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UNIT – V

CONTROL
Introduction

Controlling is an important management function to determine and measure the performance. It is a

highly essential function in every organization. Control function checks the progress of plans, sets
individual and organizational standards and sees that they are achieved as per the pre-determined
plans. Without the control function, management process becomes incomplete and useless. The
management process includes planning, organizing, staffing, leading and controlling. Planning sets
future objectives to achieve. Organizing provides the structure of an organization how and where
employees will placed according to their qualifications, experience etc. and fixes the responsibilities
that they will need to attain predetermined goals. Staffing function of management places the right
persons at the right job in an organization. Leading involves functions of motivating, directing and
communicating to employees to accomplish the organizational objectives. The control function is
concerned with ensuring that the planning, organizing, staffing and leading functions result in
accomplishment of predetermined organizational objectives. The main objectives of control
function are to finding out the weaknesses and errors in order to correct them and avert their
recurrence. According to the Henry Fayol, in an organization, control consists of verifying
everything happens in conformity with the plan adopted, the guidelines and instructions issued and
policies established. In other words, it is the tool to measure and compare actual performance with
pre-established standards. It operates on everything, thing, people, processes, procedures and
actions.

Meaning and Definition

The term ‘control’ has different meanings in different contexts. In an organization maintaining the
discipline is a process of control. In the management context, control refers to the evaluation of
performance and the implementation of corrective actions to accomplish organizational objectives.
Some people confuse control with supervision. Supervision is the part of control which helps in
identifying deviations from the pre-established standards of performance. It is widely believed that
control has the primary function of keeping an organization working effectively and efficiently.
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The need for control arises to maximize the utilization of available resources and to achieve
purposeful behavior of employees. Control is a process that directs activities to achieve pre-
determined goals. Thus, it can be applied to any areas like pollution control, behavior control, price
control... etc. In an organization maintaining the discipline is a process of control. It is the function
of management concerned with maintaining organizational activities within the limits. In this
context, control means, it is a function of management that involves activities of evaluating and
improving performance of subordinates to clarify and certify that the organizational plans and goals
are accomplished. In other words, it means to know the actions are in accordance with the pre-
determined plans and given instructions, to report and interpret the mistakes and deviations and to
initiate remedial actions.

Definitions:

GEORGE R. TERRY: “Control is determining wat is being accomplished, that is, evaluating
performance and if necessary, applying corrective measures so that the performance takes place
according to plans”.

KOONTZ and O’DONNEL: “Control is, measurement and correction of the performance activities
of subordinates in order to make sure that enterprise objectives and plans devised to attain them are
being accomplished”.

ERNEST DALE: “Control is a system which not only provides a historical record of what has
happened to the business as a whole, but also pinpoints the reasons why it has happened and
provides the data that enable the chief executive or the departmental head to take corrective steps if
he is on the wrong track”.

DALE HENNING: “Control is the process of bringing about conformity of performance with
planned action.”

PIERCE.J.L: “Control is that force which guides it to a pre-determined objective by means of pre-
determined policies and decisions”.

Professor ANTHONY: Control is as “the process by which managers assure that resources are
obtained and used effectively and efficiently in the accomplishment of the organizations’
objectives.
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It is clear, with the definitions, that control is a tool to discover the differences between plans and
performed actions and suggest suitable remedial measures to be taken.

Importance of Control

All organizations try to achieve their pre-determined goals through various actions to grow, succeed
and survive for long. For this, they set their own goals to be achieved, define responsibilities to
employees and direct them. However, it is not sure that after the plans being set and authorities and
responsibilities being delegated, the objectives may be achieved as they planned. There may be
many reasons that a firms fail to achieve their desired goals. It is here the controlling function of
management becomes superficial while its importance is understood in terms of the results that are
attained. Thus, controlling is an integrated and indispensable function of management.

