The document provides an overview of controlling concepts including: - The definition and importance of controlling as monitoring activities to ensure plans are followed. - Types of control include budgetary control, standard costing, just-in-time and ABC analysis. - Control techniques help managers identify variances from plans, take corrective actions, and improve future performance. - Effective control systems empower employees and protect organizations from disruptions.

1. < R.Shyam Prasad

2. Syllabus
Unit - VIII
Controlling - Meaning and Importance of controlling
-
Relationship between Planning and Controlling -
Control
Process - Characteristics of Good control System.

3. Meaning of Control
It is the process of monitoring activities to ensure
that what is being accomplished matches plans and
corrects significant deviations

4. Planning- Controlling Linkage

5. Why Is Control Important?
As the final link in management functions:
Planning
 Controls let managers know whether their goals and plans
are on target and what future actions to take.
Empowering employees
 Control systems provide managers with information and
feedback on employee performance.
Protecting the workplace
 Controls enhance physical security and help minimize
workplace disruptions.

6. Purpose of Controls
Goals and
Objectives
Organizational
Divisional
Departmental
Individual

7. Types of Control (Fixing Standards)
Market Control
Emphasizes the use of external market mechanisms to
establish the standards used in the control system.
 External measures: Price competition and Relative market share
Bureaucratic Control
Emphasizes organizational authority and relies on rules,
regulations, procedures, and policies.
 Budgets, Resources Allocated, Scheduled Projects Completed
Clan Control
Regulates behavior by shared values, norms, traditions,
rituals, and beliefs of the firm’s culture.
 Employees fix standards themselves on the basis of the appropriate
work behavior expected from them and performance measures
fixed by them

8. Measuring: How and What We
Measure
Sources of
Information
Personal observation
Statistical reports
Oral reports
Written reports
Control Criteria
Customer
No. of New Customers Added
No. of old Customers Repeat
Purchase
No. of Customers Complaints
Production
Units Produced
Defective Units
Employees
Satisfaction
Turnover
Absenteeism
Finance
Costs

9. Comparing
Determining the degree of variation between actual
performance and the standard.
Significance of variation is determined by:
 The acceptable range of variation from the standard (forecast
or budget).
 The size (large or small) and direction (over or under) of the
variation from the standard (forecast or budget).

10. Taking Managerial Action
Courses of Action
“Doing nothing”
 Only if deviation is judged to be insignificant.
Correcting actual (current) performance
 Immediate corrective action to correct the problem at once.
 Basic corrective action to locate and to correct the source of
the deviation.
Corrective Actions
 Change strategy, structure, compensation scheme, or
training programs; redesign jobs; or fire employees

11. Taking Managerial Action
Revising the standard
 Examining the standard to ascertain whether or not the
standard is realistic, fair, and achievable.
 Upholding the validity of the standard
 Resetting goals that were initially set too low or too high.

12. Identify
Causes
Correct
Performance
Variance
Acceptable?
Revise
Standard
Standard
Attained?
Standard
Acceptable?
Yes
Yes
Yes
No
No
No
Compare
Performance
to Standard
Measure
Performance
Objectives
Standard
Do Nothing
Do Nothing
Control Process

13. Example
Hero Honda’s Sales for Febuary
(in ‘000)
Splendor
Splendor NXG
CD Dawn
Passion
Pleasure
Karizma
CBZ X-treme
Glamour
Hunk
Total Units
1,075
630
800
620
540
160
225
80
170
4,300
913
634
912
622
672
140
220
65
286
4,464
(162)
4
112
2
132
(20)
(5)
(15)
116
164
Brand Standard Actual Over (Under)

14. Discrepancies Between Goals and Performance
FOM 7.14
Discrepancies Between Goals and Performance
AcceptableAcceptable
Upper LimitUpper Limit
StandardStandard
AcceptableAcceptable
Lower LimitLower Limit
AcceptableAcceptable
Range ofRange of
VariationVariation
t t+1 t+2 t+3 t+4 t+5t t+1 t+2 t+3 t+4 t+5

15. Tools for Controlling
(based on when action is taken)
Feedforward Control
A control that prevents anticipated problems before
actual occurrences of the problem.
 Building in quality through design
 Requiring suppliers conform to ISO 9002
Concurrent Control
A control that takes place while the monitored activity
is in progress.
 Direct supervision: management by walking around.

16. Tools for Controlling
(based on when action is taken)
Feedback Control
A control that takes place after an activity is done.
 Corrective action is after-the-fact, when the problem has
already occurred.
Advantages of feedback controls
 Feedback provides managers with information on the
effectiveness of their planning efforts.
 Feedback enhances employee motivation by providing them
with information on how well they are doing.

