Control involves measuring performance against plans and standards, and taking corrective actions when needed. It is a continuous process that occurs at all levels of management. Traditional control techniques include budgetary control and break-even analysis. Budgetary control involves preparing budgets, coordinating departments, comparing actuals to budgets, and taking actions. Break-even analysis calculates the sales volume needed to cover total costs. Modern techniques include PERT, CPM, and zero-based budgeting. PERT and CPM are project management tools that use charts to plan and schedule tasks. Zero-based budgeting requires justifying all planned expenses rather than basing the budget on previous periods.

1. CONTROL
Business Administration -Prof. Hitesh Sharma

2. What is Control?
 “Managerial control implies the „measurement of
accomplishment‟ against the standard and the
correction of deviations to assure attainment of
objectives according to plans”. Koontz And O‟Donnell
 “Controlling is checking performance against
predetermined standards contained in the plans with
a view to ensuring adequate progress and
satisfactory performance.” E.F.L. Breach

3. What is Control?
 George R. Terry defined “controlling is determining
what is being accomplished, that is evaluating the
performance and, if necessary, applying corrected
measures so that the performance takes place
according to plans.”
 So the function of controlling helps to achieve the
desired goals by planning. Management must,
therefore, compare actual results with pre-determined
standards and take corrective action if necessary.

4. Characteristics of Control
 End function of management (Means to achieve „end‟)
 Continuous activity
 Exercised at all levels
 Dynamic process
 Constructive activity
 Forward looking process
 People oriented process
 Related to planning
 Can be informal
 Internal activity

5. Need/Importance of Control:
 Helps in achievement of goals
 Base of planning
 Useful for organizing
 Makes directing effective
 Helps in co-ordination
 Necessary for delegation of authority
 Helps in removing deviations

6. Control Techniques
 Traditional Methods
1. Budgetary Control
2. Break-even Analysis
 Modern Methods
1. PERT
2. CPM
3. Zero based budgeting

7. Budgetary Control
 Budget
An estimate of costs, revenues, and resources over a
specified period, reflecting a reading of future
financial conditions and goals.
A budget also serves as a
 Plan of action for achieving quantified objectives
 Standard for measuring performance
 Device for coping with future adverse situations

8. Budgetary Control
 Budgetary Control
According to Brown and Howard, “Budgetary
control is a system of controlling costs which includes
the preparation of budgets, coordinating the
departments and establishing responsibilities,
comparing actual performance with the budgeted
and acting upon results to achieve maximum
profitability.”
Weldon characterizes budgetary control as
planning in advance of the various functions of a
business so that the business as a whole is
controlled.

9. Advantages of Budgetary Control
 Maximization of Profits
 Co-ordination
 Specific Aims
 Tool for Measuring Performance
 Economy
 Determining Weaknesses
 Corrective Action
 Consciousness
 Reduces Costs
 Introduction of Incentive Schemes

10. Disadvantages of Budgetary Control
 Uncertain Future
 Budgetary Revision Required
 Discourage Efficient Persons
 Problem of Co-ordination
 Conflict Among Different Departments
 Depends Upon Support of Top Management

11. Break-Even Analysis
 The Break Even Analysis (BEA) is a useful tool to study
the relation between fixed costs and variable costs and
revenue.
 It‟s inextricably linked to the Break Even Point (BEP),
which indicates at what moment an investment will start
generating a positive return.
 It can be graphically represented or calculated with a
simple mathematical calculation.
 A Break-Even Analysis calculates the size of the
production at a certain (selling) price that is necessary
to cover all the costs that have been incurred.

12. Break Even Analysis Components & Formula
 Fixed costs are costs that do not change with varying
output (i.e. salary, rent, building machinery).
 Sales price per unit is the selling price (unit selling
price) per unit.
 Variable cost per unit is the variable costs incurred to
create a unit.
Formula:
unitperpriceVariableunitperpriceSales
CostsFixed
quantityEvenBreak



13. Example of Break Even Analysis
 Jagga is the managerial accountant in-charge of
Company Thanda Pani Ltd, which sells water bottles. He
previously determined that the fixed costs of Company
Thanda Pani Ltd, consist of property taxes, a lease, and
executive salaries, which add up to Rs.1,00,000. The
variable costs associated with producing one water bottle
is Rs.2 per unit. The water bottle is sold at a premium
price of Rs.12.

14. Example of Break Even Analysis
 To determine the break even point of Company
Thanda Pani Ltd‟s premium water bottle:
 Break even quantity =
Rs.1,00,000/(Rs.12-Rs.2) = 10,000
 Therefore, given the fixed costs, variable costs, and
selling price of the water bottles, Company Thanda
Pani Ltd would need to sell 10,000 units of water
bottles to break even.

