Techniques of Controlling Video Lecture | Business Studies (BST) Class 12 - Commerce

techniques of managerial control we have
learnt that a manager needs to perform
controlling function to check if the
organization is performing as per the
set goals there are various control
techniques that provide a manager with
the type and amount of information he
needs to measure and monitor the
performance of his employees
these control techniques may be broadly
classified into two categories
traditional control techniques advanced
control techniques traditional control
techniques are those which are being
used by managers for a long time now
traditional control techniques include
personal observation statistical reports
break-even analysis budgetary control
personal observation is the most
traditional method of controlling this
method enables a manager to observe the
operations at workplace through this
technique a manager corrects the
operations on the spot and directs a
worker if the latter is not performing
the work according to the set standards
the employees feel psychological
pressure and they perform well as they
know that they're being personally
observed on their job the technique is
very time-consuming and not suitable for
all kinds of jobs
a manager may use statistical reports
analysis in the form of averages
percentages ratios correlation etc to
collect useful information regarding the
performance of an organization in
various areas such information in the
form of table graphs etc enables a
manager to compare performance of an
organization in current period with that
in previous periods a manager may use
break-even analysis to analyze the
relationship between cost of production
volume of production price level of
output and profits through this
technique a manager can estimate profits
and different levels of activities a
point where total revenue of an
organization is equal to its total cost
is break-even point it is a no profit
and no loss point in the given figure
break-even point is determined by the
intersection of total revenue and total
cost curves as we can see in the given
example the phone will break even at
four hundred and fifty thousand units of
output it is beyond this point that the
form will start earning profits
break-even point can be calculated by
the following formula break-even point
is equal to fixed costs divided by the
difference between selling price per
unit and variable cost per unit
a budget is a numerical statement
expressing plans policies and goals of
an organization for a definite future
period budgetary control is a system
wherein budgets for different activities
are used for controlling and planning
purposes in an organization this
technique enables a manager to compare
actual performance with a budgeted
performance after the completion of a
particular activity if there is any
negative deviation he needs to take
necessary actions to achieve
organizational goals the most common
types of budgets used by an organization
are sales budget production budget
material budget cash budget capital
budget and research and development
budget advance control techniques are
those which are of recent origin and a
comparatively new in management
literature advance control techniques
include return on investment ratio
analysis responsibility accounting
management audit pert and CPM management
information system return on investment
or ROI is regarded as a useful technique
of control it determines the rate of
profitability on the capital employed
hence it is also known as return on
capital employed
return on investment or ROI can be
calculated as under ROI is equal to net
income or profit divided by total
investment a manager can use ROI to
measure overall performance of an
organization or of its individual
departments or divisions ratio analysis
a manager may compute ratios to analyze
financial statements the most commonly
used ratios can be classified in the
following categories 1 liquidity ratios
two solvency ratios 3 profitability
ratios for turnover ratios a manager
needs to calculate liquidity ratios to
determine short-term solvency of
business through the analysis of current
position of liquid funds he can
determine the ability of an organization
to pay the amount due to its stake
holders examples of some liquidity
ratios commonly used by managers are
current ratio quick ratio etc
a manager needs to calculate solvency
ratios to determine the financial
soundness of an organization and how
well the company can satisfy its short
and long term obligations examples of
some solvency ratios commonly used by
managers are debt equity ratio
proprietary ratio interest coverage
ratio etc a manager needs to calculate
profitability ratios to analyze the
profitability position of a business
these ratios analyze profits in relation
to sales of farms or capital employed
examples of some profitability ratios
commonly used by managers are gross
profit ratio net profit ratio return on
capital employed a manager may calculate
turnover ratios to determine the
efficiency of operations based on
effective utilization of resources
higher turnover means better utilization
of resources examples of some turnover
ratios commonly used by managers are
inventory turnover ratio stock turnover
ratio debtors turnover ratio etc
responsibility accounting is a system of
accounting in which different sections
divisions and departments of an
organization are set up as
responsibilities centers
the head of the center is responsible
for achieving the target set for his
center responsibility centers may be of
the following types cost center revenue
center profit center investment center
in a cost or expense center a manager's
held responsible for the cost incurred
in the center for example in a
manufacturing organization production
department is classified as cost center
in a revenue center a manager is
primarily responsible for generating
revenue for example marketing department
of an organization may be classified as
a revenue center in a profit center a
manager is responsible for both revenues
and costs for example repair and
maintenance department of an
organization may be treated as a profit
center if it is allowed to build other
production departments for the services
provided to them in an investment center
a manager is responsible not only for
profits but also for investments made in
the center in the form of assets
traditional control techniques fail to
appraise the quality of managerial
personnel which is essential for the
success of an organization management
audit is a step in this direction
management audit refers to systematic
appraisal of the overall performance of
the management of an organization it can
be performed by outside consultants or
by an organization's own internal audit
staff management audit locates the
deficiencies in the performance of
management functions
such as planning organizing staffing
directing and control and suggests
possible improvements network analysis
is the general name given to certain
specific techniques which help a manager
to plan schedule monitor and control
large and complex projects two different
techniques for network analysis are be
ERT pert program evaluation and review
technique and CPM critical path
management program evaluation and review
technique or pert was developed in 1958
by Booz Allen and Hamilton under the
sponsorship of the u.s. Navy for use in
Polaris submarine project around the
same time in u.s. critical paths method
or CPM was created by DuPont with the
help of Remington Rand a manager may use
pert and CPM to deal with time
scheduling and resource allocation for a
variety of complex diverse and
interrelated activities these techniques
aims at effective execution of projects
within given time schedule and structure
of costs under these techniques a
manager needs to divide a project into a
number of clearly identifiable
activities or tasks then he will have to
prepare a network diagram to show the
sequence of activities the starting
point and the termination point of the
project after this he needs to assign
time and or cost estimates to each
activity then he will have to compute
the longest time path through the
network the pause is known as the
critical path at last
he may modify the plan to control the
execution and timely completion of
project birth and CPM are used
extensively in areas like shipbuilding
construction projects aircraft
manufacture to name a few
management information system or Mis is
basically concerned with processing data
into information which is then
communicated to all levels of personnel
and departments in an organization for
appropriate decision-making it provides
the right type of data and information
to the top management at the right time
so that they can formulate appropriate
control techniques in case of deviations
from standards in a nutshell managerial
control techniques help in measuring the
overall efficiency of Management from
different perspectives to suit various
conditions and requirements control
techniques provide managers with a type
and amount of information they need to
measure and monitor performance
the information from various controls
must be tailored to a specific
management level department unit or
operation