Management Control - Meaning, Nature and Process
[For both CBCS Pattern and NEP 2023 Pattern]
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In this post I have given a brief explanation of Controlling in Management. These notes are useful B.Com 3rd Semester Students under CBCS Pattern. Some of the topics are not yet included in these notes which will be added very soon.
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Applications will be solved.
This Chapter is Included in both CBCS and NEP 2023 Pattern.
- In NEP 2023 Pattern, this chapter is covered under Business Organisation and Management (BOM) 1st Sem
- In CBCS Pattern, this chapter is covered under both Business organisation and Management (BOM) 1st Sem and Management Principles and Applications (MPA) 3rd Sem
Refer Subject wise Important Questions and Plan Your Studies Accordingly
- Business Organisation and Management Important Questions (BOM) 1st SEM NEP 2023
- Business Organisation and Management Important Questions (BOM) 1st SEM CBCS
- Management Principles and Applications Important Questions (MPA) 3rd SEM CBCS
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Table of
Contents |
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1. Meaning of Management Control 2. Nature or Characteristics of Management Control 3.
Advantages (Importance) of Controlling 4. Steps in Controlling Process 5.
Essentials of an Effective control system 6. Relationship between Planning and
Controlling 7.
Tools and Techniques of controlling in management - Traditional and Modern |
Introduction to Management Control
Control
is one of the managerial functions. These functions start with planning and end
at controlling. The other functions like organising, staffing, directing act as
the connecting like between planning and controlling. Planning will be
successful only if the progress planning and controlled, Planning involves
setting up of goals and objectives while controlling seeks to ensure.
In
the words of Koontz and O'Donnel, “The measurement and correction of the performance
of activities of subordinates in order to make sure that enterprise objectives
and plan devised to attain them are being accomplished." The
accomplishment of organisational goals is the main aim of every management. The
performance of subordinates should be constantly watched to ensure proper
implementation of plans. Co-ordination is the channel through which goals can
be achieved and necessary.
According
to Henry Fayol, “In an undertaking, control consists in verifying whether
everything occurs in conformity with the plan adopted, the instructions issued
and principles established. It has to point out weakness and errors in order to
rectify them and prevent recurrence”.
Thus,
controlling implies determining and stating specifically what is to be accomplished,
then checking performance against such standards prescribed with a view to
supplying the corrective action required to achieve the planned objectives. The
end objective of controlling is, therefore, to ensure that the people’s effort
in the organisation is
continuously directed towards
the attainment of the predetermined objectives.
Nature or
Characteristics of Control
1) Control is
a function of management: It is, in fact, a follow-up action to the other
functions of management. All the managers in the organisation to control the
activities assigned to them perform this function.
2) Control is
a dynamic process: It involves continuous review of standards of performance
and results in corrective action, which may lead to changes in other functions
of management.
3) Control is
a continuous activity: It does not stop anywhere. According to : Koontz and
O’Donnell, “Just as the navigator continually takes reading to a planned
action, so should so should be the business s manager continually take reading
to assure himself that his enterprise or : department is on course”.
4) Control is
forward looking: It is related to future, as past cannot be controlled. It is
usually preventive as the presence of control systems leads to minimize
wastages, losses, and deviations from standards. It should be noted that
control does not curtail the rights of the individuals. It simply keeps a check
on the performance of individuals.
5) Planning
and Controlling are closely related with each other: Managerial planning seeks
consistent and integrated while managerial control seeks to compel events to
conform to plans. As a matter of fact, planning is based on control and control
is based on planning. The process of control uses certain standards for
measuring performance, which are laid down by planning. The control process, in
turn, may reveal the deficiency of planning and may lead to the revision of
planning. It may also lead to setting of new goals, changing the organisational
structure, improving staffing and making major changes in the techniques of
directing.
Advantages (Importance) of
Controlling:
(i)
Accomplishing organisational goals: The controlling function measures progress
towards the organisational goals and brings to light the deviations, if any,
and indicates corrective action.
