Principles of Management

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
PAPER NAME: PRINCIPLES OF MANAGEMEN
PAPER CODE: BBALLB 113
CLASS: BBALLB 1st Semester
UNIT- I

Definition of Management
Management
The process of getting things done, effectively and efficiently, through
and with other people
Efficiency
Means doing the thing correctly; refers to the relationship between
inputs and outputs; seeks to minimize resource costs
Effectiveness
Means doing the right things; goal attainment

The Functions of Management
Managers
Planning
activities to
achieve the
organization's
objectives
Organizing
resources and
activities to
achieve the
organization’s
objectives
Staffing
the
organization
with qualified
people
Directing
employees’
activities
toward
achievement
of objectives
Controlling
the
organization’s
activities
to keep it
on course

Management Process
Planning
Includes defining goals, establishing
strategy, and developing plans to coordinate
activities
Organizing
Includes determining what tasks
to be done, who is to do them,
how the tasks are to be
grouped, who reports to
whom, and where
decisions are to be made

Management Process (Contd)
Leading
Includes motivating employees, directing the
activities of others, selecting the most
effective communication channel, and
resolving conflicts
Controlling
The process of monitoring performance,
comparing it with goals, and
correcting any significant
deviations

Characteristics / Features
• Universal
• Purposeful / Goal oriented
• Integrative force: integrates human and physical
resources
• Social process
• Multidisciplinary
• Continuous process
• Intangible
• Art as well as science

Objectives
• Facilitates achievement of objectives
• Optimum utilisation of resources
• Promotes effectiveness
• Development of analytical and conceptual ability of managers
• Adequate return on capital
• Satisfied workforce
• Economic and social development

Levels Of Management: The pyramid to the top
• Top level
• Middle level
• Front line supervision
• Non-managerial work force

Organizational Levels

Mintzberg’s Managerial Roles
Interpersonal
•Figurehead
• Leader
•Liaison
Informational
•Monitor
• Disseminator
•Spokesperson
Decisional
•Entrepreneur
• Disturbance hander
•Resource allocator
• Negotiator

Development of Management Thought
• Management thought refers to the theories that guide management
of people in the organizations
• Initially, these theories developed out of practical experience of
managers in the industrial enterprises. Later on, they borrowed
ideas from other fields of study like science, anthropology,
sociology etc.

Management Theories
Pre-scientific theories
Classical theories
Taylor’s scientific management theory
Fayol’s administrative theory
Weber’s bureaucracy theory
Behavioral theories
Human relations theory
Behavioral science theory
Modern management theories
Quantitative theory
Systems theory
Contingency theory
Operational theory

Pre-scientific Management Theories
Important contributions are made by
•Charles Babbage
•James Montgomery
•Robert Owen
•Andrew Ure
•Charles Dupin
•Henry Robinson Towne
•James Watt and Mathew Robinson Boulton Watt
•Captain Henry Metcafe
These theories solved specific organizational problems but these are
not universally accepted theories that can be applied to all
organisations

Classical Theories
They represent early works on management and focus on increasing
industrial output by providing financial incentives to employees. The
classical approach was developed through three main streams:
Scientific management, Administrative theory and Bureaucracy

Taylor’s scientific theory
Taylor developed his theory on the basis of his work experience in
three companies: Midvale Steel works, Simond Rolling mills and
Bethlehem Steel company. He is regarded as Father of Scientific
Management.
He focused on finding the best way to do the job by eliminating
wastage of men and material. He developed time and motion studies to
find optimum time and nature of operations for successful completion
of tasks.
He also introduced differential wage rate system to pay more to
productive workers.

Principles of Taylor’s theory
• Rule of thumb should be replaced with science
• There should be harmony, not discord in group actions.
• Cooperation, not individualism
• Maximum output, not restricted output
• Development of workers to their fullest capacity.

