Business Management

Summery
Management, has therefore, been defined as a process of
getting things done with the aim of achieving goals
effectively and efficiently.

“Management is the process of designing and

maintaining an environment in which individuals, working
together in groups, efficiently accomplish selected aims.”
Harold Koontz and Heinz Weihrich

“Management is defined as t he process of planning,

organising, actuating and controlling an organisation’s
operations in order to achieve coordination of the human
and material resources essential in the effective and
efficient attainment of objectives.”
Robert L. Trewelly and M. Gene
Newport
Characteristics of Management
• Management is a goal-oriented process
• Management is all pervasive
• Management is multidimensional
– Management of work
– Management of people
– Management of operations
• Management is a continuous process
• Management is a group activity
• Management is a dynamic function
• Management is an intangible force
Importance of Management
• Management helps in achieving group goals
• Management increases efficiency
• Management creates a dynamic organisation
• Management helps in achieving personal
objectives
• Management helps in the development of
society
Interpersonal roles
1. Figurehead - Symbolic leader of the
organization performing duties of social and
legal character
2. Leader - Motivating subordinates,
interaction with them, selection and training
of employees
3. Liaison - Establishing contacts with
managers and specialists of other divisions
and organizations, informing subordinates of
these contacts
Informational roles
1. Monitor (receiver) - Collecting various data
relevant to adequate work
2. Disseminator of information - Transmitting
information obtained from both external
sources and employees to interested people
inside the organization
3. Spokesperson - Transmitting information on
the organization’s plan’s, current situation and
achievements of the divisions to outsiders
Decisional roles
1. Entrepreneur - Seeking opportunities
develop processes to
2. Disturbance handler - Taking care of the
organizations, correcting ongoing activities,
3. Resource allocator - Deciding on expenditure
of the organization’s physical, financial and
human resources
4. Negotiator (mediator) - Representing the
organization in all important negotiations
Functions of the Manager
Regardless of the type of the industry, the
functions involved in an organization, or the
organizational level at which one functions;
every manager has to perform certain basic
managerial functions such as planning,
organizing, staffing, leading and controlling
Planning is the process of setting goals, and charting
the best way of action for achieving the goals. This
function also includes, considering the various steps to
be taken to encourage the necessary levels of change
and innovation.
Organizing is the process of allocating and arranging
work, authority and resources, to the members of the
organization so that they can successfully execute the
plans.
Staffing consists of recruiting, training and developing
people, who form part of the organized efforts to
contribute towards organizational growth.
Leading involves directing, influencing and motivating
employees to perform essential tasks. This function
involves display of leadership qualities, different
leadership styles, different influencing powers, with
excellent abilities of communication and motivation.
Controlling is the process of devising various checks to
ensure that planned performance is actually achieved.
It involves ensuring that actual activities confirm to the
planned activities. Monitoring the financial
statements, checking the cash registers to avoid
overdraft etc., form part of this process.
The Essentials of control activities are:
 Setting performance standards
 Determining the yard-stick for measuring performance
 Measuring the actual performance
 Comparing actuals with the standard
 Taking corrective actions, if actuals do not match with
standards
The Levels of Management
 Top management the goals of the organization,
sets
evaluates the overall performance of various departments
involved in selection of key personnel and consults
subordinate managers on subjects or problems of general
scope.
 Middle level management is responsible for developing
departmental goals and initiate actions that are required to
achieve organizational objectives.
 Supervisory management takes charge of day-to-day
operations at the floor level and is involved in preparing
detailed short-range plans.
 Types of Managers
There are three types of managers in an organization. They
are:
 Top level managers,
 middle level managers and
 first-level mangers.
 Scientific Management

