CONTROL TECHNIQUES

1. To enable managers effectively control the organizational activities, a large number of controlling techniques are available.

2. A manager should know these techniques and in which situation it should be applied.

3. There are two types of techniques:-

i. Traditional techniques.

ii. Modern techniques.

TYPES OF CONTROLLING TECHNIQUES

Traditional Control Techniques• Budgeting And Budgetary

Control• Cost Control• Production Planning And

Control• Inventory Control• Break Even Analysis• Profit And Loss Control• Statistical Data Analysis

Modern Control Techniques• Return On Investment

Control• Programme Evaluation And

Review Technique(PERT)• Management Information

System (MIS)• Management Audit

TRADITIONAL TECHNIQUES

BUDGETINGIt is the process of creating a plan to spend your money. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

TYPES OF BUDGETS

1. Sales budget

2. Selling and distribution cost budget

3. Production budget

4. Cost of production budget

5. Materials budget

6. Direct labour budget

7. Manufacturing overhead cost budget

8. Cash budget

ZERO-BASE BUDGET (ZBB)

Zero base budgeting technique is the latest technique of budgeting and it has an increased use as managerial tool.

In zero-base budgeting every year is taken as new year and previous year is not taken as a base.

Zero is taken as a base and likely future activities are decided according to the present situation.

BUDGETARY CONTROL

A budget is a planning and controlling device. Budgetary control is a technique of managerial control through budgets. It is the essence of financial control. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee.

“Budget control is a system of controlling cost which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.”

BROWN AND HOWARD

Chief executive

budget officer

budget committee

a) production budget

b) Plant utilization budget

a) Sales budget

b) Advertisement budget

a) Receipts budget

b) Payment budget

a) Labour budget

a) Cost budget

a) Research and

development

budget

production Budget

Sales Manager

Financemanager

Accountsmanager

Personnelmanager

ResearchAnd

develop-ment

manager

ESSENTIALS OF BUDGETARY CONTROL

There are certain steps which are necessary for the successful implementation of a budgetary control system. These are as follows:-

1. Organisation for budgetary control

2. Budget centres.

3. Budget manual.

4. Budget officer

5. budget committee

6. Budget period.

7. Determination of key factor.

ADVANTAGES OF BUDGETARY CONTROL

Maximization of profit

Coordination

Specific aims

Tools for measuring performance

Economy

Determining weakness

Consciousness

Reduces cost.

LIMITATIONS OF BUDGETARY CONTROL

1. Uncertain Future

2. Budgetary Revision Required

3. Discourage Efficient Persons.

4. Problem Of Coordination

5. Conflict Among Different Departments

6. Depends Upon Support Of Top Management.

COST CONTROL

Cost control is a control of all the costs of an enterprise in order to achieve cost effectiveness in business operations.

Cost can be classified as: fixed cost, variable cost, semi-variable cost.

MERITS

1. The cost control helps in discovering efficient and inefficient operations.

2. Cost control records provide valuable information for submitting tenders or quoting prices of products or services.

3. It helps in pinpointing the factors leading to losses. If the causes of losses are pinpointed then it will become easy to control them.

4. The reasons for variations in profit can be ascertained.

5. It helps in keeping a check on inventories. There will be a proper system of receiving, storing, issuing and using of materials and other stores.

6. Cost records become a basis for planning future production policies.

PRODUCTION PLANNING AND CONTROL

• Production planning is the function of looking ahead, anticipating difficulties to be faced and the likely remedial steps to remove them.

• Production control, on the other hand, guides and directs flow of production so that products are manufactured in a best way and conformed to a planned schedule and are of right quality.

• Control facilitates the task of manufacturing and see that everything goes as per the plans.

TECHNIQUES:- Routing:-. Scheduling:-. Despatching (Implementation) Follow Up And Expediting Inspection:-.

