CONTROLLING BASICS

1. CONTROLLING
UNIT 5

2. Controlling
 IT IS THE PROCESS OF REGULATING
ORGANISATIONAL ACTIVITIES SO THAT
ACTUAL PERFORMANCE CONFORMS TO
EXPECTED ORGANISATIONAL GOALS AND
STANDARSDS.
 DEFINITION:
It is checking the current performance
against predetermined standards contained in the
plans with a view to ensure an adequate progress
and satisfactory performance.

3. CONTROLLING
 Process of controlling
 Types of controlling
 Budgetary and Non-budgetary control techniques
 Managing productivity
 Cost control
 Purchase control
 Maintenance control
 Quality control
 Planning operations

4. Characteristics of controlling
 Control process is universal
 Control is a continuous process (never ending the
activity)
 Control is action based (action is essential
element of controlling)
 Control is forward looking ( its look for future
development)
 Control is closely related to planning (direction of
various business activities by controlling verifies
and measures)
 Controlling is pervasive function( it is performed
by managers at all levels, all type of concern)

5. Need or importance of
controlling
 Policy verification
 Adjustments in operations
 Psychological pressure
 Coordination
 Employee morale
 Efficiency and effectiveness

6. VARIOUS MANAGERIAL
CONTROLS
 Financial controls
 budget control
 Marketing control
 Human resource control
 Computers and information control

7. Control Process Steps

8. The Control Process
11-8
1. Establish standards of performance, goals, or
targets against which performance is to be
evaluated.
 Managers at each organizational level need to
set their own standards.

9. The Control Process
11-9
2. Measure actual performance
 Managers can measure outputs resulting from
worker behavior or they can measure the
behavior themselves.
 The more non-routine the task, the harder it is to
measure behavior or outputs

10. The Control Process
11-10
3. Compare actual performance against chosen
standards of performance
 Managers evaluate whether – and to what extent –
performance deviates from the standards of
performance
chosen in step 1

11. The Control Process
11-11
4. Evaluate result and initiate corrective action if
the standard is not being achieved
 If managers decide that the level of performance
is unacceptable, they must try to change the way
work activities are performed to solve the
problem

12. Three Organizational Control Systems
11-12

13. Critical control points and
standards
• The point selected for control process is called
critical points
• Types of critical point standards:
– Physical standards (units/hr, in qualitative ;
fastness, durability)
– Cost standards (monetary cost involved in production)-
Rs./hr
– Capital standards (monetary measurements to physical
items)
– Revenue standards (value of sales)
– Program standards (budget program)
– Goals as standards
– Strategic control

14. Types of Control
11-14 Figure 11.1

15. Types of Control
11-15
 Feedforward Controls
 Used to anticipate problems before they arise so that
problems do not occur later during the conversion
process
 Giving stringent product specifications to suppliers in
advance
 IT can be used to keep in contact with suppliers and
to monitor their progress

16. Types of Control
11-16
Concurrent Controls
 Give managers immediate feedback on how
efficiently inputs are being transformed into outputs
 Allows managers to correct problems as they arise

17. Types of Control
11-17
Feedback Controls
 Used to provide information at the output stage about
customers’ reactions to goods and services so that
corrective action can be taken if necessary

18. Requirement for effective
control
• Suitability
• Flexibility
• Economical
• Simple
• Motivation
• Forward looking
• Objective
• Control should reflect the organization structure
and needs
• Control should lead to corrective action
• Less time

19. BUDGETORY CONTROL
TECHNIQUES
Budget – A budget is a vital role of planning and
control for future activities. It is an estimate of the
future needs to be calculated.

