CC 01-Principles & Practices of Management

Transcription

1 Module-5

2 CC 01-Principles & Practices of Management Module 5 Management Control Control:- System and process of Controlling - Requirements for effective control - The Budget as Control Technique - Information Technology in Controlling Control Techniques- Control and planning- Types of Control Reporting - Co-ordination; Principles in Control and Co ordination

3 System and process of Controlling Controlling is the measurement and correction of performance in order to make sure that enterprise objectives and the plans devised to attain them are accomplished. Controlling is an essential managerial function at every level.

4 Control Process

5 Process of Controlling 1. Establishing Standards 2. Measurement of Actual Performance 3. Comparing Actual Performance with Standards and Analyzing Deviations 4. Taking Corrective Action.

6 Establishing Standards First step in the control process Standards are benchmarks against which actual or expected performance is measured. Standards A criteria of Performance Critical Control Points: Since the entire operations cannot be observed by managers they fix certain selected points in the entire planning program at which the measures of performance are made so that managers can receive signals about how things are going. Critical points need to be expressed in quantitative terms

7 Types of Critical-point Standards Critical Control Points Physical standards Cost standards Capital standards Revenue standards Intangible standards Description Are non-monetary measurements and are common at the operating level. Eg: Labour hour per unit of output, units of production per machine hour etc. Monetary measurements They attach money values to the costs of operation Eg: Material cost per unit, labour cost per unit, etc. Application of monetary measures to physical items especially capital invested in the firm. Eg: Ratio of current asset to the current liabilities Attaching monetary values to sales Eg: Average sale per customer Qualitative standards Eg: Loyalty of managers

8 Measuring and comparing Actual Results against Standards Information about the current level of performance need to be collected. Measurement of performance is usually done by personal observation or by relying on Management Information systems. Comparing the actual performance with the standard level of performance to find the extent of deviation. If actual performance is equal to standards, no need of further actions, while if actual performance is not meeting with the standards corrective actions need to be initiated.

9 Taking corrective actions Manager should determine the causes for the deviations The causes of deviation can be of different types Inadequate and poor equipment and machinery Inadequate communication system Lack of motivation of subordinates Defective system of remuneration etc. Managers need to correct deviation by redraw their plans or by modifying their goals(navigational change) or reassignment or clarification of duties

10 Types of Control Control Based on timing Feedback Control Concurrent Control (Real-time Control) Feedforward Controls Control based on organisational Level Strategic Control Tactical control Operational Control Control Based on whether human discretion required Cybernetic System Or Self Regulating Control Non Cybernetic

11 Feedback Control Types of control Take place after the work is completed Focus on the quality of end results Provide useful information for improving future operations Concurrent Control (Real-time Control) Focuses on what happens during work process. Monitor on-going operations to make sure that they are being done according to plans Use of computers and information systems Feedforward Controls Employed before a work activity begins Focuses on quality of resources Relies on information provided by forecasts Ensure that Objectives are clear, Proper directions are established and right resources are available

12 Feedforward, Concurrent & Feedback Control

13 Strategic, Tactical & Operational Control Type of control Strategic control Tactical control Operational control Levels of management Top management Middle level First level Explanations Organization wide responsibilities Concerned with strategic issue Long time frame Concerned with department goal Medium time frame Execution of strategy Concerned with schedules, budget, rules and specific individual output requirement Short time frame

14 Control Based on whether human discretion required Cybernetic System Or Self Regulating Control Automatically monitor situation and take corrective actions thus minimizing human intervention. E.g. Computerized inventory system Non Cybernetic Relies on human direction May require managerial discretion to determine corrective actions

15 Relationship Between Planning and controlling (Siamese twins of Management) Planning and control are inseparable. Any Attempt to control without plans is meaningless.

16 Control Techniques

17 Control Techniques Traditional Control Techniques Modern Control Techniques Budgetary Control Breakeven Point Analysis Statistical Data Operational Audit Personal Observation Quality Control Financial Control Financial Statement Ratio Analysis Standard Costing MBO( Management By Objectives) ROI( Return on Investment) Management Audit Management Information System Gantt chart Network Analysis Programme Evaluation and Review Technique (PERT) Critical Path Method (CPM)

18 The Budget as Control Technique

19 Budget Formulation of plans for a given future period in numerical terms. Statements of anticipated results It can be expressed in Financial terms: revenue and expenditure, capital budgets Nonfinancial terms: units of production, labour hours

20 Types of Budgets Revenue and Expense Budget Plans for revenues and operating expenses Sales budget outlines the sales potential based on sales forecasts Time, Space, Material and Product Budget Direct labour -hours, Machine-hours, units of materials.. Capital Expenditure Budget Capital expenditure for plant, machinery, equipment, inventory.. Cash Budget Forecast of cash receipts and disbursement against which actual cash is measured.

