contol techniques
TRANSCRIPT
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CONTROL TECHNIQUES
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INTRODUCTION
To enable managers effectively controlthe organizational activities, a large
number of controlling techniques are
available. They help to produce rightquantity and quality of goods at the right
time. A manager should know these
techniques ,situations in which theyapply and variables that should be
considered in applying the techniques.
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TECHNIQUES OF CONTROL
Traditional Techniques
1. Personal Observation
2. Budgeting
3. Break Even Analysis
4. Financial Statement
5. Statistical Data And Reports
6. Quality Control
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Modern Techniques Of Control
1. Management Information System
2. Management Audit
3. Responsibility Accounting4. Network Analysis-PERT And CPM
5. Balanced Score Card
6. Ratio Analysis
7. Benchmarking
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Personal ObservationThe simplest way to control organizational activities is
that manager take round at work place and observe the
progress of work. Defect in employees performance
can be spotted and corrected immediately. A face-to-
face interaction is possible whereby workers can get
their doubts solved on-the-job and the necessary
guidance and counseling can also be provided to them,
then and there.
Advantage- creates a psychological pressure on theemployees and they tend to perform better.
Disadvantage-it demotivates the employees who work
under psychological pressure of being watched but
who are otherwise conscientious and self-motivates towork.
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B d t
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Budgetary
Control
A budget is a statement which reflects future incomes,
expenditures and profits of the firm. It is a future projection
of the firms financial position. A budget is, "The process of
stating in quantitative terms, planned organizational
activities for a given period of time. It facilitates comparison
of actual performance with planned performance and helpsto correct deviations in actual performance. It is a basic
technique of control and is used at every level of
organization. Budgetary control is done for all aspects of a
business such as income, expenditure, production, capitaland revenue. Budgetary control is done by the budget
committee.
Purpose of budgets
1) It provides a yardstick for measuring and comparing
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3) It provides guidelines about the resource and expectations.
4) It facilitates intra and inter-managerial and divisional
performance of an organization.
Process of Budgeting
The various steps included in the preparation of budget are:
1)Top managers send down to the operating managers their
views on the organizational goals, policies , resourceposition and its relationship with various environmental
factors.
2) The lower-level or the operating managers prepare their
budget proposals based on the guidelines.3)The budget so prepared is sent to the top managers for their
review , appraisal and approval.
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Benefits of Budgeting
1)Provides standard of performance
2)Facilitates planning3)Provides basis for coordination at various organizational
activities
4)Motivation and job satisfaction
5)Helps in predicting the future6)Facilitates communication
7)Facilitates delegation of authority
8)Optimum use of scare resources
9)Facilitates control
4)If approved, the top managers coordinate these budgets
with the overall budgets framed by them and prepare the
master budget.
5)The master budget is then sent to the board of directors fortheir approval. Once approved, it is sent down the
hierarchy again for its effective implementation.
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Zero Base Budgeting
Zero base budgeting does not consider future as projection
of the past. The company asses activities of current year
,correlates them with its goals ,carries a cost-benefit
analysis for each activity and allocate fresh
Types of Budgets
1)Operating budget- it relates to the operating activities of anenterprise, which involve both revenue and expenses.
2)Financial budget- It predict various sources and uses of
finance. It facilitates the working of operating budget.
Limitations of Budgeting
1)Overspending
2)Inflexibility
3)Projection of future4)Hindrance to innovation and change
5)over-emphasis on budgeted goals
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resource to each activity. This means preparing budget from
scratch , allocating resources based on priorities of activities
and not last year's allocation. Zero base, therefore, means thatthe budgets are not based on earlier year's estimates. Rather,
they start from the base zero.
The zero base budgeting involves the following three
steps :1) The overall activities of the organization are broken down
into units called as decision packages and cost-benefit
analysis is made with respect to each package.
2)The packages are arranged in order of priority.
3)The resources are allocated to the different packages.
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Break Even Analysis
Break Even Analysis or Cost Volume Profit Analysis definesthe relationship between sales volume, costs and profits
to find out sales at which sales revenue is equal to cost
.The point at which sales revenue is equal to total cost is
the break even point. Sales volume beyond the break-even point will earn profits for the organization and sales
volume below the break-even point is a situation of loss.
As, a technique of controlling, managers compare their
actual performance in terms of output sold with the break-
even point of sales and if they are not able to sell beyond
this point, they should improve their performance by
increasing their sales or reducing their costs.
