CONTROLLING

Controlling can be defined as that function of management which helps to seek planned results from the
subordinates, managers and at all levels of an organization. The controlling function helps in measuring the
progress towards the organizational goals & brings any deviations, & indicates corrective action.

Controlling helps managers monitor the effectiveness of their planning, organizing, and leading activities.
Controlling determines what is being accomplished — that is, evaluating the performance and, if
necessary, taking corrective measures so that the performance takes place according to plans.

Control is a primary goal-oriented function of management in an organisation. It is a process of comparing

the actual performance with the set standards of the company to ensure that activities are performed
according to the plans and if not then taking corrective action.

Every manager needs to monitor and evaluate the activities of his subordinates. It helps in taking corrective
actions by the manager in the given timeline to avoid contingency or company’s loss. Controlling is
performed at the lower, middle and upper levels of the management.

Controlling is one of the important functions of a manager. In order to seek planned results from the
subordinates, a manager needs to exercise effective control over the activities of the subordinates. In other
words, the meaning of controlling function can be defined as ensuring that activities in an organization are
performed as per the plans. Controlling also ensures that an organization’s resources are being used
effectively & efficiently for the achievement of predetermined goals.

• Controlling is a goal-oriented function.

• It is a primary function of every manager.

• Controlling the function of a manager is a pervasive function.

IMPORTANCE OF CONTROLLING:

After the meaning of control, let us see its importance. Control is an indispensable function of management
without which the controlling function in an organization cannot be accomplished and the best of plans
which can be executed can go away. A good control system helps an organization in the following ways:

1. Accomplishing Organizational Goals:

The controlling function is an accomplishment of measures that further makes progress towards the
organizational goals & brings to light the deviations, & indicates corrective action. Therefore it helps in
guiding the organizational goals which can be achieved by performing a controlling function.

2. Judging Accuracy of Standards:

A good control system enables management to verify whether the standards set are accurate & objective.
The efficient control system also helps in keeping careful and progress check on the changes which help in
taking the major place in the organization & in the environment and also helps to review & revise the
standards in light of such changes.

3. Making efficient use of Resources:

Another important function of controlling is that in this, each activity is performed in such manner so an in
accordance with predetermined standards & norms so as to ensure that the resources are used in the most
effective & efficient manner for the further availability of resources.

4. Improving Employee Motivation:

Another important function is that controlling help in accommodating a good control system which ensures
that each employee knows well in advance what they expect & what are the standards of performance on
the basis of which they will be appraised. Therefore it helps in motivating and increasing their potential so
to make them & helps them to give better performance.

5. Ensuring Order & Discipline:

Controlling creates an atmosphere of order & discipline in the organization which helps to minimize
dishonest behaviour on the part of the employees. It keeps a close check on the activities of employees and
the company can be able to track and find out the dishonest employees by using computer monitoring as a
part of their control system.

6. Facilitating Coordination in Action:

The last important function of controlling is that each department & employee is governed by such pre-
determined standards and goals which are well versed and coordinated with one another. This ensures that
overall organizational objectives are accomplished in an overall manner.

FEATURES OF CONTROLLING:

An effective control system has the following features:

 It helps in achieving organizational goals.

 Facilitates optimum utilization of resources.
 It evaluates the accuracy of the standard.
 It also sets discipline and order.
 Motivates the employees and boosts employee morale.
 Ensures future planning by revising standards.
  Improves overall performance of an organization.
 It also minimizes errors.

Controlling and planning are interrelated for controlling gives an important input into the next planning
cycle. Controlling is a backwards-looking function which brings the management cycle back to the
planning function. Planning is a forward-looking process as it deals with the forecasts about the future
conditions.

Process of Controlling:

Control process involves the following steps as shown in the figure:

Establishing standards: This means setting up of the target which needs to be achieved to meet
organizational goals eventually. Standards indicate the criteria of performance.

Control standards are categorized as quantitative and qualitative standards. Quantitative standards are
expressed in terms of money. Qualitative standards, on the other hand, includes intangible items.

Measurement of actual performance: The actual performance of the employee is measured against the
target. With the increasing levels of management, the measurement of performance becomes difficult.

Comparison of actual performance with the standard: This compares the degree of difference between
the actual performance and the standard.

Taking corrective actions: It is initiated by the manager who corrects any defects in actual performance.
Controlling process thus regulates companies’ activities so that actual performance conforms to the
standard plan. An effective control system enables managers to avoid circumstances which cause the
company’s loss.

TYPES OF CONTROL:

There are three types of control viz.,

1. Feedback Control: This process involves collecting information about a finished task, assessing that
information and improvising the same type of tasks in the future.

2. Concurrent control: It is also called real-time control. It checks any problem and examines it to take
action before any loss is incurred. Example: control chart.

3. Predictive/ feed forward control: This type of control helps to foresee problem ahead of occurrence.
Therefore action can be taken before such a circumstance arises.

Elements of a good Control System:

Every decent control system must possess certain basic elements. Since they all play a major role, the
absence of any one of them can make the whole system weak. Hence, managers must ensure that their
control systems contain the following basic elements and considerations.

1) Feedback:

Feedback is the backbone of all control systems. This feedback is nothing but the information that
managers use to correct their organization’s actual performance.

The aim of feedback is basically to adjust future actions using previous experiences. Managers use the
information they receive from feedbacks to implement corrective measures. Such measures generally help
in bridging the gap between the actual performance of the organization and its goals.

Feedback may be either formal or informal. Formal feedback consists of sources like financial statements,
statistics, reports, other written communication, etc. On the other hand, informal feedback includes
personal opinions, informal discussions and an individual’s observations.

2) Control must be objective:

The second essential requirement of a good control system is that it must always be objective. A subjective
criterion should never be the basis of evaluating actual performances.

For example, evaluation of an employee’s performance should comprise of standards like working hours,
productivity, efficiency, etc. Managers should not evaluate employees using subjective prejudices.

3) Prompt reporting of deviations:

This element of the controlling system basically requires quick reporting of deviations and discrepancies. If
some work is not going according to plans, relevant managers must take notice of this immediately. This is
because any delay in reporting problems and taking corrective measures can lead to financial losses for a
business.

4) Control should be forward-looking:

Control systems can often suffer from the defect of delays in reporting of deviations and taking of
corrective measures. As we saw above, this problem can lead to financial losses for a business.

Hence, managers must ensure that their control systems are forward-looking. This will help in predicting
deviations in advance as well as giving adequate time for course correction.

5) Flexible controls:

A rigid control system can often make it ineffective in extraordinary and unpredictable situations. It should,
thus, be flexible and open to changes. Managers must be able to adapt their control measures as per the
requirements of every possible scenario.

