Unit 5--- Controlling
- 2. Controlling 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 control Control process is universal Control is a continuous process Control is action based Control is forward looking Control is closely related to planning
- 5. Need of control To minimize dishonest behavior of employees To discover deviations in the management Control can minimize mistakes To indicate corrective action
- 6. Importance of controlling Policy verification Adjustments in operation Psychological pressure Coordination Employee morale Efficiency and effectiveness
- 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 - – Cost standards – Capital standards – Revenue standards – Program standards – Goals as standards – Strategic control
- 14. Three 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
- 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 activity a) Fixed budget b) Flexible budget c) Alternative budgets d) Supplementary budget
- 31. Budgetary control methods Planning –programme budgetary system (PPBS) Zero base budgeting (all expenses must be justified for each new period) Human resource accounting
- 32. Traditional Non budgetary Control Report and statistical data Personal observation Operational audit Internal audit External audit
- 33. 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
- 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. 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.
- 36. Need for MIS Internal factors Resources Planning and control information Operational information Production function Marking function External factors Political and government Economic condition Technology
- 37. MIS Resources Computer hardware Software Data People
- 38. Implementation of MIS Input data Information stored and retrieved Analysis Output Decision making Actions
- 39. 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
- 41. 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.
- 42. Factors affecting Productivity Technology Human resources Government policy Machinery and equipment Skill of the worker Materials Plant and building Capital Research and Development
- 43. Product & Production design 1. Create ideas 2. Screening the alternatives 3. Selection 4. Prepare preliminary design 5. Final decision 6. Select the process
- 44. 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
- 45. 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.
- 46. 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.
- 47. 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.
- 48. 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
- 49. 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
- 50. 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
- 51. 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
- 52. 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
- 53. 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
- 54. 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
- 55. 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
- 56. 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
- 57. 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.
- 58. 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.
- 59. 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.
- 60. 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.
- 61. Types of special purchase system Forward buying Tender buying Blanket order(multiple delivery dates over a period of time) Zero stock Rate contract
- 62. 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
- 63. 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
- 64. 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.
- 65. 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)
- 66. 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
- 67. 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
- 68. 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
- 69. 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
- 70. 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.