OUTLINE NO: 06: CONTROLLING

The system & process of controlling

o Definitions

o The basic control process

o Critical control points and standard

Types of critical points standards

Physical standards

o Cost standards

o Capital standards

o Revenue standards

o Program standards

o Intangible standards

o Goals as standards

Strategic plans as control points for strategic control.

o Control as a feedback system

o Feed forward control

Control techniques

The concept of budgeting

The purpose of budgeting

Types of budgets

Effective budgetary control

Dangers in budgeting

Methods for decreasing dangers

Traditional non budgetary control techniques

o Statistical data

o Special reports and analysis

o Operational audit

 Personal observation

Time event net work analysis

Controlling: THE SYSTEM &PROCESS OF CONTROLLING

DEFINATIONS

There are many definitions of controlling.

1. Controlling is the process of determining what is being accomplished.

2. Controlling is evaluating the performance and if necessary applying corrective

measures so that the performance takes place according to plans.

3. Controlling is measurement and correction of performance in order to make

sure that enterprise objectives and the plane advised to attain then are being

accomplish.

4. Controlling is looking behind planning bears a close relationship to

controlling.

5. Effective controlling assists to regulate actual performance to assure that it

takes place as planned.

6. Controlling exists at every management level from president to supervisor of a

company

Control is the process through which managers assure that actual activities conform to

planned activities.

ACCORDING TO BREACH

"Control is checking current performance against predetermined standards contained

in the plans, with a view to ensuring adequate progress and satisfactory performance."

ACCORDING TO GEORGE R TERRY –

"Controlling is determining what is being accomplished i.e., evaluating the

performance and if necessary, applying corrective measures so that the performance

takes place according to plans."

ACCORDING TO BILLY E GOETZ

"Management control seeks to compel events to conform plans".

ACCORDING TO ROBERT N ANTHONY –

"Management control is the process by which managers assure that resources are

obtained and used effectively and efficiently."

IN THE WORDS OF KOONTZ AND O'DONNELL

"Managerial control implies measurement of

accomplishment against the standard and the correction of deviations to assure

attainment of objectives according to plans."

IN THE WORDS OF HAYNES AND MASSIE

"Fundamentally, control is any process that guides activity towards some

predetermined goal. The essence of the concept is in determining whether the activity

is achieving the desired results”.

IN THE WORDS OF HENRY FAYOL

"Control consists in verifying whether everything occurs in conformity with the plan

adopted, the instructions issued and the principles established. Its object is to find out

the weakness and errors in order to rectify them and prevent recurrence. It operates on

everything, i.e., things, people and actions".

From the above definitions it is clear that the managerial function of control consists

in a comparison of the actual performance with the planned performance with the

object of discovering whether all is going on well according to plans and if not why.

Remedial action arising from a study of deviations of the actual performance with the

standard or planned performance will serve to correct the plans and make suitable

changes. Controlling is the nature of follow-up to the other three fundamental

functions of management. There can, in fact, be not controlling without previous

planning, organizing and directing.

Controlling cannot take place in a vacuum.

Controlling: THE BASIC CONTROL PROCESS

THE BASIC CONTROL PROCESS
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

The basic control process involves three steps.

1. Establishing standards.

2. Measuring performance against these standards.

3. Correcting variations from standard and plans / correction of deviations.

1. ESTABLISHING STANDARD

Standards are by definition is simply criteria of performance. Standards are the

selected points in a planning performance at which performance is measured, so that

managers can receive signals about how things are going.

There are many kinds of standard.

(1)Physical Standard (2) cost Standard (3) capital Standard (4)

revenue Standard (5) program Standard (6) intangible Standard (7) goals/ objectives

Standard (8) Strategic plans as control point strategic control.

2. MEASUREMENT OF PERFORMANCE

It is the second step of control process. Although such measurement is not always

predictable, but if standard are appropriately drown and if means are available for

determining exactly what subordinates are doing then measurement of performance is

fairly easy. But there are many activities for which it is difficult to develop accurate

standards and there are many activities that are hard to measure. Technical kind of

work is hard to measure performance.

3. CORRECTION OF DEVIATIONSS

It is third and last step of control process. If performance is measured accurately, t is

easier to correct deviations manage know exactly where the corrective measure

measure must be applied correction of deviations is the point at which contact can be

related to the other managerial factions. Managers may correct deviations by

redrawing their plans or by modifying their goals or they may correct deviations by

clarification of duties.

CRICTICAL CONTREL POINTS & STANDARDS

Standards are yardsticks against which expected performance is measured. In simple

operation a manager may control through careful observations. But, in most

operations this is not possible because of the complexity of the operations. Manager

must choose points for special attention and then watch them to be sure that the whole

operation is proceeding as planned.