17. Feedback Vs Concurrent Control
Feedback Concurrent

18. Tools for Controlling

19. Budgetary control techniques
Budget
Zero Based Budget
Responsibility Accounting

20. Financial Controls
 Budget Analysis
 It is a financial or Quantitative statement prepared prior to
definite period of time in order to facilitate smooth flow of
activities
 Types of Budget
 Master Budget
 Functional Budget
 Sales Budget
 Production Budget
 Materials Budget
 Labour Budget
 Manufacturing Budget
 Cash Budget

21. Zero Based Budget (ZBB)
 In traditional budgeting, departmental managers justify
only increases over the previous year budget and what
has been already spent is automatically sanctioned.
 By contrast, in ZBB, every department function is
reviewed comprehensively and all expenditures must be
approved, rather than only increases.
 No reference is made to the previous level of
expenditure.
 ZBB requires the budget request be justified in
complete detail by each division manager starting from
the zero-base.
 The zero-base is indifferent to whether the total budget
is increasing or decreasing.

22. Responsibility Accounting
The basic idea is that large diversified organizations
are difficult, if not impossible to manage as a single
segment, thus they must be decentralized or
separated into manageable parts.
These parts, or segments are referred to as
responsibility centers that include:
 1) revenue centers,
2) cost centers,
3) profit centers

23. Responsibility Accounting
This approach allows responsibility to be assigned to
the segment managers that have the greatest amount
of influence over the key elements to be managed.
These elements include revenue for a revenue center
(a segment that mainly generates revenue with
relatively little costs),
costs for a cost center (a segment that generates
costs, but no revenue),
a measure of profitability for a profit center (a
segment that generates both revenue and costs)

24. Non Budgetary control
techniques
Balanced Scorecard
Information Controls
Benchmarking
Management Audit

25. Balanced Scorecard
 A measurement tool that uses goals set by managers in four areas
to measure a company’s performance
 Four "perspectives" were proposed:
 Financial: - Profit, Sales, Cost.
 Customer: - Customer satisfaction, Retention, Repitition, Cross Selling
 Internal Business Processes: - Competitive Advantage Eg. Quality,
Variety, Understanding Customer expectations.
 Learning and Growth: Innovation, No. new products launched, Time
taken to launch innovative products, Employees Contribution to new
ideas.

26. Balanced Scorecard

27. Copyright © 2005 Prentice Hall, Inc. All rights reserved. 18–27
Information Controls
Management Information Systems (MIS)
A system used to provide management with needed
information on a regular basis.
 Data: an unorganized collection of raw, unanalyzed facts
(e.g., unsorted list of customer names)
 Information: data that has been analyzed and organized
such that it has value and relevance to managers

28. 18–28
Benchmarking
The search for the best practices among competitors or
noncompetitors that lead to their superior performance.
 Benchmark: the standard of excellence against which to
measure and compare.
A control tool for identifying and measuring specific
performance gaps and areas for improvement.
Eg: Benchmark for Educational institutes
 Rank given by companies preference of the institute
 Students / Alumni rating of degree
 No. of alumni placed within 12 months of graduating
 Avearge salary of alumni 5 years after graduating

29. 18–29
Benchmarking
Intra Department Benchmark – No. of Quality products
per Batch in the various Production centers of the same
company
Industrial Benchmark – No. of Quality products per
Batch in the Production centers of the entire industry

30. Management Audit
It is a comprehensive and thorough examination of
an organization. The audit is implemented to identify
problems or significant weaknesses in the
organization or corporation, thus providing
management with a tool to address and repair the
problem area.
Its objectives are to
Establish the current level of effectiveness
Suggest improvements
Lay down standards for future performance.

31. Cost Control
Standard Costing
Kaizen
Target costing
Life-cycle costing

32. Standard Costing
It is predetermined cost which is calculated from
managements standards of efficient operations and
the relevant necessary expenditure.
 They are the predetermined costs for a selected
period of time and for a prescribed set of working
conditions.
In other words, a standard cost is a planned cost for a
unit of product or service rendered.
The technique of using standard costs for the
purposes of cost control is known as standard costing.

33. Standard Costing
Standard Cost for a product - 100
Actual Cost - 120
Variance of Cost - 20
Causes of variance
Increase/ Decrease in material cost
Increase/ Decrease in Labour cost
Increase/ Decrease in other cost

34. Kaizen
Kaizen means "continuous improvement". It comes
from the Japanese words 改 ("kai") which means
"change" or "to correct" and 善 ("zen") which means
"good".
It is a system that involves every employee - from
upper management to the cleaning crew. Everyone is
encouraged to come up with small improvement
suggestions on a regular basis.