(ii)
Judging accuracy of standards: A good control system enables management to
verify whether the standards set are accurate or not. An efficient control
system keeps a careful check on the changes taking place in the organisation and
in the environment and helps to review and revise the standards in light of
such changes.
(iii)
Making efficient use of resources: By exercising control, a manager seeks to
reduce wastage and spoilage of resources. This ensures that resources are used
in the most effective and efficient manner.
(iv)
Improving employee motivation: A good control system ensures that employees
know well in advance what they are expected to do and what are the standards of
performance on the basis of which they will be appreciated.
(v)
Ensuring order and discipline: Controlling creates an atmosphere of order and
discipline in the organisation. It helps to minimize dishonest behaviors on the
part of the employees by keeping a close check on their activities.
(vi)
Facilitating coordination in action: Controlling provides direction to all
activities and efforts for achieving organisational goals.
Limitations
of Controlling:
(i)
Difficulty in setting quantitative standards: Control system loses some of its
effectiveness when standards cannot be defined in quantitative terms. Employee
morale, job satisfaction and human behaviors are such areas where this problem
might arise.
(ii)
Little control on external factors: Generally an enterprise cannot control
external factors such as government policies, technological changes,
competition etc.
(iii)
Resistance from employees: Control is often resisted by employees. They see it
as restriction on their freedom.
(iv)
Costly affairs: Control is a costly affair as it involves a lot of expenditure,
time and efforts.
********************************Also Read:
Unit 4:********************************Also Read:********************************
Steps in Controlling Process
In
order to perform his control functions, a manager follows three basic steps.
First of all, he establishes the standards of performance to ensure that
performance is in accordance with me plan. After this, the manager will
appraise the performance and compare it with predetermined standards. This step
will lead the manager to know whether the performance has come up to the
expected standard or if there is any deviation. If the standards are not being
met, the manager will take corrective actions, which is the final step in
controlling.
1) Establishing
standards: A standard acts as a reference line or basic of comparison of actual
performance. Standards should be set precisely and preferably in quantitative
terms. It should be noted that setting standards is also closely linked with
and is an integral part of the planning process. Different standards of
performance are set up for various operations at the planning stage, which
serve as the basis of any control system. Establishment of standards in terms
of quantity, quality or time is necessary for effective control. Standards
should be accurate, precise, acceptable and workable. Standards should be
flexible, i.e., capable of being changed when the circumstances require so.
2) Measurement
of performance: This step involves measuring of actual performance of various
individuals, groups or units and then comparing it with the standards, which
have already been set up at the planning stage. The quantitative measurement
should be done in cases where standards have been set in quantitative terms. In
other cases, performance should be measured in terms of quantitative factors as
in case of performance of industrial relations manager. Comparison of
performance with standards is comparatively easier when the standards are
expressed in quantitative terms.
3) Comparison:
This is the core of the control process. This phase of control process involves
checking to determine whether the actual performance meets the predetermined or
planned performance. Manager must constantly seek to answer, “How well are we
doing?” When a production supervisor checks the actual output or performance of
his department with the production schedule, he is performing comparison aspect
of control. When-an executive calculates the performance of his subordinates
once in six months or annuity, he is
performing comparison aspect of control. Checking return on in investment is a
comparison phase of control.
4) Taking
corrective action: The final step in the control process is taking corrective
actions so that deviations may not occur again and the objectives of the
organisation are achieved. This will involve taking certain decision by the management
like re-planning or redrawing of goals or standards, assignment of
clarification of duties. It may also necessitate reforming the process of
selection and the training of workers. Thus, control function may require
change in all other managerial functions. If the standards are found to be
defective, they will be modified in the light of the observations.
Essentials of an Effective control system:
The
following are the essentials or basic requirements of an effectively control
system:
1)
Suitable: The control system must be suitable
for the kind of activity intended to serve. Apart from differences in the
systems of control in different business, they also vary from department to
department and from one level in the organisation to the other. The manager
must be sure that he is using the technique appropriate for control of the
specific activity involved.
