Unit 5 controlling

UNIT 5 -CONTROLLING
•The managerial function of controlling is the measurement and
correction of performance in order to make sure that enterprise
objectives and the plans devised to attain them are being
accomplished.
•Planning and controlling are closely related.
•Planning and controlling may be viewed as the blades of a pair of
scissors – scissors can not work unless there are two blades . Without
objectives and plans , control is not possible because performance has
to be measured against some established criteria.
•Control techniques and systems involves three steps
i) Establishing standards
ii) Measuring performance against the set standards
iii) Correcting variation from standards and plans.
The above are essentially same for controlling cash, office procedure,
product quality and anything else involved under controlling
1
S.Palanivel Associate Prof./Mech.
Kamaraj College of Engg. & Tech. Virudhunagar (Near)

Establishment of standards
• The first step in the control process is establishing plans
since plans are yardsticks against which Managers
devise controls.
• However, since plans vary in detail and complexity and
managers can not usually watch everything, special
standards are established.
• Standards are simply criteria of performance.
• They are selected points in an entire planning program
at which measurements of performance are made so
that managers can receive signals about how things are
going and thus do not have to watch every step in the
execution of plans.
• There are many kinds of standards. Among them the
best are verifiable goals or objectives.
2

Measurement of performance
• The measurement of performance against
standards should be ideally be done on a
forward looking basis so that deviations may
be detected in advance of their occurrence
and avoided by appropriate actions.
• The alert, forward looking manager can
sometimes predict probable departures from
standards.
• In the absence of such ability , however
deviations should be detected and made
available as early as possible.
3

Correction of deviation
• Standards should reflect the various positions in an
organisation structure. If performance is measured properly,
it is easier to predict deviation and to correct deviations.
Managers know exactly where in the corrective measures
are to be applied.
• Corrections may be by providing additional staffs, by better
selection and training of personnel, by reducing wasteful
actions, by changing the process, by changing the method of
handling personnel. Another way is to correct through better
leading. Fuller explanation of job and effective leadership
style.
• Controlling consists of setting standards, measuring
performance and taking corrective actions. Controlling must
be flexible enough to take into account the organisational
and country specific environment.
4

Critical control points
• Standards are yardsticks against which actual or expected
performance is measured.
• A 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, in the sense
either of being limiting factors in the operation or being better
indicators than other factors of whether plans are working out.
• In a construction of a power plant drum lifting, erection of
pressure of parts, conduct of hydraulic test, refractory &
insulation, oil firing,steam blowing out, turbine oil flushing,
turbine rolling, synchronisation, coal firing, load test, provisional
take over, conduct of PG test and final take over are critical points.
• Any delay or advancement in the above activities will delay or
advance the completion of projects.
5

• Principle of critical point control
• One of the important control principles states that
effective control requires attention to those factors
critical to evaluating performance against plans.
• Another way of controlling is comparing company
performance with that of other firms through bench
marking.
• Types of critical point standards
• Every objective, every part of goal, every activity of
a program, every policy, every procedure and every
budget can become a standard against which actual
or expected performance might be measured.
6

Types of critical point standards
• Physical standards
• Cost standards
• Capital standards
• Revenue standards
• Program standards
• Intangible standards
• Goals as standards
• Strategic plans for strategic control
7

• Physical standards : These are non monetary
measurements and are common at operating level where
materials are used, labour is employed , services s
rendered.
• They may reflect quantities such as labour hours used ,
fuel consumed, products produced, machine running
hours, no. of employees present in a shift, day and week,
amount of raw materials used.
• From such measurements raw materials used per finished
goods, no. of labour hours utilised per output, no. of units
produced per hours of operation can be arrived and
checked with the standards.
• Example ; No. of vehicles assembled in a shift, no.of units
generated in a day in a power station, no. of transactions
handled in a day, average no. of units assembled in an
hour, no. of units generated averagely in an hour.
8

• Cost standards : These are monetary measurements like
physical standards. They give the cost involved in the
production on account of materials, labour costs, machine
running costs, fuel costs. These costs measure direct and
indirect costs per unit produced. Cost per unit of sales, labor
cost per unit produced, cost per foot of oil well drilled.
• Capital standards : They have to do with the capital invested
in the firm rather than with operating costs and are primarily
related to the balance sheet. Most widely used standard for
new investment is return on investment. This will give
overall control. Balance sheet will disclose other capital
standards such as ratios of current assets to current
liabilities, debt to net worth , cash in reserve , receivables to
payables, size and turnover of inventories. These standards
will give financial healthiness of a company.
9