Fayol’s Administrative theory
Fayol focused on managing the organization as a whole rather than lower
levels of organization only.
His theory revolves around
-Activities of a business: Technical, commercial, financial, security,
accounting and managerial
-Functions of a manager : Planning / organizing / commanding
/coordinating/ controlling.
-Abilities of managers: Physical, Mental, Moral, General education,
special knowledge and Experience

Principles of management
• Division of work
• Authority and responsibility
• Unity of command
• Unity of direction
• Discipline
• Subordination of individual interest to general interest
• Remuneration
• Centralization
• Scaler chain
• Order
• Equity
• Stability of tenure of personnel
• Initiative
• Espirit-de-corps

Max Weber’s Bureaucracy theory
Max Weber(1864-1920), a German sociologist introduced the rational-
legal authority system/model to manage the business organizations. His
model is characterized by
•Division of work
•Rules and regulations
•Hierarchy of authority
•Technical competence
•Record keeping
•Impersonal relations

Behavioural Theories
• These theories focus on organizational goals along with
satisfaction of human needs.
• Shift in focus from workplace conditions to human side of the
organization
• People- oriented approach substituted the production- oriented
approach
• Two important theories:
Behavioural science theory

Elton Mayo, the father of Human relation approach focuses on
increasing organizational productivity by increasing the morale of
workers
Results were obtained through experiments:
• Test room studies
(a) Illumination experiment
(b) Relay assembly room experiment
• Interviewing studies
• Observation studies

Results of the experiment
Informal groups are important complements to formal groups
Social groups are more important than financial incentives to
motivate the workers
Worker is a social man rather than rational man motivated by
financial incentives
Work is considered as a group activity and not as operations
performed by individuals.
Social and psychological factors influence employee behaviour
and productivity more than physical work conditions

Behavioural Science Theory
• It applies scientific vision to human relations theory
Concepts from Psychology, Sociology and Anthropology are applied
to study human behaviour
•Psychology – Study of individual behaviour
•Sociology – Study of human behaviour in groups
•Anthropology - Study of human behaviour as individuals and
members of groups
Concepts from various disciplines are tested before applying them in
business organisations.

Modern Management Theories
• These theories are responsive to environment changes
• They view organisations as dynamic open systems having multiple
objectives
• Management is multi-disciplinary and draws knowledge from
various fields to solve complex business problems
• They forecast environment changes through scientific techniques
and discount them to the present business situations
• These theories include:
Quantitative theory
Systems theory
Contingency theory
Operational theory

Quantitative theory
• It uses the services of quantitative specialists to apply inter-disciplinary
techniques to solve business problems
It includes:
• Management science: it uses mathematical models like PERT, CPM, games
theory etc. to solve business problems
• Operations management: It applies quantitative techniques of inventory
management, stastistical quality control etc. to manage the production and
delivery of goods and services

System Theory
• It takes a broad view of the organization and views it as an entity
composed of different parts
• The parts are the sub-systems of the organization and help to achieve
goals of the larger system
• It considers the impact of near and future environment on
organizational activities
• It deals with different fields of study to deal with different
components of society

Components of a System
• Sub-system : each part of the bigger whole is a sub-system
• Synergy : the sum total of parts is less than that of a whole
• Open and Closed system : An open system actively interacts with the
environment ant the closed system has very little interaction with the
environment. Practically all organizations are open systems
• System boundary : it is the boundary that separates it from the
environment. It is flexible in case of open system and non-flexible in
case of closed system
•Feedback : it helps in knowing the response of the environment to the
organizational outputs

Contingency Theory
• It is not an independent theory of management
• It applies management principles depending on the situation as there
is no single solution to all kinds of problems
• If workers are skilled, participative style or behavioural management
theory is adopted
• If workers are unskilled, classical management principles are more
appropriate
• Management is situational in nature and applies ‘if’ and ‘then’
approach to management

Operational Theory
• It does not apply a single theory of management
• It takes the best from different theories and unifies them in a single
theory
• Knowledge from different schools of thought can be applied to
different variables of the organization

UNIT- II
PLANNING PROCESS, ORGANIZATION,
DECISION MAKING

Planning
Deciding in advance what to do, how to do it, when to do it and who
is to do it.
Planning is an intellectually demanding process that requires the
conscious determination of courses of action and the basing of
decisions on purpose, knowledge and considered estimates.
Koontz & O’Donnell
Planning is a process and a plan is the outcome of this process.