6) Hierarchical suitability:
Almost all business organizations possess management hierarchies comprising of managers at various
positions and levels. Since each manager performs controlling functions at his level, the system itself must
suit his organization’s hierarchy. Every manager must have adequate powers for this purpose and the flow
of information for evaluation should be effective.

7) Control must be simple to understand:

Sophisticated policies can often make elements of control systems difficult to understand and implement. A
good system, however, is always simple to comprehend and work on.

Thus, before launching controlling measures, managers should first check whether their employees will be
able to understand them. They should also try to resolve any ambiguities and confusion that may arise later.

8) Control should focus on workers:

Good control systems always focus on workers instead of the work itself. Since it is workers who
implement these systems, everybody should be able to work with them effectively.

Business Budget:

A business budget is a spending plan for your business based on your income and expenses. It identifies
your available capital, estimates your spending, and helps you predict revenue.A budget can help you plan
your business activities and can act as a yardstick for setting up financial goals. It can help you tackle both
short-term obstacles and long-term planning.

Different types of budgets:

Your final budget is usually a combination of inputs from several other budgets that are prepared at a
departmental level. Let’s look at the different types of budget and how they contribute to drafting a
business plan.

1. Master budget

A master budget is an aggregation of lower-level budgets created by the different functional areas in an
organization. It uses inputs from financial statements, the cash forecast, and the financial plan.
Management teams use master budgets to plan the activities they need to achieve their business goals.

In larger organizations, the senior management is responsible for creating several iterations of the master
budget before it is finalized. Once it has been reviewed for the final time, funds can be allocated for
specific business activities.

Smaller businesses often use spread sheets to create their master budgets, but replacing the spread sheets
with efficient budgeting software typically reduces errors.

2. Operating budget:

An operating budget shows a business’s projected revenue and the expenses associated with it for a period
of time. It’s very similar to a profit and loss report. It includes fixed cost, variable cost, capital costs, and
non-operating expenses. Although this budget is a high-level summary report, each line item is backed up
with relevant details. This information is useful for checking whether the business is spending according to
its plans.

In most organizations, the management prepares this budget at the beginning of each year. The document is
updated throughout the year, either monthly or quarterly, and can be used as a forecast for consecutive
years.

3. Cash budget:

A cash flow budget gives you an estimate of the money that comes in or goes out of a business for a
specific period in time. Organizations create cash budgets using inferences from sales forecasts and
production, and by estimating the payables and receivables.

The information in this budget can help you evaluate whether you have enough liquid cash for operating,
whether your money is being used productively, and whether there is and whether you are on track to earn
a profit .

4. Financial budget:

Businesses draft this budget to understand how much capital they’ll need and at what times for fulfilling
short-term and long-term needs. It factors in assets, liabilities, and stakeholder’s equity—the important
components of a balance sheet, which give you an overall idea of your business health.

5. Labor budget:

For any business that is planning on hiring employees to achieve its goals, a labor budget will be important.
It helps you determine the workforce you will require to achieve your goals so you can plan the payroll for
all of those employees. In addition to planning regular staffing, it also helps you allocate expenses for
seasonal workers.

6. Static budget:

As the name suggests, this budget is an estimate of revenue and expenses that will remain fixed throughout
the year. The line items in this budget can be used as goals to meet regardless of any increases or decreases
in sales. Static budgets are usually prepared by nonprofits, educational institutions, or government bodies
that have been allocated a fixed amount to use for their activities in each area.

Components of a budget:

If you are starting a new business, the first budget you create might be a challenge, but it is a good learning
experience and a good way to understand what works best for your business. The best place to start is
getting to know your budget components. Initially you may need to make several assumptions to get your
budget started.

1. Estimated revenue
This is the money you expect your business to make from the sale of goods and services. There are two
main components of estimated revenue: sales forecast and estimated cost of goods sold or services
rendered. If your business is more than a year old, then your experience will guide you in estimating these
components. If your business is new, you can check the revenue of similar local businesses and use those
figures to conservatively create some estimated revenue numbers. But whether your business is new or old,
it is important to stay realistic to avoid over-estimating.

2. Fixed cost

When your business pays the same amount regularly for a particular expense, that is classified as a fixed
cost. Some examples of fixed costs include building rent, mortgage/utility payments, employee salaries,
internet service, accounting services, and insurance premiums. Factoring these expenses into the budget is
important so that you can set aside the exact amount of money required to cover these expenses. They can
also be a good reference point to check for problems if your business finances aren’t going as planned.

3. Variable costs

This category includes the cost of goods or services that can fluctuate based on your business success. For
example, let us assume you have a product in the market that is gaining popularity. The next thing you
would like to do is manufacture more of that product. The costs of the raw materials required for
production, the distribution channels used for supplying the product, and the production labor will all
change when you increase production, so they will all be considered variable expenses.

4. One-time expenses

These are one-off, unexpected costs that your business might incur in any given year. Some examples of
these costs include replacing broken furniture or purchasing a laptop.

Since it is difficult to predict these expenses, there is no certain way to estimate for them. But it’s wise to
set aside some cash for this category to stay prepared.

5. Cash flow

This is the money that travels in and out of the business. You can get an idea of it from your previous
financial records and use that information to forecast your earnings for the year you’re budgeting for.
You’ll want to pay attention not only to how much money is coming in, but also when. If your business has
a peak season and a dry season, knowing when your cash flow is highest will help you plan when to make
large purchases or investments.

6. Profit

The final budget component is profit, which is a number you arrive at by subtracting your estimated cost
from revenue. An increase in profit means your business is growing, which is a good sign. Once you have
projected how much profit you are likely to make in a year, you’ll be able to decide how much to invest in
each functional area of your organization. For example, will you use your profit to invest in advertising or
marketing to drive more sales?
Management Accounting:

Managerial accounting involves many aspects of accounting. It aims at improving the quality of
information about business operation metrics. Information relating to the cost and sales revenue of goods
and services of the company is useful to the managerial accountants.

Types of Managerial Accounting:

1. Product Costing and Valuation

Costs can be bifurcated into the variable, fixed, direct, or indirect costs. Cost accounting helps in
measuring and identifying these costs as well as assigning overheads to each type of product or service.
Product costing, thus, determines the total costs incurred in the production of a good or service.

Managerial accounting helps in calculating and allocating overhead charges to assess the expenses or costs
related to the production of a good or service. The overhead expenses can be allocated on the basis of the
number of goods produced, the number of hours run, the number of machine-hours, the square footage of
the facility or any other activity drivers related to production. Managerial accounting also uses direct costs
for the purpose of valuing the cost of goods sold and inventory.

2. Cash Flow Analysis

Cash flow analysis helps in determining the cash impact of business decisions. Most companies follow the
accrual basis of accounting to record their financial information as it provides a more accurate picture of a
company’s true financial position. However, it also makes it difficult to measure the true cash impact of a
single financial transaction. By implementing working capital management strategies, one may optimize
cash flow and ensure that the company has enough liquid assets to cover short-term obligations. While
performing the cash flow analysis, one needs to consider the cash inflow or outflow generated as a result of
a specific business decision.