The control function is gaining importance in today’s business environment due to many reasons.
These reasons include the increasing intricacy of present organizations, the need to forecast
environmental changes which have high significance in business organizations, the need to
recognize the operational mistakes to minimize the cost, the need for increase the accountability in
organizations. Controlling function not only address the above reasons, it plays a vital role in
managing day to day operations and assists managers in discovering the irregularities, future
opportunities, supervising complex situations, decentralizing the authority reducing the cost and
dealing with risk and uncertainty.

Control encourages top level management to decentralize and delegate the authority. It mainly
focuses the areas of weaknesses and the series deviations from the original plans. It encourages the
corrective actions to tackle all the departments in the organization. According to McFarland,
“control is vital to the strength and morale of company employees” – workers will never like a
situation to go out of control. Control helps management in taking correct and clear cut decisions.
It can make planning effective and meaningful. The importance of the control can be understood in
the following directions:

1. Achieving Goals of Organization:

Controlling function of management helps in comparing the actual performance achieved with the
predetermined standards, finding out differences and offering corrective actions to ensure that the
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activities are performed according to pre-determined plans. Thus, it helps in achieving

organizational goals.

2. Judging Accuracy of Standards:

An efficient control system in the organization helps management in judging the accuracy of
standards. It further helps in reviewing & revising the standards according to the changes in the
external business environment and in the internal organization.

3. Proper Utilization of Resources:

Controlling function of management examines the performance of employees at each and every
stage of operations. Hence, it ensures effective and efficient optimum utilization of all resources in
an organization with minimum wastage or spoilage.

4. Employee Motivation:
Employees in the organization are well know the standards against which their performance will be
judged. Control encourages systematic performance appraisal and reward system in the form of
increments, bonus, promotion etc. motivate the employees to put in their best efforts to achieve
organizational goals.

5. Order and Discipline:

Controlling ensures a close inspection on the activities of the employees. Hence, it helps in
reducing the dishonest behavior of the employees, increasing morale and in creating order and
discipline in an organization.

6. Coordinating Activities:
Controlling provides a common direction to the all the activities of different departments and efforts
of individuals in the organization for accomplishment of the organizational goals.

7. Managerial Responsibility:
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In every organization, managerial responsibility is created through assignment of activities to

various individuals. This process starts from top level and goes to the bottom level. Manager
assigns some activities to his subordinates, he remains responsible for that portion of activities for
their ultimate performance. When a person is responsible for the performance of his subordinates,
he must exercise some control over them. Thus, the control is required because of the very basic
nature of the organization itself.

8. Organizational Efficiency and Effectiveness:

Various factors of control, namely, making managers responsible, motivating them for
higher performance and achieving coordination in their performance, control ensures the
organization works efficiently. The organization also move towards effectiveness because of
control system. The organization is effective if it is able to achieve its objectives. Since, control
focuses on the achievement of organizational objectives, it necessarily leads to organizational
effectiveness.

9. Reduces Risk:

Control function of management eliminates the risk of non-conformity of actual performance with
the main goals of the organization. Control is the function which regulates the operation to ensure
the attainment of the set objectives. Regular measurement of work in progress with proper
adjustments in operations puts the performance on the right track and helps in the achievement of
goals.

10. Simplifies supervision:

A systematic controlling system helps managers in finding out the deviation existing in the
organization which also simplifies the task of the supervisor in managing his subordinates. So
through control, it becomes simpler for the supervisor to supervise and guide the workers to follow
the right track and fulfill the required goals.
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Thus, controlling system plays various roles in the organizations. The management of organization
should establish the effective controlling system to meet the demands of the organization. The top
management can do this if they aware of the essential features of effective controlling system.

Relationship between Planning and Control

In any organization planning and controlling are inter-related and inter-depended functions.
Planning establish the future objectives for the organization and controlling ensures their
accomplishment. Both Planning and controlling function of management are related to each in the
same way as pen and paper are related, just as without pen a piece of paper would be of no
importance and without paper pen will be of no use in the same way without planning there is no
use of controlling and planning has no significance without controlling.

