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Control techniques
1.
2. COMMONLY KNOWN CONTROL TECHNIQUES
BUDGET AS CONTROL TECHNIQUES
FINANCIAL RATIO ANALYSIS
OTHER FINANCIAL CONTROL TECHNIQUES
E.V.A
M.V.A
B.E.P ANALYSIS
BALANCED SCORECARD
BENCHMARKING
3. LINEAR PROGRAMMING
GANTT CHART
PROGRAM EVALUATION & REVIEW TECHNIQUES(PERT)
INFORMATION TECHNOLOGY
MANAGEMENT BY EXCEPTION
VALUE CHAIN ANALYSIS
INVENTORY MANAGEMENT
4. FINANCIAL RATIO ANALYSIS
RATIO-IN SIMPLE WORDS, RATIO MEANS COMPARISON OF ONE
FIGURE WITH ANOTHER RELEVANT FIGURE OR FIGURES. IT MAY
ALSO BE TERMED AS NUMBER EXPRESSED IN TERMS OF ANOTHER
NUMBER.
NO ANALYSIS IS POSSIBLE ON THE BASIS OF ABSOLUTE FIGURES.
HENCE VARIOUD RATIOS ARE CALCUKATED FOR FINANCIAL
ANALYSIS AND CONTROL.
SOME OF SUCH IMPORTANT RATIOS ARE AS FOLLOWS:-
5. LIQUIDITY RATIOS 1) CURRENT RATIO CURRENT ASSETS
CURRENT LIABILITIES
4) ACID TEST C.A- INVENTORIES
C.L
LEVERAGE RATIOS 1) DEBT TO ASSETS TOTAL DEBT
TOTAL ASSETS
4) TIMES INT. PBIT
EARNED TOTAL INT. CHARES
ACTIVITY RATIOS 1) INVENTORY SALES
TURNOVER INVENTORY
3) TOTAL ASSETS SALES
TURNOVER T.A
6. PROFATABILITY 1) PROFIT MARGIN NPAT
RATIOS ON SALES TOTAL ASSETS
3) ROI NPAT
TOTAL ASSETS
7. OTHER FINANCIAL CONTROL MEASURES
EVA- IT IS A TOOL FOR MEASURING CORPORATE AND DIVISIONAL
PERFORMANCE. IT IS A WAY TO DETERMINE VALUE CREATED
ABOVE THE REQUIRED RATE OF RETURN, FOR THE
SHAREHOLDERS OF A COMPANY.
FORMULA:-
EVA= (r- c). K = NOPAT- c. K
WHERE-
r= NOPAT , called the return on invested capital.
K
NOPAT= net operating profit after tax
C= weighted avg. cost of capital
K= capital employed
8. MVA- IT ADDS A MARKET DIMENSON SINCE IT MEASURES THE
STOCK MARKET’S ESTIMATE OF THE VALUE OF A FIRMS PAST AND
EXPECTED CAPITAL INVESTMENT PROJECTS. IT IS THE
DIFFERENCE BETWEEN THE CURRENT MARKET VALUE OF A FIRM
AND THE CAPITAL CONTRIBUTED BY INVESTORS.
FORMULA:-
MVA=V-K
WHERE-
V= market value of the firm, including the value of the firms equity
and debts
K= capital invested in the firm.
9. B.E.P ANALYSIS
BREAK-EVEN POINT IS DEFINED AS THAT LEVEL OF VOLUME AT
WHICH REVENUE EXACTLY EQUALS TO THE TOTAL COST.
THROUHGH A GRAPHIC REPRESENTATIONTHE BREAK-EVEN POINT
PROVIDES A POINT OF CAPACITY WHERE OPERATIONS PASS
FROM BEING PROFITABLE TO A LOSS OR VICE-VERSA. THIS HELPS
MANAGEMENT IN DECIDING THE LEVEL OF OUTPUT AND SALES.
10.
11. BUDGETING
BUDGETING: THE FORMULATION OF PLANS FOR A GIVEN
FUTURE PERIOD IN NUMERICAL TERMS
SOME BUDGET DEVELOPMENT METHODS ARE AS FOLLOWS
TOP-OWN BUDGETING
BOTTOM-UP BUDGETING
ZERO-BASED BUDGETING
FLEXIBLE BUDGETING
12. ADVANTAGES OF BUDGETING
• BUDGETING IS AN INSTRUMENT WHEREBY MANAGEMENT
DECIDES THE FUTURE COURSE OF ACTION.