3. Inventory Turnover Analysis

Inventory turnover involves a calculation of how many times the inventory has been sold and replaced in a
given period of time. It helps businesses in making better decisions on pricing, manufacturing, marketing,
and purchasing inventory. Inventory Turnover analysis also helps in identifying the carrying cost of
inventory. The carrying cost of inventory is the amount of expense a company incurs to store unsold items.

4. Constraint Analysis

Reviewing the constraints within a production line or sales process is also a part of Managerial accounting.
It involves determining where bottlenecks occur and calculating the impact of these constraints on revenue,
profit, and cash flow. This information is useful to implement changes and improve efficiencies in the
production or sales process.

5. Financial Leverage Metrics

Financial leverage refers to the use of borrowed funds in order to acquire assets and increase its return on
investments. Through balance sheet analysis, the company’s debt and equity mix in order to put leverage to
its most optimal use can be studied. Performance measures such as return on equity, debt to equity, and
return on invested capital help the managers to identify key information about borrowed capital.

6. Accounts Receivable (AR) Management

Accounts Receivables invoices are categorized by the length of time they have been outstanding in an
accounts receivable ageing report. It may list all outstanding receivables less than 30 days, 30 to 60 days,
60 to 90 days, and 90+ days. It helps the managers to ascertain whether certain customers are becoming
credit risks. If a customer routinely pays late, management may reconsider doing any future business on
credit with that customer.

7. Budgeting, Trend Analysis, and Forecasting

Budgets are a quantitative expression of the company’s plan of operation. Performance reports are used to
study the deviations of actual results from budgets. The positive or negative deviations from a budget are
analyzed in order to make appropriate changes going forward with the future planning.

Managerial accounting also helps in analyzing information related to capital expenditure decisions with the
use of standard capital budgeting metrics, such as NPV and IRR. It assists decision-makers on whether to
invest in capital-intensive projects or purchases or not.

Managerial accounting also includes reviewing the trend line for certain expenses as well as investigating
unusual deviations.

Management Reports:

Management reporting is a tool that allows an organization’s managers across all levels to identify,
monitor, and measure the key performance indicators (KPIs) to gauge the business’s performance against
the predetermined goals. Businesses can use the KPI information to take crucial operational decisions that
can improve organizational efficiency.

The choice of management reporting method depends on the size, nature, and data type.

First, let us look at the different methods available.

Visual Report: These reports represent information in graphical form. As a result, managers can analyze
the data easily. For example, one can use bar diagrams, pie charts, etc., to prepare visual reports.

Written Report: It is a written form of communication. Written reports usually include ratios, tables, and
formal financial statements.
Oral Report: This involves conducting group discussions, conferences, and meetings, to convey crucial
information. Organizations may use oral reports for policy formation, resolving team-related problems, and
internal management.

Types of management report:

Analytical Reports

This kind of reporting involves using quantitative and qualitative data to analyze and evaluate the
effectiveness of an organization’s strategies. Analytical reports can provide estimates and trends for
improved decision-making and business innovation

Internal Reports

The purpose of internal reports is to report on managerial tasks. Such reports must adhere to the set legal
standards and are typically prepared for all management levels.

Operational Reports

These reports aim to monitor different metrics’ operation or performance. The preparation of such reports
usually occurs daily, monthly, or weekly. Managers can utilize the information in such reports to minimize
costs, optimize business performance, identify trends, and improve the organization’s daily operations.

Limitations of Controlling:

The defects or limitations of controlling are as following:

1. Difficulty in Setting Quantitative Standards:

It becomes very difficult to compare the actual performance with the predetermined standards, if these
standards are not expressed in quantitative terms. This is especially so in areas of job satisfaction, human
behavior and employee morale.

2. No Control on External Factors:

An organization fails to have control on external factors like technological changes, competition,
government policies, changes in taste of consumers etc.

3. Resistance from Employees:

Often employees resist the control systems since they consider them as curbs on their freedom. For
example, surveillance through closed circuit television (CCTV).

4. Costly Affair:

Controlling involves a lot of expenditure, time and effort, thus it is a costly affair. Managers are required to
ensure that the cost involved in installing and operating a control system should not be more than the
benefits expected from it.
TECHNIQUES OF CONTROLLING:

There are many controlling techniques which were also commonly known as controlling aids. Generally
these controlling techniques can be categorized into two types i.e., Traditional Techniques and Modern
Techniques. Now in this article we can concentrate on both the techniques in detail. So that one can
understand them well and can practice well in their organizations to achieve their predetermined objectives.

Traditional Control Techniques:

The essence of control function is to confirm whether the actions are going according to plans or not. If
they are not accordance with the plans then management should take a corrective action to overcome such
deviations. For this purpose management should determine standards so that they can easily be compared
with them.

For this purpose many techniques have been developed. Among them traditional such as Budgeting and
Budgetary Control, Cost Control, Production Planning and Control, Inventory Control etc. are the best
examples. Though modern techniques have been developed to improve the quality of controlling process
but still today these techniques are being used extensively in the organizations.

I. Budgeting and Budgetary Control:

Budgeting:
A widely used tool for management control is budget. It is a quantitative expression of plan of action. It
refers to the plan of an organization expressed in financial terms. It determines financial estimations
relating to various activities of an organization for a fixed period of controlling actual performance.

The following are the important definitions of a budget:

“A budget is pre-determined statement of management policy during a given period provided a standard for
comparison with the results actually achieved”. — J. L. Brown & L.R. Howard

“A budget is a financial or quantitative statement prepared prior to a defined period of time of the policy to
be pursued during that period for the purpose attaining a given objective”.— I. C. W. A England From the
above definitions the following characteristics can be summarized:

(1) A budget generally relates to a given future period

(2) It differs from objectives or policies because it is set down in specific numerical terms

(3) It should be flexible

(4) It is fundamental to the organization and hence, it receives the attentions and support of the top
management.

Importance of Budgeting:

(1) Budgeting involves drawing up budgets based on well-defined plans of action.

(2) It serves another important purpose i.e., coordinating plans and activities of various departments and
sections.

(3) It facilitate control over expenses, income, costs and profits.

Types of Budget:

There are many types of Budgets which are generally used in an organization.