Management process starts with Planning and completes with the controlling. So, controlling
function is directly related to planning; managers in the organizations monitor the results with the
help of control to achieve goals set in the plans. Through controlling Managers find feedback about
the performance and exceptions and deviations in the planned performance. Control is not possible
unless plans are made. Similarly, performance of plans are not possible without proper controlling
system. Planning decides the control process and controlling provides sound basis for planning. In
other words, planning and controlling are inter-connected.

1. Planning Originates Controlling: At the time of planning process, the future goals are to
be set, and to achieve these pre-determined goals, control process is required. So, Planning
precedes control.
2. Control sustains planning: Controlling function of management guides the course of
planning. Controlling identifies the areas where plans are required.
3. Controlling provides information for planning: In the process of controlling, the actual
performance is compared with standards and deviations, if any, are to be identified and
recorded. This information which collected during the time of control, is useful for further
planning.
4. Planning and control are inter-related: In the management process planning is the
primary step and controlling is always lies in the process and required at every step. For the
same both are inter-dependent and inter-related.
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5. Forward Looking: Both management functions are related to forward looking. Planning
sets the objectives by considering the future changes. So it is always for the future and
control is forward looking. Control focuses on proper implementation of future plans. No
one can control past actions, it is only the future, which can be controlled.

Process of Control
Planning and Controlling are management functions which concerned with the achievement of
business goals. The combined efforts of these two functions are required to achieve maximum
output with minimum cost. Both, systematic planning and organized controlling are essential to
achieve the organizational goals. To administer control function, an organization follows certain
process. This process help the management to introduce the separate control system to make
the control process structured and meaningful. The process, techniques and steps of controlling
are tailor made and suitable wherever their application may be. As discussed earlier, control
and planning functions are interrelated. Controlling is performed according to pre pared plans
and helps planning in two ways: a. It focused on where new plans are required, b. It supplies
needful information on which plans can be based. In exercising the control function, a manager
measures the performance of an individual, a plan against certain pre-determined standards and
takes corrective actions if there are any deviations. The following steps are involved in
controlling process.

1. Identifying Areas to Control.

2. Establishing Standards.
3. Measuring Actual Performance.
4. Comparing Actual Performance with Standards.
5. Taking Corrective Actions.
6. Feedback.

1. Identifying Areas to Control: Prior to initiating control process, a manger should identify
the important areas where controlling is required. The targets determined during the plans
are the basis to decide the areas in which control is needed. The areas which identified for
exercising control should be of critical significance. Exercising control on these critical
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areas helps the manager in reducing costs, managing subordinates efficiently and improve
the overall organization’s efficiency.
2. Establishing Standards: A standard is any principle, rule, guidelines established as the
basis for measurement. It is an expected output/result/yield/behavior of an individual from
an individual/machine/product/service/organization. Standards are foundation for the
control process. These standards indicate on which criterion the performance of employee
can be assessed. These standards are two types: Tangible standards and Intangible
standards. Tangible standards are expressed in terms of cost, quantity, quality and time.
These are also called as quantitative standards. Intangible standards or qualitative standards
are behaviourable aspects of employees like morale, loyalty, discipline, public relations,
image of the firm etc.

3. Measuring Actual Performance: Another imported step in control process, after standards
are established, is measurement of actual performance against standards. If standards are
predetermined properly and they are tangible, then it is an easy task to the manager to
measure in same units i.e., physical units or monetary values. Reports, statistical data,
worksheets cost sheets, financial and accounting information etc., will help the manager to
measure the actual performance of quantitative standards. If standards are intangible or
qualitative it is difficult to measure the actual performance. For this collection of factual
opinions, observations of operations, psychological tests are to applied to measure the
performance of employees. In general, many organization are adopting a combination of
quantitative and qualitative measures to measure the actual performance. Management by
objectives (MBO) is the one of the well-known means for setting standards and coordinating
the measurement of performance. Means of measurement should have the following
characters to measure tangible or/and intangible performance.

