What Is Control?

• Control
– The process of monitoring activities to ensure
that they are being accomplished as planned
and of correcting any significant deviations
– An effective control system ensures that
activities are completed in ways that lead to the
attainment of the organization’s goals.
 Controlling
• Control guides activity towards predetermined goal
• Wide application
• Measuring actions as per plans and finding and correcting shortfalls.
• Forward looking, executive process and a result, continuous process
coordinated and integrated process
CONTROLLING AND OTHER FUNCTIONS
• Planning as the basis for control
• Prescribes action that can be taken to correct deviation.
• Delegation as the key
• Information as the guide
Characteristics of Three Approaches
to Control Systems
• Market
– Uses external market mechanisms, such as price competition
and relative market share, to establish standards used in system
to gain competitive advantage.
• Bureaucratic
– Emphasizes organizational authority of administrative and
hierarchical mechanisms to ensure appropriate employee
behaviors and to meet performance standards.
• Clan
– Regulates employee behavior by the shared values, norms,
traditions, rituals, beliefs, and other aspects of the
organization’s culture.
 The Control
Process

EXHIBIT 13.2
 Management Control process

Desired
Performance Implementation
Corrective plans
correction

FEEDBACK LOOP
Actual performance
OF Analysis of causes
MANAGEMENT of deviation
CTRL.

Measurement of
performance Comparison Identify deviations
IMPORTANCE OF CONTROLLING
• Adjustment in operation
• Policy verification
• Managerial responsibility
• Psychological pressure
• Coordinated in action
• Efficiency and effectiveness contributors
STEPS IN CONTROLLING
1. ESTABLISHING OF CONTROL STANDARDS
2. MEASUREMENT OF PERFORMACE
3. COMPARISION BETWEEN PERFORMANCE AND STANDARDS
4. CORRECTION OF DEVIATION DFROM STANDARDS
 Steps in the Control Process
• Measuring actual performance
– Personal observation, statistical reports, oral
reports, and written reports
– Management by walking around (MBWA)
• A phrase used to describe when a manager is out in
the work area interacting with employees
 Steps in the Control Process
(cont’d)
• Comparing actual performance against a
standard
– Comparison to objective measures: budgets,
standards, goals
– Range of variation
• The acceptable parameters of variance between
actual performance and the standard
Defining an Acceptable Range of
Variation

EXHIBIT 13.3
 Steps in the Control Process
(cont’d)
• Taking managerial action to correct deviations or
inadequate standards
– Immediate corrective action
• Correcting a problem at once to get performance back on track
– Basic corrective action
• Determining how and why performance has deviated and then
correcting the source of deviation
– Revising the standard
• Adjusting the performance standard to reflect current and
predicted future performance capabilities
 Critical control points/ Standards

•Physical Standards: production/hour, employee efficiency,

•Cost standards: Direct costs, labour costs / hr/ unit
•Capital Standards: CA/CL, Fixed investment / T.I., Inv
Turn R.
•Revenue Standards: Av. revenue/ customer, Sales / capita
•Program Standards: program based
•Intangible Standards: Goodwill, image awareness etc.
Goals can also be standards-quantifiable, verifiable,
measurable
 Controlling contd..
Benchmarking- is an approach for setting goals and
productivity measures based on best industry
practices
Three types of Benchmarking
1. Strategic Benchmarking
2. Operational Benchmarking-cost, product
differentiation etc.
3. Management Benchmarking- support mgt.
Functions. Information systems
 Types Of Control
• Feedforward control
– Control that prevents anticipated problems
• Concurrent control
– Control that takes place while an activity is in
progress
• Feedback control
– Control that takes place after an action
• Provides evidence of planning effectiveness
• Provides motivational information to employees
Types of Control