• Revenue standards : Revenue standards arise by attaching
monetary values to sales. They may include such standards as
revenue per product in a shift, average sales per customer in a
day, sales in a year per sales outlet. These standards reflect the
total turnover of activities chosen, whether revenue is improving
or decreasing and it is an useful parameter to watch to gauge the
healthiness of business
• Program standards : Development of new products or program for
improving the sales, or improving the quality of sales department
may be assigned to manager as a program standard. This may be
some time subjective judgment while apprising as whether the
expected quality of department has improved or not, whether
new products are developed, timing within which it has to be
adopted can be used as objective standards. More we set
objective standards to achieve, it is easier to measure and adopt
proper control techniques.
10

• Intangible standards : It is difficult to set standards not expressed in
either in physical or monetary measurements. Examples Are supervisors
are alert? Company staffs are loyal to company? Whether advertisement
program meets both short & long term objectives?. Though it can not
be measured in quantities but its impact will be seen by other factors. If
the Supervisors are not alert, no. of accidents, Failures in finished goods
& defects will increase? .
• Goals as standards: It is better to set verifiable quantitative goals at
every stage of company as standards. Goals set will act as standards.
Though individual division has different goals, by monitoring the
standards fixed for individuals divisions will help to identify whether the
organisational’s goal can be achieved or not and where lies correction.
Quantitative goals can be used as performance standards and
qualitative goals represents important area or effect that will happen to
achieve the objective of firms.
11

Strategic plans for Strategic control
• Strategic control requires systematic monitoring at strategic control
points and modifying the organisation’s strategy based on this
evaluation.
• Planning and controlling are closely related, hence strategic plans require
strategic control. Since control facilitates comparison of intended goals
with actual performance , it also provides opportunities for learning
which in turn is the basis for organisational change.
• Through the use of strategic control one gains insights not only about the
organisational performance but also about the ever changing
environment by monitoring it.
• SUN TV initially started their business as production of compilation of
important news video cassettes, then started TV channel in Tamil,
further extended into other languages. They entered into Cable network
and news paper business. Then they bought Spicejet airline business,
once they learnt it is not a profitable business like TV channel they
decided to sell off and keep them away from facing huge loss. Strategic
decisions taken as which business will keep their company growing is
helping SUNTV to grow further. They are in the business relating to TV,
Cable network, News paper and IPL and came out of airplane business
based on the strategic control.
12

Bench marking
• It is an approach for setting goals and productivity measures based on
best industry practices. Bench marking developed out of need to have a
reference/data against which performance can be measured.
• All can not participate in 100 m race in an Olympics. Criteria set as
minimum standard to participate is less than 11 seconds. Where as the
same is not case in a local athletic meet , in an national meet it may be
11.5 sec, state it may 12 sec, district meet it may be 12.5 sec and in a
local it may 13 to 14 sec. Bench marking is the preferred level of
performance it may vary depending upon the competition and it will
vary according to time.
• No. of centuries made in a test match was 29 by Bradman, broken by
Sunil Gavaskar and again broken by many like Ricky Ponting, Lara and
Sachin Tendulkar. Now the 100 centuries in a test and ODI set by
Tendulkar is considered as the greatest performance by a cricketer.
• Maximum turnover and maximum profit , more ratio of Profit to
turnover, ratio of turnover to no. of employees are some of
measurements on which companies can set standards as Bench marking.
13

Types of bench marking
• Three types of bench marking
• Strategic bench marking compares various strategies and identifies the key
strategic elements of success
• Operational bench marking compares relative costs or possibilities for
products
• Management benchmarking focuses on support functions such as market
planning and information systems, logistics, human resource management
and so on.
• Benchmarking procedure begins with the identification of what is to be
benchmarked, then in that superior performance have to be selected and
their relative data are to be gathered & analysed , the best among the lot
become the benchmark considered as the performance goal expected in
that activity. During implementation performance is periodically measured
and corrective actions are taken at that time to meet the benchmarked
standard.
• In 70s PLF of power plant was about 70 %, in 80s it was 75 to 80 in 2000 it
was 80 to 85 % in 2015 it was above 87 %. Bench marked standards are
bound to change in due course. It means , once the set standards are
achieved, bench mark is normally revised on a upper scale.
14

