UNIT

CONTROLLING

1
SYSTEM AND PROCESS OF CONTROLLING
 Control refers to measurement and correction of performance in order
to make sure the enterprise objectives are accomplished
 Comparing operating results with plans and taking corrective action
when results deviate from plans
 According to Koontz and O'Donnell" The managerial function of
controlling is the measurement and correction of the performance of
activities of subordinates in order to make sure that enterprise
objectives and the plans devised to attain them are being accomplished.

Nature of Control:
 Control is an essential function of management
 Control is an ongoing process
 Control is forward - working because past cannot be controlled
 Control involves measurement
 The essence of control is action
 Control is an integrated system

Need of control:
 To discover deviations in the management
 To minimize dishonest behaviour of the employees
 To indicate corrective action
 To minimize mistakes
Importance of controlling
 Policy verification
 Adjustment in operations
 Psychological pressure
 Coordination
 Employee morale
 Efficiency and effectiveness
Various managerial controls
 Financial controls
 Budget controls
 Marketing controls
 Human resource controls
 Computers and information controls

Limitations of controlling

2
  It is expensive and time- consuming
 It cannot consider the external factors such as technological changes, political factors,
social changes.
 Human behaviour and employee morale cannot be measure.
Explain the relationship between controlling and overall management. Discuss the steps in
controlling process April 2015
Relationship between planning and controlling
The management process begins with planning and ends with controlling
 Planning determines the standards for performance
 Control helps in achieving them
 Planning is the first step and control is the last step in the process of management
 Planning and controlling are inseparable

Define Control. Explain the process of controlling Dec 2012

What are the steps involved in the process of controlling May 2011
Control refers to measurement and correction of performance in order to make
sure the enterprise objectives are accomplished.

Process of Controlling:
1. Establishing Standards
2. Measurement of actual performance
3. Comparing actual performance with standards
4. Finding out deviation
5. Corrective action
Establishing Measurement of Comparing with
standards actual performance standards

Corrective action Finding out

Deviation
Establishing standards:
3
 This is the first step in the control process.
 Standards may be expressed in qualitative or quantitative terms
 Standards will be accurate, precise and acceptable.
 Units of production, units of sales .costs, revenue, investment are quantitative
standards((which are capable of expressing in numerical terms)
 Reputation of enterprise, employee morale, motivation are qualitative standards.
Measuring performance:
 Performance measurement should be done in quantitative terms.
 Expressed in physical and monetary terms such as production, sales volumes, profit etc.,

Comparing actual performance with standards:

 Find out the deviation and identify the causes of such deviation.
 Management must first find out the standard deviation
 Standard deviation is the allowed range of deviation
 Deviations such as reducing the cost below the standard ,and improving sales above the
standards must be encouraged
 Approach will give the correct, quick and favorable results.

Finding out deviation:

The causes for deviations might be due to
 External environmental factors - changes in government policies and prices ,allocation of
raw materials
 Internal environmental factors -inadequate facilities
 Planning defects-objectives not clear, inappropriate course of action.
 Organisational defects- Improper span of management, imbalance between authority and
responsibility
 Staffing defects-faulty selection of employee, inadequate training programmes
 Directing defects-inadequate motivation, unsuitable leadership style, lack of free flow of
communication

Correction of Deviation:
 To correct the deviation from planned performance
 Management should take necessary action and implement them so that the deviations and
mistakes are minimized
 If corrective action is not taken on time, it will lead to heavy losses

Critical points and standards

4
  Physical standards
 Cost standards
 Revenue standards
 Program standards
 Intangible standards
 Goals as standards
 Strategic control
Write short notes on different types of control
Types of control
The control systems can be classified into three types namely feed forward" concurrent and
feedback control systems.

INPUT PROCESS OUTPUT

FEED FORWARD CONCURRENT FEEDBACK

CONTROL CONTROL CONTROL

a) Feed forward control or pre-control:

 Preventive control
 It is preventive in nature like prevention is better than cure
 Monitor inputs to a process to identify if the inputs are as planned
 Evaluation of the inputs and take corrective action before a particular operation is
completed.
 These controls are designed to eliminate the cause for deviation that might occur later in
the process
Example - a team leader checks the quality, completeness and reliability of their tools
prior to going to the site.
b) Concurrent control:
 Real time control
 They are sometimes called screening controls
 Taking corrective action or doing adjustment while an activity is taking place. Example -
the team leader checks the quality or performance of his members while performing.
c) Feedback control:
 Post action control
5
  Measure activities that have already been completed.
 Thus Corrections can take place after performance is over.
 The results of completed activity are compared with predetermined standards and if there
are any deviations, corrective action can be taken for future activities
 Example - disciplinary action, budgetary results

c). Strategic control:

 It involves monitoring critical environment factors that could effect the viability of
strategic plans, assessing the effects of organizational strategic actions.
 It is typically the domain of top level mgmt who must insure core competencies are
developed and maintained.

d). Tactical control:

 It focuses on assessing the implementation of tactical plans at departmental levels,
monitoring associated periodic results, and taking corrective action as necessary.
 It is primarily under the direction of middle managers, but top-level managers may get
involved.

e). Operational control:

 It involves overseeing the implementation of operating plans, monitoring day-to-day
results and taking corrective action when required.