Features of Planning
• Primary function of management
• Adaptive to environment
• Future oriented
• Goal oriented
• Pervasive
• Intellectual process
• Flexible
• Feedback

Process of Planning
• Need for planning
• Identification of goals
• Analysis of present situation
• Identify barriers to planning
• Development of Planning premises
• Developing alternatives
• Evaluation of alternatives

Process of Planning (Contd.)
• Selection of best alternatives
• Formulation of derivative plans
• Appraisal of plans

Importance of Planning
•Reduction of uncertainty
•Concentration on objectives
•Coordination
•Economy in operation
•Facilitation of control
•Encouragement to innovation
•Increase in competitive strength

Types of Plans
On the basis of duration of plans
•Short range: 2 to 3 years
•Medium range : upto 5 years
•Long range: more than 5 years
On the basis of levels
•Strategic
•Tactical
•Operational
On the basis of use
•Standing plans: objectives, policies, procedures,
methods, rules and regulation
•Specific plans: strategies, programmes, projects and
budgets

Limitations of Planning
• Costly
• Curbs the initiative of managers
• Planning in advance is not always the right course of
action
• Rigidities
• Multiple goals
• Delay in action
• False sense of security

MBO
A process through which specific goals are set collaboratively for the
organization as a whole and every unit and individual within it; the
goals are then used as a basis for planning, managing organizational
activities and assessing and rewarding contributions

Features of MBO
• Participation
• Integration
• Links objectives to performance
• Continuity

Process of MBO
• Develop organizational goals
• Establish specific goals
• Devise action plans
• Maintain self control
• Review the progress
• Appraisal of performance

Advantages of MBO
• Helps in setting realistic goals
• Helps in making planning effective
• Helps in creating an effective communication network
• Facilitates employees involvement
• Improves employer employee relationship
• Promotes the system of self appraisal
• Facilitates control
• Basis of change

Limitations of MBO
• Time, money and effort
• Illusionary approach
• Improper use
• Lack of knowledge to set goals
• Ignorance of long run perspective
• Conflict of opinion
• Lack of top management support
• Flexibility to change

Organization structure
An organization structure is a set of planned relationships between
groups of related functions and between physical factors and personnel
required for the performance of the functions

• Line organization is the most oldest and simplest method of
administrative organization. According to this type of organization, the
authority flows from top to bottom in a concern.
• The line of command is carried out from top to bottom. This is the reason
for calling this organization as scalar organization which means scalar chain
of command is a part and parcel of this type of administrative organization.
In this type of organization, the line of command flows on an even basis
without any gaps in communication and coordination taking place.
Line Organization Structure

Line Organization Structure

Features of Line Organization
• It is the most simplest form of organization.
• Line of authority flows from top to bottom.
• Specialized and supportive services do not take place in these
organization.
• Unified control by the line officers can be maintained since they can
independently take decisions in their areas and spheres.
• This kind of organization always helps in bringing efficiency in
communication and bringing stability to a concern.

Line and staff organization
• Line and staff organization is a modification of line organization and
it is more complex than line organization.
According to this administrative organization, specialized and
supportive activities are attached to the line of command by appointing
staff supervisors and staff specialists who are attached to the line
authority.
• The power of command always remains with the line executives and
staff supervisors guide, advice and council the line executives.
Personal Secretary to the Managing Director is a staff official.

Line and Staff Organisation Structure

Features of Line and Staff Organization
•Line and Staff Organization is a compromise of line organization. It is more
complex than line concern.
•
•Division of work and specialization takes place in line and staff organization.
•
•The whole organization is divided into different functional areas to which
staff specialists are attached.
•There are two lines of authority which flow at one time in a concern :
Line Authority
Staff Authority
•Power of command remains with the line executive and staff serves only as
counselors.

