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CONTROLLING

Controlling

The basic management function of
(1) establishing benchmarks or standards
(2) comparing actual performance
against them, and
(3) taking corrective action, if required.



Definition
Managerial control is one of the primary
functions of management, and it involves
setting performance standards, measuring
performance, and taking corrective actions
when necessary.
Techniques and Types of Control
Mutual adjustment
Direct supervision
Standardization of work process
Standardization of outputs

Types of Traditional Control Techniques

1. Direct Supervision and Observation
2. Financial Statements
3. Budgetary Control
4. Break Even Analysis
5. Return on Investment (ROI)
6. Management by Objectives (MBO)
7. Management Audit
8. Management Information System (MIS)
9. PERT and CPM Techniques
10. Self-Control


BUDGET
The main characteristics of a budget are:
It is prepared in advance and is derived from the long-
term strategy of the organization.
It relates to future period for which objectives or goals
have already been laid down.

Budgetary Control
Budgetary control is the use of the
comprehensive system of budgeting to
aid management in carrying out its
functions like planning, co-ordination and
control.
Steps in Budgetary control
Organization for budgeting
Budget mannual
ADVANTAGES OF BUDGETS
The Budget assist planning
The budget communicates and co-ordinates
The budget helps with decision making
The budget can be used to monitor and
control
The budget can be used to motivate

Limitations of Budget And Budgetary
Control
The benefits of budgets and Budgetary
control
Budget information may not be accurate
The budget may demotivate
Budget may lead to disfunctional
management
Budgets may be set at too low a level
Types of Budget
Sales Budget
Production Budget
Purchase Budget
Personnel Budget
Research & Development Budget
Capital Expenditure Budget
Cash Budget
Master Budget
Management Audit
A systematic assessment of methods and
policies of an organization's management in
the administration and the use of resources,
tactical and strategic planning, and employee
and organizational improvement.

Management Audit
Functions Of Management Audit
Management audit identifies the objectives of an
organization if such objectives are not set up.
2. Management audit allocates the overall objectives of an
organization in small parts.
3. Management audit reviews the structure of organization and
asset of the organization and decides whether goals can be
obtained or not.
4. Management audit examines all the scope of work and
liability centers.
5. Management audit provides valuable suggestions to the
management after the evaluation of all above facts.

Objectives Of Management Audit
To formulate the goal of an organization.
2. To ensure the fulfillment of goals.
3. To help management to improve the
activities and procedures.
4. To help all the members of management to
make effective discharge of their duties.
5. To help in the improvement of profits.

Management Information System
MIS is defined as the system that
provides information support for making
in the organisation
Role of Management Information System


Impact of MIS
Management Functions
Understanding Business
Systemization of Business operation
Directing Towards goals
Management Efficiency
Reduction of Manpower Overhead


Management as a Control System
Early Warning Mechanism
Performance Standards
Strategic control
Feedback
Accurate and timely
Realistic
The Information Flow
Exeption Principle

Break Even Analysis
Breakeven analysis examines the short
run relationship between changes in
volume and changes in total sales
revenue, expenses and net profit
Also known as C-V-P analysis (Cost
Volume Profit Analysis)






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Decision making and
Breakeven Analysis:
Examples
How many units must be sold to breakeven?
How many units must be sold to achieve a
target profit?
Should a special order be accepted?
How will profits be affected if we introduce a
new product or service?
Key Terminology: Breakeven
Analysis
Break even point-the point at which a company
makes neither a profit or a loss.
Contribution per unit-the sales price minus the
variable cost per unit. It measures the contribution
made by each item of output to the fixed costs and
profit of the organisation.
Margin of safety-a measure in which the budgeted
volume of sales is compared with the volume of sales
required to break even
Marginal Cost cost of producing one extra unit of
output

Breakeven Formula
Fixed Costs
*Contribution per unit



*Contribution per unit = Selling Price per unit
Variable Cost per unit

Breakeven Chart
Using the following data, calculate the
breakeven point and margin of safety in units:
Selling Price = 50
Variable Cost = 40
Fixed Cost = 70,000
Budgeted Sales = 7,500 units

Contribution = 50 - 40 = 10 per unit
Breakeven point = 70,000/10 = 7,000
units
Margin of safety = 7500 7000 = 500
units

Limitations of B/E analysis
Some costs cannot be identified as precisely Fixed or Variable
Semi-variable costs cannot be easily accommodated in break-
even analysis
Costs and revenues tend not to be constant
With Fixed costs the assumption that they are constant over the
whole range of output from zero to maximum capacity is
unrealistic
Price reduction may be necessary to protect sales in the face of
increased competition
The sales mix may change with changes in tastes and fashions
Productivity may be affected by strikes and absenteeism
The balance between Fixed and Variable costs may be altered
by new technology

Network Technique