1. They should be clear, sample and rational

2. They must be relevant
3. They must be reliable
4. They must be easily understandable
5. They must be direct attention and efforts where they should go.
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4. Comparing Actual Performing with Standards: Another major step in the control process
is the comparison of actual performance measured in the step three with the standards
established in the step two. The comparison may agree with standards or deviate from the
pre-established standards. When the actual performance meets the standards i.e., standards
are achieved, no further managerial action is required and control process is complete. But
in many cases standards may not be achieved. There may be some deviations. These
deviations mainly based on the type of activity and vary from time to time, firm to firm and
case to case. It is also managers’ duty to find out the extent of deviations. If deviations
between actual and standard performance are beyond the limit prescribed, a clear analysis is
to be made to identify the reason for such deviations. Through this analysis the
management can find the nature of causes for deviations which are controllable by the
person responsible and can decide the proper corrective actions.

5. Taking Corrective Actions: Any organization is not a regulating one. Some additional
struggles are required to maintain the proper control system in the organization. Manager
who is concerned should take proper actions immediately after the deviations are reported
because measurement of performance should not become a mere post-mortem of the past.
To maintain the desired level of control system in the organization, deviations are to be
corrected. If found deviations are significant, then the original standards are to be modified.
Corrective actions may be in the following forms:

a. Redrawing of objectives/plans.
b. Modifying organizational structure.
c. Reallocation of duties and responsibilities.
d. Improving the methods/techniques.
e. Proper section of employees.
f. Redesigning the training programmes.
g. Introducing changes in the remuneration system
h. Improving the effective communication system.
i. Positive motivation to employees.
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Corrective actions may be preventive as well as curative measures. If possible, self-

regulating system should be introduced in the organization to bring bank performance in
line with the original plan.

6. Feedback: Feedback is the most important part in the process of control. It connects
together all the essentials of the control process. The manager will receive feedback
information regarding corrective actions taken against deviations. The information received
through observations, interviews, inspections and reports has to be reviewed. Controlling
function will become effective with the prompt review of feedback. This feedback helps
managers to foresee the probable deviation in the future and correct them. If the feedback is
positive, the manager should encourage and continue the actions and appreciate his
subordinates. On the other hand, if the feedback is negative, the manger should alter the
operations accordingly and take preventive actions immediately with waiting for the actual
event to occur.

Types of Control:
Management implement the controlling system in a various ways and at various levels.
Managers need to consider the types of control that they wish to use. Control can be classified
into following types:

a. Feed Forward Control

b. Concurrent Control
c. Screening Control
d. Feedback Control

a. Feed Forward Control: This control is also known as ‘pre-control and preliminary control’. This
control is exercised before an activity finally takes place. For example standard costing technique is
used to control the cost of product before commencing the production. This control ensures that the
inputs (resources) are monitored to meet the standards required fo the transformation process. Inputs
include capital, labour, time, machine, materials and other resources employed in production by an
organizations. This helps the manager to stop seviour difficulties from arising in the production
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process. In feed forward control, managers use rules, regulations, policies and procedures to regulate
activities in advance and try to minimize the future deviations likely to arise.
b. Concurrent Control: This type of control examines the actual ongoing operations to ensure the
objectives are being met. This is exercised with the help of accurate information prior to completion of
operations. This helps managers in implementation of plans, to determine whether the work is
proceeding in the way defined by plans, policies and procedures. With this, managers will find out the
deviations during the performance of operations. To achieve this concurrent control managers use
financial and non-financial incentives as their tools. This control also known as ‘steering control’.
c. Screening Control. This control involves certain checking points. With this control, work is stopped at
certain pre-determined point for inspection to detect deviations if any. Work will be commenced again
after completion of the inspection and receive positive signal. This is also referred as ‘yes-no control’
Quality control inspections, approval requisitions, safety checks and legal approvals of contracts are
some examples for screening control.
d. Feedback Control: This is ‘post-action control’. This is exercised after completion oof operations to
review the results to ensure that the final output meets the quality standards of goals. This control
evaluates the actual performance and compares with the pre-determined standards. Corrective actions
are initiated to improve the process or modifying the future operations against the deviations. The
significant benefit of this feedback control is that it provides information that facilitates the planning
process.

