Final essential of controlling

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Final essential of controlling

  1. 1. Presented by George D’lima. Roll No: M1215.Subject: Perspective Management.
  2. 2. Controlling and the other management functions Controlling referred to as the terminal management function. Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns. Evaluating the other management functions. Controlling is a dynamic process- since controlling requires taking reviewal methods, changes have to be made wherever possible. Strongly associated with planning. Controlling is forward looking- Controlling analysis the past and help achieving future goals.
  3. 3. Controlling Planning Planning- Controlling Linkage Leading Organizing
  4. 4. Types and strategies of controlControlling can be classified in1. According to timea. Beforeb. Duringc. After2. According to the source of controla. Internalb. External
  5. 5. 1. The Time element in controla. Preventive Control (before) Prior to performance of an activity. Prevent deviation from performance standard. Most cost-effective method. Can be applied for e.g. in:a. Manufacturing (purchase high quality machine part).b. Human resource (recruiting non smokers).
  6. 6. Cont….b. Concurrent Control (during): Monitoring activities while they are carried out. Observation of deviation from standards. Makes constructive suggestions. Such controls are also known as steering controls. For eg: suppose a telemarketing manager overhears a telemarketer fails to ask a customer for an order. On the spot, the manager would coach the telemarketer about how to close an order.
  7. 7. Cont….c. Feedback Control or post controls (after): Evaluate an activity after it is performed. Pointing out what went wrong in the past. Financial statement analysis is a form of feedback control.
  8. 8. II. External and Internal ControlsExternal control strategy Based on the belief that employees are motivated primarily by external rewards and need to be controlled by their mangers. For eg: RelienceInternal control strategy Based on the belief that employees can be motivated by building their commitment to organisational goals. For eg: Toyota Corp.
  9. 9. Steps of External Strategy
  10. 10. Steps of Internal Strategy
  11. 11. Steps in the control processThe steps in the control process follow the logic of planning:1) Performance standard are set.2) Performance is measured.3) Performance is compared to standards.4) Corrective action is taken if needed.
  12. 12. 1. Setting Appropriate Standards Set realistic and acceptable standard to the people involved. Standard can be:a. Quantitative (cost of sales, profits or time to complete an activity)b. Qualitative (viewer’s perception of the visual appeal of an advertisement) Laws are often basis of standards (disposal of toxins, fair employee practices) An effective standard leads to obtainment of objective. Standards can be set using historical data or break-even point analysis.
  13. 13. 2. Measuring Actual Performance Observation of the performance a simple example would be observing to make sure a sales associate always asks a customer “ Is there anything else I could show you now?” The three important conditions for effective performance measurement are:a. Agree on the specific aspects of performance to be measured.b. Agree on the accuracy of measurement needed.c. Agree on who will use the measurements.
  14. 14. 3. Comparing Actual Performance To Standards Size of the discrepancy between performance standard and actual results. How much deviation from the standard is a basis for corrective action.(exception principle) The manager has to find out two things here- extent of deviation and cause of deviation. After finding out the deviation the information should be communicated.
  15. 15. 4. Taking Corrective Action Once the causes and extent of deviations are known, the manager has to detect those errors and take remedial measures for it. There are three courses of action: Do nothing Solve the problem(taking corrective steps) Revise the standard(may occur in case of error in planning)
  16. 16. Non Budgetary Control TechniquesNon Budgetary control techniques can be classified into two types Qualitative Control Technique Qualitative control technique are methods based on human judgements about performance that result in a verbal rather than a numerical evaluation. For e.g. customer service might be rated as “outstanding”. Quantitative Control Technique Quantitative control technique are methods based on numerical measures of performance For e.g. such as lines of computer code produced per hour.
  17. 17. Qualitative Control TechniqueThe competence and ethics of people collecting information for qualitative controls influence the effectiveness of these controls.Technique1. External Audit: Verification of financial records by external agency or individual. Conducted by an outside agency, such as a CPA (Certified Public Accounting Firm).2. Internal Audit: Verification of financial records by an internal group of personnel. Wide in scope, including evaluation of control system.
  18. 18. Cont….3. Management Audit: Use of auditing techniques to evaluate the overall effectiveness of management. Examines wide range of management practices, policies and procedures.4. Personal Observation: Manager’s firsthand observations of how well plans are carried out. Natural part of manger’s job.5. Performance appraisal: formal method or system of measuring, evaluating and reviewing employee performance. Points out areas of deficiency and areas for corrective action; manger and group members jointly solve the problem.
  19. 19. Quantitative Control Techniques Gantt Chart: Chart depicting planned and actual progress of work on a project. Describes progress on a project. PERT: Method of scheduling activities and events using time estimates. Measuring how well the project is meeting the schedule. Break-even analysis: Ratio of fixed costs to price minus variable costs. Measuring organizations performance and gives basis for corrective action
  20. 20. Cont…. Economic-Order Quantity: Inventory level that minimizes ordering and carrying costs. Avoids having too much or too little inventory. Variance Analysis: Major control device in manufacturing. Establishes standard costs for materials, labor and overhead and then measures deviations from these costs.
  21. 21. Budgetary and Financial Ratio as Control Devices The control process relies on the use of budget s and financial ratios. In budgets planned expenditure and actual expenditures are compared. A more advanced method of using budgets for control is to use financial ratio guidelines for performance.
  22. 22. Cont…. Following are the four important ratios for control Gross Profit Margin:Gross Profit Margin= Sales – Cost of Goods Sold SalesThis ratio measures the total money available to cover operating expenses and make profit.Assume the night club owner needs to earn a 30 percent gross profit margin.Gross Profit Margin= $42,500 - $ 19500 = $23,000 = 0.54 or 54% $42500 $42,500
  23. 23. Cont…. Profit margin: profit margin measures profit earned per dollar of sales as well as the efficiency of the operations.Profit margin = Net income_ = $6,060 = 0.14 or 14% Sales $42,500A profit margin of 14 percent would be healthy for most businesses. It also appears to present a more realistic assessment of how well night club in question performs as a business.
  24. 24. Cont…. Return on Equity: the return on equity is an indicator of how much a firm is earning on its investment. It is the ratio between net income and the owner’s equity.Return on equity = Net income Owner’s equityAssume that the owner of the nightclub and restaurant invested $400,000 in the restaurant and that the net income for the year $72,500. the return on equity is $72500/$4,00,000 = 0.181 0r 18.1%The owner can be happy because few investments offer such high return.
  25. 25. Cont…. Revenue per employee: A simple financial ratio that is widely used by business mangers is revenue per employee, expressed as.Revenue per employee = Number of Employee Total Revenue

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