Control

It consists of seeing that everything is being carried out in accordance with the plan, which has been adopted, the order, which have been given and principles that have been laid down.

It refers to checking performance against predetermined standards contained in the plans, in order to ensure adequate progress and satisfactory performance.

Supervision is only a part of control; which involves regular monitoring of the performance to identify deviations from the established standards. But, control starts much before supervision and continues after that.

Characteristics of Effective Controls Systems

Establishing right standards: guide for measurement

Realistic and Flexible Clarity of Responsibility for delivery Timeliness Ease of Understanding Forward Looking Based on Facts

Essentials for control system

Planning Action Delegation of authority Information

Control Process

Establishment of standards for performance

Measuring performance

Comparing performance against standards

Developing a report

Taking a corrective action for Removing Significant Deviations:

- Correcting Deviations

- Redefining Standards

Types of Control

On the Basis of Managerial Level

1) Strategic Control2) Managerial Control3) Operational Control

Types of Control

On the Basis of the Stage or Time of Implementation:

1) Feed-forward Control (future oriented/preventive)

2) Concurrent Control (during implementation)

3) Feedback Control (after the activity has occurred)

Types of Control

On the Basis of Control Systems and Techniques

1) Budgetary control2) Financial Control 3) Quality Control 4) Inventory control 5) Operational Control

1. Budgetary control Budget is a written plan for an activity, stating

anticipated results and likely investments, either in financial or non-financial numerical terms for a specific future period.

It depicts how much an organisation expects to spend and earn.

Revenue and Expenditure

2. Financial Control:

Financial health is crucial to the survival and growth of business.

Financial Statements reflect how much was spent, how it was spent, and what it obtained.

The most common financial statements are: balance sheets, income statements and cash flow statements.

3. Quality Control

Quality control aims at efficiency and customer satisfaction by maintaining and monitoring quality levels.

The quality related standards help managers to prepare a product as per the market expectations.

4. Inventory control It focuses on attaining efficiency and

operational productivity for material management achieved.

It is applied to raw materials, work in progress, finished goods and goods in the entire delivery chain.

Just-in-Time (JIT) Kanban Radio Frequency Identification and Detection (RFID) ABC Analysis Economic Order Quantity (EOQ)

5. Operational Control

Operational control aims at evaluating the performance of the organisation as a whole.

Products and services should be produced at the required time.

The cost incurred should be least as per the budget.

The desired level of quality should be obtained.

Interrelationship of Planning and Control

They are so closely related to each other that they are almost inseparable.

Their interrelationship is manifested as iterative

cyclical process can be understood from the following facts:

Controlling is Dependent on Planning Planning is Influenced by Control Design of Control Standards part of Planning Integration at Concerned Employee Level

BUDGETARY CONTROL SYSTEM

The word budget is derived from a French word ‘Bougettee’ which means a leather pouch in which funds are appropriated for meeting anticipated expenses.

Acc. to G.R.Terry, “A budget is an estimate of

future needs arranged according to an orderly basis, covering all the activities of an enterprise for a de3finite period of time.”

Budget Preparation

Budgetary Objectives Location of Budget(key) Factor Budget Controller Budget Committee Budget Manual Budget Period

1. Definition of Objectives A budget being a plan requires:

Written objectives Demarcated areas of control Items of revenue and expenditure to

be covered.

2. Location of Budget(key) Factor

There are usually certain factors which set a limit to the total activity.

Such factors are known as key factors.

For budgeting, these factors must be located and estimated properly.

3. Appointment of Controller Formulation of budget requires whole time

services of a senior executive.

He must be assisted in his work by a Budget Committee, consisting of all the heads of departments along with the MD as the Chairman.

The controller is responsible for co-ordinating the budget programs and preparing budget manual.

4. Budget Manual

Budget manual is a schedule, document or booklet which shows, in written form the budgeting organisation and procedures.

The budget manual should be well written and indexed so that a copy thereof may be given to each departmental heads.

5. Budget Period

There is no general rule governing the selection of the budget period.

In practice the Budget Committee determines the length of the budget period suitable for the business.

The budget period is then sub divided into shorter periods.

Types of Budget

Master Budget: Master budget formalizes the whole budget system into one final document in which all the operational budgets flow.

Its aim is to draft main financial statements.

Flexible Budget: it is a budget that adjusts or flexes for changes in the volume of activity.

Fixed Budget: it does not change with the change in the activity.

Zero Base Budget: a budget where in all expenses are justified for each new period.

This budgeting starts from a ‘zero base’ and every function within an organisation is analysed for its needs and costs.

Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.