(8) It provides an effective means by which top management can delegate authority and responsibility without disturbing overall control. Ratios have been variously classified, based on their pecu­liar characteristics. Measuring performance in terms of EVA is to capture all the things a company can do to add value from its activities such as running business efficiently, satisfying customers, rewarding shareholders and the like. It stands for the policy to be pursued during the period for accomplishing the objective. Thus, the break-even analysis is a vital tool of financial planning and control. The control process: establishing performance standards, measuring performance, identifying and investigating deviations in performance, making changes to meet objectives. Non-budgetary con­trols, including all techniques of operations research, i.e., quan­titative control techniques. This analysis helps in determining the volume of production or sales and the total cost which is equal to the revenue. Production control involves planning of production, determination of stock level of raw materials, finished goods, selection of process, selection of tools in production, etc. (3) Both the techniques are basically time-oriented. = Earnings/Total Investment or Net Profits/Total Assets. Sales Mix- Given the present product line, which par­ticular product should be manufactured in larger quan­tities and which product should not be emphasised? This technique also follows the principle of PERT. Break-even analysis is essentially a tool for cost-plus pric­ing. ABC Pen Manufacturing Company Ltd., sells its pens at Rs. It guides efficient inventory management. (2) It provides the management with a means of control over planned programmes. For example, it would be foolish to blame the Factory Manager for the high cost of the manufactured product, if such high cost has been the result of buying raw materials at high prices. It is a summary of the major aspects of an organization’s financial status. As a project manager, understanding the impact of influences and keeping them in check is critical to delivering the project successfully. This requires integrative mechanisms that help group problem solving, information sharing and cooperation across all organizational units. It is the minimum level of stocks which must be always on hand. So , break even point is so important from controlling point of view . Controlling is a backwards-looking function which brings the management cycle back to the planning function. Budgetary control enables the manager to plan activities to be carried out in a crystal clear manner. (1) The future uncertainties reduce the utility of budgetary control system. In the year 1962, Jaikson Martindell of American Institute of Management architected the concept of management audit. Break-even Point Analysis (Cost-Volume-Profit Model): The cost-volume-prof it model, or break-even chart, provides a useful managerial tool for analysing the relationship between revenues from sales and costs of producing those sales revenues. iii. Thus it forces the management to review the activities before deciding on fund allocation. c. Pessimistic time (tp) – It is the time which an activity will take to complete in case of difficulty i.e., if most of the things go wrong. As a matter of fact, you'd probably need to use project control techniques in possibly all aspects of the project. It is not a task force a but permanent feature of the organization. In management, one of the most important tasks in an organization is goal-oriented. First; managers must set a plan, then organize resources according to the plan, lead employees to work towards the plan, and finally, control everything by monitoring and measuring the effectiveness of the plan. Determine the number of motors which must be sold-. Thus its acceptance or rejection depends on the predetermined level. control), obtaining and controlling finance (e.g. The third approach reflects human resources model. Now we have to discount the future cash flow back to the present. 1. Hence, from the above two definitions it can be concluded that management audit concentrates on the examination of policies and functions of the management on the basis of certain standards and norms. The higher the number of sigma’s, the fewer the deviations from the norm. xiv. Where the frequency of order is more, the ordering cost could be higher and the enterprise may lose volume discount. Fixed costs remain the same irrespective of volume of output while variable costs vary with output. PERT is to be applied to onetime, non-repetitive project. Management, Functions, Control, Techniques of Control. Fixed cost is Rs. It does not allow an activity just because it was allowed in the previous year. (v) It helps in calculating of sales required to offset price reduction. We will have compound interest worked backwards. If they fall outside the limits, it indicates malfunction in the system. Here, we are interested in the second function, viz., and the means of control-reporting progress of actual performance against the programme. The firm deals in only one product or in the case of multiple products, all the products have the same contribution margin or the sales mix remains unchanged. Thus companies can emulate best internal processes and procedures of competitors if they are worth emulating. It is the arrangement of the actual jobs of the project according to sequence of the time in which they have to be performed. Contribution Margin- Contribution margin refers to the difference between the sales and variable overheads. It is unduly emphasizing on time and not on cost. Financial analysis looks after economic cost-benefit analysis and deter­mines economic profitability from the business enterprise view­point primarily. It provides a tool for predicting the impact of schedule of changes. Similarly, before drawing any conclusion from the different