 F.W. Taylor - Principles of Scientific Management

– use of scientific methods to define the “one best way”
for a job to be done
– perspective of improving the
productivity and efficiency of manual
workers
– applied the scientific method to shop floor jobs
 TAYLOR’S FOUR PRINCIPLES OF MANAGEMENT
1. Develop a science for each of an individual’s work, which will
replace the old rule-of-thumb method.
2. Scientifically select and train, and develop the worker. (Previously,
workers chose their own work and trained themselves as best they
could)
3. Heartily cooperate with the worker so as to ensure that all work is
done in accordance with the principles of the science that has been
developed.
4. Divide work and responsibility almost equally between
management and workers. Management takes over all work for
which it is better fitted than the workers. (Previously, almost all
the work and the greater part of the responsibility were thrown on
the workers.)
 General Administrative Theorists
 Henri Fayol
– concerned with making the overall organization more effective
– developed theories of what constituted good
management practice
• proposed a universal set of management functions
• published principles of management
– fundamental, teachable rules of management
 Six operations in any organization
1. Technical – production
2. Commercial (buying, selling and exchange)
3. Financial (optimum use of capital
resources)
4. Security (Protection of property and person)
5. Accounting services (Stock, balance sheet )
6. Administration
FAYOL’S 14 PRINCIPLES OF MANAGEMENT
McGregor’s Theory X and Theory Y
 Theory X holds a relatively negative, and pessimistic view of
workers. It states that people do not like to work. They only
try to avoid it. Managers have to control, direct and coerce
the workers to work.
 People do not like to work and try to avoid it.
 The managers have to control, direct and coerce them
to
work towards achieving organizational goals.
 People who prefer to be directed, avoid responsibility and
have little ambition.
 Theory Y holds a more positive view. This theory is
based on assumptions that, people do not dislike work,
are internally motivated to achieve the different
objectives to which they are committed, and that people
actively seek and accept responsibility.
 People by nature, do not dislike work.
 People are committed to their goals, depending on the
degree to which they receive awards.
 People are creative and innovative
 In many organizational situations, their potential
is underutilized.
 Planning
“Thinking Before Doing”
Definitions of Planning
 In his definition of planning, Peter Drucker offers a holistic
view about this term.
 "Planning is a continuous process of making
present entrepreneurial decisions systematically
possible
and knowledge
with best their futurity,
of systematically the organizing needed to carry
efforts
decisions and measuring the results
out these
against
expectations through feedback systems.
Nature of Planning
 Goal-oriented: Planning involves the establishment of goals,
objectives and means to accomplish those goals.
 Intellectual or rational process: Planning is considered to be
more of an action oriented program, because at any given
point of time, it provides sound judgment about actions
already undertaken or to be undertaken.
 Primary functions: Managerial operations such as organizing,
direction, coordination etc. can be effectively performed
through proper planning.
 All pervasive: Planning is carried out at all levels, irrespective
of the level of authority. At the top level, top-managers evolve
long-term plans. At middle level, middle level managers
design medium term plans, and at the lower level, plans that
are evolved at the top and the medium levels, are executed.
 Futuristic: Since the future is uncertain, planning involves an
anticipation of the future course of actions and also making
provisions for achieving the results.
 Perpetual process: Due to drastic changes that are taking place in
the external environment, plans have to be continually updated
or modified at regular intervals.
 Integrated process: Plans are interdependent between different
departments, as also integrated with each other.
 Choice: To achieve the overall objectives, organizations can
choose any one or different course/s of action, to achieve the
desired ends.
Significance of Planning
 Planning focuses attention on objectives
 Offsets uncertainty and risk
 Direction
 Provides guidelines
 Increases organizational effectiveness
 Better coordination
 Facilitates control
 Innovation and creativity
 Delegation
Types of Plans
 Plans can be classified in a number of ways on the basis of:
 Organization level
 Frequency of use
 Time frame
Organization Levels
 On this basis, plans can be divided under
strategic, tactical and operational plans.
Plans based on Frequency of Use
 Plans can be categorized on the basis of how frequently they will
be use. Based on the extent of recurring use, plans can be of two
types: single use plans and standing plans.
Plans based on the time frame
 There are three types of plans based on time frame. These
are: short-term, medium-term and long-term plans.
Planning Process