20. Control Techniques
A) Traditional Techniques
 Personal observation
 Break even analysis
 Statistical reports
 Budgetary control
B) Modern Techniques
 Management audit
 Return on investment
 PERT and CPM
 Management information system

21. Budgetary control
 Budgetary control is the process of determining
various budgets for the business unit for future.
 It serve as a method of control

22. Objective of Budgetary control
 It aims at the maximization of profits
 It decides upon and controls the expenditure on
development and research
 It provides an adequate working capital
 To coordinate the activities of different units in the
organization
 To plan and control the income and expenditure of
the organization
 To decentralize the responsibility of various
individuals in the organization

23. Problems of Limitations of
Budgeting
 Inflexibility
 Inaccuracy
 Distortion of goals
 Hiding inefficiencies
 Expenditure

24. Effective budgetary control
 Definite objective
 Support of top management
 Flexibility
 Budget committee
 Budget education
 Good feedback
 Participation
 Communication
 Reward and punishment
 Proper recording of operation

25. Classification of budget
Budget
Functional
classification
Time
classification
Rigidity
classification

26. Functional classification
a) Sales budget : It is an estimate of expected
sales during a budget period.
The following factors to be considered:
- past sales data
- plant capacity
- financial resource available
- raw material available

27. Functional classification
b) Production budget : It is a forecast of the output for
the period analyzed according to product,
manufacturing and period of production
The following factors to be considered:
- production stability
- plant capacity
- availability of materials and labour
- Time
- sales requirement

28. Functional classification
c) Cost of production budget
d) Material requirement budget
e) Direct labour budget
f) Capital expenditure budget
g) Administrative overhead/cost budget
h) Research and development budget
i) time, space, material and product budget
j) Cash budget
k) Profit budget

29. Classification based on time
a) Long term budget – 5 to 10 years
b) Short term budget – 1 or 2 years
c) Current budget – for a few weeks or few months

30. Classification based on
Rigidity
a) Fixed budget
b) Flexible budget (variable budget)
c) Alternative budgets (low, medium, high level
budget)
d) Supplementary budget

31. Budgetary control methods
 Planning –programme budgetary system
(PPBS)
 A management tool to provide a better analytical
basis for decisionmaking and for putting such
decisions into operation.
 Zero base budgeting
 (Zero-based budgeting (ZBB) is a methodology to
help align company spending with strategic goals.
Its approach requires organizations to build their
annual budget from zero each year to verify all
components of the annual budget are cost-effective,
relevant, and drive improved savings.)

32. Budgetary control methods
 Variance analysis (different dept, different
estimates)
 Responsibility accounting (is a kind of
management accounting that is accountable for
all the management, budgeting, and internal
accounting of a company. The primary objective
of this accounting is to support all the Planning,
costing, and responsibility centres of a company.)
 Adjustments of funds (top management take
decisions to fund one project to other project)
 Human resource accounting (measure the
Value of the people ie., managers and
employees)

33. Traditional Non budgetary
Control
 Report and statistical data
 Personal observation
 Operational audit
 Internal audit
 External audit

34. PERT
 PERT Techniques estimates three times
i) Optimistic time – shortest time every activity
goes exceptionally well
ii) Most likely time – time required to complete the
activity taking in to consideration of all favorable
and unfavorable elements.
iii) Pessimistic time – this is the time estimates, if
everything goes wrong.

35. Network analysis
CPM PERT
 Critical Path Method
 It is activity oriented
 CPM is planning
device
 It estimate only one
time
 It is a deterministic
model
 It analysis of cost also
 Program Evaluation and
Review Technique
 It is event oriented
 PERT is control device
 It estimate three times
 It is probabilistic model
 It analyses cost very
less

36. Gantt chart
 Gantt chart is a project management tool that
illustrates work completed over a period of time in
relation to the time planned for the work. It
typically includes two sections: the left side
outlines a list of tasks, while the right side has a
timeline with schedule bars that visualize work.

37. BENCHMARKING
Benchmarking is a process of
measuring the performance of a
company's products, services, or
processes against those of another
business considered to be the best
in the industry,

38. INVENTORY CONTROL OR
PURCHASE CONTROL
 Inventory control, also called stock control, is the
process of managing a company’s inventory
levels, whether that be in their own warehouse or
spread over other locations.
 An inventory control system also monitors their
movement, usage, and storage

39. ECONOMIC ORDER QUANTITY
 Economic order quantity (EOQ) is a calculation
companies perform that represents their ideal
order size, allowing them to meet demand without
overspending. Inventory managers calculate
EOQ to minimize holding costs and excess
inventory.