• BUDGET IS ALWAYS RELATED TO A SPECIFIED PERIOD.
• BUDGET IS EXPRESSED IN QUANTATIVE TERMS.
• BUDGET IS ONLY AN ESTIMATED PLAN OF ACTION.
• BUDGET PROVIDES STANDARD TO BE ACHIEVED.
13. LIMITATIONS
• PROVES DANGEROUS WHEN BASED ON WRONG ESTIMATES.
• SOMETIMES BUDGETRY CONTROL BECOMES COMBERSOME.
• BUDGET OFTEN CONTROLS WRONG THINGS.
14. BENCHMARKING
BENCHMARKING: THE SEARCH FOR BEST PRACTICES AMONG THE
COMPETITORS OR NON-COMPETITORS THAT LEAD TO THEIR
SUPERIOR PERFORMANCE.
BENCHMARK: THE STANDARD OF EXCELLENCE AGAINST WHICH
TO MEASURE AND COMPARE.
THE METHADOLOGY ADOPTED IS AS UNDER:
IDENTIFY THE PROBLEM AREAS.
IDENTIFY OTHER INDUSTRIES.
15. IDENTIFY ORGANIZATIONS THAT ARE LEADERS IN THESE
AREAS.
SURVEY COMPANIES FOR MEASURE AND PRACTICES.
VISIT THE “BEST PRACTICE” COMPANIES TO IDENTIFY LEADING
EDGE PRACTICES.
IMPLEMENT NEW AND IMPROVED BUSINESS PRACTICES.
16. BALANCED SCORECARD
BALANCED SCORECARD: A PERFORMANCE MEASUREMENT TOOL
THAT LOOKS AT FOUR AREAS- FINANCIAL, CUSTOMER, INTERNAL
PROCESSES AND PEOPLE/ INNOVATION/ GROWTH ASSETS THAT
CONTRIBUTES TO A COMPANIES PERFORMANCE.
THE FOUR GENERAL PERSPECTIVE WHICH HAVE BEEN PROPOSED
BY BALANCED SCORECARD ARE AS UNDER:
FINANCIAL PERSPECTIVE
CUSTOMER PERSPECTIVE
17.
18. INTERNAL PROCESSES PERSPECTIVE
INNOVATION AND LEARNING PERSPECTIVE
LIMITATIONS
SCORES ARE NOT BASED ON ANY PROVEN ECONOMIC OR
FINANCIAL THEORY.
BALANCED SCORECARD DOES NOT PROVIDE A BOTTOMLINE
SCORE.
19. LINEAR PROGRAMMING
ACCORDING TO WILLIAM M. FOX
“LINEAR PROGRAMMING IS A PLANNING TECHNIQUE THAT
PERMITS SOME OBJECTIVE FUNCTION TO BE MINIMISED OR
MAXIMISED WITHIN THE FRAMEWORK OF GIVEN SITUATIONAL
RESTRICTIONS.”
REPRESENTATION-
AX1+BX2≤Z
REQUIREMENTS-
• OBJECTIVE FUNCTION.
• CONSTRAINTS.
• LINEARITY.
• NONEGATIVITY.
• FINITENESS.
20. ADVANTAGES
• FACILITATES LOGICAL THINKING AND STUDY OF DATA.
• ONE CAN EVALUATE THE COSTS AND BENEFITS OF DIFFERENT
ALTERNATIVES.
• HELPFUL IN MAKING ADJUSTMENTS IN THE PLAN.
• CAN BE APPLIED TO A VARIETY OF MULTIDIMENSIONAL
PROBLEMS.
21. LIMITATIONS
SOLVES PROBLEM OF LINEAR NATURE.
CANNOT PROVIDE SOLUTIONS TO PROBLEMS WHICH INVOLVE
VARIABLES NOT CAPABLE OF BEING EXPRESSED
QUANTITATIVELY.
UNCERTAINTIES ARE NOT CONSIDERED.
RESULT UNDER THIS TECHNIQUE ARE NOT NECESSARILY TO BE
IN WHOLE NUMBERS.
22. GANTT CHART
THIS CHART SYSTEM WAS DEVELOPED BY HENRY L. GANTT.
GANTT CHART- A BAR CHART THAT SHOWS THE TIME
RELATIONSHIPS BETWEEN THE “EVENTS” OF A PRODUCTION
PROGRAM.
MILESTONE BUDGETING OR MILEPOST- ADVANCED
TECHNIQUE OF GANTT CHART MILESTONE BREAKS A PROJECT
DOWN INTO CONTROLLABLE PIECES.