Requirements for effective control

 Suitability
 Flexibility
 Economical
 Simple
 Forward looking
 Motivation
 Objective
 Controls should reflects the organization structure and needs
 Control should lead to corrective action
 Less time

BUDGETARY AND NON-BUDGETARY CONTROL TECHNIQUES

Explain different budgetary and non budgetary control techniques
Controlling Techniques
6
 1. Traditional techniques of controlling
2. Budgetary control techniques
ii. Non Budgetary control techniques
 Direct personal observation and supervision
 written reports
 statistical reports and analysis
 Break even analysis
2. Modern techniques of controlling
 Management audit
 Operational audit
 PERT/CPM
 MIS

What is budgetary control? Explain in details the different techniques to control budget.
May 2009/May 2014
Budgetary control
A system which uses budgets as a means of planning and controlling all aspects of producing
and or selling commodities and services.
Objectives of Budgetary Control
o Planning
o Coordination
o Control
o Motivation
o Efficiency
o Used as performance evaluation
o It provides an adequate working capital
o It aims at maximization of profits

Discuss the various types of budgets in detail Dec 2012/April 2015

Budget:
 Statement expressed in financial terms
 A budget is a detailed plan of operation for some specific future period.
 It is a pre-determined statement of management policy during a given period which
provides a standard for comparison with the results actually achieved
 The various types of budgets are as follows:
1. Master budget
2. Functional Budget - Sales budget, Production budget, Material budget,
labour budget, Cash budget, Administrative Overhead budget,
3. Capital & Revenue budget
7
 4. Fixed and Flexible Budget - based on activity
5. Short term ,long term and current budget- based on time
6. Zero base budgeting - the budget proposals are considered from the ground
up (zero base)
a. Master budget: It is the budget of the entire organisation for a particular period of time
b. Functional budget:
Sales budget
 It is an estimate of sales during a budget period.
 The accuracy of this budget determines the accuracy of other functional budget.
 The sales manger should be made directly responsible for the preparation and execution of
the budget.
The following data are more important the preparation of budgets.
 Past sales data
 Plant capacity
 Financial resources available
 Raw materials available
Production budget: Production budget is a forecast of the output for the period analyzed
according
 Products
 Manufacturing department
 Periods of production
Material budget:
The estimation for different types of raw materials is prepared for various products.
Labour budget: It is the forecast of the expected labour requirements during the budget
period. This budget helps to prepare suitable plans for recruitment and training labour
Cash budget: This budget gives an estimate of the anticipated receipts and payments of cash
during the budget period to find out surplus or shortage during that period. This budget is
prepared by a chief accountant for the guidance of the management.
Administrative Overhead budget: This budget contains the expenses in framing policies,
directing the organization and controlling the business operations.
It covers the estimated expenditure of administrative offices and management salaries.

c. Capital and Revenue budget: This budgets deals with capital expenditures for plant
machinery, equipment and other terms.
The budget is prepared after consideration of the available production, capacities, assets and
possible production technique.
Classification based on time
Long term budget:
8
These budgets are useful for long-term objectives. The period of budgets is for 5 to 10 years.
Short term budget:
The industries, such as textile, pharma, and cotton etc. use short-term budgets. The budgets a re
for one or two years.
Current budget:
These budgets are day-to-day activities of the business. These budgets are prepared for a few
weeks or for a few months.
Classification based on activity:
Fixed budget:
In this budget, targets are rigidly fixed. This is a forecast of the targets for coming year prepared
well in advance or even two or three months before the year.
Flexible budgets:
A flexible budget is a budget designed to change in the level of activity. It is also known as
variable budget.
Alternative budget:
A company prepared 3 types budgets high level, middle level and low level.
Supplementary budget:
Initial stage of the company formulation of policies and procedures that time supplementary
budgets can be used.
Budgetary control techniques
Steps involved
 Set the objective clearly
 Formulating the necessary plans to ensure that the desired objectives are achieved
 Translating the plans into budgets
 Relating the responsibility of executive to the budgets
 Continuous comparison of the actual results with that of the budget and the ascertainment
of deviations.
 Investigating into the deviations and establishing the causes.
 Presentation of information to the mgmt relating the variances to individual
responsibilities.
 Corrective action of the mgmt to present recurrence of variance.

Special budgetary control techniques

Planning programme budgetary systems
 Analysis the basic objective of policies of each activity
 Each activity of the programme in the organization
 Measuring the total costs of the programme
9
  Finding alternatives are most effective activity
 Implementing the systems in a preferred manner
 Follow the activities in the organisation
Zero Base Budgeting
 The purpose of a well operated system of variable budgeting is zero-base budgeting.
This budget contains a comprehensive analysis and review of budget proposals is made every
time.
 Initially, the budget is designed from a zero-base. The main element of ZBB is future
objective orientation..
Steps:
 Decision package
 Ranking
 Allocation resources
Variance Analysis
 Budgets of different departments are made with estimated figures
 It is compared with actual accounting figures. We find variances.
 These variance may be favourable and unfavourable
Responsibility Accounting:
 In this technique we create cost centre, profit center and investment centre. All these
centers are just like department of any organization.
Adjustment of control:
 Top mgmt take the decision to adjust fund from one project to other project.
Human resource accounting:
 It means to measure the cost and values of the people in the organization. It includes the
cost of recruiting, training personnel are treated as operating expenses.
Advantages of budgetary control are
 Tool for planning the activities
 Better utilization of resources.
 Ensures proper communication
 To take corrective action at right time.
 Control of expenditure
 Achievement of goals