Feedback as control system
• Many systems control themselves through information feedback, which
shows the deviations from the standards and initiates changes. Feedback
system compares performance with a standard and initiates corrective
action.
• This is direct control system, where in actions are taken as a result of
finding a deviation in performance identified by feedback
7
Desired
performance
8
Actual
performance
1
Measurement of
actual
performance
2
Comparison of
performance
against
standards
3
Identification
of deviations
4
Analysis of
cause of
deviations
5
Program of
corrective
action
6
Implementation
of correction
A SIMPLE FEED BACK SYSTEM
15

Feedback as control system
• Management control is perceived as a feedback system
similar to that of operation of thermostat in water heaters, if
the temp of water reaches a preset value, electrical supply
to heating coil gets disconnected by thermostat , same way
when the water temp falls below a set value electrical
supply is resumed to the heating coil thus water temp is
controlled between range of values.
• Working of feedback control system is shown in the above
loop, Managers do measure actual performance, compare
this measurement against standards , identify deviations and
analyze deviations. Based on the analysis they must plan a
corrective action and implement this program in order to
achieve at the performance desired.
16

Real time information and control
• One of the greatest advances we got by the use of
computerisation is electronic gathering, transmission and
storage of data , which gives a system of real time information
and that enables systems as well as Managers to take
effective decision.
• Real time information is information about what is happening
while it is happening. Examples : Tickets availability in Flight
services, railway services. Any one seeks information about
the availability, system will respond with the information.
Factory Manager can have a system that reports at any time
the status of a production program in terms of such things as
the production point is reached. If the load in a power station
reduces, consequently fuel input will also gets reduced when
the power plant is put on auto mode based on the real time
information it gets thro relevant data controls.
17

Real time information and control
• It is possible in many areas to collect real time data that measure
performance. It may also be possible to many of these cases to compare
these data with standards and even to identify deviations. But the analysis of
causes of deviations, the development of programs of correction and the
implementation of these programs are likely to be time consuming tasks.
• In the case of quality control, it may take considerable time to discover what
is causing factory rejects and more time to put corrective measures into
effect. Same way it will take time to bring down the level of inventory once it
is learned that inventory level is very high.
• The sooner the Managers know that activities for which they are responsible
are not proceeding in accordance with plans, the faster they can take action
to make corrections.
• There is always the question of whether the cost of gathering real time data
is worth the few days saved. In airline business , ready information of
availability of seats is crucial in serving customers and filling airplanes.
• Unless the real time information helps immediately the Managers to take
decision, gathering real time information will not be useful and the time and
money spent in acquiring real time information.
• In analysing the cause of a failure in a process industry recorded data or
acquired data will be very useful.
• Black box will be very useful in ascertaining the reasons of failure in aircrafts
by analysing the recordings of speech/ instruction/communications made by
Pilot with other agencies.
18

Feedforward control
• The time lag in the management control process shows that control
must be directed toward to future if it is to be effective.
• Only using feedback from the output of a system may not be useful
in such cases of reporting in December data as loss or drop in
production or in sales in September. This may be considered as a
postmortem and measurement and provision of such historical data
will not help to prevent such happenings.
• Feedforward systems monitor inputs into a process into a process to
ascertain whether the inputs are as planned, if they are not , the
input , or perhaps the process, are changed in order to obtain the
desired results.
• Examples : A motorist going up a hill would press the accelerator
before the speed falls if he wishes to maintain the speed, he will not
wait for the drop in speed in speedometer.
• A hunter will always aim ahead of duck’s flight to correct for the time
lag between a shot and for hit.
19

Comparison of feedback and feedforward system
Inputs
process
Desired values
of outputs
(Standards)
Outputs
Feedforward Simple
feedback
20