40. JUST IN TIME
Just-in-time, or JIT, is an inventory
management method in which
goods are received from suppliers
only as they are needed. The main
objective of this method is to reduce
inventory holding costs and
increase inventory turnover.

41. Information technology in
controlling
 Management Information System(MIS) – a
system of obtaining, abstracting, storing and
analyzing data to produce effective information
for use in planning, controlling and decision
making process.

42. Need for MIS
Internal factors
 Resources
 Planning and control information
 Operational information
 Production function
 Marking function
External factors
 Political and government
 Economic condition
 Technology

43. MIS Resources
 Computer hardware
 Software
 Data
 People

44. Implementation of MIS
Input data
Information stored and
retrieved
Analysis
Output
Decision making
Actions

45. Application of MIS
Major subsystem Application
 Marketing
 Manufacturing
 Logistics
 Finance
 Top management
 Sales planning, sales
analysis, sales forecasting
 Production planning, cost
control analysis
 Planning and control
 Cost analysis, planning
income measurement
 Strategic planning, policy,
resource allocation

46. Management and MIS
Strategic
planning
Technical
planning
Operation control

47. Managing productivity
 Productivity is one of the major concern of every
manager of the organization
 Productivity is a measure of how much input
required to produce a given output i.e. the ratio of
Output/input is called Productivity.
PRODUCTIVITY PROBLEMS AND
MANAGEMENT

48. Factors affecting Productivity
 Technology
 Human resources
 Government policy
 Machinery and equipment
 Skill of the worker
 Materials
 Plant and building
 Capital
 Research and Development

49. Product & Production design
1. Create ideas
2. Screening the alternatives
3. Selection
4. Prepare preliminary design
5. Final decision
6. Select the process

50. Product Analysis
Marketing
 Acceptance of customer, competitive product, pricing,
distribution channel, advertising
Economical
 Profit margin, pricing policy, volume of sales, investment
analysis
Production
 Selection of suitable process, sequence of operation,
application of new techniques & selection of method to
reduce cost and waste
Product quality & operation
Government policy
 Technology

51. Product layout
 The arrangement of machines and equipments
according to the product manufacture is called as
product layout.
 In this raw materials arrive at one end and leave
the other end as finished product.

52. Operation Research
 Operation research is a product of world war II
 Operation research applies the methods of physical
scientists and engineers to economic and political
problems.
 Operation research is the study of optimization
techniques.
 Operation research employs mathematical logic to
complex problems requiring managerial decisions.

53. Operation Research
Definition
Operation research is an experimental and applied
science developed for observing understanding the
purposeful man-machine systems and operations
research workers are actively engaged in applying
this knowledge to practical problem in business,
government and society.

54. Necessity of Operation Research
i. Uncertainty
ii. Responsibility and authority
iii. OR Models
iv. Complex organizations
v. Optimization of resources
vi. Minimizing time
vii. Maximizing profit
viii. Minimizing cost

55. Role of Operation Research in
Business and Management
1. Production Management
 Allocation of resources
 project scheduling
 Inventory policy
 Equipment replacement and maintenance
2. Finance Management
 Fund flow analysis
 Credit policies
 Capital requirement

56. 3. Purchasing and procurement
Rules for purchasing
Determining the quantity
4. Distribution
 Location of warehouse
 Transportation strategies
5. Marketing
 Product selection
 Competitive strategies
 Advertising strategy

57. Main Phases of OR
 Formulation of problems
 Construction of a mathematical model
 Solving the model
 Controlling and operating
 Testing the model and its solution
 implementation

58. Inventory controlling
 Inventory consists of stores of goods and other
stocks.
 It refer to the control of raw materials and
purchased materials in store and regulation of
investment in them.
Techniques
 Economic Order Quantity
 JIT
 Production planning and control