Inventory Control Inventory control is necessary for the smooth and

uninterrupted functioning of production department. It’s main purpose is to maintain an adequate supply of

correct material at the lowest total cost. Inventory control is exercised at three stages:

i. Purchasing of material

ii. Storing of material

iii. Issuing of material

BREAK EVEN ANALYSIS The study of cost-volume profit relationship is frequently

referred to as break even analysis. The term break even analysis is used in two senses- narrow

sense and broad sense. In its broad sense, break even analysis refers to the study

of relationship b/w costs, volume and profit at different levels of sales or production.

In its narrow sense, it refers to a technique of determining that level of operations where total revenues equal total expenses i.e. the point of no profit, no loss.

Assumptions

The break even analysis is based on the following assumptions-

1. All elements of cost i.e. production, administration and selling and distribution can be segregated into fixed and variable components.

2. Variable cost remains constant as per of output

3. Fixed cost remains constant at all volumes of output.

4. Volume of production is the only factor that influences cost.

5. There is a synchronization b/w production and sales.

Break-even Point

It is a level of production at which revenue and costs(fixed and variable) are the same, at this point there is neither profit nor loss.

Profits start only when production increases beyond this level.

B.E.P.= fixed cost

(in units) contribution per unit

Sales-variable cost= contribution per unit.

Contribution:-

It is the difference b/w sales and variable cost or marginal cost of sales.

It is also defined as the excess of selling price over variable cost per unit.

Contribution is the amount that is contributed towards fixed expenses and profit.

Profit/Volume Ratio (P/V Ratio)

The concept of p/v ratio is useful to calculate the break-even point, the profit at a given volume of sales, the sales volume required to earn a given profit and the volume of sales required to maintain the present profits if the selling price is reduced by a specific percentage.

P/V ratio=change in profit OR C x100

change in sales sales

PROFIT AND LOSS CONTROLIt is used control device to find out the immediate revenue or cost factors responsible for either the success or failure of an enterprise.

As a control device it is regarded very effective in certain respects because it enables the management to influence in advance revenues, expenses and consequently even profit.

STATISTICAL DATA ANALYSIS

This analysis is possible by means of comparison of ratios, percentages, averages, trends etc. of different periods with a view to pinpoint deviations and causes.

This method of control is very useful in case of inventory control, production control and quality control.

Statistical control charts are prepared with the help of collected data and permissible limits are plotted.

So analysis of data is a good device of control. A look at the chart will give an idea to the viewer if

everything is going as per the plan or not.

MODERN TECHNIQUESRETURN ON INVESTMENT CONTROL(ROI)

Profits are the measures of overall efficiency of a business.

The ROI can be compared over a period of time as well as with that of other similar concerns.

The comparison will show the performance in relation to earlier periods and also the level of achievement of the concern in comparison to other concerns.

ROI=Net profit before interest and tax

Capital employed

PROGRAMME EVALUATION AND REVIEW TECHNIQUE(PERT)

PERT is useful at several stages of project management starting from early planning stages when various alternative programmes are being considered to the scheduling phase, when time and resources schedule are laid out, to final stage in operation, when used as control device to measure actual versus planned progress.

MANAGEMENT INFORMATION SYSTEM(MIS)

MIS is an approach of providing timely, adequate and accurate information to the right person in the organization which helps in taking right decisions.

MIS is of two types:-

i. Management operating system meant for meeting the information needs to lower and middle level management.

ii. Management reporting system which supplies information to top level management for decision-making.

MANAGEMENT AUDIT

“Management audit is an investigation of a business from the highest level downward in order to ascertain whether sound management prevails throughout, thus facilitating the most effective relationship with the outside world and the most efficient organization and smooth running internally.”

Objectives

i. To see whether the work at all the levels is undertaken efficiently or not.

ii. If the management not done effectively then suitable recommendation are made to ton it up.

iii. Whether the plans and programmes are executed properly or not?

iv. Suggesting ways and means of increasing managerial efficiency.

v. It also aims to help management at all levels in the effective and efficient discharge of duties and responsibilities.

vi. The organizational structure is also reviewed to assess whether it can achieve overall business objectives or not.

vii. Whether the enterprise’s share in the market is increasing or declining and how it stands in comparison to competitors.