Feedforward control
• In a sense a feedforward control system is really a kind of feedback system.
However, the information feedback is at the input side of the system so that
corrections can be made before the system output is affected.
• Even with feed forward system, a manager would still want to measure the
final system output, since nothing can be expected to work perfectly enough
to ensure that the final output will always as desired.
• In the case of inventory control , if the purchases of the spares are greater
than planned and the use of spares turns out to be less than planned, the
result will be a higher than planned inventory, unless corrective action is
taken.
• One of the problems in all feed forward control system is the necessary of
watching for what managers call disturbances. These are factors which have
not been taken into account in the input model but which may have an
impact on the system and the desire end result.
• Bankruptcy of a large supplier might be an unanticipated and unprogrammed
input variable and would delay shipping of supplies. Since unprogrammed
events do sometimes occur and may upset a desired output, monitoring
regular inputs must be supplemented by watching for and taking into account
unusual and unexpected disturbances.
21

Requirements of feedforward system
1. Make a thorough and careful analysis of the planning and
control system and identify important input variables.
2. Develop a model of the system
3. Take care to keep the model up to date, model should be
reviewed regularly to see whether input variables identified
and their interelationships continue to represent realities
4. Collect data on input variables regularly and put them into
the system
5. Regularly assess variations of actual input data from
planned for inputs and evaluate the impact on the expected
end result.
6. Take action. Like any other technique of planning and
control all that the system can do is indicate problems:
people must obviously take action to solve them.
22

Control of overall performance
• Planning and control are increasingly being treated as an interrelated
system. Along with techniques for partial control, control devices have
been developed for measuring the overall performance of an enterprise
against total goals.
• There are many reasons for control of overall performance,
• Firstly just as overall planning must apply to enterprise or major division
goals so must overall control be applied.
• Secondly, especially in product or territorial divisions decentralisation of
authority creates semi independent units and these must be subjected
to overall control to avoid chaos of complete independence.
• Thirdly, overall control permits the measurement of an integrated area
manager’s total effort , rather than the parts of it.
• Many overall control in business is financial control. Finance is the
binding force of business and an important gauge of success of plans.
23

Financial control
• Financial measurements summarizes as a common denominator, the
operation of a number of plans. Further they accurately indicate total
expenditure of resources in reaching goals.
• Financial controls like any other control may have to be tailored to the
specific needs of an enterprise .
• Doctors, lawyers and managers at different organisationsal levels do
have different needs for controlling their area of operation.
• Analysis of various input costs and the value of outputs will give a clear
picture of healthiness of an enterprise. A deviation from planned cost
may lead a manager to find causes in poor planning, inadequate training
of employees, poor availability of machines.
• In a fertilizer plant ammonia, steam , electricity are the major inputs and
each one has a got norm for production of one ton of fertiliser. Hence
cost of inputs as planned and actually consumed are analysed to find
out the variation
24

Profit and loss control
• The income statement for an enterprise serves
important control purposes mainly because it
gives immediate information on revenue, cost of
variables and finally gives a clear picture about
success or failure of an enterprise.
• If it is first put in the form of forecast, the
income statement is an even better control
device in that it gives managers a chance to take
effective control actions before things to
happen, to influence revenues, expenses
consequently profits
25

Nature and purpose of profit and loss control
• Since the survival of the business usually depends on profits and since
profits are a definite standard against which to measure success, many
companies use the income statement for divisional or departmental
control.
• As it is a statement of all revenues and expenses for a given a time, it is
true summary of results of business operations. Profit and loss control,
when applied to divisions or departments, is based on the premise that,
if it is the purpose of the entire business to make a profit, each part of
the enterprise should contribute to this purpose. Thus the ability of a
part to make an expected profit becomes a standard for measuring its
performance.
• Limitations : profit and loss control suffers from the cost of the
accounting and paper transactions involving intracompany transfer of
costs and revenues. But the use of computers, computerisation has
greatly reduced this cost. Duplication of accounting standards, many
overheads , time and effort required to calculate intracompnay sales can
make this control costly if it is carried too far.
26