Requirements for Effective Control:

To ensure, in organization, that everything is going right. Proper controlling system is essential.
Effective and adequate system of control helps managers in making sure that all operations confirm
to plans. However, control system does not function automatically. It requires certain structure.
Basic principles are to be involved in designing the proper structure of controlling system in an
organization. The following are the important requisites to implement effective control system in
an organization.

1. Reflect Organizational Goals: The control system should reflect the nature and needs of
operations they are to perform. It should mainly focus on the achievement of pre-determined
organizational goals. It should provide relevant information about the progress of plans. If
control system clearly defines the plans, positions, structure, they will result in increasing the
ability of managers to correct deviations, if any.
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2. Prompt Reporting. The success of controlling system, mainly based on the reporting facts. If
there are any deviations between actual performance and plans and standards, they must be
reported to the concerned manager immediately and promptly to take timely actions. This is
done through the effective information system.
3. Forward Looking: A good control system should avoid the recurring of similar deviations in
future. A manager should develop the system in such a way that deviations are well predicted
in advance and corrective steps to be taken before occurrence of substantial deviations.
4. Objective: The control system should be objective in nature. It should define, determine the
standards in clear. As far as possible, standards are to be expressed in quantity. If standards
are quantified, they are easily measurable and verifiable. If control system is not objective and
standards are not quantified, many subjective issues enter into the process which lead to wrong
footing.
5. Pointing out Critical Issues: A good control system should point out the critical issues and
suggest actions to be taken against deviations. In the organization, some deviations are have
great significant and required high attention, while some others are very less in quantity and
have no impact. Therefore, control system must provide sufficient information relating to
critical factors for which effective control is required.
6. Cost Effective: A control system should be economical. The cost of installation and
maintenance is justified by the benefits. Control system will be economical, if it is tailored to
job and the size of the business firm. A large sized firm may have elaborated control system,
because it can able to install more sophisticated control tools. But a small business firm cannot
have extensive control system because of the cost factor.
7. Flexible: Another essential of a good control system, it must be flexible. It should remain
workable under dynamic business conditions or failures if any. According to Geotz, “A control
system should report such failures and should contain sufficient elements of flexibility to
maintain control of operations despite such failures”. If control system is flexible, managers
can react immediately to overcome the adverse changes of take advantages of new
opportunities.
8. Understandable: A good control system should be easily understandable. It should clear,
smooth and meaningful, so that managers can effectively administer. While installing the
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control system, managers should avoid complex issues like too mathematical formulae,
elaborated harts and other complicated techniques which fail to supply required information.
9. Motivating: A proper control system should not be coercive. It should motivate both
controller and controlled. The system should encourage and motivate the people in fulfilling
needs of the organization.
10. Suggest Corrective Actions: Effective control system should suggest corrective action to be
taken against the deviations of failures. The control system is not an end in itself. According
to Koontz and Donnel, “an adequate control system should disclose where failures are
occurring, who is responsible for them and what should be done about them”.
11. Reflecting Organizational Pattern: Organization is not only structure of duties and
responsibilities, it is an important vehicle to coordinate the people and their work and major
mean for maintaining the control. The control function is exercised by managerial positions.
Adequate authority should be provided to each managerial position to achieve self-control and
adopt immediate remedial actions.
Control Techniques
Control techniques provide managers with the type and amount of information they need to
measure and monitor performance. The information from various controls must be tailored to a
specific management level, department, unit, or operation.

To ensure complete and consistent information, organizations often use standardized documents
such as financial, status, and project reports. Each area within an organization, however, uses its
own specific control techniques. Techniques of Managerial Control are classified iinto Traditional
and Modern Techniques.