2)
Understandable: The system must be
understandable, i.e., the control information supplied should be capable of
being understood by those who use it. A control system that a manager cannot
understand is bound to remain ineffective. The control information supplied
should be such as will be used by the managers concerned. It is, therefore, the
duty of the manager concerned to make sure that the control information
supplied to him is of a nature that will serve his purpose.
3)
Economical: The system must be economical in
operation, i.e., the cost of a control system should not exceed the possible
savings from its use. The extent of control necessary should be decided by the
standard of accuracy or quality required. A very high degree or standard of
accuracy or quality may not really be-necessary.
4)
Flexible: The system of control must be
flexible, i.e. workable even if the plans have to be changed. In case the control
systems can work only on the basis of one specific plan, it becomes useless if
the plan breaks down and another has to be substituted. A good control system
would be sufficiently flexible to permit the changes so necessitated.
5)
Expeditious: Nothing can be done to correct
deviations, which have already occurred. It is, therefore, important that the
control system should report deviations from plans expeditious. The objective
of the control system should be to correct deviations in the immediate future.
6)
Forward Looking: The control system must be
forward looking, as the manager cannot control the past. In fact, the control
system should be so designed so as to anticipate possible deviations, or
problems. Thus deviations can be forecast so that corrections can be
incorporated even before the problem occurs.
7)
Organisational Conformity: Since people carry
on activities, and events must be controlled through people, it is necessary
that the control data and system must conform to the organisational pattern. The
control data must be so prepared that it is possible to fix responsibility for
the deviations within the areas of accountability.
8)
Indicative of Exceptions at Critical Points:
The management principle of exception should be used to show up not only deviations
but the critical areas must also be fixed for most effective control.
9) Objectivity:
As far as possible the measurements used must have objectivity, particularly
while appraising a subordinate's performance, the subjective element cannot be
entirely removed.
10) Suggestive
Of Corrective Action: Finally, an adequate control system should not only
detect failures must also disclose where they are occurring, who is responsible
for them and what should be done to correct them. Overall summary information
can cover up certain fault areas.
Barriers in Effective Controlling
(i)
Difficulty in setting quantitative standards: Control system loses some of its
effectiveness when standards cannot be defined in quantitative terms. Employee
morale, job satisfaction and human behaviors are such areas where this problem
might arise.
(ii)
Little control on external factors: Generally an enterprise cannot control
external factors such as government policies, technological changes,
competition etc.
(iii)
Resistance from employees: Control is often resisted by employees. They see it
as restriction on their freedom.
(iv)
Costly affairs: Control is a costly affair as it involves a lot of expenditure,
time and efforts.
Relationship between Planning and Controlling
The
relationship between planning and controlling can be divided into the following
two parts.
(i)
Interdependence between Planning and Controlling.
(ii)
Difference between Planning and Controlling.
(i)
Interdependence between Planning and Controlling. Planning is meaningless
without controlling and controlling is blind without Planning. Both the aspects
of the interdependence of planning and control have been discussed below:
(a)
Planning is meaningless without Controlling: if the process of controlling is
taken away from management no person working in the enterprise will take it
seriously to work according to the plans and consequently, the plans will fail.
(b)
Controlling is blind without Planning: Under the system of controlling actual
work performance is compared with the standards. Hence, if the standards are
not determined there is no justification left for control and the standards are
determined under planning.
(ii)
Difference between Planning and Controlling: Yes, planning and controlling are
incomplete and ineffective without each other but it doesn’t mean that both are
not independent. Reasons are:
(a)
Planning is looking Ahead whereas Controlling is Looking Back: Plans are always
formulated for future and determined the future course of action for the
achievement of objectives laid down. On the contrary, controlling is looking
back because under it a manager tries to find out, after the work is completed,
whether it has been done according to the standards or not.
(b) Planning is the first function and Controlling is the last function of Managerial Process: the managerial process moves in a definite sequence- like planning, organising, staffing, directing and controlling happens to be the last step.
Tools and Techniques of controlling in management
A
number of techniques or tools are used for the purpose of managerial control.
Some of the techniques are used for the control of the overall performance of
the organisation, and some are used for controlling specific areas or aspects
like costs, sales, etc. The various techniques of control can be classified
into categories, viz.,
(1)
Traditional or Conventional techniques and
(2)
Modern or Contemporary techniques.
