Steps in control process in management

Steps in control process in management are:

Control as a management function involves the following steps:

1. Establishing standards:

Standards are criteria against which results are measured. They are norms to achieve the
goals. Standards are usually measured in terms of output. They can also be measured in non-
monetary terms like loyalty, customer attraction, goodwill etc. Some of the standards are as.

a. Time standards:

The goal will be set on the basis of time lapse in performing a task.

b. Cost standards:

These indicate the financial expenditures involved per unit, e.g. material cost per unit, cost
per person, etc.

c. Income standards:

These relate to financial rewards received due to a particular activity like sales volume per
month, year etc.

d. Market share:

This relates to the share of the company's product in the market.

e. Productivity:

Productivity can be measured on the basis of units produced per man hour etc.

f. Profitability:

These goals will be set with the consideration of cost per unit, market share, etc.

2. Measuring performance

Measurement involves comparison between what is accomplished and what was intended to
be accomplished. The measurement of actual performance must be in the units similar to
those of predetermined criterion. The unit or the yardstick thus chosen be clear, well-defined
and easily identified, and should be uniform and homogenous throughout the measurement
process.

The performance can be measured by the following steps:

(a) Strategic control points:

It is not possible to check everything that is being done. So it is necessary to pick strategic
control points for measurement. Some of these points are:

(i) Income:
It is a significant control point and must be as much per unit of time as was expected. If the
income is significantly off form the expectation then the reasons should be investigated and a
corrective action taken.

(ii) Expenses:

Total and operational cost per unit must be computed and must be adhered to. Key expense
data must be reviewed periodically.

(iii) Inventory:

Some minimum inventory of both the finished product as well as raw materials must be kept
in stock as a buffer. Any change in inventory level would determine whether the production is
to be increased or decreased.

(iv) Quality of the product:

Standards of established quality must be maintained especially in food processing, drug

manufacturing, automobiles, etc. The process should be continuously observed for any
deviations.

(v) Absenteeism:

Excessive absenteeism of personnel is a serious reflection on the environment and working

conditions. Absenteeism in excess of chance expectations must be seriously investigated.

(b) Mechanised measuring devices:

This involves a wide variant of technical instruments used for measurement of machine
operations, product "quality for size and ingredients and production processes. These
instruments may be mechanical, electronic or chemical in nature.

(c) Ratio analysis:

Ratio analysis is one of the most important management tools. It describes the relationship
of one business variable to another.

The following are some of the important ratios:

i) Net sales to working capital:

The working capital must be utilised adequately. If the inventory turnover is rapid then the
same working capital can be used again and again. Hence for perishable goods, this ratio is
high. Any change in ratio will signal a deviation from the norm.

ii) Net sales to inventory:

The greater the turnover of inventory, generally, the higher the profit on investment.

iii) Current ratio:

This is the ratio of current asset (cash, receivables etc.) to current liabilities, and is used to
determine a firm's ability to pay the short term debts.

iv) Net profits to net sale:

This ratio measures the short-run profitability of a business.

v) Net profits to tangible net worth:

Net worth is the difference between tangible assets (not good will, etc) and total liabilities.
This ratio of net worth is used to measure profitability over a long period.

vi) Net profits to net working capital:

The net-working capital is the operating capital at hand. This would determine the ability of
the business to finance day-to-day operations.

vii) Collection period on credit sales:

The collection period should be as short as possible. Any deviation from established
collection period should be promptly investigated.

viii) Inventory to net working capital:

This ratio is to determine the extent of working capital tied up in inventory. Generally, this
ratio should be less than 80 per cent, ix) Total debt to tangible net worth: This ratio would
determine the financial soundness of the business. This ratio should remain as low as
possible.

(d) Comparative statistical analysis:

The operations of one company can be usefully compared with similar operations of another
company or with industry averages. It is a very useful performance measuring device.

(e) Personal observation:

Personal observation both formal and informal can be used in certain situation as a
measuring device for performances, specially, the performance of the personnel. The
informal observation is generally a day-to-day routine type. A manager may walk through a
store to have a general idea about how people are working.

3. Comparing the actual performance with expected performance

This is the active principle of the process. The previous two, setting the goals and the
measurement format are the preparatory parts of the process. It is the responsibility of the
management to compare the actual performance against the standards established.