24. II GANTT WITH MILE STONE
A 1 2 3 4
B 5 6 7 8
C
9 10 11 12
D 13 14
E 15 16 17 18 19
J F M A M J JU A S
25. III GANTT WITH MILE STONES AND NETWORK OF MILESTONES
A 1 2 3 4
B 5 6 7 8
C
9 10 11 12
D 13 14
E 15 16 17 18 19
JAN FEB MAR APRIL MAY JUNE JUL AUG SEP
26. CRITICAL PATH METHOD(CPM)
DEVELOPED BY M.R. WALKER OF USA IN 1956.
IT IS USED FOR OPTIMISING RESOURCE ALLOCATION AND
MINIMISING OVERALL COST FOR A GIVEN PROJECT.
PROCEDURE-
• BREAK DOWN THE PROJECT INTO VARIOUS ACTIVITIES
SYSTEMATICALLY.
• NUMBER ALL THE EVENTS AND ACTIVITIES.
• CALCULATE THE EARLIEST START TIME, EARLIER FINISH TIME,
LATEST START TIME AND LATEST FINISH TIME.
• DETERMINE TOTAL FLOAT TIME.
• IDENTIFY THE CRITICAL ACTIVITIES AND CONNECT THEM WITH
DOUBLE LINE ARROW.
• CALCULATE TOTAL DURATION OF PROJECT.
28. ADVANTAGES
HIGHLIGHTS THE CRITICAL ACTIVITIES.
PROVIDES A TECHNIQUE OF PLANNING AND SCHEDULING.
GIVES COMPLETE INFORMATION OF ACTIVITY.
HELPS TO IDENTIFY POTENTIAL BOTTLENECKS.
29. LIMITATIONS
OPERATES ON ASSUMPTION OF PRECISE TIME.
DOES NOT INCORPORATE STATISTICAL ANALYSIS IN DETERMINIG
TIME ESTIMATES.
FOR EVERY CHANGE INTRODUCED ENTIRE PROJECT EVALUATION
HAS TO BE REPEATED.
NOT SUITABLE FOR A SITUATION WHICH DOES NOT HAVE
DEFINITE START AND FINISH TIME.
30. PROGRAM EVALUATION AND REVIEW
TECHNIQUE(PERT)
PERT- A TIME EVENT NETWORK ANALYSIS SYSTEM IN WHICH
THE VARIOUS EVENTS IN A PROJECT OR PROGRAM ARE
IDENTIFIED WITH A PLANNED TIME ESTABLISHED FOR EACH.
METHODOLOGY
PREPARATION OF THE NETWORK .
NETWORK ANALYSIS.
SCHEDULING.
TIME COST TRADE OFFS.
RESOURCE ALLOCATION.
PROJECT CONTROL.
31. PERT FLOWCHART
EVENTS(MAJOR MILESTONES OF PROGRESS) IN THE MAJOR ASSEMBLY OF AN AIRPLANE
(1)ORDER PROGRAM GO AHEAD (2)INITIATE ENGINE PROCUREMENT(3)COMPLETE PLANS AND
PROCUREMENT(3)COMPLETE
SPECIFICATIONS (4)COMPLETE FUSELAGE DRAWINGS (5)SUBMIT GFAE*REQUIREMENTS (6)AWARD TAIL
GFAE*REQUIREMENTS
ASSEMBLY SUBCONTRACT (7)AWARD WINGS SUBCONTRACT (8)COMPLETE MANUFACTURE OF FUSELAGE
MANUFACTURE
(9)COMPLETE ASSEMBLY OF FUSELAGE ENGINE (10)RECEIVE WINGS FROM SUBCONTRACTORS (11)RECEIVE
SUBCONTRACTORS
TAIL ASSEMBLY FROM SUBCONTRACTOR (12)RECEIVE GFAE (13)COMPLETE AIRCRAFT
AIRCRAFT
*GFAE:GOVERNMENT FURNISHED AIRPLANE EQUIPMENT
102.1
2 9
17.3 10.0
17.3 56.0
4 8
12.3 10.3 40.0
1 3 8.0
13
7 10
12.0 8.6
40.6
8.6 11 18.6
6
52.0
12
5
32. ADVANTAGES
FORCES MANAGER TO PLAN.
FORCES PLANNING ALL THE WAY DOWN THE LINE.