Limitations of budgetary control are

 Rigidity
 Inaccuracy
 Time consuming process
 Consumes lot of money and effort
10
  Lack of departmental cooperation
 Danger of over budgeting

Explain any four Non Budgetary control techniques DEC 2011

Give an account of some popular non budgetary control techniques.{ control techniques)
May2011/April 2015
ii. Non Budgetary control techniques:
a). Traditional techniques.
 Personal observation
 Written report
 Statistical report and analysis
 Management audit
 Operational audit
 Break even analysis
 Responsibility accounting
 Balanced scorecard
Direct personal observation:
 This is the oldest techniques of controlling.
 Here control is exercised by a manager through face t() face contact with employees.
 Personal observation has also a psychological impact on the employees.
 They try to achieve better results when they know that they are being observed personally
by their superior.
Written reports:
 Each manager prepares written reports on the performance of his sub-ordinates and
submits to higher authorities.
Statistical reports and analysis
 These reports are prepared and used in large organizations.
 Reports are prepared in quantitative terms.
 Special staff prepares statistical reports and present in the form of tables, ratios,
percentages, correlation analysis.
 Such reports are prepared in areas like production, sales, inventory
 Break even analysis: This is a technique of marginal costing,
 This is based on classification of production costs into variable and fixed cost.
Management audit:
 Management audit is a new concept of controlling?
 Independent, overall examination of entire management process
 This is done to judge the success and failures running and managing an enterprise

11
  Aim to examine efficiency of the management philosophies, policies, techniques.
 This will critically examining of the entire management process.
Operational audit: Audit is a careful examination of accounts, financial and other operations
of the organization. There are two types of audit which are: (1.Internal audits 2. External audits
Internal audit
 Internal audits are done by an internal auditor who is an employee of the organization.,
 He examines the objectives, policies, quality of management and performance of the
management.
 Internal auditor finds the defects and recommends their correction.
 The management is responsible to take corrective action.
External audit
 External audit is done by an external auditor who is an accounting personnel from an
outside firm.
 It is a major systematic against fraud within the organization.
Responsibility accounting:
 This technique of controlling is borrowed from management accounting.
 The performance of managers is judged by assessing how far they have achieved the
target set by their departments or sections.
 Success is judged by his ability in controlling the controllable costs of his center
Human Resource Accounting:
 HRA is accounting for people in an organisation.
 Measuring the values of human assets
 This will measure the cost incurred by aT1 enterprise to recruit, select, hire and train
employees.
 Measurement of economic value of people to the enterprise.
Break even analysis:
 It is used to determine the point at which revenue received equals the costs associated
with receiving the revenue.
 It is therefore called as no profit, no loss point or zero profit point..

Balanced score card:

 It is a performance measurement tool that looks at four areas such as financial, customer,
internal processes and people/innovation/growth assets that contributes to a companys
performance..
Discuss about the modern techniques of controlling:
Modern techniques of controlling (Popular Techniques)
 Linear programming

12
  Program Evaluation & Review Techniques
 Critical Path Method
 Gantt chart
 Benchmarking
Linear programming:
 It is one of the classical operation research techniques.
 It is a planning technique that permits some objective function to be minimized or
maximized within the framework of given situational restrictions.
Purpose
 It deals with the determination of optimal allocation resources to meet given objectives.
 Resources may be men, raw materials, market demand, money and machines..
 It is usually maximizing the profit, minimizing the total cost, and maximizing the utility
costs
 It is very useful in oil refineries, airlines, railways, textiles industries, chemical
industries, and defense services.
Program Evaluation and Review
 PERT is one of the network analysis techniques.
 It is being used as a tool of management for planning, monitoring and controlling.
 This technique helps a project to break into smaller activities.
Network techniques: PERT
 PERT - Program Evaluation and Review Technique
 CPM- Critical Path method
 Though there are differences, both utilise the same principles
 This is a graphic representation of a project schedule, showing sequence of tasks.
 Both PERT and CPM are primarily oriented towards achieving better managerial control
of times spent in completing a project.
Applications of PERT
PERT and CPM have been used for a variety of projects, including the following types.
1. Construction of a new plant
2. Research and development of a new product
3. NASA space exploration projects
4. Movie productions
5. Building a ship
6. Government-sponsored projects for developing a new weapons system
7. Relocation of a major facility
8. Maintenance of a nuclear reactor
9. Installation of a management information system
10. Conducting an advertising campaign

13
 Steps in PERT
 Identification of components: Identification of all events or key activities necessary to
complete the project.
 Activity: A job or operation to be carried out, which consumes time and
resources it is denoted by arrow in the network diagram
 Event: beginning or completion of an activity. It is denoted by circle in the diagram
 Sequencing of activities and events:
-The network diagram shows the number of paths of activities from the beginning to the
completion of the project
-Determination of estimated time: It is necessary to determine the expected time to
complete each activity
EXAMPLE FOR PERT:

The three times estimates under PERT

 Optimistic or shortest time
 Pessimistic or longest time
 Normal or most likely time
Determination of critical path:
 It is required to identify the sequence of activities whose completion is critical for the
timely completion of the project.
 There must be no delay in the completion of activities which lie on the critical path,
otherwise the entire project will be delayed
Advantages of PERT/CPM:
 Better utilization of time, effort, capital
 Simultaneous performance of different parts of the project
 Provides feed forward control
Limitations of PERT
 Time consuming and expensive
 Errors in estimation can make it unreliable
14
  Cannot be applied to assembly line operations
Critical Path Method(CPM)
 It is a mathematically based algorithm for scheduling a set of project activities.
 It is based on the perfect time estimation. It is used for optimizing resources allocation
and minimizing overall cost for a given project.
 It is applicable to both large and small projects CPM aims to reduce the cost.
 In CPM two time estimates are made: Normal time and Expedited time.
 Expedited time is also known as crash time.
Procedure
 Break down the project into various activities systematically
 Number all the events and activities
 Calculate the earliest start time, earlier finish time, latest start time and latest finish time.
 Determine total float time
 Identity the critical activities and connect them with double line arrow
 Calculate total duration of project
 CPM and PERT closely resemble to each other.

Gantt chart:
 It is a type of bar chart that illustrate a project schedule.
 This chart shows actual and planned output over a period of time.
Limitation of Gantt chart
 More complex to be communicated effectively with a gantt chart
 It does not represent the size of a project or the relative size of work elements.
 All activities of gantt chart show planned workload as constant.
Bench marking
 It is the standard of excellence against which to measure and compare.
 It is the hunt for the obtaining the best practices among competitors or non-competitors
which will provide the best performance.
15
Steps:
 A team is formed for planning the bench marking
 The team gathers internal and external data.
 The data are analysed to identify the performance gaps and the cause of differences.
 An action plan is prepared and implemented.
Form a benchmarking
planning team

Prepare and implement Best practice Gather internal and

action plan external data

Analyse data to identify

performance gaps

USE OF COMPUTERS AND IT IN MANAGEMENT CONTROL

 The computer plays a vital part in the control of business operation.

 Information itself is a valuable asset one that needs to be carefully managed and
protected.

 Information technology is the use of electronic equipment, computers for storing,

analyzing and sending out information
IT in management control:
MIS: MANAGEMENT INFORMATION SYSTEMS
Contents
 An introduction to Information System
 Meaning of Management Information System
 MIS
 Need of MIS
 MIS Resources
 Steps in MIS
 Roles of MIS

16
Write short notes of MIS?
 MIS installed in organisation is to help management with adequate and timely
information
 Information is not only important input for planning purposes. It is also needed in
controlling.
 To provide necessary information to management for planning and controlling purpose
on regular basis, the system installed in an organisation is known as MIS - Management
Information Systems
Meaning Of Information Systems
An information system is an organized combination of people, hardware, software,
communications Networks and data resources that collects, transforms, and disseminates
information in an organization.

MIS is a system that supplies information to management

 MIS is a new technique which has brought with increased accuracy and speed to the
management.

MIS

Management Information System

Need of MIS
1. Internal factors Resources:
 This involves the analysis of available resources in the organization, such as money,
17
 material, machine etc.
Planning and control information:
 To get required information about budgets, sales forecasts etc.
Operational information:
 It is required to increase the production, product quality and to reduce wastages
etc. Marking information:
 To obtain the required information for plan sales forecast advertising budget consumer
satisfaction, sales value competitions etc.
2. External factors
Political and Government:
 This involves information about political fiscal polices, government policies,
procedures, rules and regulations.

Economic condition:
 To get the required information, such as money value, inflation rate, interest rate
etc.
Technology:
 To get information about new advanced machinery, new process etc.
MIS Resources
MIS consist of four major resources
Computer hardware
 It refers to a computer system and other associated equipment including the
communication link. For example, computers, monitors, disk, printers, optical
scanners.
Software
 Operating system programs, word processing programs and procedures.
Data
 It is in the form of symbols, digits, alphabets, graph, pictures etc.
 People System analyst and computer operators.
People
Specialist’s system analyst’s programmers and computer operators

18
Steps in MIS
MIS consists of following steps
 Input data collection:
The necessary data can be collected.
 Information storage and retrieval:
The data can be stored and utilized
 Analysis:
Ti is necessary to analyse them.
 Output:
It is in the form of reports, charts,
tables, graphs..
 Decision making:
Output is used for decision making
 Action:
Information is taken into action
Role Of MIS :
 The role of MIS in an organization can be compared to the role of heart in the body.
 The information is the blood and MIS is the heart. In the body the heart plays the role
of supplying pure blood to all the elements of the body including the brain.
 The MIS plays exactly the same role in the organization.
 The system ensures that an appropriate data is collected from the various sources,
processed, and sent further to all the needy destinations.
 The MIS satisfies the diverse needs through a variety of systems such as Query Systems,
Analysis Systems, Modeling Systems and Decision Support Systems.
 The MIS helps in Strategic Planning, Management Control, Operational Control and
Transaction Processing