Traditional Methods Modern Methods

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1. Personal Observation
2. Statistical Data
3. Special Reports & Analysis
4. Operational Audit
5. Break Even Analysis
6. Budgetary Control
1. Return on Investment
2. Responsibility Accounting
3. Program Evaluation and Review Technique (PERT)
4. Critical Review Method (CPM)
5. Management Information System (MIS)
6. Management Audit
7. Total Quality Management (TQM)
8. Six Sigma

Another category of managerial control techniques are 1. Budgetary Controlling Techniques and 2.
Non-Budgetary Controlling Techniques.

Budgetary Control
Meaning of Budgetary Control:
Management has in its armory a number of weapons which it uses according to its efficacy and

necessity to control the business, particularly as a device for financial control. One of such weapons

or tools—very effective as a controlling device — is the budgetary control so far as financial aspect
is concerned.

A budget is a detailed plan of operations for some specified future period. In the words of Terry,

budget is “an estimate of future needs arranged according to an orderly basis, covering some

or all of the activities of an enterprise for a definite period of time” and budgetary control is “a

process of finding out what is being done and comparing actual result with the corresponding

budget data in order to approve accomplishments or to remedy differences by either adjusting the

budget estimates or correcting the cause of differences.”

Budgetary control has been defined as “the establishment of budgets relating the responsibilities

of executives to the requirements of a policy and the continuous comparison of actual with

budgeted results either to secure by individual action the objective of that policy or provide a
basis for its revision.”
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Budgetary control involves the use of budgets and budgeting reports throughout the period to co-

ordinate evaluate and control day-to-day operations in accordance with the goals specified in the

budget. Budgets are prepared to control operations so that established policies and objectives can be

achieved. Budgeting serves to clarify the programme, measure efficiency and provide definite plans
to interested parties.

There are various types of budgets — Fixed, Variable, Revenue, Capital, Material, Cash, Labour,
Sales, Production, Master budgets etc. to meet different objectives.

So, control through budgets should not be misconceived as a measure of control of financial matters

only, but all types of budgets, in the real sense, control finance by eliminating the scope of wastage
and securing efficiency through work according to plans.

Advantages of Budgetary Control:

Sound planning, effective co-ordination and dynamic control are not possible to the desirable extent
without budgeting. A budget is a tool of planning as well as of control.

A sound system of budgetary control ensures efficiency of an organization in the following

ways:

(i) Budgeting tends to make planning definite and coordinated:

A budget is more than a financial instrument and serves as a complete programme of business

activities. A business with good budgetary control can anticipate and provide for contingencies

rather than groping in the dark. Budgeting also helps in selecting the most profitable course of
action.

(ii) Budgetary control makes for unified action and co-ordination of individual efforts:
Budgeting is an excellent means of communication and motivation. It stimulates preventive action.

Budgeting facilitates co-ordination by promoting team spirit. It makes possible the selection of the
most desirable course of action.
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(iii) Budgetary control helps management in delegating authority more freely over specified

functions:
“Budgeting correlate planning and allow authority to be delegated without loss of control.”

Budgeting improves organizational efficiency as effective budgeting requires sound organization

structure.

(iv) Budgets are the most important means of management control:

A budget serves as a yardstick with which performance of employees can be evaluated and costs

can be controlled. Budgeting permits ‘control by exception’ thereby saving executive time and
attention.

(v) Budgetary control promotes efficiency and minimizes waste:

Budgeting stimulates good management practices like proper planning, a sound organization
structure, adequate reporting system etc. It helps in the optimisation of resources.

(vi) Budgeting helps in fixing responsibility for results and in taking corrective actions in time. The

budget provides guideposts to efficient working.

In the words of Blocker:

“Budgetary control is planned to assist management in the allocation of responsibility and authority,

to aid in making estimates and plans for the future, to assist in the analysis of the variations between

estimated and actual results and to develop bases of measurement of standards with which to
evaluate the efficiency of operation.”