15. Graphically Representing the Break Even Point

16. Concept of Break Even Point
 Profit when,
Revenue > Total Variable cost + Total Fixed cost
 Break-even point when,
Revenue = Total Variable cost + Total Fixed cost
 Loss when,
Revenue < Total Variable cost + Total Fixed cost

17. Program Evaluation Review Technique (PERT)
 A PERT chart is a project management tool used to
schedule, organize, and coordinate tasks within a
project.
 PERT stands for Program Evaluation Review Technique, a
methodology developed by the U.S. Navy in the 1950s
to manage the Polaris submarine missile program.
 A similar methodology, the Critical Path Method (CPM)
was developed for project management in the private
sector at about the same time.

18. Program Evaluation Review Technique (PERT)
 The Program Evaluation and Review Technique (PERT) is a
project scheduling technique to analyze and represent the
tasks involved in completing a given project.

19. Program Evaluation Review Technique (PERT)
Activity duration estimates
Activity durations are based on estimates made by human beings
and are therefore error-prone. In PERT, the technique requires three
duration estimates for each individual activity, as follows:
 Optimistic time estimate (a):
This is the shortest possible time in which the activity can be
completed, and assumes that everything has to go perfect.
 Realistic time estimate (m):
This is the most likely time in which the activity can be completed
under normal circumstances.
 Pessimistic time estimate (b):
This is the longest possible time the activity might require, and
assumes a worst-case scenario.

20. Characteristics of PERT
 Planning & Control
 Division into activities
 Event
 Mutually related
 Expected time
 Related to time
 Presentation by chart
 Critical path

21. Critical Path Method
 In 1957, DuPont developed a project management method
to address the challenge of shutting down the plant for
maintenance & then restarting after the maintenance has
been completed.
 Given the complexity of the process they developed the
CRITICAL PATH METHOD for managing such projects.
 CPM provides following benefits:
1. Graphical view of the project.
2. Predicts the time required to complete the project.
3. Shows which activities are critical to maintain the schedule.

22. Critical Path Method Analysis
 The Critical Path Method (CPM) can help you keep
your projects on track.
 The critical path is the sequence of activities with the
longest duration. A delay in any of these activities will
result in a delay for the whole project.
 The duration of each activity is listed below each
node in the diagram. For each path, add the duration
of each node to determine it's total duration. The
critical path is the one with the longest duration.

23. Critical Path Method Analysis

24. Critical Path Method Analysis
Float Determination
 Once you've identified the critical path for the project, you
can determine the float for each activity. Float is the amount
of time an activity can slip before it causes your project to
be delayed. Float is sometimes referred to as slack.
 You will start with the activities on the critical path. Each of
those activities has a float of zero. If any of those activities
slips, the project will be delayed.
 Then you take the next longest path. Subtract it's duration
from the duration of the critical path. That's the float for
each of the activities on that path.

25. Critical Path Method Analysis
Using the critical path diagram from the previous section,
Activities 2, 3, and 4 are on the critical path so they have a
float of zero.

26. Critical Path Method Analysis
 The next longest path is Activities 1, 3, and 4. Since
Activities 3 and 4 are also on the critical path, their float
will remain as zero. For any remaining activities, in this
case Activity 1, the float will be the duration of the critical
path minus the duration of this path. 14 - 12 = 2. So
Activity 1 has a float of 2.
 The next longest path is Activities 2 and 5. Activity 2 is on
the critical path so it will have a float of zero. Activity 5
has a float of 14 - 9, which is 5. So as long as Activity 5
doesn't slip more than 5 days, it won't cause a delay to
the project.

27. Zero Based Budgeting
 Zero-based budgeting (ZBB) is an approach to making a
budget from scratch. The budget is not based on previous
budgets. Instead, the budget starts at zero.
 With zero-based budgeting, you need to justify every
expense before adding it to the official budget. The goal of
zero-based budgeting is to reduce spending by looking at
where costs can be cut.
 It involves re-evaluating every line item of cash flow
statement and justifying all the expenditure that is to be
incurred by the department.

28. Zero Based Budgeting Process
1. Identify business goals
2. Develop and analyze new ways to achieve goals
3. Discover new ways to fund business processes
4. Prioritize funds
 By following these zero-based budgeting steps, you will
determine what expenses go toward achieving business
goals that directly benefit your company. Then, you can
find new ways to spend.
 With ZBB, you might find that your budget fluctuates
significantly between periods. You might have a budget
of Rs.50,000 one year and Rs.35,000 the next, since
budgets aren‟t based on previous ones.

29. Zero Based Budgeting Advantages
1. Accuracy
2. Efficiency
3. Reduction in redundant activities
4. Budget inflation
5. Coordination and Communication

30. Zero Based Budgeting Disadvantages
1. Time-Consuming
2. High Manpower Requirement
3. Lack of Expertise
Conclusion: Zero-based budgeting aims at reflecting true
expenses to be incurred by a department or a state.
Although time-consuming, this is a more appropriate way
of budgeting. At the end of the day, it is a company‟s call
as whether it wants to invest time and manpower in the
budgeting exercise to provide more accurate numbers or
go for an easier method of incremental budgeting.