Functional Organization
• Functional organization has been divided to put the specialists in the
top position throughout the enterprise. This is an organization in which we
can define as a system in which functional department are created to deal
with the problems of business at various levels. Functional authority
remains confined to functional guidance to different departments. This
helps in maintaining quality and uniformity of performance of different
functions throughout the enterprise.
• The concept of Functional organization was suggested by F.W. Taylor
who recommended the appointment of specialists at important positions.
For example, the functional head and Marketing Director directs the
subordinates throughout the organization in his particular area. This means
that subordinates receives orders from several specialists, managers
working above them.

Functional Organisation Structure

Departmentation by Type
• Functional
•Product
•Geographic
•Process
•Customer

Functional Departmentation
Advantages
• Efficiencies from putting
together similar specialties and
people
with common skills, knowledge,
and orientations
• Coordination within functional
area
• In-depth specialization
Disadvantages
• Poor communication across
functional areas
• Limited view of organisational
goals

Geographic Departmentation
Advantages
• More effective and
efficient handling of
specific
regional issues that arise
• Serve needs of unique
geographic markets better
Disadvantages
• Duplication of functions
• Can feel isolated from other
organizational areas

Product Departmenation
Allows specialization in particular products and services
+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions

Process Departmentation
+ More efficient flow of work activities
– Can only be used with certain types of products

Customer Departmentation
+ Customers’ needs and problems can be met by specialists
- Duplication of functions
- Limited view of organizational goals

Project Organization structure
Project organization is structured to accomplish specific projects within
specified constraints of time, money and quality.

Matrix Organizational Structure
Matrix organization is hybrid structure which is a combination of functional
and project structure. Group members of a project are attached with the
project and are also accountable to their functional heads.

Contemporary Organizational Designs
• Boundary less organisation
A flexible and unstructured organizational design that is
intended to break down external barriers between the
organization and its customers and suppliers.
- Removes internal (horizontal) boundaries:
- Eliminates the chain of command
- Has limitless spans of control
- Uses empowered teams rather than departments
- Eliminates external boundaries:
- Uses virtual, network, and modular organizational structures to get
closer to stakeholders.

• Virtual organization
An organization that consists of a small core of full-time employees and that
temporarily hires specialists to work on opportunities that arise.
• Network organization
A small core organization that outsources its major business functions (e.g.,
manufacturing) in order to concentrate what it does best.
• Modular organization
A manufacturing organization that uses outside suppliers to provide product
components for its final assembly
operations.

UNIT- III
STAFFING

Motivation has been defined as a desire or need which directs and energizes
behavior that is oriented towards a goal. It’s a process of stimulating people to
action to accomplish desired goals
The process that arouses, directs and maintains behaviour towards attaining
some goal
Components of Motivation:
Arousal (intensity) – how hard a person tries
Direction (focus) – towards a goal
Maintenance (persistence) – how long a person tries
Motivation

Motivation theories
Content theories
focus on ‘what’ motivates
people, i.e., identifying the
specific motives that people
have
-Hierarchy of Needs
-ERG theory
-Motivation-Hygiene
-Theory X-Y
-McClelland’s theory of
Needs
-Murray’s manifest need
Process theories
focus on ‘how’ a motive
translates into behaviour, i.e.,
identifying underlying cognitive
processes that people engage in
-Goal Setting theory
-Self Efficacy theory
-Equity theory
-Expectancy theory
-Porter and lawler -
Expectancy model

Maslow need Hierarchy theory(cont..)
Hierarchy of Needs Theory
There is a hierarchy of five
needs— physiological, safety,
social, esteem, and self-
actualization; as each need is
substantially satisfied, the next
need becomes dominant

Hierarchy of Needs (Maslow,1954)

ERG Theory (Clayton Alderfer)
ERG Theory
There are three groups of core needs: existence, relatedness, and growth.
Core Needs
Existence: Provision of basic
material requirements
Relatedness: Desire for
relationships
Growth: Desire for personal
development
Concepts:
More than one need can be
operative at the same time
If a higher level need cannot
be fulfilled, the desire to
satisfy a lower level need
increases.