This comparison is less complicate if the measurement units for the standards set and the
performance measured are the same and quantified. The comparison becomes more difficult
when these require subjective evaluations

Ralph C. Davis identifies four phases in the comparison.

1. Receiving the raw data.

2. Accumulation, classification and recording of this information.

3. Periodic evaluation of completed action to date.

4. Reporting the status of accomplishment to higher line authority.

At the third phase, deviations if any are noted between standards and performance. If clear
cut deviations are there, then management must study the:-

(i) Causes for deviation

(ii) Effect of deviation

(iii) Size of deviation

(iv) Positive or negative deviation.

4. Correcting Deviations:

The final element in the process is the taking corrective action. Measuring and comparing
performance, detecting shortcomings, failures or deviations, from plans will be of no avail if
it does point to the needed corrective action.

Thus controlling to be effective, should involve not only the detection of lapses but also probe
into the failure spots, fixation of responsibility for the failures at the right quarters,
recommendation of the best possible steps to correct them. These corrective actions must be
applied when the work is in progress. The primary objective should be avoidance of such
failures in future.

The required corrective action can be determined from the qualified data as per the
standards laid out and the performance evaluation already done. This step should be taken
promptly, otherwise losses may be cumulative and remedial action will be all the more
difficult to take.

Corrective action must be well balanced, avoiding over controlling and at the same time
letting not things to drift.

Control Techniques - 10 Types of Techniques of Controlling

10 Types of Traditional Control Techniques. The ten types of traditional techniques of

controlling are discussed below:-

1. 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. This technique is most suitable for a small-sized
business.

2. Financial Statements All business organizations 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 organization at the end of the
specified period. Financial statements are used to control the organization. The figures of
the current year can be compared with the previous year's figures. They can also be
compared with the figures of other similar organizations. Ratio analysis can be used to
find out and analyze the financial statements. Ratio analysis helps to understand the
profitability, liquidity and solvency position of the business.

3. 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.

4. Break Even Analysis Break Even Analysis or Break Even Point is the point of no
profit, no loss. For e.g. When an organization sells 50K cars it will break even. It means
that, any sale below this point will cause losses and any sale above this point will earn
profits. The Break-even analysis acts as a control device. It helps to find out the
company's performance. So the company can take collective action to improve its
performance in the future. Break-even analysis is a simple control tool.

5. 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. It helps to conduct inter-firm comparisons. It
also shows the areas where corrective actions are needed.

6. Management by Objectives (MBO) MBO facilitates planning and control. It must

fulfill following requirements:-Objectives for individuals are jointly fixed by the superior
and the subordinate. Periodic evaluation and regular feedback to evaluate individual
performance. Achievement of objectives brings rewards to individuals.

7. Management Audit Management Audit is an evaluation of the management as a

whole. It critically examines the full management process, i.e. planning, organizing,
directing, and controlling. It finds out the efficiency of the management. To check the
efficiency of the management, the company's plans, objectives, policies, procedures,
personnel relations and systems of control are examined very carefully. Management
auditing is conducted by a team of experts. They collect data from past records, members
of management, clients and employees. The data is analyzed and conclusions are drawn
about managerial performance and efficiency.

8. Management Information System (MIS) In order to control the organization

properly the management needs accurate information. They need information about the
internal working of the organization 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 computerized. With
MIS, managers can delegate authority to subordinates without losing control.

9. 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 minimize the total time or the total cost required to perform the total
operations. Importance is given to identifying the critical activities. Critical activities are
those which have to be completed on time otherwise the full project will be delayed. So,
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 minimized.

10. 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.

Explain the Control Techniques used in

Controlling?
Posted in Principles of Management |  Email This Post

Control Techniques
1. Budgeting techniques

a. Involves a very practical approach for carrying on with the controlling process.
b. Budgets are very future oriented and largely depends on the forecasting trends based
on the past.
c. Budgeting depicts the forecasting trends mainly depending on the finance and the
connected numerical information.
d. This technique acts as a very critical and an important tool for comparing what one has
planned and what is the actual performance against it.
e. But the main drawback of this technique is that it takes into account the past
performance as the only guide, which at times can prove to be short.
f. As a result of this, the whole package has to be worked out on the zero bases.

