Organizational Goals

 Goals are broad statements of what the organization

wants to achieve in the long run.
 They are generally timeless statements.
 They are decided by the CEO with the advice of other
members of senior management and are usually
ratified by the board of directors.
Strategy
 Strategies are plans to achieve organizational
goals.
 They describe the general directions in which
organization plans to go to attain its goals.
 Strategies can be found at two levels
1. Strategies for a whole organization
2. Strategies for business units within the
organization.
Management
 Management is broadly defined as the process of
planning, leading, organizing, and controlling the
resources of an organization in order to achieve
the specified and predetermined Organizational
goals effectively and efficiently.
 There is a hierarchy of management, with the CEO
at the top.
 Except for CEO, each manager is both a superior
and a subordinate.
Control
 Control can be said to be the system of ensuring
that the actual state of affairs is in line with the
desired state of affairs.
 Control involves:
1. Measurement of performance against
predetermined goals.
2. Identification of deviations from these goals.
3. Initiating corrective actions to rectify
deviations.
 Elements of Control:
a. A detector or sensor: a device that measures what is
actually happening in the process being controlled
b. An assessor: A device which compares the actual
happening with some standard.
c. An effector: A device which alters the behaviour if the
assessor indicates the need. This device is often called as
feedback.
d. A Communication network :It is the device which
transmits information between detector and assessor and
between the assessor and the effector.
.
System
 A system is a group of elements, working together in
an integrated, interdependent and coordinated
manner so as to achieve synergy.
 A system is a prescribed and usually repetitious way of
carrying out an activity or a set of activities.
Management Control System
 It is basically the control process used by the
managers.
 It is a tool for implementing strategies.
 Management Control System is one of the several
planning and control activities that occur in an
organization.
 MCS refers to a framework or setup by which the
managers can ensure control over the actions of
his subordinates as well as control over the whole
operations in an organization
 Management Control Systems are complex and
judgmental.
Nature of MCS
 MCS is by nature Restrictive as well as Regulative.
 Traditional view was to compare targets with
actual performance and to take corrective action
where deviations occur. This view takes the targets
as given.
 Under Modern view, on the other hand MCS is
designed not only to tell how near an organization
is to its target but to evaluate the targets
themselves in relation to both the constraints in
the external environment and the available
resources.
Purpose of Management Control System
 Purpose of MCS is to ensure that strategies are carried
out so that organizational goals are attained.
Characteristics Of Management Control
System
 Ongoing Process
 Universality
 Goal Orientation
 Flexibility
 Goal Congruence
 Financial Structure.
 Emphasis on Self Control
Activities in Management Control
 Planning- that is what is to be done
 Coordinating the activities of several parts of the
organization
 Communicating information
 Evaluating information
 Deciding what, if any action is to be taken
 Influencing people to change their behavior.
Boundaries of Management Control
 Management Control is one of the several types of
planning and control activities which is going on
in an organization.
 Other two types of planning and control activity
are
1. Strategic Planning or Strategy formulation
2. Task control.
Management Control fits in between Strategy
Formulation and Task Control.
Strategy Formulation
 It is the process of deciding on the strategies for
attaining the organizational goals.
 The need for formulating strategies usually arises
in response to a perceived threat or opportunity.
 Strategic Planning occurs at Top Management
Level however ideas for strategies to address a
threat or opportunity can arise from any where in
the organization and at any time.
Task Control
 Task Control involves performance of individual
tasks according to rules established in
management control process.
 Here it is ensured that specific tasks are carried out
effectively and efficiently.
 Many Task Control Activities are fully automated
and in some cases does not even require presence
of Human beings.
 It focuses on short run operating activities, is most
systematic and uses accurate current data.
Strategic Control
Task Control

Management Control
Distinction Between Strategy Formulation
and Management control.
 Strategy Formulation is the process of making strategies
whereas Management Control is the process of
Implementing strategy
 Strategy Formulation is unsystematic whereas
Management Control is comparatively more systematic.
 Analysis of a proposed strategy usually involves relatively
few people whereas management Control involves
managers and staffs at all the levels in the organization.
 Behavioural considerations are less important in strategic
planning whereas they are very important in Management
Control.
Distinction between Task control and
Management Control.
 Task Control is scientific whereas management
control can never be pure science.
 In Task control human beings are not involved at
all or interaction is between managers and non
managers. In management control, managers
interact with each other.
 In Task control focus is on specific tasks to be
performed whereas in management control focus
is on organization units.
Budgetary Control
Budgetary Control is basically the technique of cost
control.
It is the most effective tool for short term planning
and control in an organization.
Budget is defined as a plan, quantified in monetary
terms ,prepared and approved prior to a definite
period of time, usually showing planned income to
be generated and or expenditure to be incurred
during that period and the capital to be employed
to attain a given objective.
Characteristics of Budgets
 It is stated in monetary terms although the
monetary amounts may be supported by non
monetary amount.
 It is prepared prior to the period during which it
will operate.
 It generally covers a period of one year but
quarterly breakups specially for those who are
affected by seasonal factors.
 It is a management commitment, managers accept
the responsibility for attaining the budgeted
objectives.
 The budget proposal is reviewed and approved by an
authority higher than the budge tee and ultimately by
the CEO. Once approved the budget can be changed
only under special conditions.