There are eight steps in planning process. These are:
 Analyze opportunities
 Establish objectives
 Develop premises
 Identify alternatives
 Evaluation
 Selection
 Implementation
 Review
Limitations of Planning
 Lack of accurate information
 Time consuming
 Expensive
 Inflexibility/Rigidity
 Resistance to change
 Environmental constraints
 Lack of ability and commitment
Strategy
 Strategy refers to the determination of the
purpose and basic long term objectives of an
enterprise; and the adoption of different courses
of action, with proper allocation of resources in
order to achieve the aims
Policy
 Policies are general statements that guide managers'
thought process in decision making.
 In simple terms, policies act as guidelines; enabling
organizations to achieve their goals.
Levels of Strategy
Strategies are classified on the basis of organizational
hierarchy. There are three levels of strategies. These
are:
 Corporate level strategy
 Business level strategy
 Functional level strategy
Strategic Planning
Strategic planning is the process of selecting an
organization's goals, and determining the polices and
programs necessary to achieve specific objectives.
 The characteristics of strategic planning are given below:
 Strategic planning provides direction to the business.
 It provides a framework for detailed planning
 It is based on predictions about the environment
 It enables to identify and focus resources on key areas
 Top management takes initiative in planning process.
Significance of Strategic Planning
 Strategic planning is because it provides the
important,
framework for organizational activities that can lead to
improved organizational functioning and responsiveness
Benefits of strategic planning
 Strategic planning provides consistent guidelines
for overall organizational activities.
 It enables managers to anticipate problems and handle
them accordingly
 It helps mangers to take appropriate decisions
 It minimizes the chances of mistakes and unpleasant
surprises.
Limitations of strategic planning
The limitations of strategic planning are:
 It is expensive, as many firms hire in consultants, and
adopt sophisticated planning models.
 It is based on concepts rather than real needs of
the business.
 It is time-consuming, as a result the ends (results) are
delayed.
 It is long-term activity, and may take many years
to complete the project.
Six steps involved in the planning process.
 Define the mission
 Develop objectives
 Assess opportunities and threats
 Formulate strategy
 Implement strategy
 Monitor and adopt strategic plans
Effective Implementation of Strategy
 Effective implementation of the strategy has
eight prerequisites
 Communicate strategies
 Develop and communicate planning premises
 Develop organization culture
 Monitoring
 Develop contingency strategies and programs
 Emphasize on planning and implementation
 Create proper organizational climate
Decision- Making
 "Decision Making is the process through which managers
identify organizational problems and attempt to resolve
them."
Significance of Decision Making
 Use of rational and systematic approach yields better
results
 Clarity in understanding the alternative courses
 Aims at best solution
Decision Making Process
 Determining the problem
 Identifying resources of constraints:
 Generate alternative solutions
 Evaluating alternative solutions:
 Selecting alternatives
 Implementing the decision:
 Monitoring
 Organisin
g
“A place for everything and Everything at its
Place”
Definitions of Organizing
L.A. Allen offered an holistic view on organizing
"Organizing is the process of identifying and grouping the
work to be performed, defining and delegating
responsibility and authority, and establishing
relationships for the purpose of enabling people to work
most effectively together in accomplishing objectives."
Benefits of Organizing
The benefits of organizing are as follows:
 Provides clarity in work
 Supports plans and controls activities
 Supports decision-making
 Makes it easier to achieve the task, as they are organized
logically
 Advantages of division of labor
 Avoids duplication of efforts and resources
 Cultivates harmonious relationship among members in
diversified activities
Traditional perspective on organizing
 Unity of command: To avoid conflicts and maintain a smooth
flow of authority in the organization, each individual
(subordinate) should report to only one boss (superior).
 For instance, worker A reports to Manager I, worker B reports to
Manager II etc., and managers review their subordinates'
performance individually, i.e., Manager I reviews the work of
worker A only.
 Authority: If an organization contains a well-defined line of
authority, it becomes easier for the employees to coordinate and
contribute their efforts, in achieving organizational goals.
 Responsibility: Responsibility (obligation to accomplish the work)
follows, when managers delegate the authority.
 Downward delegation: A superior can get the work done by
subordinates, while retaining authority.
Formal organization
A group of people working together, under a higher
authority; with cooperation between themselves, for
achieving goals, that are of mutual benefit to the
participants and the organization.