debt-equity ratios of two companies, one must think of the actual magni­tude of the capital employed in fixed and current assets. Report a Violation 11. In other words, budgeting must closely follow the orga­nization structure. For each unit, we have a separate budget usually for a year. Each budget centre would plan out its activities and the budget for that centre may be fixed by management. The budget committee cannot judge the demands accurately on their merits. Budgeting ensures that the organization plans for its own future performance, and then, through the control process, tries to ensure adherence to the plans. Budgeting is an exercise in ‘guessing the future’ and no one can accurately estimate what will happen in future. The reason is that they are personally observed by their supervisor. In other words, the break-even point is the point at which there is no profit or loss. Controlling helps managers eliminate gaps between actual performance and goals. 27.1). The trend today is not to take the organisation structure as given for designing a budgetary control system, but to treat the structure and the system as interdependent and interacting with one another and design both simultaneously so as to arrive at an optimum point to attain the management strategy of the company. Network analysis is being widely as a tool of management planning and control. All critical factors affecting smooth flow of project are analyzed and provided for under PERT and CPM. Keeping your temper in check can be challenging. TRADITIONAL CONTROL Personal Observation: This is oldest method of controlling. Budgetary Control 3. A manager’s primary challenge is to solve problems creatively. In a budget meeting unit manager presents his forecast. The insight in enterprise gets by analyzing financial statement though the financial tools help in initiating appropriate measures to fine tune it’s financial and operating performance. ... Control in management means setting standards, measuring actual performance and taking corrective action. Continuous improvement is core to TQM. Control or controlling techniques are nothing new to business. Audit programmes particularly the management audit to appraise the overall performance of management, e.g., mar­keting audit, social audit. This is a new technique and has become popular within a short period. Share Your Word File The most efficient time and energy is possible when control information stresses the exception or critical points of control and focuses attention upon those functions that need corrective action. Management control is a systematic effort to set perfor­mance standards with planning objectives, to design informa­tion feedback systems, to compare actual performance with these pre-determined standards, to determine whether there are any deviations, and to take any action required to assure that all corporate resources are being used in the most effective and efficient way possible in achieving corporate objectives. The techniques of cost control involve the setting of cost standards for various components of cost and making comparison of actual cost data with standard cost. Thus, management information system helps the management in managerial decision-making by giving the right information at the right time and in the right form. According to J.Batty, "Budgetory control is a system which uses budgets as a means of planning and controlling all aspects of … Additionally, some other techniques of control are: 1. The profit of a business is dependent on three basic factors: (2) Cost of production and distribution of the product. It is an evaluation of management as a whole. You can't really “manage” time because there are 24 hours in a day, 60 minutes in an hour, 60 seconds in a minute—and that never changes. (2) It involves recording of actual performance for sake of comparison and control. The motors are purchased at Rs.5/- each, on the express condition that all unsold motors shall be returned. It is a deterministic model of planning. This audit reveals irregularities and defects in the working of management. This means that each manager plans for him­self (of course, to the satisfaction of his immediate superior). A ratio is a proportional relationship between two numerically expressed factors. Hence, its managerial utility becomes limited. Everything you need to know about the techniques of control used by the management. Standard Costing iii. Cost Accounting and Cost Control 4. This is the function of looking ahead, estimating difficulties to be occurred and remedial steps to remove them. Setting up of (target) standards: A standard means target or the yardstick against which the actual performance is measured. The qualifications of such type of auditor are fixed by the Central Government. The external auditor certifies that all the books of accounts are kept as per the requirements of law and supplies all the necessary information for the purpose of audit and the balance sheet presents a true and fair view. The network needs to be constantly reviewed and updated on the basis of feedback from lower levels. (1) They present the objectives, plans and programmes of the organisation and express them in financial terms; (2) They report the progress of actual performance against these pre-determined objectives plans and programmes; (3) Like organisation charts, delegator of authority, procedures and job descriptions, they define the assignments, which have flowed down from the chief executive. Importance Of Controlling 4. (viii) It recommends better human relation approach, new management development and overall organizational plans and objectives. 3. For example, Whirlpool Corporation examined 150 adjustments and finally arrived at the ones thought to make the most difference. This aspect of budgeting requires that the organizational responsibilities must be determined very clearly. (vi) It concentrates on performance of the management through close observation of inputs and outputs. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. It determines financial estimations relating to various activities of an organization for a fixed period of controlling actual performance. iii. It is the level acting as a safety valve. (iv) The valuation and allocation of costs in an organization is usually arbitrary and hence it reduces the usefulness of this analysis. It keeps the expenses in check by reminding the operating manager of budgetary limits. Therefore, you should apply project control te… This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. As a controlling device it enables the management to influence in advance revenues, the expenses and consequently even profits. Channelizing Resources in Right Direction: This technique indicates the areas where the resources are fruitfully utilized and where it is not, so that an organization can channelize the resources in the right direction. (vi) It helps the top management to take effective decisions in time. (v) There is a synchronization between production and sales. Standing order covers rules and regulations, discipline, procedure and the like. Copyright 10. Ultimately, this technique measures profits corresponding to the different levels of output. Standards are generally set for key management tasks keeping in mind the past achievements, industry average, major competitors, capabilities of a firm, core competencies, risk bearing ability, strategic clarity, flexibility etc. Thus, the inefficiency of the past is not carried forward to the current year. With the development of modern cost accounting and cash/funds flow techniques, the importance of ratio analysis in internal management has con­siderably diminished. 3.00 per pen, and its annual fixed costs are Rs. The following are illustrative examples of management control. The process of delegation is closely related to MBE. Controlling is the final function of management. Under this approach, a project is split into small activities or operations to be arranged in a logical sequence. A company might show a higher Profit-to-Sales ratio, but a lower Return- on Investment, than other companies. The C-V-P analysis or break-even chart is a good control technique used for measuring the functional relationship between the five major factors affecting the profits and also determining the profit structure of an enterprise. Controlling involves ensuring that performance does not deviate from standards. (2) To locate the points of hurdles and difficulties in the imple­mentation of any project. The break-even analysis is the basic tool for the analysis of cost-based pricing decisions. According to this concept, the production process should be 99.99966 per cent accurate, creating just 3.4 defects per million units. Here we assume that the installed production capacity is fixed and not intended to be changed. So firms with such a situation are invulnerable in times of reduced level of activities especially in a recessionary period. Howard, “A budget is a financial or quantitative statement prepared prior to a defined period of time of the policy to be pursued during that period for the purpose attaining a given objective”.— I. C. W. A England. This paper tells us about the Controlling by P&L a/c involves comparison of profit and loss of each division or department with one another of the organization or comparison of P&L of the organization over the years or comparison of P&L of the organization with other players in the same industry or comparison of P&L of the organization with other players in the related industry which provides vital information about the areas of strength and weakness and takes appropriate measures to address the weakness and strengthen the strong areas. Considered in its broad sense, break-even analysis denotes a system of analysis that can be used to determine the probable profits at any level of activity. Expected project completion time is determined by t0,tm and tp. Break-even point has been obtained the intersection of the lines representing sales and total cost. Use simple anger management tips — from taking a timeout to using "I" statements — to stay in control. The current rate of return on investment will act as the rate of discount in our procedure. This article throws light upon the top fourteen techniques of control used in an organisation. Hence, v the proposal should not be accepted. Techniques of controlling 2. According to this concept, maximum attention should be paid to category A as they are most critical in terms of monetary value followed by B and C. Inventory manager has to ensure that they do not remain in stock for long time. (ii) It is useful in giving advices to the prospective investors. This technique involves breaking projects down into various activities and determining the required length of time for each activity. Budgets are prepared before the Budget Year commences, and the performance is judged against these budgets. Overall Control System:- i. (1) The expected time for each activity of any programme cannot be determined with certainty. This animation introduces the learner to the techniques of controlling, the traditional way and the modern way of managerial control. Optimistic time (t0) – It is the shortest possible time in which an activity can be completed if everything is favourable. This is not true in practice. The level of safety may be used only in an emergency. A node is termed as event, where one activity is finished and next the activity is started. (viii) It helps in calculation of sales volume required to meet proposed expenditures. The margin of safety in a way connotes the extent to which the undertaking can afford to lose the sales or lower the prices and yet remain in business. Return on investment is used as basis for judging the performances of the centre. It examines and the reviews various policies