21 Sales Budget for the Year Ending December 31, 2020 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Units 15,000 17,000 28,000 40, ,000 Selling price Total Sales 225, , , ,000 1,500,000

22 Advantages of Budgetary Control Different functional budgets clearly indicate the limits for expenses and also results to be achieved in a given period. Helps in proper coordination Deviations from the pre-determined standards can be identified

23 Rupees Break-Even analysis Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "breakeven point"). The sales volume at which there is no profit, no loss is known as breakeven point It determines the probable profit and losses at different levels of activity.

24 Statistical Data and report It involves collecting sample data and applying statistical techniques( Mean, Median, Standard Deviation etc) for analyzing data. Information is presented in the form of tables, graphs, charts etc. to facilitate comparison of performance with the standards laid down.

25 Operational Audit Is the regular and independent Appraisal of accounting, financial and operations of a business. Mainly done by internal auditors. The auditor pinpoints defects in the policies or plans and give suggestions for eliminating the defects.

26 Personal Observation Management by Walking Around This is the most traditional method of control. It helps managers to collect first hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job. How ever it is very time consuming, & not suitable for all kinds of jobs.

27 Quality Control Quality control is a process through which a business seeks to ensure that product quality is maintained or improved with either reduced or zero errors. Statistical tools, charts etc. are used.

28 Financial Statements Profit and Loss Account & Balance Sheet Financial statements shows financial position of a firm over a period of time, generally one year. These are prepared along with last year statements, so that firm can compare its present performance with last year s performance & improve its future performance. It offers information on, Financial Position, Profitability & Liquidity(ability to convert assets in to cash to meet financial obligations)

29 Ratio Analysis Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. Ratio analysis helps to understand the Profitability :the capacity to make a profit Liquidity :determine a debtor's ability to pay off current debt obligations without raising external capital Solvency position :ability to meet the long-term financial obligations

30 Standard costing It is a technique of cost control. Under this technique,standard costs of material, labour, overheads etc. are determined. Actual cost are recorded and compared with the standard costs and variances are found out. Then measures are taken to prevent variances in future.

31 Return on Investment(ROI) Return on investment (ROI) measures the gain or loss generated on an investment relative to the amount of money invested. Investment consists of fixed asset and working capital used in business. Profit on the investment is a reward for risk taking. The return on investment is computed by dividing the operating net profit (before interest and tax) by the capital employed in the concern. If the ROI is high then the financial performance of a business is good and vice-versa. It also shows the areas where corrective actions are needed.

32 Management Audit Management Audit is an evaluation of the management as a whole. It critically examines the full management process. It finds out the efficiency of the management. Management auditing is conducted by a team of experts. The data is analyzed and conclusions are drawn about managerial performance and efficiency. Eg: Is employee morale high?, Are employee turnover and absenteeism low?, Are Organisational reward and control mechanisms effective?, Are job descriptions and specifications clear?

33 Information Technology in Controlling In order to control the organisation properly the management needs accurate information. Information is collected continuously to identify problems and find out solutions. MIS (Management Information system) collects data, processes it and provides it to the managers. MIS is defied as a formal system of gathering, integrating, comparing, analysing and dispersing information internally and externally to the enterprise in a timely, effectively and efficient manner Fast and economical processing of data for decision making

34 Role of Management Information System Store, Retrieve and Process information Helps in Decision making Helps in Coordination among departments (integration) Helps in finding out problems ( Finding deviations) Helps in comparison of business Performance

35 Business Applications of Information Technology Forecasting Material Requirement Planning (MRP)- Scheduling and inventory control system used in manufacturing process. Inventory control Computer Aided control of Manufacturing Machinery Design and Engineering Processing financial information, financial planning, capital budgeting, Project Costing etc

36 Gantt chart A Gantt chart is a horizontal bar chart developed as a production control tool in 1917 by Henry L.Gantt Used in project management. A Gantt chart provides a graphical illustration of a schedule that helps to plan, coordinate, and track specific tasks in a project.

37 Gantt Chart for the Execution of an Event

38 Network Techniques Network techniques are useful for planning, scheduling and implementing time-bound projects. Different techniques Program evaluation and review technique(pert) Critical Path Method(CPM)

39 Network Techniques A project is decomposed in to activities and then all activities are integrated in a highly logical sequence to find the shortest time required to complete the entire project Major difference between PERT and CPM lies in the treatment of time estimates In PERT time span is calculated on the basis of probabilistic estimates while in CPM time estimates are relatively accurate Importance is given to identifying the critical activities. By controlling the time of the critical activities, the total time and cost of the job are minimized.

40 Critical Path would be along the activities And C A 6 B 1 C 2 Circle Represent events and arrows represents activities 3 Network Diagram The critical path is the longest path through the network in terms of the amount of time the entire project will take In a project 3 activities need to be completed A,B and C of which A and B can be simultaneously carried out but activity C can start only after the completion of first two activities, then the critical path

41 Principles in Control Principle of the purpose of control Principle of future directed controls Principle of control responsibility. Principle of efficiency of controls. The task of control is to ensure the success of plans by detecting deviations from plans and take corrective actions The control system should be based on feed-forward rather than simple feedback of information, so that managers can perceive undesirable deviations from plans before they occur. The primary responsibility for the exercise of control rests in the manager charged with the execution of the plans. Control techniques and approaches are efficient if they detect the causes of deviations with a minimum of costs.