 The characteristics of formal organization are given
below:
 Clearly stated operating principles
 Special mechanisms to coordinate the activities of their
members
 Clear lines of authority and communication
 Identifiable leaders and unambiguous boundaries
Informal organization
Informal organization describes the pattern of behavior and
interaction, that stems from personal, rather than official
relationships. In other words, informal organizations are
created by the group members themselves, with the purpose
of accomplishing goals that may or may not be relevant to the
organization.
 Employees join informal groups for the following reasons.
 Probably the main reason being, people's liking to be in the
company of like-minded people.
 The goals of the group are appealing to the individual.
 Some people feel the need to work with their associates and
be accepted by them.
 Informal groups can be powerful forces in an organization.
Managers who decide to fight against an informal organization
system, will have to overcome the major obstacle of informal
groups.
Factors Determining an Effective Span
 Training
 Clarity and delegation of authority
 Clarity of plans
 Use objective standards
 Rate of change
 Communication Techniques
Process of Organizing
The following steps are involved in organizing process
 Establish the objectives of the organization
 Frame supportive objectives and policies
 Identify and classify the objectives as per the
organizational requirements
 Group the activities, based on human resources,
materials etc.
 Delegate authority to groups
 Organize the groups, both vertically and
horizontally
Departmentation can be done in four ways:
 Functional structure
 Divisional structure
 Hybrid structure
 Matrix structure
Functional structure
 Functional structure groups are formed into units on the
basis of similarity of expertise, skills and work-groups
positions.
Advantages of functional structure
Clarity in tasks
 Provides economies of scale within functions. As employees
are specialized, large volumes of work can be handled
effectively.
 Specialize in a particular function or an area, enables
employees to become experts in their functional areas.
 Ease of coordination within the departments, as activities are
related to similar specialized areas.
Disadvantages of functional structure
 It results in narrow, boring and monotonous tasks.
 All the decisions have to be made/passed by the
top-management.
Overburdening keeps mounting (unable to decide
which one to prioritize), and this results in poor
decision making.
 Divisional structure
Divisional structure is a type of departmentation, where
in different positions are grouped, based on the
products, services and markets. Each division has
functional resourcesforpursuingitsowngoals,
with little or no relevance for other divisions.
 Product structure
Product structure is created, with a purpose, to concentrate
on a particular product or service or at least a relatively
homogeneous set of products or services.
 Geographic division
In the geographic division, departmentation is made on
the basis of either location or territory. This structure is
very common in organizations, having wide operations
and a large network. Examples in this area include,
banking industry, transport industry, etc.
 Customer divisions
Customer divisions are set up, for serving a particular
type of client or customer. They tend to serve the
niche market or the untapped market.
 Hybrid structure
A blend of functional and divisional structures, takes the form
of a hybrid structure. Organization adopts a hybrid structure,
to avail the benefits of a functional structure (economies of
scale, in-depth expertise, resource utilization) and a divisional
structure (focus on products, customers needs and markets).
 Authority
Authority is the right to make decisions, carryout actions,
and direct others, in matters related to the duties and goals
of a position.
Power
Power (broader concept) is one's ability, in affecting the
behavior of others.
Line and Staff Relationships
 A line position is with authority and
vested
responsibility for achieving the major goals of A an
, staff position, on other
organization.
hand, providesthe
specialized expertise and assistance to
persons in line positions.
Centralization Vs Decentralization
 Centralization implies a systematic and consistent
reservation of authority at the central points within an
organization. On the other hand, decentralization is
granting of decision-making authority by top level
management to the lower level employees.
 Delegation of Authority
"Delegation of authority is the delivery by one individual to
another, of the right to act, to make decisions, requisition
resources and to perform other tasks in order to fulfill job
responsibility.“ Delegation is the establishment of a pattern of
authority between superior and one or more subordinates.
Organizational culture
 "Organizational culture is a system of shared values,
assumptions, beliefs and norms that unite the
members of an organization"
 "Organizational culture is the shared philosophies,
values, beliefs and behavior patterns that form the
organization's core identity"
 Staffing