The points selected for control should be critical. With such standards,

manager can handle a large group of subordinates and plans are working out the

principle or critical. Points control states “effective control requires attention to these

factors critical to evaluating performance against plans.

QUESTION OF SELECTED CRITICAL POINT OF CONTROL

In selection of critical control points, manager must ask themselves such questions.

1- What will best reflect the goals of my department?

2- What will best show me when these goals are not being met?

3- What will best measure critical deviation?

4- What will tell me who is responsible for any failure?

5- What standard will cost the least?

6- For what standards is information economically-available?

TYPES OF CRITICAL POINT STANDARDS

There are many types of standards

1- PHYSICAL STANDARDS

Physical standards are non monetary measurements and common at operating level

where material is used, labor is employed, services are rendered and goods- are

produce-they may-reflect quantities such as labor hours per unit of output, unit of

production per machine hour etc. physical standards may also reflect quality such as

hardness of bearing, durability of fabric, fastness of color etc.

2- COST STANDARDS

Cost standards are monetary measurements and common at the operating level. Cost

standards are widely used to measure direct and indirect costs per unit produced,

labor cost per unit or per hour material cost per unit, machine cost per hour etc.

3- CAPITAL STANDARDS

There are varieties of capital standards. These standards are primarily related to the

balance sheet rather than to the income statements. Capital standards range from

monetary measurements to physical items. These standards may be indifferent ratios

such as the ratio of current assets to current liabilities etc.

REVENUE STANDARDS

Revenue standards arise from attaching monetary values to sales. They may include

such standards as average sales per customer etc.

PROGRAME STANDARDS

Such standards are determined for installing a variable budget program, for example

program for improving the quality of a sale fore.

INTANGIBLE STANDARDS

Sometime it is difficult to establish standards for quantitative and qualitative

measurement, especially when human relationships count in performance. It is very

difficult to measure human attitudes, in connection with individual’s loyalty,

efficiency, etc. All this need to be based on intangible standards.

GOALS AS STANDARDS

Goal can be used as performance standards. Both in simple in complex operations

quantitative and qualitative Goals represents an important development in the area of

standards.

CONTROL AS A FEED BACK and Feed forward control SYSTEM

CONTROL AS A FEED BACK and Feed forward control SYSTEM
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

CONTROL AS A FEED BACK SYSTEM

Many systems control themselves through information feedback, which shows

deviations from standards. A simple feedback system can be shown by figure.

Any attempt to control without plan is meaningless. Plans furnish the standards of

control. Information feedback is like the house thermostat when the house

temperature falls below the preset level, an electric message is sent to the heating

system, which is then activated. When the temperature increases and reaches the (setlevel)

another message shuts off the heater. This continual measurement and training

on and off the heater keeps the house at the desired temperature. A similar process

activates the air-exceed the preset level, the air conditioning system cool the house to the desired temperature. Like wise, in human being body, a number of feedback

systems control temperature, blood pressure and another conditions.

Management control as a feedback system is similar to the system of feedback in

house thermostat. This can be shown by diagram.

CONTROL AS FEEDBACK SYSTEM

This system places control in more complex way. These systems including steps,

establishing standards, measuring performance and correcting for deviations.

Managers do measure performance, establish standards and identify deviations, they

must then to make the necessary corrective action.

REAL TIME INFORMATION & CONTROL

FEEDBACK FORWARD CONTROL

Feed forward control is system that attempts to identify future deviations. This

control shows the deficiency of historical data. For example one of the difficulties

with such historical data is that they tell business managers is November that they lost

money in October or even September because of some thing that was don in July. At

this late time such information is only a interesting historical fact. Feed forward

control is manager have been so dependent for purposes of control on accounting and

statistical data.

CONTROL TECHNIQUES: THE BUDGET

CONTROL TECHNIQUES: THE BUDGET
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

THE BUDGET

A widely used device for managerial control is the budget. Budgeting is the device

for accomplishing control.

THE CONCEPT OF BUDGETING

Budgeting is the formulation of plans for a given future period in numerical terms.

THE PURPSE OF BUDGETING

Starting plans in terms of numbers and breaking into parts parallel the parts of an

organization. Budgets enables managers to see clearly what capital will be spent by

whom and where, and what expense, revenue the plans will involve. A budget must

reflect the organizational pattern. When plans are completed, co-coordinated and

developed a departmental budget can be used as an instrument of control.

TYPES OF BUDGETS

Budgets may be classified in to several basic types

1. REVENUE AND EXPENSE BUDGETS

Revenue and expense budgets are most common budget which are used to make plans

for revenue and expenses in dollar terms.

