Essentials of Control

Essentials
of Control
Definition of Control
 Control is checking current performance against predetermined

standards contained in the plans with a view to ensuring adequate
progress and satisfactory performance –E.F.L . Brech
 Controlling is determining what is being accomplished ,that is

evaluating the performance and if necessary ,applying corrective
measures so that performance takes place according to plans –
George R. Terry
Features of Control
 Control is both forward and backward looking

 Control is relevant at all managerial level
 Control is continuous process
 Control is action oriented
Importance of Control
 Adjustment in operation
 Policy Verification
 Managerial Responsibility
 Psychological Pressure
 Coordination in action
 Organisational Effectiveness and efficiency
Control Areas
 Control over Policies

 Control over Organisational Structure
 Control over personnel
 Control over Capital Expenditure
 Control over cost
 Overall Control
Types of Control
 Strategic Control
 Operational Control
Strategic Control
 Strategic control is concerned with tracking strategy as it is being

implemented ,detecting problems or changes and making
necessary adjustment
 It tries to answer whether
 the strategy formulation process proving to be correct ?
 Is the strategy being implemented correctly ?
 Is there any need for change in the strategy ?
 If yes ,what type of change is required for effectiveness of strategy?
Operational Control
 Operational Control is concerned with action or performance and

is aimed at evaluating the performance of an organization as a
whole or its different component like strategic business units, division
and departments
 It attempts to answer
 How is the organisation performing?
 Are the resources being utilized properly ?
 What action should be taken for proper utilization of resources to
achieve organisational objectives?
Stages of Control
 Feed Forward Control: Control of inputs that are required in an

action is known as Feed Forward Control
 Concurrent /Real time or Steering Control : Control at different
stages of action process
 Feedback Control: Post action control based on feedback from
completed action
Steps in Control Process
 Establishment of Control Standards

 Standards must be specifically determined in quantitative terms
 Standards should be accepted by the individuals concerned
 Standards should be flexible to adapt to changing conditions
 Standards must emphasise the achievement of results more than the
conformity to rules and methods
 Measurement of Actual Performance
 Comparing actual and Standard Performance
 Taking corrective actions
Control Techniques
 Control at Operational Level

 Overall Control
Control at Operational Level-
Financial Techniques
 Budgetary Control
 Control through Costing
 Break Even Analysis
 Responsibility Accounting
Budgeting
 Sales Budget
 Selling and Distribution Cost Budget
 Production Budget
 Production Cost Budget
 Capital Expenditure Budget
 Cash Budget
 Master Budget
 Zero based Budgeting
Cash Flow Statement
 It deals with actual inflow and out flow

 It depicts cash flow under
 Operating Activities
 Investing Activities
 Financing Activities
Responsibility Accounting
 Responsibility accounting can be defined as a system of

accounting under which each departmental head is made
responsible for the performance of his department
 Each department is a semi -autonomous profit centre for generating
profit
 A department generates profit by selling its output either to an
outside customer or to other departments in the same organisation
 The price at which they sell are called transfer price
Non-Financial Techniques
 Internal Audit
 Quality Control- quality Circle
 statistical Control –Tolerance Limit, Measuring Quality
 Inspection Control
 Inventory Control
 ABC Analysis-
 EOQ (Economic Order Quantity)
 2𝑆𝑂/𝐶 -
 (S- Qty of Materials Required, O –ordering cost per order ,C-carrying cost per
order)
 Order Cost,
 Inventory Carrying Cost
 Safety stock
Overall Control Techniques-
Financial Techniques
 Financial Ratio Analysis
 Return on Investment
 Value Added
 External Audit
 Management Audit
 Human Resource Accounting
Financial Statement and Ratio
Analysis
 Liquidity Ratios
 Debt Ratios
 Profitability Ratio
 Operating Ratio
 Return on Investment
 Break Even Analysis
Economic Value Added
 It measures the true economic profit of an organisation in terms of

wealth creation for share holders
 It is a net operating profit minus appropriate charge for the
opportunity cost of all capital invested in the company
Market Value Added
 It measures the amount of wealth the company has generated

since its inception
 It is a assessment of Net present value of EVA
 It is difference between the market value of the company and the
capital that lenders and shareholders have invested in the
company over the years

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Essentials

 Control is checking current performance against predetermined

 Controlling is determining what is being accomplished ,that is

 Control is both forward and backward looking

 Control over Policies

 Strategic control is concerned with tracking strategy as it is being

 Operational Control is concerned with action or performance and

 Feed Forward Control: Control of inputs that are required in an

 Establishment of Control Standards

 Control at Operational Level

 It deals with actual inflow and out flow

 Responsibility accounting can be defined as a system of

 It measures the true economic profit of an organisation in terms of

 It measures the amount of wealth the company has generated

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