“Right Men at Right Job”

HRM Process
HRM process, which has five basic activities:
 Human resource planning
 Staffing
 Training and development
 Performance appraisal
 Compensation
Human resource planning
 It involves forecasting the manpower demand,
forecasting manpower supply and human
resource actions.
Staffing
 Activities that are aimed at attracting and selecting
individuals for different positions that facilitate the
achievement of organizational goals. This process
involves recruitment and selection.
Training and development
 Training denotes efforts to increase employee skills.
Training increases an employee's skills, changes the
employee's behavior and attitudes towards work.
Employees at various levels require training, but the
program contents will differ depending on the specific
requirements.
Performance appraisal
 Performance appraisal compares an individual's job
performance against standards or objectives developed
for the individual's position.
Compensation
 It includes wages, salaries, and fringe benefits paid to
employees in recognition of their work. Compensation
can be paid in monetary (cash, gift cheques, bonus) and
non-monetary terms ( stock options, insurance etc.)
Recruitment
Recruitment is the process, of attracting suitable candidates, who
are capable of effectively filling the existing job vacancies.
Sources of recruitment
 Sources of recruitment can be either internal or external or
both.
Internal Recruitment
 Internal recruitment implies, finding the suitable candidates
(employees) within the organization and encouraging them
to apply for the job.
External Recruitment
 The process of attracting applicants from outside the
organization is known as external recruitment.
Recruitment Process
 To fill vacancies in different departments, organizations
recruit those candidates, whose qualifications and
experience match with their requirements.
Selection Process
 The selection process involves, choosing the right
candidate, and matching his characteristics ( knowledge,
skills, experience etc.), with the requirements of the job.
Socialization of Newly Hired Recruits
The process of new employees, adapting to the new
environment (work activities, co-workers and boss, job
standards etc) is known as socialization. Socialization can
be effective when the employer gives a realistic picture
about the job, and organizes training and orientation
programs to the new employees.
 What Is Motivation?
 Motivation
– the willingness to exert high levels of effort to reach
organizational goals, conditioned by the effort’s ability to
satisfy some individual need
• effort - a measure of intensity or drive
• goals - effort should be directed toward, and consistent
with, organizational goals
• needs - motivation is a need-satisfying process
– need - an internal state that makes certain
outcomes appear attractive
• unsatisfied needs create tensions that stimulate drives
• drives lead to search behavior
 Early Theories of Motivation

 Maslow’s Hierarchy of Needs Theory

– lower-order needs - largely satisfied externally
• physiological - food, drink, shelter, sexual satisfaction
• safety - security and protection from physical and
emotional harm
– assurance that physiological needs will be
satisfied
– Higher-order needs - largely satisfied internally
• social - affection, belongingness, acceptance
• esteem - internal factors like self-respect,
autonomy
– external factors like status, recognition,
attention
• self-actualization - achieving one’s potential
 Maslow’s Hierarchy of Needs

Self-
Actualization

Esteem

Social

Safety

Physiological
 Herzberg’s Motivation-Hygiene Theory
– intrinsic characteristics consistently related to job
satisfaction
• motivator factors energize employees
– Extrinsic characteristics consistently related to
job dissatisfaction
• hygiene factors don’t motivate employees
– proposed dual continua for satisfaction and dissatisfaction
– theory enjoyed wide popularity
• influenced job design
– theory was roundly criticized
Herzberg’s Motivation-Hygiene Theory
 Contemporary Theories Of Motivation