EXHIBIT 13.5
 Feedforward Control
• What managers need for effective control a system
that will tell them potential problems, giving them
time to take corrective action before problems
occur
• Feedforward systems monitor inputs into a
process to ascertain if the inputs are as planned; if
they are not, the inputs or the process is changed
in order to obtain the desired results
Comparison of Simple Feedback and
Feedforward Systems.
 Requirements for Feedforward Control
1. Make a thorough and careful analysis of the planning and control
system, and identify the more important input variables
2. Develop a model of the system
3. Take care to keep the model up to date; in other words, the model
should be reviewed regularly to see whether the input variables
identified and their interrelationships continue to represent realities
4. Collect data on input variables regularly, and put them into the
system
5. Regularly assess the variations of actual input data from
planned‑for inputs, and evaluate the impact on the expected end
result
6.  Take action
 The Qualities Of An Effective
Control System
• Accuracy • Strategic placement
• Timeliness • Emphasis on the
• Economy exception
• Flexibility • Multiple criteria
• Understandability • Corrective action
• Reasonable criteria
What Contingency Factors Affect
the Design of A Control System?
• Size of the organization
• The job/function’s position in the
organization’s hierarchy
• Degree of organizational decentralization
• Type of organizational culture
• Importance of the activity to the
organization’s success
Contingency Factors in the Design of Control Systems
 Controlling…
BEHAVIOURAL PROBLEMS OF
CONTROLLING
• Nature of controlling
• Perception of people
• Action of participants-group formation,
individually
CONTROL AND ORGANIZATIONAL FACTORS
• Organizational Rules and Procedures
• Perception formation
• Organizational Communication
• Motivational dynamics of people
 Management by Exemption:
Concentrating on exemptions from planned
performance, controls based on the time honoured
exemption principle allow managers to detect
places where attention is warranted.
Has 6 basic ingredients-
Measurement, projection, selection, observation,
comparison and decision making.
Benefits-Economize executive time, major
problems handling, delegation of authority and
span of management etc are efficiently managed,
information and data are better used, proactive in
identifying indicators.
 Overcoming Behavioural Problems
•Direct Hierarchical Pressure should
be avoided
•Build cooperation thru participation
•Communication network
•Strengthening of group processes
for obtaining coordination and
cooperation
•Reinforce both economic and non
economic needs of the people
 Areas of Control-
Control over policies,
organization,
personnel,
wage and salaries,
costs,
methods and manpower,
capital expenditure,
line of products,
R&D,
Foreign Operations,
External Relations etc.
 Control techniques
BRIEF ENLISTMENT OF CONTROL TECHNIQUES
• Budget
• Managerial Statistics Other Methods of Control
• Special Reports Self Control
• Break Even Analysis Group Ctrl
• Cost Accounts Policies and Procedures
• Internal Audits
• Personal Observation “ Softer Issues”
• Standing rules, limitations and orders
• Censure and Disciplinary action
• Modern techniques e.g. SAP systems, JIT, TENA
 CONTROL TECHNIQUES-I
• Budget-Numerical statement expressing the plans, policies and
goals of an organization for a definite period of time
• Budgets are expressed in financial terms but may not always be
in monetary terms also.
• Budgetary Control-process of comparing of actual result with
the corresponding budget data in order to approve
accomplishment or to find remedies by adjusting estimates or
correcting the cause of differences
• It is a system of controlling costs which includes the preparation
of budgets, coordinating the departments and establishing
responsibility, comparing actual performance with budgeted
and acting upon results toachieve maximum profitability
 Types of Budget
•On the basis of coverage of functions
Master Budget and Functional Budget
•On the basis of time period
Long term Budget and Short Term budget
•On the basis of nature of activities
Capital Budget and Revenue budget
•On the basis of flexibility-
Fixed and Flexible Budgets
Other Forms of Budgeting
•Performance (Cost and Operations)
•Programme Budgeting( Total cost of the programme
•Zero Base Budgeting-Identify decision units, analysis of decision units
and evaluation of the significance, allocation of resources
 Budgeting contd…
• Benefits-Budgetary contrl as tool for
planning-numeric goals, allocation,
activities check; control, coordination
• Problems-uncertainty, sometimes
unrealistic, inflexiblity, operational
problems
 Break-Even Analysis and Target
Profit
1000
Revenues
800 Target Profit $200,000
Break-even Total Costs
600 point
Thousand
of Dollars Fixed
400 Costs
Quantity To Be Sold To
200 Meet Target Profit