Traditional Techniques
1. Budgetary Control:
A budget is a planning and controlling device.
Budgetary control is a technique of managerial control through budgets. It is
the essence of financial control. Budgetary control is done for all aspects of
a business such as income, expenditure, production, capital and revenue.
Budgetary control is done by the budget committee.
According to J.A. Scott, “Budgetary control is the system of management control and accounting in which all operations are forecasted and so far as possible planned ahead, and the actual results compared with the forecasted and planned ones”.
Advantages
of Budgetary Control
(i)
Helpful in Attaining Organizational Objectives: Budgets are based on plans and
all the departmental managers are informed about the expectations each one of
them. The departmental managers put in their best efforts to achieve their
target and consequently it helps in attaining the organizational objectives.
(ii)
Source of Motivation for Employees: this technique prescribes the objectives
for the employees. Their performance is matched with the standards. If the
results are positive, they are appreciated. This motivates them.
(iii)
Optimum utilization of Resources: Budgetary Control divides the resources among
all the departments in an appropriate manner. This makes it possible the
Optimum utilization of available Resources in the organization.
(iv)
Achieving Coordination: By implementing this system, the activities of all the
departments are directed towards a single goal. In this way, all the
departments work for the attainment of the common goal. Consequently,
coordination is established among them.
2. Standard Costing: Standard Costing is defined by
I.C.M.A. Terminology as, “The preparation and use of standard costs, their
comparison with actual costs and the analysis of variances to their causes and
points of incidence”. The technique of standard cost study comprises of:
Ø Pre-determination of standard costs;
Ø Use of standard costs;
Ø Comparison of actual cost with the standard costs;
Ø Find out and analyse reasons for variances;
Ø Reporting to management for proper action to maximize efficiency.
3. Break-even Analysis or Cost-Volume-Profit Analysis: Cost-Volume-Profit Analysis or Break-even Analysis is the study of the interrelationship between the cost (i.e., cost of production), volume (i.e., the volume of production and sales), the prices and the sales value, and the profits. In other words, it is the study of the inter-relationship between the cost (i.e., cost of production), volume (i.e., volume of production and sales), prices (i.e., selling prices) and profits.
4. Inventory Control: Inventory is the stock of raw materials, work-in-progress, finished goods, consumable stores and spare parts and components at any given point to time. So, inventory control means control over different items of inventory or stock. “It is defined as physical control of stock items and implementing the principles and policies relating thereto”.
5. Internal Audit: Internal audit is a continuous and systematic review of the accounting, financial and other operations of a concern by the staff specially appointed by the management for the purpose. In other words, it is the auditing for the management conducted by the staff specially appointed for the purpose to ensure that the work of the concern is going on smoothly, efficiently and economically.
6. Statistical Data Analysis: It is a technique under which statistical data of the past and the present relating to the important aspects of the business are used for managerial control. The statistical data are collected from books and registers of the concern and presented to the management in a systematic manner in the form of tables, charts, graphs, etc.,
7. Direct Supervision and Observation: 'Direct Supervision and Observation' is the oldest technique of controlling. The supervisor himself observes the employees and their work. This brings him in direct contact with the workers. So, many problems are solved during supervision. The supervisor gets first hand information, and he has better understanding with the workers. Production Planning and Control: According to S. Elon, “Production planning and control may be defined as the direction and co-ordination of the firm’s material and physical facilities towards the attainment of pre-specified production goals in the most efficient and valuable way”.
8. Self-Control: Self-Control means self-directed control. A
person is given freedom to set his own targets, evaluate his own performance
and take corrective measures as and when required. Self-control is especially
required for top level managers because they do not like external control. The
subordinates must be encouraged to use self-control because it is not good for
the superior to control each and everything. However, self-control does not
mean no control by the superiors. The superiors must control the important
activities of the subordinates.