They are:

(i) Sales budget – It represents the plan of sales for a given period.
(ii) Purchase budget – It presents the quantities of raw materials and other consumable items to be
purchased by a manufacturing company.
(iii) Cash budget – It is a statement of the anticipated receipts and payments for a given period along
with the resulting surplus or deficit.
(iv) Expense budget – It lays down the estimates of the standard or norm of operating expenses of
an enterprise for a given period.
(v) Capital budget – This type of budget outlines the anticipated expenditure on plant, machinery,
equipment and other items of a capital nature.
(vi) Revenue budget – It indicates the income or revenue expected to be earned from sale of goods
produced or purchased for re-sale.
 (vii) Production budget – It shows the volume of production to be undertaken for a given period
together with the material, labour and machinery requirements sometimes production budgets
also show the anticipated cost of production.
(viii) Labour budget – It indicates the types of skills of labourers and the numbers in each category
estimated to be required in a given period along with the standard wages payable
(ix) Master budget – This is prepared for the whole enterprise by compiling the different sectional
budgets which is finally adopted and worked upon.

Budgetary Control:

It is the process of preparing various budgeted figures for the organization for the future period and then
comparing with the actual performance for finding out variances. This enables management to find out
deviations and take corrective measures at a proper time. Hence, a budget is a means and budgetary control
is the end result.

(1) “Budgetary control is system which uses budget as a means of planning and controlling all aspects
of producing and or selling commodities or services”.

(2) “Budgetary control is the planning in advance of the various functions of business so that the
business as a whole can be controlled”.

From the above two definitions, the following characteristics of budgetary control can be extracted:

(1) It implies the planning of activities for each department.

(2) It involves recording of actual performance for sake of comparison and control.

(3) It involves taking the necessary steps to improve the situation and to prevent further deviations.

(4) It involves the co-ordination among various department plans and budgets.

Advantages:

(1) The budgetary control aims at the maximization of profits of an organization.

(2) It provides the management with a means of control over planned programmes.

(3) It facilitates co-ordination among various activities of an organization.

(4) Wastage is minimized and hence efficiency can be achieved.

(5) Budgetary control enables the introduction of incentives schemes of remuneration.

(6) It creates consciousness among the employees.

(7) The national resources will be used economically and wastage will be eliminated.

(8) It provides an effective means by which top management can delegate authority and responsibility
without disturbing overall control.
Limitations of Budgetary Control:

(1) The future uncertainties reduce the utility of budgetary control system.

(2) Budgetary control may lead to conflicts among functional departments.

(3) The lack of co-ordination among different departments results in poor performance.

(4) The cost of employing additional staff for budgeting increases the expenditure of an organization which
generally cannot be afford by small enterprises.

II. Cost Control:

The cost of production is an important factor in calculating the income of an organization. Hence, every
organization tries it level best to keep the cost within the reasonable limits. The techniques of cost control
involve the setting of cost standards for various components of cost and making comparison of actual cost
data with standard cost. This process is known as standard costing. This standard costing refers to a pre-
determined estimate of cost with can be used as a standard.

This standard cost forms the basis of control under standard costing. Actual cost is compared with the
standards, variations are analysed and suitable action are taken to overcome such variations. Thus standard
costing may be regarded essentially as a tool of cost control.

Advantages:

(1) It helps in discovering efficient and inefficient activities in an organization.

(2) It provides valuable information for submitting tenders or quoting prices of products and services.

(3) It reduces cost of an organization.

(4) Cost records become a basis for planning future production policies.

(5) The reasons for variations in profit can be ascertained.

Limitations:

(1) It is very expensive to apply.

(2) The success of this method depends on the reliability and accuracy of standards.

III. Production Planning and Control:

It is an important function of production manager. This is the function of looking ahead, estimating
difficulties to be occurred and remedial steps to remove them. It guides and directs flow of production so
that products are manufactured in a best way.

Following techniques are helpful in production planning and control:

 (i) Routing – It is the determination of exact path which will be followed in production. It
determines the cheapest and best sequence of activities to be followed.
(ii) Scheduling – It is the determining of time and date when each operational activity is to be
started and completed.
(iii) Dispatching – It refers to the process of actually ordering the work to be done.
(iv) Follow up and Expediting – It is related to evaluation and appraisal of work performed.
(v) Inspection – It is to see whether the products manufactured are of requisite quality or not.

IV. Inventory Control:

It refers to the control of materials in an efficient manner, which ensures maximum return on working
capital. It is very important for the smooth functioning of production department. Its main objective is to
maintain a suitable supply of material at the lowest cost.

This control is exercised at three phases:

(i) Purchasing of materials

(ii) Storing of materials
(iii) Issuing of materials.

This can be exercised by establishing various criteria such as:

(i) Safety inventory level

(ii) Maximum inventory level
(iii) Reordering level
(iv) Danger level

V. Profit and Loss Control:

It is a simple and commonly used overall control tool to find out the immediate profit or cost factors
responsible for either the success or failure of business. As a controlling device it enables the management
to influence in advance revenues, the expenses and consequently even profits.

The sales, expenses and profit of different departments are compared. The department becomes a cost
centre. The in charge of the department is responsible for its performance. Even historical comparison is
done to assess the performance. In case there are deviations in performance than immediate steps are taken
to rectify them.

VI. Statistical Data Analysis:

It is an important control technique. This analysis is possible by means of comparison of ratios,

percentages, averages, trends etc., of different periods with a view to find out deviations and causes. This
method is applicable in case of inventory control, production control and quality control. The minimum
and maximum control limits are fixed and deviations with in these limits are allowed.
It variations go beyond limitations then immediate steps are taken to correct them. Statistical control charts
are prepared with the help of collected data and permissible limits are plotted. This chart will give an idea
whether everything is going as per the plans or not. Hence, analysis of data is important device of control.

Modern Techniques:

Besides the traditional techniques which were discussed above, there are many other techniques which
have been evolved in modern times. These techniques are also called non-budgetary techniques.

I Return on Investment Control (ROI):

One of the most successfully used control technique of measuring both the absolute and the relative
success of a company is by the ratio of net earnings to investment the company has made. This approach
often referred to a ROI. If the rate of return on investment is satisfactory, it will be considered as good
performance. The return on investment can be compared over a period of time as well as with that of other
similar concerns.

The return on investment can be computed with the following formula:

II Programme Evaluation and Review Techniques (PERT):

The success of organization depends on its activities for the accomplishment of an objective within
stipulated time and cost. Management should determine activities to be performed and their inter-
relationships so that estimated resources and time needed to complete these activities as per schedule and
to monitor and control the time and cost of the project.

Through network analysis technique the time can be minimized to complete the project and also overall
project cost can be minimized. For this purpose PERT and CPM are the two important types of network
analysis used in modern management.

It is a technique of project which is used in the following managerial functions:

Planning:

The planning of project includes the listing of different jobs that has to be performed to complete the
venture. Here, requirements of men, material and equipment are determined along with the costs and
duration for the various jobs, in the process of planning.

Scheduling:

It is the arrangement of the actual jobs of the project according to sequence of the time in which they have
to be performed. At this stage calculation of manpower and materials required are calculated along with the
expected time of completion of each job.