59. Just in time (JIT) Inventory
system
 This method is also called as zero inventory and
stockless production.
 This method is first introduced in japan.
 In this method, suppliers delivers the materials to
the production spot just in time to be assembled.
 This method reduces the cost of inventory
 There is no stock of raw material in stores or in
work

60. Production planning and control
 Routing – selection of path which each part of the
product will follow while being transferred from raw
material to finished product.
 Scheduling –it involve the deciding of when the work
will begin, duration of time and how much will be
finished.
 Dispatching
 Inspection
 Follow-up or Expediting

61. COST CONTROL
 Manager use a financial control method in the
organization which help managers to control an
organization’s financial resources.
 Financial statement
 Income statement
 Balance sheet
 Cash flow statement

62. Financial statement
 It reflect the financial position and operating
strength or weakness of the organization
 Importance of Financial statement
 Management
 Share holders
 Creditors
 Labors
 Public
 Government

63. Income statement
 It is also known as profit and loss account.
 It performs a report recording, such as change in
income, expense, profit and losses as a result of
business operation during the year.
 It summarizes the revenues and expenses of the
period.

64. Balance sheet
 It is the statement which set out the financial
conditions of business company.
 It is the cumulative result of all transaction of the
business from its very start
 It contains capital and liabilities and assets.

65. Cash flow statement
 It shows the impact of transaction on cash
position of the firm and includes all transaction on
cash position of the company.
 It help the management to plan the repayment of
loan and long term planning.
 It provides the details in respect of cash
generated and applied during the accounting
period.

66. Purchase control
 Responsibilities of Purchasing department
 Selecting the right suppliers
 Obtaining materials at the best prices
 Placing purchase order with the suppliers
 Enquiring the complaints both from suppliers and
from user department.

67. Types of special purchase
system
 Forward buying
 Tender buying
 Blanket order(multiple delivery dates over a
period of time)
 Zero stock
 Rate contract

68. Purchasing procedure
1. Processing the requisitions
2. Location and choice of suppliers
3. Placing of order
4. Follow up and expediting
5. Invoice checkup and clearance
6. Maintenance of records

69. Methods of purchasing
 Purchasing according to requirement
 Price forecasting method
 Purchasing for some definite future period
 Market purchasing
 Speculative purchasing
 Contract purchasing
 Scheduled purchasing
 Public purchasing
 Tender purchasing

70. Maintenance Control
 Maintenance is the process of keeping the
machines and equipment in good working
condition so that the efficiency of machine is
retained and its life is increased.

71. Plant maintenance control
 It is a combination of action carried out by an
organization to replace, repair service the
machineries, component in the manufacturing
plant.
Functions of Plant maintenance
 Inspection
 Repair
 Overhaul
 Lubrication
 Salvage (reuse)

72. Types of maintenance
Breakdown maintenance Preventive maintenance
 Maintenance is done after
breakdown.
 The time of breakdown is
unexpected
 Cost due to downtime is
more
 Production loss takes
place
 It affect the quality of good
produced by that
equipment & machineries
 It cannot be planned and
scheduled as
systematically
 It is done to prevent
breakdown
 Maintenance work is
planned and scheduled in
a well advanced manner.
 No downtime
 No production loss
 It is improves the quality of
goods
 It can be planned and
scheduled as

73. Quality control
 Quality is defined as the degree to which a set of
inherent characteristics fulfill the requirement.
 Quality control is the procedure that is followed to
achieve and maintain the required quality.
Dimension of quality are
 Performance, features, conformance, reliability,
durability, service. Response and reputation

74. Steps in quality control
 Fixing the quality standard
 Evaluation of measurement quality
 Comparing the measured quality with quality
standard
 Finding out the deviation
 Reason for variation
 Taking correcting action

75. Statistical quality control (SQC)
 It means controlling the quality characteristics of a
product or process using statistical method.
Types of control charts
 control charts for variables
 control charts for attributes

76. Control charts for variable
They are used when the parameter under control is
some measurement of a variable such as
dimension of work part, time for process etc.,
Control charts for attributes
They are used when the parameter under control is
the proportion or fraction of defective.