 Three-Needs Theory - McClelland

– need for achievement (nAch) - drive to excel, to achieve in
relation to a set of standards, and to strive to succeed
• do not strive for trappings and rewards of success
• prefer jobs that offer personal responsibility
• want rapid and unambiguous feedback
• set moderately challenging goals
– avoid very easy or very difficult tasks
• high achievers don’t necessarily make good managers
– focus on their own accomplishments
» good managers emphasize helpingothers to
accomplish their goals
 Three-Needs Theory (cont.)
– need for power (nPow)
• need to make others behave in a way that they would
not have behaved otherwise
– need for affiliation (nAff)
• desire for friendly and close interpersonal relationships
– best managers tend to be high in the need for power and
low in the need for affiliation
Japanese Management and Theory Z
Japanese management
 In contrast to the traditional approach, the Japanese, followed
certain management practices (Life-time employment,
continuous training etc.) that resulted in an increase in
productivity.
 Theory Z was proposed by William Ouchi, who after a careful
study discovered that certain successful firms had
adopted/practiced both US and Japanese management styles.
He named this new management style, as 'Theory Z', wherein
American companies followed the Japanese way of functioning.
This theory assumes that the average worker wants to be
involved in the management of a company, and building up of
trust among all organizational members is the central theme of
raising productivity.
 Communication
Communication
• Communication plays key role in the success of a
manager. How much professional knowledge and
intelligence a manager possesses becomes
immaterial if he is not able to communicate
effectively with his subordinates and create
understanding in them. Directing abilities of a
manager mainly depend upon his communication
skills. That is why organisation always emphasise
on improving communication skills of managers
as well as employees.
 Process Of Interpersonal Communication
 Elements of the Process
– message - expresses the purpose of the communication
– encoding - converting the message in symbolic form
• affected by the skills, attitudes, and
knowledge of the sender, and by the culture of
the organization
– channel - medium for conveying the message
– decoding - retranslating symbols into a message
• affected by personal characteristics of the receiver
– noise - disturbances that interfere with the
transmission, receipt, or feedback of a message
• message itself and channel can distort communications
• feedback also subject to same sources of noise
 The Interpersonal Communication Process

Message Medium Receiver

Encoding Decoding
Noise

Sender Message

Feedback
 Process Of Interpersonal Communication (cont.)

 Methods of Communicating Interpersonally

– a wide variety of communication methods exist
– choice of a method should reflect:
– the needs of the sender
– the needs of the receiver
– the attributes of the message
– the attributes of the channel
 Process Of Interpersonal Communication (cont.)

 Methods of Communicating Interpersonally (cont.)

– nonverbal communication - communication
without words
• types
– body language - gestures, facial expressions, and
other body movements that convey meaning
– verbal intonation - emphasis someone gives to
words or phrases that conveys meaning
• every oral communication is
accompanied by a nonverbal message
• nonverbal component usually carries the
greatest impact
Facial Expressions Convey Emotions
 Barriers to Effective Interpersonal Communication
– Filtering - the deliberate manipulation of information
to make it appear more favorable to the receiver
• upward communication is condensed by senders to
avoid information overload by top-level receivers
• extent of filtering affected by:
– the number of vertical levels in the organization
– culture of the organization
– Selective Perception - what people see and hear
influenced by their attitudes, background, and
experience
 Barriers to Effective Interpersonal Communication (cont.)
– Emotions - interpretation of a message affected
by the way the receiver feels
• extreme emotions likely to hinder
effective communication
– Information Overload - available exceeds
information
processing capacity
• frequent complaint of executives
 Barriers to Effective Communication (cont.)
– Defensiveness - behaviors that from
result feeling
threatened
• hinders effective communication
– Language - meaning of words differs among people with
diverse backgrounds
• jargon - specialized terminology used by a group
• even those who speak the same language may use it
quite differently
– National Culture - cultural values affect the way
people communicate
• individualism versus collectivism
 Overcoming the Barriers to Effective
Interpersonal Communication
– Use Feedback - ask a set of questions about a message to
determine whether it was understood as intended
• ask receivers to restate the message in their own words
– Simplify Language - tailor the language to the audience for
whom the message is intended
• jargon can facilitate understanding when
used in appropriate groups
– Listen Actively - listen for full meaning
• restrain premature judgments or interpretations
• enhanced by developing empathy with sender
 Active Listening Behaviors