Control:

The process of control starts with comparison of the difference between schedules and actual results. They
analyse of difference and the corrective action taken is the essence of control process. The most important
condition for implementing PERT is the breaking up of the project into activities and determining the order
of occurrence of these activities i.e., deciding activities which are to be completed before. The next step is
to draw graph, which explains the activities outlining the predecessor and successor relations among them.
A thorough understanding of the steps associated with the construction of the graph is important for
understanding of PERT.

Advantages:

The following are the important advantages of PERT are:

(1) It forces managers to chalk-out a plan to integrate all the activities as a whole.

(2) It is instrumental for concentrating attention on critical elements that may need modifications.

(3) It is helpful in solving problems of scheduling the activities of one-time projects i.e., the projects which
are not taken on routine basis.

(4) It helps in completing a project on schedule by coordinating different jobs involved in its completion.

Limitations:

(1) The expected time for each activity of any programme cannot be determined with certainty.

(2) It is suitable for programmes where time is essential consideration.

III Critical Path Method (CPM):

The technique is helpful in finding out the more strategic elements of a plan for the purpose of better
designing, planning, coordinating and controlling the entire project. It was developed by walker of Dupont
Company in 1950s, under this technique a project is broken into different operations or activities and their
relationships are determined.

These relations are shown with the help of diagram known as network diagram. The network diagram may
be used for optimizing the use of resources and time. This technique is based on the assumption that
activity times are proportional to the magnitude of resources allocated to them and by making a change in
the level of resources, the activity times and the project completion time can be varied.

Objectives of CPM Analysis:

The following are the main objectives of critical path analysis in a network:

(1) To estimate a route or path between two or more activities which maximizes some measures of
performance.

(2) To locate the points of hurdles and difficulties in the implementation of any project.

(3) To determine starting and ending times for each activity.

(4) To determine the slack associated with each non-critical activity.

Advantages:

The application of CPM leads to the following advantages:

(1) It determines most critical elements and pays more attention to these activities.

(2) It results in the maximum utilization of resources and facilities.

(3) It provides standard method for communicating project plans, schedules and costs.

(4) It concentrates on the timely completion of the whole project.

(5) It improves the quality of planning and controlling.

(6) It eliminates waste of time, energy and money on unimportant activities.

Limitations:

CPM is having two major limitations:

(1) It has limited use and application in routine activities for recurring projects.

(2) Time given for different activities may prove to unrealistic.

IV. Management Information System (MIS):

This system emphasizes on providing timely, adequate and accurate information to the right person in the
organization which in turn helps in making right decisions. It is a planned technique for transferring of
intelligence within an organization for better management. Under this method data from all possible
sources are collected and properly processed for using in future. So this system should be designed in such
a way that helps management in exercising effective control over all aspects of the organization.

MIS is of two types:

(1) Management operating system and

(2) Management reporting system.

The first one meant for meeting the information needs of the lower and middle level managements and
second one is to supply information to top level management for decision-making.

V. Break Even Analysis:

A significant and popularly used control technique among the business enterprises and industries is the
analysis of break-even point which explains the relationship between sales and expenses in such a way as
to show at what volume revenue exactly covers expenses. This technique measures profit corresponding to
the different levels of output. Hence, the study of cost- volume-profit relationship is frequently referred to
as break even analysis.
In the words of Matz and Curry “Break-even analysis indicates at which level costs and revenue are in
equilibrium”. Thus, break-even analysis is associated with the calculation of break-even point. It is also
known as no profit, no loss point. This point can be calculated mathematically and charted on graph paper
also.

The method of calculating break-even point is as follows:

Assumption:

The break even analysis is based on the following assumptions:

(i) All elements of cost i.e., production, administration and selling and distribution can be
segregated into fixed and variable components.
(ii) Variable cost remains constant per unit of output and thus fluctuates directly in proportion to
changes in the volume of output.
(iii) Fixed cost remains constant at all volumes of output.
(iv) Volume of production is the only factor that influences.
(v) There is a synchronization between production and sales.

Advantages:

The break even analysis renders many advantages for managerial guidance.

(i) It helps in calculating of profit for different sales volumes.

(ii) Calculation of sales volume to produce desired profit can be possible.
(iii) It emphasizes on calculation of selling price per unit for a particular break-even point.
(iv) It helps in determination of margin of safety.
(v) It helps in calculating of sales required to offset price reduction.
(vi) It helps in choosing the most profitable alternatives.
(vii) It helps in determining the optimum sales mix.
(viii) It helps in calculation of sales volume required to meet proposed expenditures.

Limitations:

The break even analysis is based on number of assumptions which are rarely found in real life. Hence, its
managerial utility becomes limited.

Its main limitations are as follows:

(i) This analysis overlooks the time lag between production and sale.

(ii) The assumption of keeping factors like plant-size, technology and methodology of production constant
in order to get an effective break-even chart is unrealistic in actual life.

(iii) The sales-mix is also not a constant variable.

(iv) The valuation and allocation of costs in an organization is usually arbitrary and hence it reduces the
usefulness of this analysis.

(v) This analysis does not take into account the capital invested in the production and its costs which is very
important factor in profitability decisions.

VI. Management Audit:

This audit reveals irregularities and defects in the working of management. It also suggests the ways to
improve the efficiency of the management. It examines and the reviews various policies and functions of
the management on the bases of certain standards. It emphasis to evaluate the performance of various
management processes of an organization.

According to Taylor and Perry, “Management audit is the comprehensive examination of an enterprise to
appraise its organizational structure, policies and procedures in order to determine whether sound
management exists at all levels, ensuring effective relationships with the outside world”.

According to the Institute of Internal Auditors, Management audit is a “future oriented, independent and
systematic evaluation of the activities of all levels of management for the purpose of improving
organizational profitability and increasing the attainment of the other organizational objectives”.

Hence, from the above two definitions it can be concluded that management audit concentrates on the
examination of policies and functions of the management on the basis of certain standards and norms.
Objectives:

The following are the main objectives of management audit:

(i) It assists management in achieving co-ordination among various departments of the organization.

(ii) It detects any irregularity in the process of management and also it suggests improvement to achieve
best results.

(iii) It assists all levels of management through constant watch of all activities of the organization.

(iv)It suggests changes in the policies and procedures for a better future.

(v)It ensures most effective relationship with the outsiders and the most efficient internal organization.

(vi)It concentrates on performance of the management through close observation of inputs and outputs.

(vii) It ensures the establishing good relations with the employees and to elaborate duties, rights and
liabilities of the entire staff.

(viii) It recommends better human relation approach, new management development and overall
organizational plans and objectives.

Importance:

Management audit is very important for its usefulness and is outlined as follows:
(i) It assesses the soundness of plans adopted and the adequacy of control system for making plans
successful.