Hygiene factors
(job dissatisfaction)
Factors associated with conditions
surrounding work
•Policy and administration
•Quality of Supervision
•Interpersonal Relations
•Working conditions
•Salary
•Job Security
Two-Factor Theory (Herzberg, 1966)
Motivation factors
(job satisfaction)
Factors associated with the
work itself
•Achievement at work
•Recognition
•Nature of the job
•Responsibility
•Promotion opportunities
•Personal growth

Theory of Needs (McClelland,1961, 1975)
• Focuses on three needs lying behind human behaviour
• Need for Achievement (nAch): the need to excel or succeed in
areas of significance to the person – desire to do things better or
more efficiently
• Need for Power (nPow): the need to control the activities of other
people – desire to have impact, to be influential, to be “in charge”
• Need for Affiliation (nAff): the need to interact with and be liked
by other people – desire friendly and cooperative situations

Theory X and Theory Y (Douglas McGregor)
Theory X
Assumes that employees dislike work, lack ambition, avoid
responsibility, and must be directed and coerced to perform.
Theory Y
Assumes that employees like work, seek responsibility, are capable of
making decisions, and exercise self-direction and self-control when
committed to a goal.

Murray’s Manifest needs theory
Identified two set of needs
1 Psychogenic Needs : Abasement, Achievement, Affiliation
2 Viscerogenic Needs: Food, Water
Every need has two principal components: Direction and Intensity.
Direction deals with the person that is expected to satisfy the need.
Intensity represents the relative importance of the need.

Goal Setting Theory Edwin Locke (1968, 1975)
• Basic Premise: That specific and difficult goals, with self-generated
feedback, lead to higher performance
• Goal: a performance target that a group or an individual seeks to
accomplish at work
• Goal Setting: the process of motivating employees by establishing
effective and meaningful performance targets
• Other factors influencing goal-performance relationship are goal
acceptance, goal commitment, nature of task and national culture

Self-Efficacy Theory (Bandura, 1997)
Individual’s belief that he/she is capable of performing a task
Can be increased through
• Enactive mastery: gaining experience with task
• Vicarious modelling: observing someone else doing the task
• Verbal persuasion: gaining confidence through others’
faith/confidence in oneself
• Arousal: energising the self towards the goal

Equity Theory (Stacy Adams,1965)
Rooted in Cognitive Dissonance theory of Festinger and Exchange
theory of Homans
Equity: the fairness of treatment of a person compared to the way
that another person is treated
Since there are no absolute criteria of fairness, people normally
evaluate how fairly they are treated by making comparisons with
others in similar circumstances
Equity theory: holds that an individual’s motivation to put effort into
a task will be influenced by perceptions of whether the rewards
obtained are fair in comparison to those received by other people

Anchored in the works of pioneering psychologists Kurt Lewin and Edward
Tolman and in the choice behaviour and utility concepts of classical
economic theory
- Common assumptions
In choosing different courses of action, people are influenced by:
• Expectations of whether the action will result in a favourable outcome
for themselves and
On the attractiveness of the outcome
Other things being equal people will try to behave in a way that gives the
maximum return to themselves
Expectancy Theory

Expectancy Theory
The strength of a tendency to act in a certain way depends on the strength of an
expectation that the act will be followed by a given outcome and on the
attractiveness of that outcome to the individual
• Individuals must feel that if they try, they can perform and
• If they perform, they will be rewarded and
• When they are rewarded, the reward will be something they care
about.

Porter & Lawler Expectancy Model (1968)
A development of Vroom’s idea
Includes additional features that enhance the explanatory power of the
expectancy concept
• Personal abilities and traits
• Degree of fit between perceptions of role and demands of
performance
• Intrinsic and Extrinsic rewards
• Perceptions of the equitability of rewards

Leadership
The ability to influence a group toward the achievement of goals.
Leadership

Nature of leadership
• Leadership is a process of influence.
• Style of leadership depends upon the nature of the followers or
subordinates.
• Leadership is related to situation.
• Leadership is the personal quality of manager.