and functions of the management on the bases of certain standards. This standard cost forms the basis of control under standard costing. d. Calculate the time for each activity, mark activity time on arrow diagram. c. An arrow diagram reflecting the sequence relationships must be developed, event and activities are numbered. Planning and controlling are now treated as an integrated system. Costs are assessed against benefits in selecting the best course towards accomplishing a programme goal. Which can be discontinued? The term inventory refers to raw materials, work in progress and finished goods. Arrange activities in logical sequence. So, the equation reads-. (b) Several figures in the final accounts depend on the accounting policies followed by the management, e.g., depre­ciation policies, policies of involuntary valuation, etc. The next step is to draw graph, which explains the activities outlining the predecessor and successor relations among them. The minimum and maximum control limits are fixed and deviations with in these limits are allowed. The term “budgeting” points out con­trolling based on a budget. (iii) Management auditors may be engaged in some activities detrimental to social objects of auditing for example evasion of tax. They often divide these techniques into two categories: traditional and modern. Content Guidelines 2. Such important ratios which are widely used are discussed here. Controlling in Management: Meaning, Definitions, Types, Steps, Process, Tools, Techniques, Advantages and Other Details Controlling in Management – Meaning and Definitions Controlling is the process of ensuring that the activities in an organization are performed as per the plans. This concept is of little application to enterprises which produce seasonal and non-standardized goods. Management Information System 17. three or six months. The ‘acceptable’ values mentioned above are mere-thumb rules prescribed by certain authors. Earning=Rs. This provides a basis for performance evaluation. Debt equity ratios – Shows how effectively the assets are used to generate sales. Internal Audit, III. Through network analysis technique the time can be minimized to complete the project and also overall project cost can be minimized. The cost of carrying is proportionate to size of inventory held in stores and time of storage. At this stage calculation of manpower and materials required are calculated along with the expected time of completion of each job. Managerial Statistics 12. Contrary to this view, others interpret the term “break-even analysis” in two senses, narrow and broad. Business Budgeting and Break-Even Analysis: Budgeting is a tool of control. This is the level of activity where the undertaking neither earns profits nor incurs losses. Share Your PPT File, Types of Departmentation: Methods and Basics, Tools and Techniques of Control Used by Management: Accounting, Quality Control, Overall Control System and a Few Others, Techniques of Control – The Nature and Use of Managerial Control Techniques, Techniques of Control – Accounting, Control through Audit, Quality Control, Control through Network, Management Information System and Overall Control System, Techniques of Controlling – Budget and Cost-Volume-Profit/Break-Even Analysis: With Definitions, Concept, Importance, Presentation, Explanation and Mechanics. Contribution Margin (unit) = Unit Sales Price – Unit Variable Costs. On the one hand, this becomes the very reason why we try to plan for future, so that chances of being caught unawares are reduced. The figure, (chart) points out that the break-even point is, 5,000 units of sales, or Rs. PERT and CPM as techniques of planning and control have certain similarities as well as differences. Then the actual performances are compared with the plans (Budgets) and control is exercised to achieve the planned performance. Control over inventory is exercised through: Inventory accounts for higher proportion of current assets. 8. When the level of stocks or the balance on hand reaches this level, it is an indication that a new order must be placed at once. (vii) Production budget – It shows the volume of production to be undertaken for a given period together with the material, labour and machinery requirements sometimes production budgets also show the anticipated cost of production. 5. (b) Similar is the problem if the other base, viz. All departments are involved in the budgeting exercise. It also suggests the ways to improve the efficiency of the management. The use of EVA is a complex one. This method is applicable in case of inventory control, production control and quality control. 1.50 per pen. Market demand is anti­cipated by analysing the sales forecast. It leads to cautious utilization of resources. cash or capital budget, or even in non-financial terms, e.g., budgets of materials, physical sales volume or units of production. It is a technique of project which is used in the following managerial functions: The planning of project includes the listing of different jobs that has to be performed to complete the venture. Inventory Management is a practice of tracking and controlling the inventory orders, its usage and storage along with the management of finished goods that are ready for sale. vi. That is to say, as costs are either perfectly variable or absolutely fixed over the entire range of volume of production. However, the budget is the most widely used control device as the planned targets of the budget, are the standards against which actual performance is compared and controlled. ); a proportion (1:4); or a fraction (1/4). A manager should know these techniques and in which situation it should be applied.3. In a normal distribution: SQC through statistical sampling of raw materials now pro­vides reliable information very promptly only on the basis of small samples representing large lots.
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