19
Write short notes on the Use of computers in handling the information
Use of computers in handling the information
Sales Forecast and Control:
 The computer can prepare an estimate of future sales called sales forecast from sales
data.
 It can be programmed to read historical sales data and calculate huge data.
Payroll:
 The computer can process a firm's payroll.
 It can be programmed to read payroll records, calculate earnings, deductions and with
holdings and printout pay checks.
 Computerized payroll systems can handle hourly or salaried payrolls and commission
payments.
Business management:
 The computer can provide reports and data for management.
 Inventory sales analysis, credit analysis can be calculated.
Accounting:
 A comprehensive accounting system can be put on the computer using electronically
stored ledgers in the machine.
 The computer can print-out customer billings, taxes, reports, profit and loss statements,
balance sheets and other financial information required internally and externally.
Personnel management information:
 The computer can provide management with data on the composition of its personnel.
 It can print out information on job classification and personnel capabilities and can list
employees by department, by salary, by schedule or by both.

Cost Accounting:
 The computer can print out an analysis of production costs.
 It can be programmed to perform routing of cost accounting tasks with budgeted, hourly
costs on individual machine rates and overhead figures.
20
Manufacturing information control:
 Computer is used in the manufacture and production of goods.
 It can provide ordering, warehousing and cost data based on bills.
 The computer can schedule work for an assembly line based upon labour available by
shift.
Objectives:
 To provide long term plans
 To find out new opportunities
 To allocate resources
 To provide planning and control
 To provide sales forecasting
 To help management decision about, quality, quantity and market price.
Application:
 Marketing: Sales planning, sales analysis and sales forecasting
 Manufacturing: Production planning and cost control analysis
 Logistics: Planning and control
 Finance and accounting: cost analysis and planning, income measurement
MIS for Different Management Analysis
1. Operational control
2. Middle management
3. Top-level strategic planning

PRODUCTIVITY PROBLEMS AND MANAGEMENT: Define

productivity. Discuss the factors affecting productivity
Content:
 Productivity
 Factors affecting productivity
 Productivity Measures
 Roles of productivity
 Production and operation management
 Operation Management system
 Product development
 Product analysis
 Product layout

Productivity:
 Productivity is one of the major concern of every manager of the
organisation. This measure gives how much input required to produce a
given output.
o i.e. the ratio output to input is called productivity.
21
Factors affecting productivity:
Technology:
 New technology developments and R&D development improves the
productivity.
Human Resources:
 Education of employee favors the improvement of the productivity.
Motivation of the employees improves the efficiency of the
productivity.
Government policy:
 Government can eliminate unnecessary regulations and make productivity
effectively.
Machinery and equipment:
 Modern machineries and equipment also increase the productivity.
Skill of the workers:
 Well trained and experienced employees lead to effective
productivity.
Capital:
 Increased capital investment results in increased productivity.
 This capital also increases other factors, such as market share, low cost, high
profit.
Research and development:
 The research includes reduction of cost and wastage .new
techniques. These factors help to increase productivity
Trade unions:
 Some trade unions create some unnecessary problems in the company and start strike and
lock out.
 It decreases the productivity.
Raw Materials:
 Productivity of materials can also be increased by using correct process, well trained
workers, and storage facilities.
Plant and job layout:
 Productivity can be increased through modern tools.
 Proper maintenance of tool and equipment increases the productivi
Land and building:
 Working environment must be suitable for employees. A poor plant layout and
construction will affect the productivity
The size of the plant:
22
  It has direct bearing on productivity.
Different productivity measurement
Physical Productivity
 This is the ratio of the amount of product to the resources consumed. Product may be
measured in lines of codes, classes, screens, or any other unit of product.
2. Functional productivity
 This is the ratio of the amount of the functionality delivered to the resources consumed. It
may be measured in terms of use cases, requirements, features or function points.
Economic productivity

1. Labour Productivity = Total output /Labour input

2.Capital Productivity = Totaloutput /Capital input
3.Material Productivity= Total output /Mater input

Role of productivity:
1. For management:
 To get high profit
 To improve the resources
 To increase the sales.
2. For workers
 Job satisfaction
 Promotion
 Higher salary and
 Better working condition.
3. For customers:
 To get quality products
 Reduced prices
 Easily available.

Deming’s 14 points for improving productivity

 Plan for the long term future
 Never be complacent concerning the quality of your product
 Establish statistical control over your production processes and require your suppliers to
do so as well
 Deal with the best and fewest numbers of suppliers.
 Find out whether your problems are confined to particular part of the production.
 Train workers for the job that you are asking them to perform.
 Raise the quality of your line supervisors
23
  Drive out fear
 Encourage departments to work closely together rather than to concentrate on
departmental.
 Do not adopt strictly numerical goals
 Require your workers to do quality work
 Train your employees to understand statistical methods
 Train your employees in new skills as the need arises.
 Make top managers responsible for implementing these principles.

Production and operation Management:

Production:
-Production is defined as the step-by-step conversion of raw materials into finished products.
-Example: Copper ore is existed in nature. It is converted into copper plate by chemical process
Operation management:
-It refers to activities necessary to produce and deliver a service or physical products.
Example: Copper ore undergoes some chemical process to remove the impurities followed by
some mechanical process to get copper place.