Importance of leadership
•Motivating employees
•Creating confidence
•Provides inspiration to employees—creates a strong urge in
employees for higher performance.
•Securing cooperation
•Building higher morale
•Facilitation of change

Charismatic Leadership Theory
• Followers make attributions of heroic or extraordinary leadership
abilities when they observe certain behaviors
• People working for charismatic leaders are motivated to exert extra
work effort and, because they like and respect their leaders, express
greater satisfaction
• Charisma leadership appears to be most appropriate when the
followers’ task has a ideological component or when the environment
involves a high degree of stress and uncertainty

Following traits should be there in a leader to become successful:
• Physical features—height, weight, health, physique and appearance
• Intelligence—ability to think scientifically, analyze accurately & interpret
clearly & precisely the problems before them.
• Emotional stability
•Technical skills
Trait Theory

•Communicative skills
•Inner motivation drive—intense achievement type motivational drives.
•Fairness and objectivity in dealing with subordinates
•Human relations attitude—develop social understanding with other people.
•Vision and foresight
•Empathy

Behavioural Theory
Emphasizes that strong leadership is the result of effective role
behaviour—success in leadership depends more on what the leader does
than on his traits.
Assumes people can be trained to lead
Provides the basis of design for training programs

Styles of Leadership
• Autocratic leadership
-Exploitative autocrat
-Benevolent autocrat
-Consultative autocrat
• Democratic leadership
• Laissez faire or free rein leader

Communication
The process through which transference and the understanding of meaning is
being done.
Communication Functions
1.Control member behavior.
2.Foster (development) motivation for what is to be done.
3.Provide a release for emotional expression.
4.Provide information needed to make decisions.
5.Foundation of success of any manager. (Mintzberg’s all role needs good
communication eg. Interpersonal role, informational and decisional role).
Communication

Elements of the Communication Process
1. The sender 2. Encoding 3. The message
4. The channel 5. Decoding 6. The receiver
7. Noise 8. Feedback

Direction of Communication
Upward Downward Lateral

Interpersonal Communication
• Oral Communication
Advantages: Speed and feedback.
Disadvantage: Distortion of the message.
• Written Communication
Advantages: Tangible and verifiable.
Disadvantages: Time consuming and lacks/delay feedback.
• Nonverbal Communication (body language, facial expression,
gesture = motion of body, hand, head to emphasize their ideas)
Advantages: Supports other communications and provides observable
expression of emotions and feelings.
Disadvantage: Misperception of body language or gestures can influence
receiver’s interpretation of message.

Barriers to Effective Communication
Filtering
A sender’s manipulation of information so that it will be seen more
favorably by the receiver.
Selective Perception
People selectively interpret what they see on the basis of their interests,
background, experience, and attitudes.
Information Overload
A condition in which information inflow exceeds an individual’s
processing capacity.

Barriers to Effective Communication (cont’d)
Emotions
How a receiver feels at the time a message is received will influence how the
message is interpreted.
Language
Words have different meanings to different people.
Communication Apprehension
Undue tension and anxiety about oral communication, written communication,
or both.

UNIT- IV
CONTROLLING

Controlling
Organizational control is the process of assigning, evaluating, and
regulating resources on an ongoing basis to accomplish an
organization's goals.
“Control is the process of checking actual performance against the
agreed standards of plans with a view to ensuring adequate and
satisfactory performance.” – E.F.L. Brech

Characteristics of Control
•End function
•Pervasive function
•Forward looking
•Dynamic process
•Related with planning
•Review of past events
•Action oriented

Significance
• Guide to operations
• Managerial accountability
• Psychological pressure
• Co-ordination
• Corrective action
• Decision making
• Better planning

