techniques of control

7/31/2019 Techniques of Control

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Techniques of ControlMPP


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broadly classified into 2

categories1. Traditional techniques

2. Modern techniques


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Traditional Techniques are

1. Personal observation

2. Statistical Reports and Analysis

3. Marginal costing and breakevenanalysis

4. Budgetary control


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Modern Techniques are

1. Management Audit

2. Return of Investment

3. Responsibility Accounting4. PERT and C.P.M

5. Management Information system


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Traditional Techniques

Personal Observation

Most effective and oldest method ofcontrol.

Manager observes the operations on thespot and directs the subordinateaccordingly

Merits

Better performance can be achieved

Easy for the manager to locate errorsand take immediate corrective action


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Demerits are

1. It is time consuming process

2. In the case of enlightened and selfmotivated employee does not like to

be

closely supervised.


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Statistical reports andanalysis Statistical reports and their analysis are

an important instrument of control.

Every manager prepares a report on the

performance of his subordinates andsubmits them to his high authority.

Areas like production, planning and

control, quality control, inventory controlcan make use of these techniques.


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Diagrammatic presentation andgraphical presentation may providefactual data for and trends which are

useful for managerial action. For problem areas special reports and

analysis can be prepared to reveal

necessary information for control.


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Break Even Analysis

B.E.P = Fixed Costs________

Selling Price p. u. Variable costp.u

Note : p.u. = per unit


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The uses of B.E.P

Helps in determining the minimumvolume of sales at which costs can berecovered fully.

Helps the management in exercisingcontrol over variable costs whereverpossible.

Facilitate the management in estimatingthe turnover by considering the quantumof profit

Useful in judging the managerial resultsof their decisions.


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Budgetary Control

Oldest technique of control

This involves the use of budgets to plan,coordinate and control day-to-day

operations of business in accordancewith overall objectives of the business.

Budget is a rational action plan in

quantifies terms, with definite timeframe financial or physical term.


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Features of budget control

It is prepared in advance and is based ona future plan of actions

It relates to a future period and is based

on objectives to be attained

It is a statement expressed in monetaryand/or physical units prepared by the

top management for the implementationof framed policies.


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Steps in budgetary control

Preparation of Budgets

Continuous comparison of actual resultswith planned ones

Revision of plans or budgets in the lightof changed circumstances


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Merits of Budgetary control

1. AS A PLANNING TOOL

It helps managers to plan their activitiesby clarifying its goals and policies in

operational and realistic terms

This offers an opportunity of objectiveappraisal of performance self-

examination and self-criticism Budgetary control leads to cautious

utilisation of resources and maximise

profits and revenue.


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2. AS A TOOL OF CONTROL

. It provides exact, accurate and precisestandards for performance

. It reduces the extent of variability andperversity in enterprise functioning

. It provides the necessary direction forcontrol

. It is a source of positive influence onmotivation and behaviour of enterprise

personnel.


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3. AS A TOOL OF COORDINATION

It strengthens the bonds ofinterdependence among various sub-

system.

It brings out about co-ordinationbetween activities because of

preparation of functional budgets andmaster budget

It establishes a clear relation and

balance between the inputs such asassets labour funds time and out ut


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Limitations or problems ofbudgetary control

Inaccuracy

Consistency

Inflexibility


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Operational problems

Guess work

Hiding inefficiencies

Over-budgetingCostly and time consuming

Lot of paper work


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TYPES OF BUDGETS

1. FACTORS TO BE CONSIDERED FORPREPARATION OF SALES BUDGET

Past sales data and trend

Salesmens estimates

General economic conditions

Orders on hand Seasonal fluctuations

Competition and governments control

and policy


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2. Production budget

Sales budget

Plant capacity

Inventory policy Availability of raw materials, labour,

power etc.


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3. Materials Budget

Direct material which can beconveniently identified with a particularcost unit. It becomes a part of the

finished product. Indirect material is also part of the

finished product but they are used insmall quantities that these can not beconveniently associated with a particularcost unit.


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Other budgets are:

Labour Budget

Factory Overhead Budget -Administrativeoverhead budget, selling and distribution

expenses budget.

Cash Budget

Master Budget

Fixed and flexible Budget

Zero Base Budgeting (ZBB)

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Essentials of effectivebudgetary control Determination of objective

Co-operation of top management

Matching responsibility with authority Periodic, frequent comparison

Define plan

Appropriate budget period Flexibility

Key factor or limiting factor


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Modern Techniques


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techniques of control

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