Some
of the Modern techniques are discussed below
1. Financial
Statements Analysis: All business organisations prepare Profit and Loss Account. It
gives a summary of the income and expenses for a specified period. They also
prepare Balance Sheet, which shows the financial position of the organisation
at the end of the specified period. They can be used by the management for
measuring and controlling the profitability, liquidity and the financial
position of the business. By comparing the financial statement of the current
year with those of the previous years and also by comparing the financial
statement of their concern with those of other concerns engaged in the same
industry.
2. Return
on Investment (ROI): Investment consists of fixed assets and working capital used in
business. Profit on the investment is a reward for risk taking. If the ROI is
high then the financial performance of a business is good and vice-versa. ROI is a
tool to improve financial performance. It helps the business to compare its
present performance with that of previous years' performance.
3. Management
by Objectives (MBO): MBO facilitates
planning and control. It must fulfill following requirements:
Ø
Objectives for individuals are jointly fixed by the superior and
the subordinate.
Ø
Periodic evaluation and regular feedback to evaluate individual
performance.
Ø
Achievement of objectives brings rewards to individuals.
4. Management
Audit: Management Audit is
an evaluation of the management as a whole. It critically examines the full
management process, i.e. planning, organising, directing, and controlling. It
finds out the efficiency of the management. Management auditing is conducted by
a team of experts. They collect data from past records, members of management,
clients and employees. The data is analysed and conclusions are drawn about
managerial performance and efficiency.
5. Management
Information System (MIS): In order to control the organisation
properly the management needs accurate information. They need information about
the internal working of the organisation and also about the external
environment. Information is collected continuously to identify problems and
find out solutions. MIS collects
data, processes it and provides it to the managers. MIS may be manual or
computerised. With MIS, managers can delegate authority to
subordinates without losing control.
Advantages
of MIS are:
a) It
provides accurate information to all the managers working at different levels.
b) It
helps in planning, controlling and decision-making.
c) It
provides cost effective management information.
d) It
improves quality of information with which a manager works.
e) It
reduces information overload i.e., only relevant information is provided to
them.
6. PERT
and CPM Techniques: Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM) techniques were developed in USA in the late 50's.
Any programme consists of various activities and sub-activities. Successful
completion of any activity depends upon doing the work in a given sequence and
in a given time. CPM / PERT can be used to minimise the total time or the total
cost required to perform the total operations. In these techniques, the job is
divided into various activities / sub-activities. From these activities, the
critical activities are identified. More importance is given to completion of
these critical activities. So, by controlling the time of the critical
activities, the total time and cost of the job are minimised.
Steps
involved in using PERT/CPM are given below:
a) The
project is divided into a number of clearly identified activities.
b) These
clearly identified activities are arranged in logical sequence.
c) A
network diagram is prepared to show the sequence of activities.
d) Time
estimates are prepared for each activity.
e) In CPM
cost required to complete the project is also calculated.
f) The
longest path is identified as critical path where no delay can be permitted.
7. Responsibility
accounting: Under this technique of controlling organisation is divided into
various responsibility centres and head of each centre is responsible for the
achievement of their centres. Common types of responsibility centres are profit
centre, cost centre, revenue centre, investment centre etc. These centres are
generally various sections or departments of the organisation.
8. Ratio
analysis: It refers to analysis of financial statements by calculating various
types of ratios. Some of the important ratios are current ratio, liquid ratio,
debt-equity ratio, proprietary ratio, profitability ratios. These ratios help
in knowing the operating efficiency and financial position of the company.
9. Zero-Base
Budgeting (ZBB): In the words of Peter A Pyher, “Zero-base budgeting is a
planning and budgeting process which requires each manager to justify his
entire budget request in detail from scratch and shifts the burden of proof to
each manager to justify why he should spend money at all. The approach requires
that all activities be analysed in ‘decision packages’ which are evaluated by
systematic analysis and ranked in order of importance”. From his definition, it
is clear that Zero-base budgeting is a technique of preparing the budget in
which the previous year is not taken as the base, and every year is taken as a
new year for preparing the current year’s budget.
10. Human
Resources Accounting: The American Accounting Association has defined human
resources accounting as “the process of identifying and measuring data about
human resources and communicating this information to interested parties”.
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