CONTROLLING PROCESS

Major steps in control loop are

POSIVE FEEDBACK
=> NO CORRECTIVE
ACTION
NEGATIVE FEEDBACK
=> THREE ALTERNATIVE
ACTIONS
FEEDBACK
=> control based on actual results
FEEDFORWARD
=> control based on forecast results =>
forecast is bad=> take action
DOUBLE LOOP  Establish the budget, or standards of performance
=> result gaps from assumption  Measure the actual performance
=> change the plan  Analyse and compare actual results with budget
results
SINGGLE LOOP  Investigate unexpected variances
 Result gaps from action => no  Devise and implement any necessary corrective
change the plan actions
 Review and revise the budget/standards if necessary

PLANNING BUDGETING
 OBJECTIVE – GOALS (ranking/prioritized/ QUANTIFY THE PLAN
SMART/ communicated/ harmonized) 1) Master budget:
 STRATEGIES - BS/P&L/Cashflow
 SCHEDULE – TASKS - @ 1 activity level
Both qualitative and quantitative objective - Financial & non-financial info
2) Budget methodology
(adv ~ disavd/ how to prepare/
 STRATEGIC PLAN – OPEARTIONAL PLAN
how to apply)
 CORPORATE PLAN – OPEARTATION PLAN
- Fixed ~ flexed budget
 SINGLE POURPOSE PLAN - Incremental ~ zero buget
 STANDING PURPOSE PLAN - Continuous/ rolling budget
 CONTIGENCY PLAN - Project budget
 SHORT TERM PLAN (OPERATIONAL) – LONG TERM - ABB
PLAN (STRATEGIC)
PERFORMANCE
EVALUATION (1D)
Actual ~ budget
Do nothing/ corrective action/ change budget (plan)
BUDGET MANUAL
Budget and control process
RESPONSIBILITY CENTER
Budget advantages/ disadv
Topdown and bottom up Cost center (cost per unit/
(adv and disadv/ when (what controllable cost only)
kind of company) is used Revenue center
appropriately) Profit center (rev and cost)
Time frame (monthly, Investment center
quarterly, half year, full year) (investment amount/ profit
return => ROI)
Create master budget
and subbudgets.

Obtain feedback and Get manager buy-in.

revise plan.

Analyze current performance

Take corrective action.
versus expectations.

Examine
variations.

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 STRATEGIC PLANNING
(Corporate strategy – business strategy – departmental strategy)
Set objectives => allocate resource => assign tasks/ schedules
Environmental
obje
Master strategies Tactical Plans
Analysis
• Evaluation of major • Development of long • Development of
interests range plan short range plans
• External • Vison • Operational plans
environments, • Mission • Budgets
opportunities, • Strategies
threats
• Goals
• Internal
• Objectives
environments
strengths and
weakness

Adjust
Monitor Implementation
performance
ANALYSE TOOLS AND TECHNIQUES
BUSINESS ENVIRONMENT
 STAKEHOLDER ANALYSIS
 SWOT ANALYSIS  SITUATION ANALYSIS
 PEST ANALYST (Macro) SWOT analysis, Porter 5 forces, 5 C (company –
 PORTER FIVE FORCES (Micro) competitor – customer – collaborators – climate),
 COMPLEXITY OF THE BUSINESS PEST analysis
ENVIROMENT  SENARIO ANALYSIS (STEEPA)
 CHANGES IN BUSINESS  BCG – competive analysis (market growth/ market
ENVIRONMENT share)
(Globalization/ Outsourcing  BALANCE SCORE CARD
trend) (customer satisfaction/ process efficiency/ growth/
 TECHNOLOGY CHANGES financial success)

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 FORECAST TECHNIQUES
TIMES SERIES ANALYSIS LEARNING CURVE
FORECAST TECHNIQUE WITH RISK
 Adv: quick, easy (applied for company using more labor cost)
 Dis adv: rely on past data, past trend might not (Risk for a security can be measured
 Advantage by variability of its historical returns
repeat
Can be used to make a number of decisions or the dispersion of its historical
 Make or buy decision returns round their average, or mean,
A. One variable  Life cycle costing return. => assigned probability)
a. Trend analysis: trend/ cyclical/ seasonal/  CVP analysis
 Development of standard cost  Disadv: can not apply for adhoc
irregular
 Capital budgeting situation
b. Smoothing data
 Development of production plan and labour  Method can be used
i. Moving average/ weighted moving
requirement - Expected value
average
 Management control - Sensitivity analysis
ii. Exponential smoothing (actual and
forecast): Ft + 1 = aYt + (1 – a)Ft Learning affects quality and improves productivity.
B. >= 2 variables: Y = A + B1X1 + B2X2…  Disavd: learning rate is difficult to determined
a. High-low method Learning point:
b. Statistic method th
Incremental method => time to produce the n product - Probability/ Join probability/
i. Test correlation: R2 Cumulative method => average time to produce n product condition probability
ii. Calculate A, B (formula) o Learning rate - Variance/ standard deviation/
iii. Develop model Y = A + BX o Double batch/ unit in batch coefficient of variance

Learning point o Question to be focused

 Average Time to produce one unit in 4 batches
B = slope  Average time to produce one unit in batch forth
 Average time to produce batch forth
A = intercept

R2 : the variation in dependent variables can be Y = a x learning rate

explained by changes in independent variables (a = time to produce first unit / 1st batch)

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 TOP LEVEL PLANNING AND ANALYST
Financial ratio to be analysed Source of fund to be considered
- Profitability - Internal source of fund (Spontaneous liabilities)
- Efficiency including: trade payables/ accruals/ retained
- Liquidity earnings
- Capital structure - External source of fund: loan, new capital

Factors affect the company’s need for

external source of fund

(1) Retention ratio

(2) RAPID sales growth
(3) The company’s profit margin

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