2. The Activities Network control

a. Forms a very critical and a necessary part of the management tool.

b. Here the performance of the various activities is compared and then depending on this,
one comes to know about the various deviations and then accordingly the activities can
be controlled.
c. Various techniques like the Gantt Charts, the Program Evaluation and the Review
Techniques etc are used for performing the various activities.

3. Statistical database control

a. In this method, the generation of the Statistical data coupled with the planning system
is generated, mainly for the management control system.
b. Special reports like the market prospects, the customers survey findings etc. are used
as a feedback for the different activities involved and these activities can be based on the
criteria of per person or per machine or per activity.
c. The data can involve the relations or the trends, which can be easily extrapolated.
d. For controlling the deviations and to know about them, the audits like the statutory
audits, the performance audits, the cost audits etc., can be carried out.

4. Personal observations
a. This technique acts as a great tool for controlling and bringing the system back to
having a very sound health.
b. In many cases, the eyes act as the best tool for noticing the overbalancing in the
people, their working, and the environment.
c. A lot of time is saved by this technique.
d. The personal observation avoids much of the paper work.
e. One of the best methods used here is the ‘Wandering Around’ method.
f. In this method, wandering around is taken as a regular exercise and the work monotony
is used.
g. People are not allowed to get stuck into their cabins for long periods of the time as
with this, a gap is created between the relationships and the environmental attachment.

5. Social Controls

a. The managers possessing the objective view of the outsiders are helped a lot by this
technique.
b. The users clubs of the customers, the supplier’ s club, the dealer’s club, the employees
clubs etc. can be organized easily with this method.

6. Systems and the Procedures

a. Manuals form very necessary documents for bringing some rigidity in the operation.
b. It helps in creating a judicial system for an organization.
c. Management audits can be conducted sometimes in this technique to reduce the
lacunae that may be present in an organization.

7. Management by the Objectives

a. Acts as a great tool for the control purpose.

b. By having a clear picture of the various objectives in mind, one can easily plan the
various controls.
c. Management can be observed as the people working for the measurable goals, deciding
the output at the end of an activity.

Controlling Techniques

Control of business is done with different controlling techniques which can be useful for
reducing the variance between actual performance and standard performance . There are
following main techniques or method or controlling which can be classified into two head
category.
A - Traditional Techniques

1. Observational techniques

Observational technique is traditional technique of controlling . Under this technique ,

manager appoint authorities who observes other employees . They also note the actual
performance of employee and they report it to manager after manager decides whose
performance is weak and how to improve it .

2. Statistical report

This is also technique of controlling . Under this technique company analysis the
statistical data in the form of mean, median and mode also analysis the standard
variation and correlation and find what are shortcoming in planning and try to control it .

3. Break even point analysis

This is the technique of controlling . Company sells their product up to the break even
point because it is point where total cost equals to total sale value and company can get
any loss . But sale below from this point means that total cost is more than total sale
value and company will suffer losses . So , break even point is so important from
controlling point of view . It is the reason that wise men have made it controlling
technique and used in management .

4. Budgetary control :-

Budgetary control is that technique of controlling in which company managers make

budget like production budget , sale budget , finance budget and research and
development budget after this actual performance is measure with budget amount .

Modern techniques of Controlling

1. MIS
MIS means management information system. In this system , raw data is collected from
direct or indirect sources and then after classification of data , different analysis is
rendered by company managers and after this company managers provide information
about favorable and unfavorable position of company's different planning’s .

MIS is very important technique and it is used very high level after invention of computer
and Internet.

2. Management audit system

This is very simple type of auditing which is done by chartered accountant and company
manager can used it as technique of controlling management. Managers establish their
relations with CA of company and after discuss they make system of internal
management audit in which company CA and his staff audit at spot and check the
efficiency and correctness of plan and its implementation on staff of company .

3. Return on investment

Return on investment means capacity of earning profit on total investment which is

invested by company. It is very scientific technique of controlling. Even Google is using
also this technique for his google AdWords project control.

4. Responsibility accounting

Responsibility accounting is that controlling technique in which different responsibility

centres are created by company managers and its name are cost center , profit center
and investment center . After this every center is responsible for their cost . Main aim of
making these centers is to increase profit , increase return on investment and decrease
cost of production . Different budgetary cost are set in first and the each centre's actual
cost is counted and recorded , if the actual cost of each center is less than budgeted
cost , then it means that center has perform his duty better .