(ii) It is useful in giving advices to the prospective investors.

(iii)It is very much useful in reviewing plans and policies.

(iv) It gives proper advice to the management to perform their functions well.

(v) Financial institutions may get management audit conducted to ensure that their investment in the
company would be safe and secured in the hands of the management.

Advantages of Management Audit:

It provides us following advantages:

(i) It helps the management in preparing plans, objectives and policies and suggests the ways and means to
implement those plans and policies.

(ii) Proper management audit techniques help the business to stop capital erosion.

(iii) Management audit increases the overall profitability of a business through constant review of solvency,
profitability and efficiency position of the concern.

(iv) Management audit eradicates the inefficiencies and ineffectiveness on the part of the management.

(v) The techniques of management audit are not only applicable to all factors of production but also to all
elements of cost.

(vi) It helps the top management to take effective decisions in time.

(vii) It helps the management in strengthening its communication system within and outside the business.

(viii)It helps management in preparation of budgets and resources management policies.

(ix)It helps management in training of personnel and marketing policies.

Disadvantages:

The disadvantages of management audit can briefly be stated as follows:

(i) The installation of this audit technique involves heavy expenditure.

(ii) Due to ineffectiveness and inefficiency of the management auditor, management audit cannot provide
result oriented service.

(iii) Management auditors may be engaged in some activities detrimental to social objects of auditing for
example evasion of tax.

Advantages of controlling:
 Saves time and energy

Allows managers to concentrate on important tasks. This allows better utilization of the managerial
resource.

Helps in timely corrective action to be taken by the manager.

Managers can delegate tasks so routinely chores can be completed by subordinates.

On the contrary, controlling suffers from the constraint that the organization has no control over external
factors. It can turn out to be a costly affair, especially for small companies.

Non-budgetary control techniques:

Non-budgetary control techniques in principles of management are methods and strategies used to monitor
and manage an organization's performance and operations without relying solely on traditional budgeting.
These techniques can be especially useful when organizations want to complement or replace budget-based
control systems. Here are some key non-budgetary control techniques along with brief notes:

Management by Objectives (MBO):

MBO is a goal-setting approach where managers and employees collaborate to set specific, measurable
objectives. Performance is evaluated based on the achievement of these objectives, promoting alignment
with organizational goals.

Key Performance Indicators (KPIs):

KPIs are specific, quantifiable metrics that help track performance in various aspects of the organization.
They provide real-time data and insights into critical areas, allowing for timely decision-making.

Balanced Scorecard:

The balanced scorecard is a performance measurement framework that considers financial and non-
financial indicators. It provides a holistic view of an organization's performance, covering aspects like
financial, customer, internal processes, and learning and growth.

Quality Management Techniques:

Techniques like Total Quality Management (TQM) and Six Sigma focus on improving the quality of
processes and products. They involve continuous monitoring and improvement of quality-related
indicators.

Benchmarking:

Benchmarking involves comparing an organization's performance with that of its competitors or industry
leaders. It helps identify areas for improvement and best practices to adopt.
Activity-Based Costing (ABC):

ABC allocates costs to specific activities or processes, providing a more accurate view of where resources
are being consumed. It helps in making cost-effective decisions.

Performance Appraisals:

Performance appraisals involve evaluating employees' job performance against established criteria.They
provide feedback for individual development and assessing employee contributions.

Customer Feedback and Surveys:

Gathering customer feedback and conducting surveys can provide insights into customer satisfaction,
preferences, and areas that need improvement. This customer-centric approach is valuable for many
businesses.

Technology and Information Systems:

Utilizing information systems, such as Enterprise Resource Planning (ERP) and Customer Relationship
Management (CRM) systems, can help track and control various aspects of an organization's operations.

Lean Management and Just-in-Time (JIT):

Lean and JIT principles focus on eliminating waste and ensuring resources are used efficiently. They
emphasize reducing inventory, lead times, and production costs.

Business Process Reengineering (BPR):

BPR involves redesigning and improving core business processes to enhance efficiency, quality, and
customer satisfaction.It's a radical approach to change management.

Adaptive and Agile Management:

These management approaches prioritize flexibility and the ability to adapt to changing conditions. They
are particularly relevant in dynamic and uncertain environments.

Each of these non-budgetary control techniques offers a different way to monitor and manage an
organization's performance, allowing for more agility, responsiveness, and a focus on key performance
indicators. Organizations often use a combination of these techniques to create a well-rounded control
system that aligns with their strategic objectives.

Control is the process through which managers assure that actual activities conform to planned activities.
In the words of Koontz and O'Donnell - "Managerial control implies measurement of accomplishment
against the standard and the correction of deviations to assure attainment of objectives according to plans."

Nature & Purpose of Control:

• Control is an essential function of management

• Control is an ongoing process

• Control is forward – working because pas cannot be controlled

• Control involves measurement

• The essence of control is action

• Control is an integrated system

CONTROL PROCESS:

The basic control process involves mainly these steps as shown in Figure

a) The Establishment of Standards

Because plans are the yardsticks against which controls must be revised, it follows logically that the first
step in the control process would be to accomplish plans. Plans can be considered as the criterion or the
standards against which we compare the actual performance in order to figure out the deviations.

Examples for the standards

 Profitability standards: In general, these standards indicate how much the company would like to
make as profit over a given time period- that is, its return on investment.

 Market position standards: These standards indicate the share of total sales in a particular market
that the company would like to have relative to its competitors.

 Productivity standards: How much that various segments of the organization should produce is
the focus of these standards.

 Product leadership standards: These indicate what must be done to attain such a position.

 Employee attitude standards: These standards indicate what types of attitudes the company
managers should strive to indicate in the company’s employees.

 Social responsibility standards: Such as making contribution to the society.

  Standards reflecting the relative balance between short and long range goals.

b) Measurement of Performance

The measurement of performance against standards should be on a forward looking basis so that deviations
may be detected in advance by appropriate actions. The degree of difficulty in measuring various types of
organizational performance, of course, is determined primarily by the activity being measured. For
example, it is far more difficult to measure the performance of highway maintenance worker than to
measure the performance of a student enrolled in a college level management course.

c) Comparing Measured Performance to Stated Standards

When managers have taken a measure of organizational performance, their next step in controlling is to
compare this measure against some standard. A standard is the level of activity established to serve as a
model for evaluating organizational performance. The performance evaluated can be for the organization
as a whole or for some individuals working within the organization. In essence, standards are the yardsticks
that determine whether organizational performance is adequate or inadequate.

d) Taking Corrective Actions

After actual performance has been measured compared with established performance standards, the next
step in the controlling process is to take corrective action, if necessary. Corrective action is managerial
activity aimed at bringing organizational performance up to the level of performance standards. In other
words, corrective action focuses on correcting organizational mistakes that hinder organizational
performance. Before taking any corrective action, however, managers should make sure that the standards
they are using were properly established and that their measurements of organizational performance are
valid and reliable.

