ordinate their activities across national borders in order to maximize profit and remain competitive. This would reflect a situation in which firms decentralize their production in different parts of the world.

Cross border operation of economic activities

Internationalization of consumers Competition, production and markets become global in nature.

ADVANTAGES

Allows greater realization of potential Economic Growth Employment Opportunity Improvement of standard of living

Utilization of resources
Maximum rate of return

Better quality in product / service

Govt. revenue greater than before.

DISADVANTAGES

Perceived loss of employment

Production shift to low wage countries

Loss of sovereignty over national objectives and priorities to Multinational, Global rules.

FACTORS BEHIND GLOBALIZATION

Globalisation Factors

Pull Factors

Push Factors

1. Profit advantage 2. Growth Prospect

3.Domestic market constraints Competition 4.Government policies and

regulations
5.Spin-off-benefits 6.Strategic vision

METHODS OF GLOBALISATION
Exporting Licensing and Franchising Joint Ventures Fully owned manufacturing facilities Assembly operations Mergers and acquisitions Strategic alliance Contract manufacturing Management contracting Counter trade

GLOBALIZATION OF BUSINESS
1.

New Industrial Policy Announced new industrial policy on 1991 along with other economic reforms.

Foreign investment was one of features with attempted to remove

restrictions on foreign investment in Indian business.

Raise resources and encourage with public participation Advance technology in telecommunication, transportation. Ex: Ford Escort, Maruthi Cars, Hero Honda, Cococola- Thumps up.

INDIAN BUSINESS IN THE GLOBALIZATION

Textiles:

Arvind Mills, Raymonds, Crazim, Vimal have got good

will for mens suit for through the world. Software: HCL, TCS, Infosys, Wipro, IBM Automobiles:

Maruthi Cars, Hero Honda.

JAPANESE MANAGEMENT OR THEORY Z

We know that Japanese economy was reduced to scrambles the Second World War. It is quite amazing how Japan could achieve such a marvelous development in all the sectors of the economy in a span of about 50-55 years. Features: 1. Human resources 2. Job security 3. Team Work 4. Promotion 5. Appraisal System 6. Communication 7. Decision Making

Human Resources Prefers human resources to financial resources. Job Security Employees are assured of permanent employment. Team Work More favor to cooperation and team work. Team spirit and Team effort lead to effective management. Promotion promotion is based on seniority. Appraisal System The long run is given more important than short run. Communication Foster open communication. Face to-face communication. Decision Making : participative / democratic styles.

S.No
1 2 3 4 5

Domestic
Maximum two language is used Country centered political factor is considered social service considered Govt. policy, rules are easily acceptable socio cultural environment is homogeneous

International
Multiple Languages Transactional political factors Not Considered Somewhere difficult Heterogeneous

PRIVATISATION
Privatisation may be defined in many different ways. Some of the meaning are as follows:

Liberation approach Association of private sector management

Transfer of minority equity ownership

Transfer of complete ownership

NEED FOR PRIVATISATION

To control on budgetary deficits Proper resource mobilization Reduction extra tax burden Improvement in production Increase in competition

Privatisation in India o In Indira Gandhis Government which had initiated actions regarding Privatisation o Vajpayee Government fully supported for privatisation Ex : Central Telephone Exchange is converted in to privatisation

LIBERALISATION
The terms liberalization refers to open market conditions and they can take various forms namely :

Reduction tariff and non-tariff barriers.

Deregulation of domestic regulatory frameworks

Enhanced transparency of trade polices Trade facilitations

ADVANTAGES OF LIBERALISATION

Promote a conductive economic and business climate necessary for continuous growth.

Promote a cost effective business environment,

encourage competition.

Liberalisation of trade and investment regimes Obtain market openings by trade partners Wider choice of goods and services Reduced prices resulting from increased competition and specialization.

DISADVANTAGES

Loss of job-high rate of down sitting, right sitting. Increasing need of new skill sets Hire and fire policies Continuous struggle to prove ones worth. Transfer of new geographic locations Negative changes in remunerations

THE REGULATORY FUNCTIONS OF CENTRAL

GOVERNMENT

Determining the areas for private and public sector

industries

Laying down the policy guidelines and norms for controlling and regulating the private and public sector industries.

Assisting, promoting and directing the private

entrepreneurship.

Protecting the small scale industries and monopolies.

MAJOR SOURCES OF CAPITAL FORMATION

Domestic public barrowing Deficit financing Taxation Foreign investment

Empirical Approach

Impact of Technology

Systems approach

Global Theory
Organisation Development Contingency approach

Leadership Theories