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Advantages of break-even analysis1.Improvement in performance
2.Helps in decision making
3.Helps in reduction in cost
Limitations of break-even analysis
1.Assumptions does not hold good in real life
2.Fixed cost does not always remain constant3.Certain cost cannot be conveniently divided into fixed and
variable costs and to that extent, do not form a part of
break-even analysis
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Financial Statement
Financial statement depict the financial position of the firm overa period of time, generally one year. These statements are
normally prepared along with the last years statement so that
the firm can compare its present performance with the last
years performance and take necessary action to improve itsfuture performance. As these statements are prepared at the
end of the financial year , as a measure of control , they
provide tips to managers to improve their future performance.These statement offer information on the following
aspects1)Liquidity-The firm can know its cash position
2)Financial Strength-Its assets and liabilities and its equity
position
3)Profitability-The excess of revenue over cost
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Two commonly used financial statement
a)Balance SheetIt is a statement of the companys financial
position at a point of time, usually 31st of March. A
balance sheet describes a companys assets , liabilitiesand owners equity.
Assets=Liabilities + Equity
b)Income StatementWhile balance depicts a companys
financial position at a point of time(31stmarch), an
income statement depicts the companys financial
performance over a period of time(financial year : from
April to march). It is a statement of companys revenues
and expenses.Revenuesare the inflows arising out of the companys sale of
goods and services.
Expensesare the outflows incurred to earn the revenues
Revenue>ExpensesProfitRevenue
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Statistical Data And Reports
Data helps in applying statistical techniques ofaverages,regression,correlation etc. to predict company'sperformance.
Quality control
Quality control uses operational techniquesand activities to sustain quality of theproduct or service to satisfy customerneeds. It aims to maintain quality of
goods at each stage of the manufacturingprocess rather than detecting errors atthe end of the production cycle wherefaulty products may have to be discarded
or rewarded.
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Method of Quality Control1.Inspection- Inspection means checking the product through
visual or testing examination, at the input stage, transformationstage or output stage, in terms of quality against standards.
Types Of Inspection :
100% inspection
Sample inspection
2. Statistical Quality Control- SQC is a statistical technique usedto monitor quality of the products. It is based on statisticaltheories and methods of probability to control the: incomingmaterials, processes during production and final products.
It can be done in the following ways:
A. Acceptance SamplingB. Process sampling
Variations due to chance
Variation due to assignable causes
o a a
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o a ua yManagement
It is the, management of quality ,totally and fully in all respects,
small areas and all activities of organization right from top to
bottom. The core of total quality management is that
managerial attention is focused on every organizational
activity, howsoever small it may be. It aims at continuous
improvement of the organization and focuses on totalsatisfaction of consumers, both internal and external. TQM is
a continuous long-term process that involves constant
managerial efforts to recognize and reinforce quality trough
continuous data collection, evaluation, feedback andimprovement programmes.
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Modern Techniques Of Control
Management Information System- Thesystem of obtaining timely, relevant andaccurate information based on computertechnology is known as information system.The system helps managers in preparingreports for effectively carrying out planningand controlling functions.
According to Weihrich and koontz,MIS is aformal system of
gathering,intergrating,comparing,analyzing and dispersing information interval andexternal to the enterprise in a timely,effective and efficient manner
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Features Of MIS
TimelinessAccuracyRelevanceConciseCompletenessAdvantages Of MISAccurate Information
Relevant InformationFacilitates managerial functionsFacilitates Coordination
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Management Audit
Audit means periodic inspection of financial statementsand verifying that the statement and verifying that thestatement are honestly and fairly prepared accordingto accounting principles. Audit thus provides the basisfor control.
Two types of audit can be conducted by firm-External Audit-It refers to verification of financial
statement. Companys assests,liabilities and capitalaccounts are checked and deviations are reportedto managers for action. Control is thus facilitated
through verification of accounts against the standardprinciple. This is known as financial audit.
External audit checks fraudlent practices in preparingfinancial accounts .Outside parties like , investors ,bankers and financial institutions can enter into fairand honest dealing with the firm if its accounts areaudited.
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Objectives
1. To appraise managerial efficiency with respect to
objectives, policies and procedures of theorganization.
2. To asses whether organizational policies are being
followed or not.
3. To evaluate management's performance with
respect to standard performance.
4. If actual performance deviates from standard
performance , to find out causes for the same.5. To suggest remedial measures to remove deviation
and improve managerial performance.
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Responsibility Accounting
It divides the organization into small units wheremanager of each unit is responsible for achieving
the targets of his unit. These units are called
responsibility centers and head of each
responsibility centre is responsible for controllingthe activities of his centre. Performance of
responsibility centre is judged by the extent to
which targets of the centre are achieved .
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PROGRAM EVALUATION AND
REVIEW TECHNIQUE(PERT)
PERT- A TIME EVENT NETWORK ANALYSISSYSTEM IN WHICH THE VARIOUS EVENTS IN APROJECT OR PROGRAM ARE IDENTIFIED WITH APLANNED TIME ESTABLISHED FOR EACH.