At first glance, it seems a fairly simple proposition that managers should take corrective action to eliminate
problems - the factors within an organization that are barriers to organizational goal attainment. In practice,
however, it is often difficult to pinpoint the problem causing some undesirable organizational effect.

BARRIERS FOR CONTROLLING:

There are many barriers, among the most important of them:

• Control activities can create an undesirable overemphasis on short-term production as opposed to

long- term production.

• Control activities can increase employees' frustration with their jobs and thereby reduce morale.
This reaction tends to occur primarily where management exerts too much control.

• Control activities can encourage the falsification of reports.

• Control activities can cause the perspectives of organization members to be too narrow for the good
of the organization.

• Control activities can be perceived as the goals of the control process rather than the means by
which corrective action is taken.

REQUIREMENTS FOR EFFECTIVE CONTROL:

The requirements for effective control are

a) Control should be tailored to plans and positions

This means that, all control techniques and systems should reflect the plans they are designed to follow.
This is because every plan and every kind and phase of an operation has its unique characteristics.

b) Control must be tailored to individual managers and their responsibilities

This means that controls must be tailored to the personality of individual managers. This because control
systems and information are intended to help individual managers carry out their function of control. If
they are not of a type that a manager can or will understand, they will not be useful.

c) Control should point up exceptions as critical points

This is because by concentration on exceptions from planned performance, controls based on the time
honoured exception principle allow managers to detect those places where their attention is required and
should be given. However, it is not enough to look at exceptions, because some deviations from standards
have little meaning and others have a great deal of significance.

d) Control should be objective

This is because when controls are subjective, a manager’s personality may influence judgments of
performance inaccuracy. Objective standards can be quantitative such as costs or man hours per unit or
date of job completion. They can also be qualitative in the case of training programs that have specific
characteristics or are designed to accomplish a specific kind of upgrading of the quality of personnel.

e) Control should be flexible

This means that controls should remain workable in the case of changed plans, unforeseen circumstances,
or outsight failures. Much flexibility in control can be provided by having alternative plans for various
probable situations.

f) Control should be economical

This means that control must worth their cost. Although this requirement is simple, its practice is often
complex. This is because a manager may find it difficult to know what a particular system is worth, or to
know what it costs.
g) Control should lead to corrective actions

This is because a control system will be of little benefit if it does not lead to corrective action, control is
justified only if the indicated or experienced deviations from plans are corrected through appropriate
planning, organizing, directing, and leading.

BUDGETARY AND NON BUDGETARY CONTROL TECHNIQUES

CLASSIFICATION OF BUDGETS

Budgets may be classified on the following bases –

BASED ON TIME PERIOD:

Long Term Budget

Budgets which are prepared for periods longer than a year are called Long Term Budgets. Such Budgets
are helpful in business forecasting and forward planning. Eg: Capital Expenditure Budget and R&D
Budget.

Short Term Budget

Budgets which are prepared for periods less than a year are known as Short Term Budgets. Such Budgets
are prepared in cases where a specific action has to be immediately taken to bring any variation under
control.

Eg: Cash Budget.

BASED ON CONDITION:

Basic Budget

A Budget, which remains unaltered over a long period of time, is called Basic Budget.

Current Budget

A Budget, which is established for use over a short period of time and is related to the current conditions, is
called Current Budget.

BASED ON CAPACITY:

Fixed Budget
It is a Budget designed to remain unchanged irrespective of the level of activity actually attained. It
operates on one level of activity and less than one set of conditions. It assumes that there will be no change
in the prevailing conditions, which is unrealistic.

Flexible Budget

It is a Budget, which by recognizing the difference between fixed, semi variable and variable costs is
designed to change in relation to level of activity attained. It consists of various budgets for different levels
of activity.

BASED ON COVERAGE:

Functional Budget

Budgets, which relate to the individual functions in an organization, are known as Functional Budgets, e.g.
purchase Budget, Sales Budget, Production Budget, plant Utilization Budget and Cash Budget.

Master Budget

It is a consolidated summary of the various functional budgets. It serves as the basis upon which budgeted
Profit & Loss Account and forecasted Balance Sheet are built up.

BUDGETARY CONTROL TECHNIQUES

The various types of budgets are as follows

i) Revenue and Expense Budgets

The most common budgets spell out plans for revenues and operating expenses in rupee terms. The most
basic of revenue budget is the sales budget which is a formal and detailed expression of the sales forecast.
The revenue from sales of products or services furnishes the principal income to pay operating expenses
and yield profits. Expense budgets may deal with individual items of expense, such as travel, data
processing, entertainment, advertising, telephone, and insurance.

ii) Time, Space, Material, and Product Budgets

Many budgets are better expressed in quantities rather than in monetary terms. e.g. direct-labor- hours,
machine-hours, units of materials, square feet allocated, and units produced. The Rupee cost would not
accurately measure the resources used or the results intended.

iii) Capital Expenditure Budgets

Capital expenditure budgets outline specifically capital expenditures for plant, machinery, equipment,
inventories, and other items. These budgets require care because they give definite form to plans for
spending the funds of an enterprise. Since a business takes a long time to recover its investment in plant
and equipment, (Payback period or gestation period) capital expenditure budgets should usually be tied in
with fairly long-range planning.

iv) Cash Budgets

The cash budget is simply a forecast of cash receipts and disbursements against which actual cash
"experience" is measured. The availability of cash to meet obligations as they fall due is the first
requirement of existence, and handsome business profits do little good when tied up in inventory,
machinery, or other noncash assets.

v) Variable Budget

The variable budget is based on an analysis of expense items to determine how individual costs should vary
with volume of output.

Some costs do not vary with volume, particularly in so short a period as 1 month, 6 months, or a year.
Among these are depreciation, property taxes and insurance, maintenance of plant and equipment, and
costs of keeping a minimum staff of supervisory and other key personnel. Costs that vary with volume of
output range from those that are completely variable to those that are only slightly variable.

The task of variable budgeting involves selecting some unit of measure that reflects volume; inspecting the
various categories of costs (usually by reference to the chart of accounts); and, by statistical studies,
methods of engineering analyses, and other means, determining how these costs should vary with volume
of output.

vi) Zero Based Budget

The idea behind this technique is to divide enterprise programs into "packages" composed of goals,
activities, and needed resources and then to calculate costs for each package from the ground up. By
starting the budget of each package from base zero, budgeters calculate costs afresh for each budget period;
thus they avoid the common tendency in budgeting of looking only at changes from a previous period.

Advantages

There are a number of advantages of budgetary control:

• Compels management to think about the future, which is probably the most important feature of a
budgetary planning and control system. Forces management to look ahead, to set out detailed plans for
achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the
organization purpose and direction.

