Techniques of Controlling
1. Budget and Budgetary Control
A budget is a tool which helps the management in planning and controlling the business activities. A budget is an estimate of expected results expressed in numerical terms. There are various types of budgets like;
· Sales budget,
· Purchase budget,
· Production budget,
· Fixed budget,
· Flexible budget,
· Cash budget,
· Zero base budget etc
Budgetary Control is a system of control whereby budgets are prepared for future period and compared with the actual results for finding out the variations. Corrective actions are taken in case of deviations.
2. Break – Even point Analysis (BEP)
It is the tool used to analyse the Cost – Volume – Profit relationships. BEP is the point at which there no profit no loss. In this point the total costs are recovered. If the sales go up beyond the break even point , organisation makes profit. If they come down , it may secure loss.
Break even point is used to take decision regarding price for the marketers.
3. Return on Investment ( ROI ) – Return on Investment is one of the ratio used as a tool for measuring the overall efficiency of the firm. It shows the relationship between profits ( after interest and tax ) and the proprietors fund.
ROI = Net Profit (after interest and tax) / Share holder fund
It is a powerful managerial technique.
4. Statistical Analysis – Statistical tools such as Percentages, averages, correlation, trend analysis etc are useful for analysis. This Statistical tools are set as standard and to find out the deviations and to find out the persons responsible for such deviations. This helps in controlling.
5. Management information System (MIS) – Management Information system can be defined as a systematic procedure to provide relevant information in right time, in right format to all levels of management for taking decision in business regarding inventory level , wage payment etc . The information are useful for planning , decision making and control.
6. External and Internal audit – External audit is done by qualified Chartered Accountant. The object of external audit is to ensure that there is no manipulation in accounts. After examining the accounting statements of the company the auditor certifies it.
Internal audit is done by the companies own staff. The audit ensures that there is no manipulation in accounts.
7. Responsibility Centre–Responsibility centre may be defined as any organisational unit under the charge of a single person who is responsible for its operations. Budgetary control system are arranged in proper order with the responsibility centre of the organisation. There are four types of Responsibility Centres. They are,
a) Cost Centre – It is responsible for controlling the cost. Generally the manager of cost centre is responsible for salaries, supplies and other costs. Departments like accounting, research and development, human resources and other staff function comes under cost centres.
b) Revenue Centre – The revenue centre may be defined as responsibility centre wherein the managers are responsible for income in the organisation. Marketing and sales department are organised as revenue centre.
c) Profit Centre–A profit centre is usually a self contained organisational unit. It can control its own cost and revenue. Many large corporations are divided into product division with each division servicing as a profit centre for its product.
d) Investment Centre – In this centre the manager is responsible for ascertaining the return on investment of assets.
8. Personal Observation – It is a common technique used in controlling. It cannot be used as a main control technique. In this method the managers are expected to see whether the employees are doing what they are expected to do. This technique is commonly used in small and medium size concern.
9. PERT and CPM – Programme Evaluation and Review Techniques (PERT) was developed in 1950s by the US Navy’s project division. It describes the basic network techniques which includes Planning, Monitoring and Controlling the project. It is applied in aerospace and industrial projects. PERT is a statistical tool used to reduce both time and cost required to complete the project
Critical Path Method (CPM) was develop by E.I Dupont de Nemours company in 1956 to aid in the scheduling of routine plant overhaul, maintenance and construction work. Critical path method is determent by identifying the longest stretch of department activities and measuring the time required to complete them from start to finish.