CONTROLLING

Control
 It consists of seeing that everything is being
carried out in accordance with the plan, which
has been adopted, the order, which have been
given and principles that have been laid down.

 It refers to checking performance against

predetermined standards contained in the
plans, in order to ensure adequate progress
and satisfactory performance.
 Supervision is only a part of control; which
involves regular monitoring of the
performance to identify deviations from
the established standards. But, control
starts much before supervision and
continues after that.
 Characteristics of Effective
Controls Systems
 Establishing right standards: guide for
measurement
 Realistic and Flexible
 Clarity of Responsibility for delivery
 Timeliness
 Ease of Understanding
 Forward Looking
 Based on Facts
Essentials for control system

 Planning
 Action
 Delegation of authority
 Information
 Control Process

 Establishment of standards for performance

 Measuring performance

 Comparing performance against standards

 Developing a report

 Taking a corrective action for Removing Significant Deviations:

- Correcting Deviations
- Redefining Standards
Types of Control

On the Basis of Managerial Level

1) Strategic Control
2) Managerial Control
3) Operational Control
Types of Control

On the Basis of the Stage or

Time of Implementation:

1) Feed-forward Control (future

oriented/preventive)
2) Concurrent Control (during implementation)
3) Feedback Control (after the activity has
occurred)
Types of Control

On the Basis of Control Systems

and Techniques

1) Budgetary control
2) Financial Control
3) Quality Control
4) Inventory control
5) Operational Control
 1. Budgetary control
 Budget is a written plan for an activity, stating
anticipated results and likely investments,
either in financial or non-financial numerical
terms for a specific future period.

 It depicts how much an organisation expects

to spend and earn.

 Revenue and Expenditure

 2. Financial Control:
 Financial health is crucial to the survival and
growth of business.

 Financial Statements reflect how much was

spent, how it was spent, and what it obtained.

 The most common financial statements are:

balance sheets, income statements and cash
flow statements.
3. Quality Control

 Quality control aims at efficiency and

customer satisfaction by maintaining and
monitoring quality levels.

 The quality related standards help managers

to prepare a product as per the market
expectations.
 4. Inventory control
 It focuses on attaining efficiency and operational
productivity for material management achieved.
 It is applied to raw materials, work in progress,
finished goods and goods in the entire delivery
chain.

 Just-in-Time (JIT)
 Kanban
 Radio Frequency Identification and Detection (RFID)
 ABC Analysis
 Economic Order Quantity (EOQ)
 5. Operational Control
 Operational control aims at evaluating the
performance of the organisation as a whole.

 Products and services should be produced at the

required time.
 The cost incurred should be least as per the
budget.
 The desired level of quality should be obtained.
 Interrelationship of
Planning and Control
 They are so closely related to each other that they are almost
inseparable.

 Their interrelationship is manifested as iterative cyclical

process can be understood from the following facts:
 Controlling is Dependent on Planning
 Planning is Influenced by Control
 Design of Control Standards part of Planning
 Integration at Concerned Employee Level
 BUDGETARY CONTROL SYSTEM

 The word budget is derived from a French word

‘Bougettee’ which means a leather pouch in which
funds are appropriated for meeting anticipated
expenses.

 Acc. to G.R.Terry,
“A budget is an estimate of future needs
arranged according to an orderly basis, covering all
the activities of an enterprise for a de3finite period
of time.”
Budget Preparation

 Budgetary Objectives
 Location of Budget(key) Factor
 Budget Controller
 Budget Committee
 Budget Manual
 Budget Period
1. Definition of Objectives

 A budget being a plan requires:

 Written objectives
 Demarcated areas of control
 Items of revenue and expenditure to be
covered.
2. Location of Budget(key)
Factor
 There are usually certain factors which set a
limit to the total activity.

 Such factors are known as key factors.

 For budgeting, these factors must be located

and estimated properly.
 3. Appointment of Controller
 Formulation of budget requires whole time services
of a senior executive.

 He must be assisted in his work by a Budget

Committee, consisting of all the heads of
departments along with the MD as the Chairman.

 The controller is responsible for co-ordinating the

budget programs and preparing budget manual.
4. Budget Manual

 Budget manual is a schedule, document or

booklet which shows, in written form the
budgeting organisation and procedures.

 The budget manual should be well written

and indexed so that a copy thereof may be
given to each departmental heads.
5. Budget Period

 There is no general rule governing the

selection of the budget period.

 In practice the Budget Committee determines

the length of the budget period suitable for
the business.

 The budget period is then sub divided into

shorter periods.
Types of Budget

 Master Budget: Master budget formalizes the

whole budget system into one final
document in which all the operational
budgets flow.

 Its aim is to draft main financial statements.

 Flexible Budget: it is a budget that adjusts or
flexes for changes in the volume of activity.

 Fixed Budget: it does not change with the

change in the activity.
 Zero Base Budget: a budget where in all expenses
are justified for each new period.

 This budgeting starts from a ‘zero base’ and every

function within an organisation is analysed for its
needs and costs.

 Budgets are then built around what is needed for

the upcoming period, regardless of whether the
budget is higher or lower than the previous one.