Operation Management system:

Input: Technology, Management and labour, Man, Machine, Money, Building.
Process: Required process of planning, operating and controlling the system.
Output: Product, service

Objectives of operation management:

 Right quality of product
 Right quantity of product
 Less manufacturing cost
 Manufacturing schedule

Product development
Product development is the work contributed towards improvement in the present

24
 knowledge by the way of improved ideas, system, techniques etc.
 Create ideas: New ideas are generated by imitation, adaptation, R & D and other
sources.
 Screening the alternative: Various ideas can be collected and then analyzed various
alternatives and eliminate the wasteful.
 Selection: IT is the selection of various products on the basis of different considerations
such as market, economic, consumer analysis.
 Prepare preliminary design: the quantity of resources and financial requirements are
considered
 Final decision: It decides the enterprises of current resources to check the adequate
resources.
 Select the process: it is the process to analyse which type of process is needed for
producing the product and select which is the best and profitable one.

Product analysis
Product analysis is very important for every business enterprises. The following factors
influence the product design.
(i) Marketing
Once the product is selected, the next important step is analyzing the market situation.
Analysis of the demand for the proposed product and customer acceptability to the product
is important.
In the market analysis, one has to consider the following factors.
 Acceptance of the customers
 Competitive product
 Pricing
 Distribution channels
 Advertising

(ii) Economical
Economic analysis is a vital role in product design policy, when economic analysis of
proposed product is made, the following factors must be taken into account.
 Profit margin
 Pricing policy
 Volume of sales
 Investment analysis
(iii) Production
The manufacturing of the product depends upon the coordination with other departments.
25
 The following factors of production should be evaluated.
 Selection of suitable process.
 Sequence of operation
 Application of new techniques
 Selection of method to reduce cost and waste.

(iv) Product quality and operation

 The product quality and cost are important.
 In a highly competitive market, a company has to give better quality products at
reasonable price.
 Operation management considers the operation time of the product.

(v) Government policy

Analyze the government policy, rules and procedures to see whether they are procedures
favourable to the product or not.
(vi) Technology
Analyze the existing technology and new technology which is profitable to the proposed
product.
Product layout
The arrangement of machines and equipments according to the product manufacture is called as
product layout.
 In this layout the raw materials arrive at one end and leave the other end as finished
product.

CONTROL AND PERFORMANCE:

Variations in the control patterns within the organizations are important. In some cases, they are
predictable.
Eg: effects on reactions, satisfactions, frustrations, feelings of tension, self-actualization or well-
being of members.
1. Amount of Control in an Organization
 Many administrators look to face a serious problem in their understanding of supervisory-
subordinate relations.
 They assume that the amount of control exercised by members of a group or organization
is a fixed quantity and increasing the power of one individual automatically decreases the
other
2. Inventory controlling or Purchase control
Inventory
26
  Inventory consists of stores of goods and other stocks.
 Alternatively inventory is the quantity of goods and other stocks held for a specific time
period in an unproductive state waiting for use or sales.
Inventory control:
 The Inventory control refers to the control of raw materials and purchased materials in
stores and regulation of investment in them.

Importance of Inventory control:

 Efficient utilization of resources.
 Useful in minimizing loss
 Economically benefit for purchasing
 It increases coordination with other departments
 It provides and maintains the consumer service.
Inventory costs:
Operation managers should identity these costs and then minimize their total cost. The costs
are of five types.
 Item cost
 Ordering cost
 Cost of carrying inventory
 Fixed overhead costs.
Effective Inventory Control System
 It should provide a proper check against losses.
 Inventories should be classified clearly. Each item should be given a separate code for
quick identification.
 Separate storerooms must be equipped with all facilities.
 Experienced and qualified persons should be appointed in the purchase and other related
departments
 Proper records should be maintained
 The Inventory cost would be high when the stock of the entire quantity of the materials.
Materials should be reviewed from time to time.
 It should dispose non-moving materials of unnecessary items in time.
Economic Order Quantity
 It is basic fixed order quantity model.
 Let us consider the purchase of the material required for one year.
 To reduce the inventory cost we can purchase material in small quantities.
 In business enterprise, we have to place a number of purchase order.
 It increases the ordering cost.
27
  Ordering cost includes requisition, transporting, receiving and inspecting enterprise cost.
So we have to determine the ordering quantity so that the total inventory cost.(lnventory
carrying cost + ordering cost) is minimum. This quantity is known as Economic Order
quantity.

From the graph the ordering cost, carrying costs and total costs are planned.

 Carrying cost increases directly with the size of the order.

 Ordering cost vary inversely with size of the order.
 Thus, point 'EOQ' represents the optimum order which minimizes the total cost of
inventory management.
Determination of Economic Order quantity (EOQ):

Just In Time Inventory System

 This method is also called zero inventory and stockless production.
 This method is first introduced in Japan.
 In this JIT method, the suppliers deliver the materials to the production spot just in time
to be assembled.
 This method reduces the cost of inventory.
 There is no stock of raw materials in stores or in work centre.
Advantages of JIT
 Inventory cost is reduced
 It improves the best plant layout
 It leads to job satisfaction of employees.
 It leads to better balancing of machines.
 Wastage is reduced.
 It improves the efficiency of workers.
 It increases coordination of employees.
 Quality product.
Disadvantages
 Stoppage of any machine will affect the work.
 If the suppliers do not deliver the materials, it will affect the work.
 Unskilled employees affect the process.
Essential requirements for the success of JIT
 Required trained and skilled workers.
 Smooth relationship with suppliers.
 Suppliers should be located near the company.
28
  Effective maintenance of machineries.
3 . Cost control
 Managers use financial control method to control an organization's financial resources

Steps involved in designing process of cost control system:

1. Establishing norms: To exercise cost control it is essential to establish norms, targets or
parameters which may serve as yardsticks to achieve the ultimate objective.
2. Appraisal: The actual results are compared with the set norms to determine the degree of
utilization of men, machines and materials. The deviations are analysed.
3. Corrective measures: the variance are reviewed and remedial measure or revision of
targets, norms, standards etc..