Control through Return on Investment
• Another control technique is that of measuring both the absolute
and relative success of a company by ratio of earnings to investment
of capital. The return on investment approach often referred as ROI,
has been the core of the system.
• This yardstick is the rate of return that a company or a division can
earn on the capital allocated to it. This tool considers profit not as an
absolute but as return on capital employed.
• This standard recognizes the fundamental fact that capital is a critical
factor in almost all enterprises. It also emphasises the fact that the
job of managers is to make the best possible use of assets entrusted
to them.
• Healthiness of a companies are not only measured on the quantum
of profits they make but also on the Return on Investment . ROI is
the real indicator of healthiness of Business. Higher the rate the
business is the healthiest.
27

Bureaucratic and Clan control
• Bureaucratic control : It is characterized by a wide use of rules,
regulations, policies, procedures and formal authority. This type of
control requires clear job descriptions, budgets and often standard
tasks. Employees are expected to comply with rules and regulations
and may have limited opportunities for participation.
Examples : Annual rise in turnover is fixed at 15 % , Annual reduction in
spares is fixed at 5 % , Rise in profit is fixed at 25 %
• Clan control : It is based on norms, shared values, expected behavior
and other aspects relating to orgnaisation culture. Clan control can
be illustrated by the use of teams and by organisations operating in a
dynamic environment that requires quick adaptation to changes in
that environment.
• Example : Targets are fixed after discussion with concerned. Review
of targets at the middle of the year and help needed to achieve
targets are extended.
28

Computers and IT In Management Control
• The development of Information technology greatly
facilitate organisational control at a relatively low cost.
Communication and the Management Information System
(MIS) are the linkage that makes managing possible.
• One has to realize the distinction between data and
information. Data are the raw facts that may not be very
much useful until they become information.
• Information technology has promoted the development of
MIS which is defined as a formal system of gathering,
integrating, comparing analyzing and dispersing information
internal and external to the enterprise in a timely , effective,
efficient manner to support managers in performing their
jobs.
29

Management Information system (MIS)
• MIS has to be tailored to specific needs and may include routine
information such as monthly reports information that points out
exceptions especially at critical points and information necessary to
predict the future.
• In a power station variants of units generated are consumption of
coal/lignite, DM water, oil, auxiliary power . The following table indicates
impact of variants thro MIS. Total units generated = 10 million units
Variants Norm actual variation T. Change value
Lignite 1 kg/Unit 0.98 - 0.02 -200 T - 200 x1600
DM water (3 % ) 17.7T
/210 mW
13 T/210
MW
- 4.7 T / 210
MW
- 223. 807T - 4473 (Rs.
20/T)
Oil 2 ml/unit 0 -2 -2 T - 20000
Aux.power 8.5 % 7.8 % -0.7% -7000 (u) -21000
Change Gain in cost of generation of 10 Miliion units -365473
MIS will indicate variation in inputs + in variant is an additional cost – is gain in
cost
30

Productivity Problems and Management
• Productivity is the ratio of output to inputs with due consideration to
time and quality
• Productivity to get increased there are four ways
 By increasing outputs with same inputs that means consumption less
input for production of output.
 By decreasing the inputs with same outputs
 By increasing outputs and decreasing inputs
 By reducing the defects thus increasing outputs with the same inputs.
Maintaining the productivity is the biggest challenge to Managers. This can
be achieved by adopting proper controls.
Standards for each activity has to be firmed up and the standards are really
being the best possible yet achievable.
Example : if no. of products finished in CNC machines 100 in a day on an
average and in your competitor company is 110, then the Manager has
to set a target of producing minimum of 115 to 120 products in a day as
115 to be achieved in first quarter, 117 to be achieved in second quarter,
118 to be achieved in third quarter and 120 to be achieved in fourth and
last quarter.
31

Productivity Problems and Management contd..
• Managers has to ensure the availability of raw materials,
required machineries, consumables, uninterrupted power
and needed tools. Any shortage or delay in getting the above
will affect the production and in turn the productivity.
• Managers to monitor all the activities related to the
production and he should a have system of measurement of
end results at every stage of production and could able to
ascertain deviations & take corrective actions. If Managers
could anticipate trouble in the line of production in advance
and they take corrective actions before happening of
deviations, it will be very much helpful to maintain the
tempo of production. Some times if a momentum in
production is lost midway , it will lead to consequential
damages and may lead to face an irreparable loss of morale.
32