 Periodically actual financial performance is compared

to budget and variances are analyzed and compared.
Relation of Budgeting and Strategic
Planning
Strategic Planning is the process of deciding about
how to implement the strategies.
1. The Budgeting process focuses on a single year
whereas strategic planning focuses on activities
that extend over a period of several years.
2. Strategic Planning precedes budgeting and
provides the framework within which the annual
budget is prepared.
3. Strategic plans are structured by product lines or
programs while the budget is structured by
responsibility centers.
Advantages of Budgetary Control
 It is a powerful tool available to the management
for the purpose of cost control and maximization
of profits.
 A Budget sets the plan of action. As such, the
Budgetary control systems acts as a means of
declaration of the policies of the management.
 It acts as a means of communication.
 It acts as a means of improving the coordination.
 It enables Management by exception.
 It is a powerful tool for Performance appraisal.
 It makes possible Responsibility Accounting.
Organizing Budgetary Control
Budgetary control is the system of planning and
accounting through the use of budgets.
If the organization decides to install the Budgetary
Control system as a cost control technique, it
will have to comply with the following
requirements:
1. Deciding the budget center.
2. Deciding the budget period
3. Establishment of accounting records
4. Organization for Budgetary control.
5. Preparation of Budget Manual
Stages
First stepininthe Budgeting
the preparation Process
of Budget is to develop
guidelines that govern the preparation of Budget
and communicate them to all managers.
 The second step is to consider the limiting factor
and identify the starting point in the Budget. It
normally starts by asking Sales Manager and
Operations Manager to prepare their unrestricted
sales and Production Budget respectively.
 After considerable deliberation, a common
meeting point is arrived where production and
sales quantities will match.
 On the basis of sales and production budget other
budgets are made.
 All the budgets are thereafter put together and
total result is examined. If bottom line matches
with the profit targets given, summary budget is
sent to the senior level for approval.
 If approved , functional and summary budgets are
given final touch and presented before Budget
committee for approval.
 After the final approval by chief Executive,
the budget is circulated to all responsibility centers
heads for implementation for the next budget
period.
Types Of Budgets
Budgets can be studied with respect to the functional
areas of Management:
1.Sales and Marketing
2.Productions
3.Personnel
4.Finance
5. Miscellaneous budgets
6.Master Budget
Sales and Marketing
Budgets in this areas may be of following types:
1. Sales Budget: It is the forecast of total sales
expressed in terms of quantity and money.
2. Selling and Distribution cost budget: It shows
selling and distribution cost for the quantities
considered in sales budget
3. Advertising Cost Budget: It is normally
established in the form of a fixed amount for a
specific period.
Production
Budgets in this area may be of the following types:
1.Production budget: It is a forecast of production for
the budget period. Can be prepared from two
angles:
a. Production budget in terms of quantity
b. Production budget in terms of money. Production
Cost budget can be further classified under each
elements of cost.
2.Purchases Budget: it is a forecast of quantity and
value of material direct or indirect required to be
purchased during the budget period.
Personnel
In this functional area the budget to be prepared takes
the form of a personnel budget which indicates the
requirement of personnel or labour force either direct
or indirect to confirm to the sales forecast and the
production budget. The labour requirement may be
decided in terms of number and grade of workers,
number of labour hours, rupee value etc.
Finance
The most important budget which is prepared under
this functional area is the cash budget. It is an
estimate of the expected cash receipts and cash
payments during the budget period. By preparing
the cash budget it is possible to predict whether at
any point of time there is likely to be excess or
shortage of cash. Cash budget may be prepared in
any of the following methods:
1. Receipts and Payments Method
2. Balance Sheet Method
3. Adjusted profits/losses Method.
Miscellaneous Budgets
In addition to the various budgets discussed above,
some other types of budgets may also be
prepared:
1. Overheads cost Budget: It indicates the various
types of overheads to be incurred during the
budget period.
2. Capital Expenditure Budget: It is the plan of
proposed investment in the fixed assets. The
capital expenditure may be required to be
incurred for the replacement purposes and
expansion purpose. The requirement of capital
expenditure may be basically received from
Master Budget
After all the functional budgets are prepared individually
and are properly coordinated with each other, the
master budget can be prepared by incorporating all
the functional budgets. Ultimate incorporation of all
the functional budgets takes the form of budgeted
profit and loss account and the budgeted balance
sheet.
Fixed and Flexible Budget
Any budget in any functional area of operation can
be established as a fixed budget or flexible budget.
A fixed budget is established for a specific level of
activity and is not adjusted to the actual level of
activity attained at the time of comparison
between the budgeted and actual results. It is not
very effective tool for cost control.
A flexible budget is designed to change with the
fluctuations in the level of activity . It can properly
be used as a effective tool for evaluation and
control.