Avoid interrupting Be empathetic Make eye

the speaker contact

Paraphrase
Don’t overtalk Active
Listening

Exhibit affirmative
head nods and
Avoid distracting appropriate
actions or facial expressions
gestures Ask questions
 Organizational Communication
 Formal Communication
– communication that follows the official chain of command
or is communication required to do one’s job
– takes place within prescribed organizational
work arrangements
 Informal Communication
– not defined by the organization’s structural hierarchy
– fulfills two purposes
• permits employees to satisfy their needs
for social interaction
• creates alternative, and frequently faster
and more efficient, channels of communication
 Direction of Communication Flow
– Downward - flows from a manager to subordinates
• used to inform, direct, coordinate, and
evaluate
employees
– Upward - flows from subordinates to managers
• keeps managers aware of employees’ feelings
• source for ideas on improving operations
• amount of upward communication
affected by the culture of the organization
– trust and empowerment increase upward flow
– mechanistic and authoritarian
environment decrease upward flow
 Direction of Communication Flow (cont.)
– Diagonal - cuts across both work
areas and organizational levels
• benefits efficiency and speed
• e-mail facilitates diagonal communication
Three Common Organizations Communication Networks and How They Rate on
Effectiveness Criteria
 Controlling
“An Organization Without Control is Like Driving
A Vehicle Without Break”
Controlling
 Controlling is the process of regulating organizational
activities, so that actual performance conforms to the
expected organizational standards and goals.
According to Robert J Mockler, Management control is
 a systematic effort to set performance standards
with
planning objectives;
 to design information feedback systems;
 to compare actual performance with these predetermined
standards;
 to determine whether there are any deviations and
to measure their significance
Importance of Controlling
 Control provides an organization, with the system, to
cope with uncertainties, detect irregularities, identify
opportunities, decentralize the authority and minimize
costs.
Levels of Control
 Strategic control: Under strategic control, the top level manager
examines the environmental factors that affect the viability of
strategic plans, assesses the effects of strategic actions and
ensures the implementation of such strategic plans.
 Tactical control: Under tactical control, the middle level manager
implements tactical plans at their departmental levels. They will
be engaged in monitoring of the periodic results, taking
corrective actions etc.
 Operational control: The lower level managers are engaged in
operational activities such as implementation (of day-to-day
plans), monitoring and taking corrective actions, wherever
necessary.
Control Process
There are six steps in the control process. These are:
 Determining areas to control
 Establishing performance standards
 Measuring actual performance
 Comparing measured performance against
established
standards
 Taking corrective action when necessary
 Adjusting standards and measures
Requirements for Effective Control
 Controls systems should reflect planning
 They should be understandable
 Cost effective
 Controls should focus attention on critical areas
 Flexible
 Multidimensional
 Timeliness
 Accuracy
Major control systems
 There are six major control systems – financial control
system, budgetary control system, quality control system,
inventory control system, operations management and
computer based information system.
Managerial level
 Based on the managerial level, control systems differ. For
instance, top-level management controls the
financial
aspects; middle level management is responsible for
budgetary activities; lower level is
quality control (product
management responsible for and service
quality) and inventory control (stocks and
inventory levels).
Timing
 Timing controls are most effective, when they are applied
at key places. Supervisors can implement controls, either
before the process begins (feed forward), or during the
process (concurrent), and even after it ceases (feedback).
Financial Control
 Financial control, is the control of financial resources. They
have a special prominence in organizations. The most
common financial control techniques are financial
statements, ratio analysis and auditing. These compare an
organization's performance to its budgets.
Four types of financial ratios are particularly important for
managerial control. They are
 Liquidity ratio
 Asset management ratio
 Debt management ratio
 Profitability ratio
Budgetary Control
 The purpose of budgetary control is to find out how the
activities of an organization are progressing. To
achieve
budgetary control, actual results are compared and
with anticipated results as provided in the
measured
budget.