Financial Statements
 Financial statements refer to four basic statements, income statements, balance sheet,
statement of retained earnings and sources and fund statements.
 The Financial Statements reflect the financial position and operating strength or
weakness of the organization.

Users of financial statements:

 Management
 Share holders
 Creditors
 Employees
 Trade unions
 Government departments
 Tax Authorities
29
  Financial Institutions
 Commercial Banks

Importance of Financial Statements

Management
 Financial statement helps the management to understand the financial position, progress
and performance of business.
 It provides accurate and up to date financial information of the company.
 It helps the management to formulate appropriate policies, rules, procedures and course
of action for the future.
Shareholders
 Financial statements help the shareholders to know about the efficiency and
effectiveness of the company.
 The statement also gives the information about profit, capacity of the company, present
position and future position of the company.
 It guides to decide about making their investments in this company.
Creditors
 The financial statements serve as a useful guide for the financial analysis of liquidity,
long term solvency, short-term solvency and profit.
 This helps them to take correct decisions.
Labors
 The financial statements give information about the net profit of the
company. In wages negotiations, profit will be important.
Public
 Generally, public are interested in knowing the financial position, progress of the
company.
 From financial statements, people can analyze, compare and comment upon the
company's financial statement.
Government
 Tax liabilities of business enterprises are assessed using financial statements.

Limitations of financial statements:

 The data given in these statements are only approximate.
 Current price changes are not considered for valuing the assets of the business.
 Non - Monetary factors are ignored while preparing the financial statements.
 Information is incomplete.
 Qualitative information is ignored.
30
Income statement
The income statement is also known as profit and loss account.
 It reports recording of changes in income, expenses, profit and losses during the period. It
summarizes the revenues and expenses of the period.
Importance:
 It guides the management to judge business progress period.
 It analyses business success.
 It indicates the reasons for the business profitability or loss.
EXAMPLE: DEMO Construction income statement.

Balance Sheet
 A balance sheet is the statement which sets out the financial conditions of Business
Company.
 An analysis of balance sheet together with profit and loss account will give vital
information about the financial position and operation of the company.

 In balance sheet, left hand side contains capital and liabilities and right hand side
contains assets. It is described as a 'statement showing the sources and application of
capital'
 It is a statement not an account.
Capital and Liabilities Amount (Rs.) Assets Amount [Rs.]

31
 Capital ---------------- Fixed Assets ---------------
Reserves and surplus ---------------- Investments ----------------
Long term liabilities ---------------- Current Assets ----------------
Current ---------------- Miscellaneous assets ----------------
liabilities and --------------- ---------------
provisions ---------------- ----------------

Importance of balance sheet

 It is more important document than the profit and loss account.
 It gives a clear picture of the financial position of the business.
 It is a cumulative record of the progress of the business.
 A balance sheet is so called because its two sides must always balance i.e. the assets must
be equal to liabilities plus owners capital.

Key Words of Cost Control

1. Assets
 It is the cost which represents the expected future economic benefits to the business.
Fixed assets
 Assets used in the business are permanent.
 Example: Building, Machineries.
Current assets
 Assets which are expected to be realized in cash.
 Example: cash in bank, D.D., Bills receivable.

2. Liabilities
 Represent obligations which require the settlements in the future.
Fixed liabilities
 The liabilities that are payable only on the termination of business.
Current liabilities
 The liabilities that are payable within a year or due date. Bills
payable, short-term bank overdraft.

Cash Flow Statement

32
  Cash flow statement shows the cash position of the firm and includes all transactions on
cash position of the company.
 The cash flow statement analyses the sources and uses of cash in the company.

Advantages:
 It is useful in the evaluation of cash position of the company.
 It helps the management to plan the repayment of loan.
 It is very much useful in short - term financial analysis.
 It enables the management to account for situation when business has earned huge profits
or when it has suffered a loss.
 A comparison of the past and present cash flow will help the company to rectify the
deficiency in the financial performance.
Return on Investment
 The return on Investment is the broadest measure of overall performance of a
 business.
 The objective is to obtain satisfactory return on capital invested.
 ROI can be used to measure the efficiency of the company.
 ROI is calculated on the basis of three factors.
Advantages:
 ROI measurement shows business efficiency.
 ROI plays a vital role for top management for budget decisions.
 It is used in inter departmental comparison.
 ROI is used for comparing other companies.
 ROI gives ideas for analysis and decisions to bring about effective changes in financial
policies.
Limitations:
 In ROI measurements, factors such as inventory valuation, depreciation cannot be
considered.
 High or low profits are possible in the concern. In such cases, ROI is not correct
judgment of financial analysis.