METHODOLOGY PREPARATION OF THE NETWORK .
NETWORK ANALYSIS.
SCHEDULING.
TIME COST TRADE OFFS. RESOURCE ALLOCATION.
PROJECT CONTROL.
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CRITICAL PATH METHOD(CPM)
IT IS USED FOR OPTIMISING RESOURCE ALLOCATION ANDMINIMISING OVERALL COST FOR A GIVEN PROJECT.
PROCEDURE-
BREAK DOWN THE PROJECT INTO VARIOUS ACTIVITIESSYSTEMATICALLY.
NUMBER ALL THE EVENTS AND ACTIVITIES.
CALCULATE THE EARLIEST START TIME, EARLIER FINISHTIME, LATEST START TIME AND LATEST FINISH TIME.
DETERMINE TOTAL FLOAT TIME.
IDENTIFY THE CRITICAL ACTIVITIES AND CONNECT THEMWITH DOUBLE LINE ARROW.
CALCULATE TOTAL DURATION OF PROJECT.
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What is The Balanced
Scorecard?
BalancedScorecard
A performance
measurement toolthat looks at more
than just the
financial
perspective
Copyright 2011 Pearson
Education, Inc. Publishing asPrentice Hall.
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BALANCED SCORECARD
BALANCED SCORECARD:A PERFORMANCEMEASUREMENT TOOL THAT LOOKS AT FOUR AREAS-
FINANCIAL, CUSTOMER, INTERNAL PROCESSES AND
PEOPLE/ INNOVATION/ GROWTH ASSETS THAT
CONTRIBUTES TO A COMPANIES PERFORMANCE.
THE FOUR GENERAL PERSPECTIVE WHICH HAVE BEEN
PROPOSED BY BALANCED SCORECARD ARE AS UNDER:
FINANCIAL PERSPECTIVE
CUSTOMER PERSPECTIVE
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INTERNAL PROCESSES PERSPECTIVE
INNOVATION AND LEARNING PERSPECTIVE
LIMITATIONS
SCORES ARE NOT BASED ON ANY PROVEN ECONOMIC OR
FINANCIAL THEORY.
BALANCED SCORECARD DOES NOT PROVIDE A
BOTTOMLINE SCORE.
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FINANCIAL RATIO ANALYSIS
RATIO-IN SIMPLE WORDS, RATIO MEANS COMPARISON OFONE FIGURE WITH ANOTHER RELEVANT FIGURE OR
FIGURES. IT MAY ALSO BE TERMED AS NUMBER
EXPRESSED IN TERMS OF ANOTHER NUMBER.
NO ANALYSIS IS POSSIBLE ON THE BASIS OF ABSOLUTE
FIGURES. HENCE VARIOUD RATIOS ARE CALCUKATED
FOR FINANCIAL ANALYSIS AND CONTROL.
SOME OF SUCH IMPORTANT RATIOS ARE AS FOLLOWS:-
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2007 Prentice Hall, Inc. All
rights reserved.1832
Exhibit 1810 Popular Financial Ratios
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2007 Prentice Hall, Inc. All
rights reserved.1833
Exhibit 1810 Popular Financial Ratios (contd)
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MVA- IT ADDS A MARKET DIMENSON SINCE IT MEASURES THESTOCK MARKETS ESTIMATE OF THE VALUE OF A FIRMS PAST
AND EXPECTED CAPITAL INVESTMENT PROJECTS. IT IS THE
DIFFERENCE BETWEEN THE CURRENT MARKET VALUE OF AFIRM AND THE CAPITAL CONTRIBUTED BY INVESTORS.
FORMULA:-
MVA=V-K
WHERE-V= market value of the firm, including the value of the firms equity and
debts
K= capital invested in the firm.
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BENCHMARKING
BENCHMARKING: THE SEARCH FOR BEST PRACTICESAMONG THE COMPETITORS OR NON-COMPETITORS
THAT LEAD TO THEIR SUPERIOR PERFORMANCE.
BENCHMARK: THE STANDARD OF EXCELLENCE AGAINSTWHICH TO MEASURE AND COMPARE.
THE METHADOLOGY ADOPTED IS AS UNDER:
IDENTIFY THE PROBLEM AREAS.
IDENTIFY OTHER INDUSTRIES.
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IDENTIFY ORGANIZATIONS THAT ARE LEADERS INTHESE AREAS.
SURVEY COMPANIES FOR MEASURE AND PRACTICES.
VISIT THE BEST PRACTICE COMPANIES TO IDENTIFY
LEADING EDGE PRACTICES.
IMPLEMENT NEW AND IMPROVED BUSINESS
PRACTICES.