2. TIME , SPACE , MATERIAL &PRODUCT BUDGETS

Many budgets are better expressed in quantities rather then in numerical terms or

monetary terms. Although such budgets are usually translated into monitory terms but

if they are expressed in terms of quantities, they are must significant at certain stage

of planning and control. I.e. machine hours, etc.

3. CAPITAL EXPENDITURE BUDGETS

Capital expenditure budgets shows capital expenditure for plant, machinery,

equipment, inventories etc.

4. CASH BUDGETS

The cash budget is a fore cast of cash receipts. Cash budgeting shows the availability

of excess cash etc.

EFFECTIVE BUDGETARY CONTROL

If budgetary controls are to work well managers have limitations and they must be

tailored to each job. There are many effective budgetary controls.

1. TOP-MANAGEMENT SUPPORT

To make most effective budget, administration must receive the whole hearted

support of top-management.

2. PARTICIPATION

Real participation in budget making is necessary for success.

3. STANDARDS

One of the key to successful budgeting is to develop and make available standards by

which programs and work can be translated in to need for labor, operating expenses ,

capital expenditures , space and other resources. Many budgets fail for lake of such

standards.

4. INFORMATIONS

Finally if budgetary control is to work managers need ready information about actual

and forecast performance under budgets by their departments. This information must

be designed to show them how well thy are doing.

DANGERS IN BUDGETING

Budgets are used for planning and control. Unfortunately, some budgetary control

programs are so complete and detailed that they must become meaningless and

expensive.

There are many dangers in budgeting.

1. Over budgeting.

2. Hiding influences.

3. Causing inflexibility.

4. Overriding enterprise goals.

METHODS FOR DECREASING DANGERS

1. VARIABLE BUDGETS

Because dangers arise from inflexibility in budgets so these dangers can e decrease by

variable or flexible budgeting?

2. ALTERNATIVE AND SUPLEMENTARY BUDGETS

Another method of obtaining variable budgeting is to establish alternative budgets

and variable budgets can also be obtained by supplementary budgets.

3. ZERO BASE BUDGETING

Another method to obtained budget flexibility is zero- base budgeting.

TRADITIONAL NON BUDGETORY CONTROL TECHNIQUES

TRADITIONAL NON BUDGETORY CONTROL TECHNIQUES
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

There are also many traditional non-budgetary control techniques used for budgetary

control. The more important are

1. STATISTICAL DATA

Statistical analysis of an operation and the clear presentation of statistical data

(historical forecast nature) are important to control. Most managers understand

statistical data best when the data are presented in chart or graphic form. In chart or

graphic trends and relationship are easier to see. Moreover, if data are meaningful,

when presented on chart then data should be formulated in such a way that

comparison with some standard can be made. What is the significance of a 3 or 10

percent rise or fall in sales or costs? Who is responsible clear presentation of

statistical data in chart in an art that requires imagination?

Moreover, since no manager can do anything about history so the data, presented an

charts should be made available about information like variations due to accounting adjustment and other periodic difference.

SPECIAL REPORTS AND ANALYSIS

Special reports and analyses help in problems for control purposes.Althouh

accounting and statistical reports gives necessary information’s but there are some

problems in which they are inadequate. One successful manager of a completed

operation hired a small staff of trained analysts and gives them no assignment other

then investigating and analyzing activities under his control. This group developed of

a surprising sense for situations in which things did not seem just right. Almost

invariable, their investigation disclosed opportunities for cost improvement.

OPERATIONAL AUDIT

Another effective tool of managerial control is the internal audit or operational audit.

Operational auditing is the regular and independent appraisal of the accounting,

financial and other operations of an enterprise by a staff of internal auditors. The

operational auditors reflect the fact, appraise polices procedure, use of authority,

quality of management, effectiveness of methods, special problems and other phases

of operations.

PERSONAL OBSERVATION

One should never over-look the importance of control through personal

observation.Budgets, charts, reports, ratios, auditors, recommendations and other

devices are essential to control. But the manager who depends wholly on these

devices and sit cannot make effective control. Managers should have task of seeing

the enterprise objectives are accomplished by people. A manager can get information

and experience from personal observation.

TIME-EVENT NET WORK ANALYSIS

DEFINITION

Time- event network analysis is a planning & control technique. It is also called

(PERT). Performance, evaluation and review technique.

EXPLANATION

What is PERT?

P- Program

E- Evaluation

R- Review

T- Techniques

PERT is a planning and control technique through which we evaluate a program and

courses of implementation and on the basic of that evaluation we review over

program.

In this time event analysis introduced in PERT from and then introduced further two

more techniques.

First is Gantt chart

Second Milestone budgeting.