42 Principles in Control Principle of reflection of plans. The more clear, complete, and integrated the plans are, the more effective the controls will be. Principle of standards. Effective control requires objective, accurate, and suitable standards. Principle of critical point control Effective control requires special attention to those factors which are critical for execution of the plans. Principle of organizational suitability The more that an organization structure is clear, and responsibility for work done is well defined, control becomes more effective

43 Principles in Control The exception principle Principle of flexibility of controls Principle of action. The more that managers concentrate control efforts on significant/major exceptions from planned performance, the more efficient will be the results of their control. Control techniques should be flexible enough to accommodate unforeseen changes of plans Control is justified only if indicated or actual deviations from plans are corrected through appropriate planning, organizing, staffing, and leading.

44 Requirements for Effective Control Characteristics Explanation Economical Controls must be worth their cost. Forward Looking Control system points out corrective actions Appropriateness of Control system Control system should help managers to take corrective actions before the deviations occur Control system should disclose where failures are occurring and who is responsible for them and will ensure that some corrective action is taken. Control system must fit the organisational climate. Eg: If an organisation is giving considerable freedom to the employees, a tight control system will be a failure

45 Requirements for Effective Control Characteristics Explanation Tailoring Controls to plans and Positions It must be understandable Controls pointing up exceptions at critical points Objectivity of controls Flexibility of Controls Control techniques need to be tailored for different plans and for different positions in the organisation Control must be tailored to individual managers so that they can understand and trust it. Control systems should effectively points up the deviations from the planned performance at the critical points Effective controls requires objective, accurate, quantifiable and suitable standards Control system should be flexible enough to accommodate changes

46 Reporting Report Is a means to convey some information to others. An organized, factual, objective presentation of information. Organized since it follows a systematic pattern Factual means fact/ evidence based Objective' means it should not be influenced by our personal feelings. Involves informing the progress of work to the supervisors

47 Management Reports It aims at informing managers about the different aspects of the business, in order to help them make better decisions.

48 Types of Management Reports

49 Types of Management Reports External Reports: The reports prepared for external users External users may include shareholders, Investors, creditors, suppliers and bankers. They need to follow certain standards. Eg: Balance Sheet Internal Reports: Internal reports refers to those reports which are meant for different level of management. Internal reports are not public documents and they are not expected to conform to any standards. Eg: Labour turnover reports, Material utilization reports

50 Types of Management Reports Enterprise Reports: These reports are prepared for the concern as a whole. These reports serve as a channel of communication with outsiders. Eg: Chairman s Report during the Annual General Body Meeting

51 Types of Management Reports Investigating Reports: When the firm faces some serious problem, the causes of this situation are studied and analysed These reports are intermittent and are prepared only when a situation arises. Budget Actual this month Last month Absenteeism 26.6% 46% 42% Overtime 10% 16% 14% The management is concerned over high absenteeism and excess overtime. You are required to investigate the situation and write a report indicating a)likely causes for this situation (b)possible remedial measures to be taken

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53 Types of Management Reports Routine Reports: These reports are prepared about day to day working of the firm. They are periodically sent to various levels of management Eg: Sales information, production figures, capital expenditures, purchases of raw materials, market trends etc.

54 Types of Management Reports Special Reports/ Ad hoc reports These reports are prepared according to the need of situation. It may also involve co-ordination of different departments and different levels of management. Special reports should be divided into sections Reason for the report Investigation made Findings conclusion and recommendations. Eg:(i) Information about market analysis and methods of distribution of competitors. (ii) Technological changes in industry.

55 Features of good written reports It should be factual Clear and easily understandable Free from errors Result focussed Organised and well structured

56 Co-ordination The synchronization and integration of activities to ensure that the resources of an organization are used most efficiently in pursuit of achieving specified objectives. Co-ordination is the Essence of Management.

57 Importance Integration of goals Encourages Team spirit Gives proper direction/ unity of action Optimum utilisation of resources Leads to higher efficiency Improves relations in the organisation

58 Principles Co-ordination Principle of Direct contact Principle of Early stage of Co-ordination Principe of Reciprocal Relations Personal contact between the members of the organisation should be encouraged and maintained It need to cut across authority relationships Coordination should be started in the early stages of planning and policy making Decisions and actions of all the people and departments of the organisation are interrelated If A works with B and he intern works with C and D, each of the four find themselves influenced by others Principle of Continuous Process coordination is a continuous process management should make constant efforts to achieve co-ordination

59 CC 01-Principles & Practices of Management Module 5 Management Control Control:- System and process of Controlling - Requirements for effective control - The Budget as Control Technique - Information Technology in Controlling Control Techniques- Control and planning- Types of Control Reporting - Co-ordination; Principles in Control and Co ordination