Disadvantages of Budgetary Control:

1. Since budgets are based on estimates, they cannot be cent per cent correct and accurate.
They are as good as the data and forecasts on which they are based. Inflation and rapid
changes in business-environment tend to distort budget data before they are put into
operation.
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2. An efficient system of budgeting can achieve little without effective planning and control.
Budget does not indicate the corrective action, neither is it a blueprint to be adhered to at all
costs. A sound budget system requires effective supervision and administration.
3. People very often fail to adjust when required according to budget. Budgeting, therefore,
entails danger of inflexibility. “The budget is not a straight—jacket but a measure of
performance and a guide which should be adjusted to meet new situations.” Budgeting
is a nuisance rather than an aid to management where budgets are prepared mechanically
without serious thought to the ways of improving operation.
4. Rigid adherence to budgets discourages initiative and creativity. It may also lead to internal
frictions and pressures.
5. Budgeting is a time-consuming process and involves expenses. There is a tendency to go
into excessive detail which restricts freedom of action.
6. Budgeting goals may lead people to supersede the enterprise goals. Budgets may be used to
hide inefficiencies as past precedents often become evidence for the present.
7. Success of budgeting depends on the motivation of people who are to install and use
budgets. People cannot change their habits and attitudes overnight. To be effective,
budgeting should be a gradual and co-operative exercise.
8. Too much should not be expected of budgetary control within a short period of time.
Budgeting is not a cure to all nor is it a tool which provides rapid results when first installed.
It is opposed by all levels of management as it pin-points individual inefficiencies.
9. It involves paper-work and technical persons always resent any paper-work.
10. It may take several years to attain a reasonably good budgetary programme.

Limitations of Budgetary control: The following are Some of the defects of budgetary control
are as follows:
1. Rigidity: Budgets are often too rigid & restrictive and supervisors are given little freedom in
managing their resources. The budgets may either be changed too often or not at all, making it
difficult for employees to meet performance level expected of them.
2. Lack of Action: Only preparing budgets cannot lead to success unless & until these are not put
into action. There is a need to translate these budget figures into results.
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3. Time consuming: Preparing different kind of budgets is not an easy thing as it involves a lot of
time, money and efforts.
4. Estimate: Generally, Budgets are prepared on the basis of the price level prevailing at a
particular time period but these estimates may become useless during subsequent inflation or
depression in the market.

Non Budgetary Control Techniques

There are, of course, many traditional control techniques not connected with budgets, although
some may be related to, and used with, budgetary controls. Among the most important of these are
statistical data, special reports and analysis, analysis of break- even points, the operational audit,
and the personal observation.

1. Statistical Data:
Statistical analyses of innumerable aspects of a business operation and the clear
presentation of statistical data, whether of a historical or forecast nature are, of course,
important to control. Some managers can readily interpret tabular statistical data, but most
managers prefer presentation of the data on charts.

2. Break- even point analysis:

An interesting control device is the break even chart. This chart depicts the relationship of
sales and expenses in such a way as to show at what volume revenues exactly cover expenses.

3. Operational Audits:
Another effective tool of managerial control is the internal audit or, as it is now coming
to be called, the operational audit. Operational auditing, in its broadest sense, is the regular and
independent appraisal, by a staff of internal auditors, of the accounting, financial, and other
operations of a business.

4. Personal Observations:

In any preoccupation with the devices of managerial control, one should never overlook
the importance of control through personal observation.
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5. Return on Investment: Return on investment is very useful technique for determining

whether the capital invested in the business has been effectively used or not for generating
reasonable amount of return.
Return on Investment= (Net Income / Total Investment) X 100 Net Income before or after
tax can be used for calculating ROI. Total investment includes investment in fixed Assets as
well as working capital.
It acts as an effective control device in measuring and comparing the performance of
different departments. It also helps departmental managers to find out the problems which
adversely affect ROI.
6. Responsibility Accounting: Under this system of accounting, various sections,
departments or divisions of an organization are set up as ‘ Responsibility Centers’. Each
center has a head who is responsible for attaining the target of his center.