0 10 20 30 40
Sales Volume in Thousands of Units
 PERT/CPM
• PERT(Programme Evaluation and Review
Technique) develop by a specific project office of
the U.S. navy in 1958.
• CPM (Critical path Method) –Du Pont Co. USA
• Basic diff. CPM and PERT is that CPM assumes the
duration of each activity to be constant. In PERT-
uncertainty in duration is considered, here
optimistic, likely and most pessimistic duration.
• Both PERT and CPM is used either to minimize
total time, minimize time for a given cost or
minimize idle resources
 PERT/CPM contd…
Process of PERT and CPM-
• Identification of activities,
• Sequential arrangement of activities,
• time estimates of activities( O+4M+p/6=expected
time of an activity) ,
• network construction*,
• based on analysis critical activities are determined
and are represented by a critical path-gives
estimates on delays if identified activities are not
completed on time(Te and Tl are calculated)
 Rules for PERT/CPM network construction
• One and Only one arrow represents each completely defined
activity
• Length of the arrow does not depend upon the duration of the
activity but is governed by the need for convenience and clarity
• Start and termination are shown in circles or codes
• If an event takes precedence over another but there is no activity
to connect them a dummy represented by dotted line is dues to
connect
• For clarity thick arrows or colored arrows are used to show
critical path activities
• Events are distinguished with numbers no two events can have
same numbers
 PERT/CPM
Advantages:
• Useful +convenient for Top Mgt. In handling projects,
• forces mgrs to plan ,
• forces people at all levels to identify and accomplish
critical activities,
• right action, at right time at right point in the
organization.

• Limitations: Time estimates, not required for repetitive

work or activities as no elaborate planning is required.
 Responsibility Accounting
• Management Accounting=Product cost accounting+Responsibility Accounting
• R.A. based on MBO
• Based on the fact –each person is responsible for his area of operation and for
effective control
• RA-cost are assigned to responsibility centres rather than Pds
• Distinction is made in terms of ctrlable cost and unctrlable costs and the
ctrlable cost are controlled
• Resp. centre can be any division/dept/or org. where is responsibility is fixed on
the head for Target achievement
• Types of Resp. Centres-Cost, profit and investment centres
• Reports are generated in which ctrlable and unctrlable costs are shown.-Report
Sys is called Responsibility reporting
• RA emphasizes ctrl on basis of who is responsible for costs
 Control through ROI
• Efficiency of an organization is judged by the amount of profit it
earned in relation to the size of investment
• After Du Point it has been successfully implemented in several
other companies as a measure of overall performance
• Does not emphasize profit in absolute or optimized terms rather
amt. Of profit is related to amount of capital invested.
• Advtges: Efficient and effective use of organizational resources;
success to budgetary planning and ctrl( mgrs are made responsible)
authority decentralization is facilitated; basis of all the other ctrl
means
• Disadvtges: rate of return can it be standardized?, What cost? –
depreciated/ original/ replacement, R&D exp. Can it be based on
RoR?
 Human Resource Accounting
• Eric Flamholtz-Accounting for people as an organization resource. It
involves measuring the costs incurred by business firms and other
organizations to recruit , select, hire, train and develop human assets. It
involves measuring the economic value of people to the organizations.
• Two approaches-Valuation at Original Costs and valuation at
replacement costs
• Original costs- costs actually incurred to acquire and develop people
• Acquire costs-recruit, selection, hiring and placement costs
• Hiring costs- include selected joined+selected not joined costs
• Learning costs-training and development costs
• Another approach-replacement costs-costs to replace a specific person
• Depends on Individuals value to an org.-present worth of the set of
future services expected to provide during the period he is expected to
remain in the organization
 Social Audit
• Concerned with the social performance of an
organization in contrast to its economic
performance as measured in the financial audit
• A commitment to systematic assessment of and
reporting on some meaningful definable domain
of the companies activities that have social impact
• Various approaches-measuring of total
expenditures for social activities( finding and
ctrling costs; cost benefit approach;programme
management approach; inventory approach
Problems-Scope for social audit, Measurement
problems
 Social Audit report
Social Audit report would contain
• social expectations and organization’s responses;
• a statement of corporation’s social objectives
attached to specific activities;
• description of goals in each specific area;
• resource specification; a statement of
accomplishment with respect to the identified
goals and objectives
Management Information System
• Kennevans- MIS is an organized method of providing past,
present and projected information relating to internal operations
and external intelligence. It supports the planning, control and
operational functions of an organization for furnishing uniform
information in the proper time frame to assist the decision
making process
• Determining the information needs- why, what whom, when,
where etc.
• MIS blueprint
• Benefits-reducing costs, greater precision of data, coordination
thru unified system, rapid access for decision makers
• More advanced forms -DSS
 Management Audit
• Periodically done critical analysis of various
components of organizations as a whole; its end
results; deviation and degree of impact of various
factors resulting in deviations in the principle and
practices of managerial functions at different
levels in the organization may be called as
Management Audit
• Can be done through consultants and submitted in
form of reports
• Provide a measure to managerial efectiveness