35. Kaizen
Kaizen are not ideas for major changes. Kaizen is
based on making little changes on a regular basis:
always improving productivity, safety and
effectiveness while reducing waste.
Suggestions are not limited to a specific area such as
production or marketing. Kaizen is based on making
changes anywhere that improvements can be made.
Western philosophy may be summarized as, "if it ain't
broke, don't fix it." The Kaizen philosophy is to "do it
better, make it better, improve it even if it isn't
broken, because if we don't, we can't compete with
those who do."

36. Target costing
It involves setting a target cost by subtracting
a desired profit margin from a competitive
market price
Japanese companies have developed target
costing as a response to the problem of
controlling and reducing costs over the
product life cycle.
Target Cost = Market price - profit margin
Eg: Tata Nano: 1 Lakh = 1.3 lakhs – 0.3 lakh

37. Target costing
Four basic steps of Target Costing:
(1) Define the Product
(2) Set the Price and Cost Targets
(3) Achieve the Targets
(4)Maintain Competitive Costs.

38. Target costing
Here are some examples of decisions made at the
design stage which impact on the cost of a product
The number of different components
Whether the components are standard or not
The level of customization

39. Life-cycle costing
life-cycle costing tracks and evaluates costing
from the research and development phase of a
product’s life, through to the decline and eventual
conclusion of a product’s life.
Most of a product’s costs can be determined
before the product is produced. This means that
the majority of control management can exert
over production and other costs is during the
design phase of the product’s life-cycle.

40. Life-cycle costing

41. Purchase Control
JIT - Just in Time
MRP-Material Requisition Planning
Pareto principle
ABC analysis

42. JIT - Just in Time
It is a production system which is driven by demand
for finished product whereby each component on a
production line is produced only when needed for the
next stage
Disadvantages of JIT
There is little room for mistakes as minimal stock is
kept for re-working faulty product
Production is very reliant on suppliers and if stock is
not delivered on time, the whole production schedule
can be delayed

43. JIT - Just in Time
Advantages of JIT
Lower stock holding means a reduction in storage
space which saves rent and insurance costs
As stock is only obtained when it is needed, less
working capital is tied up in stock
There is less likelihood of stock perishing, becoming
obsolete or out of date
Avoids the build-up of unsold finished product that
can occur with sudden changes in demand

44. MRP-Material Requisition Planning
If a company purchases insufficient quantities of
an item used in manufacturing (or the wrong
item) it may be unable to meet contract
obligations to supply products on time.
If a company purchases excessive quantities of an
item, money is wasted - the excess quantity ties
up cash while it remains as stock and may never
even be used at all.

45. MRP-Material Requisition Planning
MRP is a tool to deal with these problems. It provides
answers for several questions:
What items are required?
How many are required?
When are they required?

46. MRP-Material Requisition Planning
An MRP system is intended to simultaneously meet
three objectives:
Ensure materials are available for production and
products are available for delivery to customers.
Maintain the lowest possible level of inventory.
Plan manufacturing activities, delivery schedules and
purchasing activities.

47. MRP-Material Requisition Planning
Eg: Nano Car needs 1 Week to assemble one car.
The Car needs the below in a given time frame
Part No. required Weeks required
Tyre 4 2
Brake 2 1
Lights 5 1
Gear Box 1 3

48. MRP-Material Requisition Planning
So if a Car is to be made available on 4th
week of
June then the order is to be made in the following
sequence
Part Weeks required Order to be
placed
Assembling 1 3rd
Week june
Tyre 2 1st
Week june
Brake 1 2 nd
Week june
Lights 1 2 nd
Week june
Gear Box 3 4th Week May

49. Pareto principle
The Pareto principle states that, for many events,
roughly 80% of the effects come from 20% of the
causes.
Distribution of world GDP, 1989 Quintile of
population Income Richest,
First 20%, 82.70%
Second, 20%, 11.75%
Third, 20%, 2.30%
Fourth, 20%, 1.85%
Poorest, 20%, 1.40%

50. Pareto principle

51. Pareto principle
This analysis is applied in
Cost Control
Inventory Control
Problem Analysis
Customer Analysis

52. ABC analysis
It is an inventory categorization technique often used
in materials management.
ABC analysis provides a mechanism for identifying
items that will have a significant impact on overall
inventory cost
It also providing a mechanism for identifying
different categories of stock that will require different
management and controls.

53. ABC analysis
Code Value of Items No. of Items
A 80 20
B 15 30
C 5 50