Limitations
• External factors viz. technological change, govt. policies, changes in
fashion, etc. cannot be controlled
• Employees often resist control, thus reducing its effectiveness
•Expensive process requiring lot of time and effort
•Ineffective if standards cannot be quantified

Controlling Process

Controlling Process
• Establish standards to measure performance
Quantitative standards
Cost standards
Revenue standards
Time standards
Qualitative standards: for goodwill, employee morale,
industrial relations: intangible
•Measure actual performance
•Compare performance with the standards
•Take corrective actions
•Follow-up / feedback

• To measure progress
• To uncover deviations
• Make plans effective
• Make sure that organizational activities are consistent
• Make organizations effective & efficient
• Provide feedback on project status
• Aid in decision making
Purpose of Controlling

Planning vs Controlling
Interdependence
Planning is meaningless without control and control is blind
without planning
Difference
1. Planning is looking ahead whereas controlling is looking back:
partially correct
2. Planning is the first function and controlling is the last function
of management

Effective Control Systems
•Focus on critical points
•Integration into established processes
•Acceptance by employees
•Availability of information when needed
•Economic feasibility
•Accuracy
•Comprehensibility

• Historical or feedback control: traditional, post action control, results are
measured after performance
• Concurrent control: real time or steering control, involves monitoring
and adjusting ongoing activities and processes to ensure compliance
• Feedforward control: predictive control, pre-control, control system
anticipates problems that management is likely to encounter in future and
identifies the steps to be taken to overcome them
Types of Control

Feedback control Concurrent
control
Feedforward
control
Focus on end
results
Monitors ongoing
operations to
ensure that
objectives are
pursued
Focus on
preventing
deviations in the
quantity and
quality of
resources used
Focus of corrective
action is on results
Focus of corrective
action is on
activities
Focus of corrective
action is on
resources
Corrects problems
after they occur
Correct problems
as they occur
Anticipate
problems

Techniques
Traditional aids
• Personal observation
• Unity of objectives, policies, procedures & methods
• Statistical reports and analysis: averages, percentages, ratios,
correlation, etc. for control of production, quality, inventory, etc.
• Break even analysis
• Budgetary control
Modern Aids
• Management audit
• Return on investment
• Responsibility accounting
• PERT & CPM

Breakeven Analysis
•It is a technique used by managers to study the relationship between
costs, volume and profits.
•Breakeven point can be calculated with the help of the following
formula:
• Breakeven Point = Fixed Costs/(Selling price per unit – Variable
cost per unit)

Budgetary control is a technique of managerial control in which all
operations are planned in advance in the form of budgets.
Budgetary Control
Benefits of Budgetary Control
• Focuses on specific targets
• A source of motivation
• Optimum utilisation of resources
• Coordination

Types of Budgets
•Sales budget
•Production budget
•Raw material budget
•Expenses budget
•Cash budget
•Capital expenditure budget
•Flexible budgeting
•Zero based budgeting

Control Through Costing
- Costing indicates what is the approximate cost of a process or a
product under existing conditions
- Control through costing involves the control over costs in the light
of certain pre-determined costs usually known as standard costs.

Responsibility Accounting
Responsibility centers are of the following types:
• Cost Centre: targets are laid down in terms of costs. The
performance of the centre is evaluated by comparing the actual
expenses with the budgeted costs
• Profit Centre: targets are laid down in terms of profits. Performance
is appraised by comparing by comparing the profits actually earned
with the target profit.
• Investment Centre: responsible not only for costs and profits but
also for the assets used. The investment made in each centre is
ascertained and return on investment is used as the basis for judging the
performance of the centre.