The various responsibility centers are as follows:

(i) Cost Center: Cost center, also known as expense center, refers to a department of an
organization whose manager is held responsible for the cost incurred in the center but not
the revenues. For example, Production department of an organization may be classified as
Cost Center.
(ii) Revenue Center: A revenue center refers to a department which is responsible for
generating revenues. For example, marketing department.
(iii) Profit Center: A profit center refers to a department whose manager is responsible for
both cost and revenues. For example, Repair and Maintenance department.
(iv) Investment Center: An investment center is responsible for profits as well as
investments made in the form of assets. For judging the performance of investment center,
return on investment (ROI) is calculated and compared with similar data for previous years
for one’s own center as well as other similar enterprises. It is also compared with current
data of competing enterprises.

7. Management Audit: Management Audit is a process of judging the overall performance of

the management of an organization. It aims at reviewing the efficiency and effectiveness of
management and improving its future performance. Its basic purpose is to identify the
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deficiencies in the performance of management functions. It also ensures updating of

existing managerial policies.

Following are the main advantages of management audit:

 It identifies the deficiencies in the performance of management functions.
 It helps in improving coordination among the functions of various departments.
 It ensures required modification in the existing managerial policies and techniques
according to environmental changes.
 The continuous monitoring of the performance of management helps in improving control
system.

There is no proper technique of management audit and also it is not compulsory under any law.

8. PERT and CPM: PERT (Programme Evaluation and Review Technique) and CPM
(Critical Path Method) are two important techniques used in both planning and controlling.
These techniques are used to compute the total expected time needed to complete a project
& it can identify the bottleneck activities that have a critical effect on the project completion
date. Such techniques are mainly used in areas like construction projects, aircraft
manufacture, ship building etc.

The various steps involved in using these techniques are as follows:

1. The project is first divided into various activities and then these activities are arranged in a
logical sequence.
2. A network diagram is prepared showing the sequence of activities.
3. Time estimates are laid down for each activity. PERT prepares three time estimates-(i)
Optimistic (shortest time) (ii) Most likely time & (iii) Pessimistic (longest time).In CPM,
only one time estimate is prepared. Along with this, CPM also lays down the cost estimates
for completing the project.
4. The most critical path in the network is the longest path. Longest path consists of those
activities which are critical for completing the project on time; hence the name CPM.
5. If required, necessary changes are made in the plan for completing the project on time.
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9. Management Information System (MIS): Management Information System (MIS) is a

computer based information system which provides accurate, timely and up-to-date
information to the managers for taking various managerial decisions. Thus, it is an
important communication tool as well as an important control technique. It provides timely
information to the managers so that they can take appropriate corrective measures in case of
deviations from standards.

Advantages of management information system are as follows:

a. It provides only relevant information to the managers thus saving them him from
information overload.
b. It facilitates collection and management of information at different levels and
departments of the organization.
c. It helps in planning, controlling and decision making at all levels of an organization.
d. It helps in improving the quality of information.
e. It ensures cost effectiveness by providing all important information to the management
in time.

Role of Budgetary and Non Budgetary Control device in Management

Generally non-budgetary control devices are a number of techniques to control the activity of
organization on other parameters than just budget alone. For example, internal audits and stats
analysis are quite common instances of non-budgetary control.

 Budgetary control shows you numbers and their dynamics.

 Non-budgetary control helps you to understand the reason of all that.

Summary

Control is an essential managerial function in every organization. Control ensures that what is one
is what is intended. It is managerial action to adjust operations of the organization to its
predetermined standards. It compares the actual performance with the planned and predetermined
performance. Control institutes new set of goals, formulates anew plans, brings change in
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organizational structure improves staffing function. The process of control includes six steps
namely: identifying areas to control, establishing standards, measuring actual performance,
comparing actual performance with standards, taking corrective actions and feedback. In an
organization control function is implemented in different ways at different levels. Based on the
production stages various types control are used. A proper control system should suitable to
organizational needs, report deviations promptly, cost effective, easy and understandable, flexible,
forward looking and reflect the organizational pattern.