DIRECT AND PREVENTIVE CONTROL

Direct control:
 It also termed as detective controls, is an attempt to detect undesirable acts that have
occurred.
 It involves comparing outputs with the standards or plans in terms of specific parameters
like time, cost quantity and quality.
33
  Finding out undesirable deviations of the employees performance and then correcting
their performance and achieve the organization goals are called direct control.
Two types
Partial control: it is designed for specific things like policies, wages/ salaries, cash, cost,
capital expenditure etc.
Overall cost: these are designed to measure the success of organization as a whole,
against organizational objectives..
Factors Influencing the direct control:
1. Uncertainty:
In every business enterprises, all managerial activities contain risk, facts and uncertainties.It
creates the negative deviations in the performance.
2. Lack of knowledge and experience:
Managerial position is an important devices to attain their goals. Inexperienced untrained
managers are unable to control process effectively.
3. Lack of communication
It is the communication gap between different units in the enterprises which effect the
managerial activities.
Effective steps for direct control:
1. Performance Measurement:
 In every enterprise some standards can be fixed. Input, output, price, cost time and
quality are subject to numerous satandards.
 If there is any deviation from standards, skilled managers find out the deviations and
correct it.
 Technical skills, creativity skills and problem solving skills are useful to measure the
performance of each employee.
2. Effectively Time utilization:
Managers conduct various enquiries and meeting and they consume more time. The
effective utilization of time increases the effective control.

3. Discovering the errors on time.

Error have taken place in the major areas such as cash, inventories, production. The
managers can find the mistakes in correct time and take necessary steps to correct the
mistakes.
4. Employee participation:
The involvement of employees in all activities of the organization leads to effective
control.
5. Effective coordination:
Increased coordination of all units increase the effective management. Effective
34
 coordination leads to effective control.

PREVENTIVE CONTROL
 Preventive control attempts to prevent undesirable acts from occurring. They are
proactive controls, designed to prevent a loss, error, or omission.
 An efficient manager applies the skills in managerial philosophy to eliminate undesirable
activities which are the reasons for poor management. It is called preventive control.
 Preventive control aims to prevent any deviation from the plans and standards by
thoughtfully designing the system with clear focus.

(i). Assumptions underlying preventive control system:

1. the qualified managers make minimum of errors:
 The position of a manager is important for every organization. He must take a problem
solving and decision making process.
 The experienced and technical skillful manager is able to forecast the future with a
reasonable degree of accuracy.
2. Management principles can be used to measure performance:
The basic principles concept of management are more important tools for effective
manager. The manager should aware of the measurement concept to handle any task in
the organization successfully.
3. Application of management principles can be evaluated:
A proper evaluation of managers is an essential part of preventive control. The managers
apply management principles to their planning, organizing, staffing, directing and
controlling.
Advantages of preventive control:
 It is more effective than direct control
 It encourages self-control
 This control is fast and quick
 It enhances a smooth relationship between superiors and subordinates.
 Prevention is better than cure. It reduces the wastage of costs
 It gives greater accuracy.

REPORTING:
A system of communication, normally in the written form, of facts which should be brought to
the attention of various levels of management who use them to take suitable action.
objectives
 To attain required information relating to the business to discharge its managerial
function of planning, directing, and decision making etc.,

35
  To ensure the operational efficiency of the concern
 To facilitate the maximum utilization of resources
 To secure industrial understanding among people
 To enable to motivating improving discipline and morale.
 To help the management for effective decision making.
Essentials of good reporting system:
1. Proper form: A good report should have a comprehensive form with suggestive form
with title, heading, subheading and number of paragraphs.
2. Contents: Simplicity is one of the requisites of reporting in relation to the content of a
report.
3. Promptness: It means that the system should ensure the preparation and submission of
report at the proper time.
4. Accuracy: Information conveyed should be accurate. This means that the person
responsible for reporting should have sufficient care in preparing report.
5. Comparability: the report should provide information abt bth the actual and the
budgeted performance of the budget period.
6. Consistency: In order too make meaningful and useful comparison, uniform accounting
principles and procedures should be allowed on consistent basis.
7. Relevancy: the report should be presented with relevant data to disclose the fact in
unambiguous terms.
8. Simplicity: The report should be far as possible in simple form.
9. Cost-benefit analysis: It should be made and the cost of reporting should commensurate
with the expenditure.
10.Principle of Exception: the time and effort of managerial personnel are precious, the
principle of mgmt by exception has become the rule of the day instead of exception.
11. Flexibility: The system should be capable of being adjusted according to the
requirement of the users.
12.Controllability: It is necessary that every report should be addressed to a responsibility
centre and analysed the factor into controllable and uncontrollable separately.

Classification of Reports:
(1). Oral Report
(2). Written Report

The written report may be classified into number of ways:

(i). According to Object or purposes:
a). External reports
b). Internal reports
 Reports meant for top mgmt
36
  Report meant for middle level mgmt
 Report meant for junior level mgmt

(ii). According to Period:

a. Routine report
b. Special report

(iii). According to Functions:

a). operating reports:
 Control report
 Information reports
 Venture measurement reports
b). Financial report:
 Static reports
 Dynamic reports.

37