• Promotes coordination and communication.

• Clearly defines areas of responsibility. Requires managers of budget centre’s to be made

responsible for the achievement of budget targets for the operations under their personal control.
• Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick
against which actual performance is measured and assessed. Control is provided by comparisons of actual
results against budget plan. Departures from budget can then be investigated and the reasons for the
differences can be divided into controllable and non- controllable factors.

• Enables remedial action to be taken as variances emerge.

• Motivates employees by participating in the setting of budgets.

• Improves the allocation of scarce resources.

• Economies management time by using the management by exception principle.

Problems in budgeting:

Budgets may be an essential part of any marketing activity they do have a number of disadvantages,
particularly in perception terms.

Budgets can be seen as pressure devices imposed by management, thus resulting in:

• bad labor relations

• inaccurate record-keeping Departmental conflict arises due to:

• disputes over resource allocation

• departments blaming each other if targets are not attained It is difficult to reconcile
personal/individual and corporate goals.

Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often
coupled with "empire building" in order to enhance the prestige of a department. Responsibility versus
controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.

Managers may overestimate costs so that they will not be blamed in the future should they overspend.

NON-BUDGETARY CONTROL TECHNIQUES:

There are, of course, many traditional control devices 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.

i) 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.

ii) 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.

iii) Operational audit

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.

iv) Personal observation

In any preoccupation with the devices of managerial control, one should never overlook the importance of
control through personal observation.

v) PERT

The Program (or Project) Evaluation and Review Technique, commonly abbreviated PERT, is a is a
method to analyze the involved tasks in completing a given project, especially the time needed to complete
each task, and identifying the minimum time needed to complete the total project.

vi) GANTT Chart

A Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and
finish dates of the terminal elements and summary elements of a project. Terminal elements and summary
elements comprise the work breakdown structure of the project. Some Gantt charts also show the
dependency (i.e., precedence network) relationships between activities.

USE OF COMPUTERS AND IT IN MANAGEMENT CONTROL

Definition:

MIS can be defined as ― A system of obtaining, abstracting, storing and analyzing data to produce
effective information or use in planning, controlling and decision making process.

Characteristics of Good Management Information System :

• Information must be clear and conciseness.

• The information should be relevant the business organization.

Unnecessary information should be avoided.

• MIS must be simple and easy to understand.

• It must help in the process of decision making and corrective actions.

• MIS should help in solving the complicated problems effectively.

Need of MIS:

1. Internal factors

• Resources: This involves the analysis of available resources in the

organization like money, material, machines and etc.

• Planning and control information: To get required information about budgets, sales forecasts
etc.

• Operational information: The technique evaluates the overall operations of the

business.

• Production function: It is required to increase the production,

Product quality and to reduce wastages etc.

• Marking function: To obtain required information for plan sales forecast, advertising budget
consumer satisfaction, sales value competitors etc.

2. External Information Needs

• Political and Government: This involves information about political fiscal

policies, government policies, procedures, rules and regulations.

• Economic condition: To get required information such as money

value, GNP, Inflation rate interest rate etc.

• Technology: To get information‘s about new advanced machinery, new

process etc.

IMPLEMENTATION OF MIS
Management information system is implemented through the following steps.
• Input data
• Information’s stores and retrieval
• Analysis
• Output
• Decision making
• Actions
Input data:
The necessary data can be collected. The object is the development of better Information system for
management.

Information stored and retrieval:

The necessary data can be stored and utilized and when required. The information can be indexed and
classified for quick accessibility of the management.
Analysis:

To utilize the data effectively it is necessary to analyze them. To analyze the problem and develop
alternatives and select the best one.

Output:
Output is in the form of reports, charts ,tables, graph etc.

Decision making:
The output information is used to decision making process.

Action:
After decision is taken, it is converted in to action.

Applications of MIS:

• 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 etc
• To provide government policy and regulation
• To provide effective managerial activities

Important Devices for Information System:

i) Speech Recognition devices
Instead of keyboard input data in to the computer is through speech by normal manner. It can be used
several companies for several uses. Clear communication is also possible some disadvantage also in this
system. Similar sound words like ‗to‘ ‗too‘ and ‗two‘ are complex problems.

ii) Network
It is one of the most important technologies. Computer is connected by internet and other communications
network. The network serves as share processing, software and database.

Computer networks enable and uses and work groups to communicate and collaborate electronically and
share the use of hardware, software and data resources. The networks have become the primary
information technology that supports the business operations of many organizations.

Importance of MIS or Role of MIS:

S. No. Major Subsystem Application

1 Marketing Sales planning, Sales Analysis, Sales forecasting
2 Manufacturing Production planning, cost control analysis
3 Logistics Planning and control
4 Finance and Accounting Cost analysis, planning, income measurement.
5 Top Management Strategic planning, policy, resource allocation

Management and MIS:

MIS supports management activity. Information system provides information to managers of three levels
of responsibilities. MIS helps to guide managers to carry out their planning, organizing, directing,
controlling and coordinating the function effectively.

i) Operational control
Operational control provides detailed information and accurate on a daily or weekly basis. A market
manager must know of past and present sales record, consumer‘s behavior, advertising budget. The MIS
must provide him timely and detailed information obtained from daily operations.

ii) Middle management

Middle levels managers such as department‘s heads are concerned with the current and future performance.
For example information about marketing level problems with customer‘s reduction in sales, quality of
product are needed by middle managers. They required information from within and outside organization.

iii) Top level-strategic planning

Top management the MIS must provide information to top management for strategic planning and control.
They need the following external source of information.
  Economic condition
 Technological condition
 Government policy
 Actions of Competitors Company
They need the following internal sources of information.
- Sales volume
- Financial analysis
- Human resources
- Product quality, customer’s satisfaction
MIS should provide information to the managers accurately and correct time.
So MIS should be designed in suitable way depending upon the organization. The top
managers receiveoverall financial analysis and summarized of department performance.

Direct and preventive control-Reporting

In this organization some employee's performance is poor. To find out the

Employees and then correct their performance and achieve the organization goals.
This is called direct control.

Factors influencing the direct control:

The following factors influence the direct control.
 Uncertainty
 Lack of knowledge experience
 Lack of communication
 Lack of coordination.
Effective steps for direct control:

• Success of direct control in an organization depends upon the following factors.

• Performance can be measured

• Effectively utilizes time

• Errors can be discovered in time

• Coordination.

Preventive control:

An efficient manager applies the skills in managerial philosophy to eliminate undesirable

activities which are the reasons for poor management. This is called preventive control.

Effective steps for preventive control:

• Qualified managers

• Management principles to measure performance

• Evaluation

Advantages:

• It is better than direct control.

• This control is fast and quick.

• It gives greater accuracy.

• Prevention is better than cure.

This reduces wastage of cost