Productivity Problems and Management
• Providing training and motivation to employees is needed to
maintain productivity. If the company changes its products,
processes, imposes slight change in sequence of operation,
Managers to ensure these changes are brought to the
knowledge of concerned employees and they are trained to
adopt the changes. If Managers fail to train and equip their
employees for changes, it will be very difficult to maintain
productivity.
• Managers to ensure proper awareness and motivation
among all concerned in maintaining the factors affecting the
productivity within the desired values otherwise employees
in the shop floor may not give proper attention and ready
practice productivity norms. Adoption of an announced
measurable incentive scheme department wise as well as
unit wise will ensure practice of norms.
33

Budget as a control device
• Budgeting is the formulation of plans for a given
future period in numerical terms.
• As such budgets are statements of anticipated
results either in a financial terms – as revenues,
expenses- or in anon financial terms – direct
labour hours, materials , physical sales volumes,
units of production.
• Budget will indicate turnover, earnings, costs
involved, provisions such as for depreciations,
taxes, profits, dividend pay out to share holders
and transfer of fund to reserves
34

Types of Budgets
• Budgets are estimated things expressed in numerical terms as a forecast. It is
a part of planning process. Budgets may be done for
• Material – quantification of various materials required for production to
meet the objectives- week , month wise, quarter wise & annually.
• Machineries – Types and no. of machineries required to meet the objectives
- week , month wise, quarter wise & annually.
• Manpower – Types of skilled, semi skilled and unskilled labour required to
meet the objectives - week , month wise, quarter wise & annually.
• Money – Amount of money required and source of acquiring the same to
meet the objectives - week , month wise, quarter wise & annually.
• Training – Types of training and deputation of personnel for outside trainings
required - week , month wise, quarter wise & annually.
• Preparation of budgets are normally done based on requirements and on
past experiences. It is always better to have budgets on a periodical way like
week, month , quarter and annual manner.
• Tracking of budgets with actual happenings against the planned one have to
be done on a continual basis to have an effective control of things to take
immediate corrective actions for achieving the goals of the company
35

BUDGET of a company
36

Zero base budgeting
• The idea behind this technique is to divide enterprise
programs into “packages” composed of goals, activities and
the needed resources and then to calculate the costs for each
package from startup.
• By starting the budget of each package from base zero,
budgeters calculate costs as fresh for each period : thus avoid
the common tendency in budgeting of looking only of changes
from previous period.
• Main advantage of this technique is of course the fact that it
forces managers to plan each program package a fresh.
• As Managers do so, they review established programs and
their costs in their entirety, along with newer programs and
their costs.
37

Non-budgetary control devices
• There are many traditional control devices not
connected with budgets, although some may be
related to and used with budgetary controls. Among
the more important of them are
• Use of statistical data of many aspects of operation
• Special reports and analysis of specific areas
• Operational audit and independent appraisal by
Internal and external auditors.
38

Time – event network analysis
• Time event network analysis called the programme evaluation
and review technique (PERT).
• Before emerging of PERT, GANTT chart, milestone charts used.
• GANTT Chart : This chart showing the relationships between the
events of a program on a time scale.
• Total program divided into measurable tasks, all represented on a
time scale with an indication start and the end of the tasks
• Total program goals should regarded as a series of interrelated
supporting plans that people can comprehend and follow.
• The most important factor is this chart reflect the simple principle
as well as basic principles of control such as picking out the most
critical elements of plan to watch carefully
39

Gantt chart indicates start and end of eight tasks
Simple indication of planned start and planned end of tasks
40

GANTT CHART
Activities Vs Time duration
Blue colored bar indicates – activities as Planned
Yellow colored bar indicates – activities happened actual
41

Milestone chart
14 activities of Lunar expedition programme drawn as Mile stone activities
Completion of each Mile stone activity proceed to the next mile stone
activity. If there is delay or advancement in any Milestone activity it will
effect change in the programme accordingly
42

PERT CHART
ACTIVITY A – 4 days : B- 58 days : C & D are parllel – 2 days
43

44

45

PERT WITH EARLY & LATEST SCHEDULE
46

PERT- CPM
47

Unit 5 controlling

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Unit 5 controlling

Similar to Unit 5 controlling (20)

More from PALANIVEL SUBBIAH

More from PALANIVEL SUBBIAH (12)

Recently uploaded

Recently uploaded (13)

Unit 5 controlling