• Programme Evaluation and Review Technique
• Visual network for planning, monitoring and controlling complex and
unique projects
PERT

CPM
• Critical path method
• Assume that the duration of every activity is constant and
only one time estimate is made for every activity
• Focus on cost

Inventory Control
- supervision of supply, storage and accessibility of items in order to
insure an adequate supply without excessive oversupply
A.B.C. Analysis
• ‘A’- high value and small in numbers
•‘B’- moderate value and moderate in number
• ‘C’- small in value and large in number

Overall Controlling Techniques
Financial Ratio Analysis: for better understanding of firm’s position
and performance
4 groups of ratios
Liquidity Ratios
- Current Ratio
- Liquid Ratio
Activity Ratios
- Inventory Turnover Ratio
- Fixed Assets Turnover Ratio

Overall Controlling Techniques (Contd)
Leverage Ratios
• Debt-equity Ratio
• Capital Gearing Ratio
Profitability Ratios
• Profit on Sales Ratio
Limitations
• Do not provide standards
• Different firms adopt different ways

Return On Investment : rate of return that firms are able to earn on their
capital employed.
ROI measures the earnings of firm as a percentage of its capital.
Advantages
• Provides a step towards optimum utilization of capital resources
• Measures overall efficiency of the firm
Disadvantages
• Do not tell what the optimum rate of return should be
• Inflationary economy, so the problem of price adjustment becomes
more acute

Management Audit
Management audit is an evaluation of management as a whole.
Management audit can be conducted by external agency such as
management consultants or by internal agency in the form of
management audit cell(MAC).
Problems in management audit :
• Its scope and procedures
• People who should conduct it
• The person to whom the audit report should be submitted

In spite of various difficulties involved in its operations, provides the way
to measure the effectiveness of management as a whole. It works as an
important and effective control tool.
Human Resource Accounting :
- Provides tools for valuation of human resources and measures
to take appropriate actions.
- Objective is to provide information to monitor the
effectiveness of human resource utilization.

Problems
• Attempts to measure intangibles
• No well set standards are there to value
• Based on assumption that employees remain with the organization
for certain specific period
Information System
An information system can be any organized combination of people,
hardware, software, communication networks and data resources that
collects, transform and disseminates information in an organization.
Types of information system
• Transaction Processing System
• Management Information System

Decision Support System
• Executive Information System
• Expert System
Limitation is it’s a very costly affair to develop an information
system and also a quite complex procedure to develop

Quality Circle
Quality circle is basically a small group of employees –who volunteer
to meet regularly to undertake work related projects- quality,
productivity, safety, efficiency, cost, working conditions etc & evolve
recommendations to improve effectiveness in the selected functional
area.
The size of the quality circle is important-both too big and too small
should be avoided. In big group everybody will not get enough
opportunities to participate & in too small group someone may
dominate.

Basic Principles Of Quality Circle
• Every job is capable of being improved.
• People do not resist change, they resist being externally changed.
• Every employee is capable of attaining excellence in his work & the basic
ability to improve the job.
• People like to improve their job and derive satisfaction out of it provided
they are involved through human touch, recognition & reward for work.
• People have integrity and can be highly creative.
.

Operation Of Quality Circle
1. Formation of the circle.
2. training of the members.
3. Problem identification & problem selection.
4. Problem analysis.
5. Recommendation.
6. Management presentation.
7. Review & decision by the management.
8. Implementation.
9. Monitoring the effect.

Total Quality Management
• Meeting the requirements of the customers consistently by continuous
improvement in the quality of work of all employees
• TQM is a management philosophy that seeks to integrate all
organizational functions (marketing, finance, design, engineering, and
production, customer service, etc.) to focus on meeting customer needs and
organizational objectives.
•The simple objective of TQM is "Do the right things, right the first time,
every time".

QUALITY SYSTEM
Management commitment
Team work,Quality tools &
techniques
Participation
TQM Model

TQM Activities
• Commitment by senior management and all employees
• Meeting customer requirements
• Reducing development cycle times
• Just In Time/Demand Flow Manufacturing
• Improvement teams
• Reducing product and service costs
• Systems to facilitate improvement
• Line Management ownership
• Employee involvement and empowerment
• Recognition and celebration
• Challenging quantified goals and benchmarking
• Focus on processes / improvement plans
• Specific incorporation in strategic planning

Principles of Management

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