CONCENTRATES ATTENTION ON CRITICAL ELEMENT THAT MAY
NEED CORRECTION.
MAKES POSSIBLE A KIND OF FORWARD LOOKING CONTROL.
ENABLES MANAGERS TO AIM REPORTS AND PRESSURE FOR
ACTION AT THE RIGHT SPOT AND LEVEL IN THE ORGANISATION
STRUCTURE AT THE RIGHT TIME.
33. LIMITATIONS
TECHNIQUE IS NOT USEFUL WHEN THE PROGRAM IS NEBULOUS
AND NO REASONABLE ESTIMATES OF SCHEDULE CAN BE MADE.
PERT HAS ITS EMPHASIS ONLY ON TIME AND NOT COST.
NOT PRACTICABLE FOR ROUTINE PLANNING OF RECURRING
ACTIVITIES.
34. INFORMATION TECHNOLOGY
THE DEVELOPMENTS IN INFORMATION TECHNOLOGY GREATLY
FACILITATES ORGANISATIONAL CONTROL AT A RELATIVELY LOW
COST.
INFORMATION TECHNOLOGY HAS PROMOTED THE DEVELOPMENT
OF MANAGEMENT INFORMATION SYSTEM.
MANAGEMENT INFORMATION SYSTEM-
A FORMAL SYSTEM OF GATHERING, PROCESSING AND
DISPERSING INFORMATION INTERNAL AND EXTERNAL TO THE
ENTERPRISE IN A TIMELY, EFFECTIVE, AND EFFICIENT MANNER
TO SUPPORT MANAGERS IN THEIR JOBS.
35. HOW MIS IS USED
• MANAGERS NEED INFORMATION TO MONITOR
ORGANISATIONAL PERFORMANCE AND TO CONTROL
ORGANISATIONAL ACTIVITIES
• 2. COMPUTERS ARE BEING USED TO COLLECT AND STORE
INFORMATION FOR CONTROL PURPOSES.
• USE TO MONITOR EACH EMPLOYEE’S COMPUTER USAGE TO
MEASURE EMPLOYEE PERFORMANCE.
36. LIMITATIONS OF INFORMATION
TECHNOLOGY CONTROL
1. PERFORMANCE LIMITATIONS
2. BEHAVIOURAL LIMITATIONS
3. HEALTH RISKS
37. MANAGEMENT BY EXCEPTION
CONCEPT OR POLICY BY WHICH MANAGEMENT DEVOTES ITS
TIME TO INVESTIGATING ONLY THOSE SITUATIONS IN WHICH
ACTUAL RESULTS DIFFER SIGNIFICANTLY FROM PLANNED
RESULTS.
ATTENTION IS GIVEN ONLY TO THOSE MATERIAL DEVIATIONS
REQUIRING INVESTIGATION.
THE TOOLS THAT FACILITATES THIS CONCEPT INCLUDE
DECISION SUPPORT SYSTEM, PERFORMANCE REPORT ETC.
38. VALUE CHAIN MANAGEMENT
VALUE CHAIN MANAGEMENT- PROPOSED BY MICHAEL PORTER OF
H.B.S AS A COMPANY TOOL FOR IDENTIFYING WAYS TO CREATE
MORE CUSTOMER VALUE. IT IS A PROCESS OF MANAGING
SEQUENCE OF ACTIVITIES AND INFORMATION ALONG THE
ENTIRE PRODUCT CHAIN. IT INVOLVES ANALYZING EVERY STEP
IN PROCESS, RANGING FROM THE HANDLING OF RAW MATERIALS
TO SERVICING END USERS, PROVIDING THEM WITH THE
GREATEST VALUE AT LOWEST COST.
39. INVENTORY MANAGEMENT
INVENTORY CONTROL IS CONCERNED WITH ADEQUATE CONTROL
OVER THE COST, ACQUISITION, SAFETY AND HANDLING OF
MATERIALS.
THE MAIN TECHNIQUES OF INVENTORY MANAGEMENT ARE AS
FOLLOWS:-
4. ECONOMIC ORDER QUANTITY (EOQ)
5. JUST IN TIME
6. ABC ANALYSIS
7. VED ANALYSIS
40. ECONOMIC ORDER QUANTITY- IT MEANS THAT QUANTITY WHICH
SHOULD BE PURCHASED AT A TIME, BEING MOST ECONOMICAL.
41. CONCLUSION
PLANNING IS SUICIDAL WITHOUT CONTROL AND VICEVERSA.
ORGANISATIONS USE VARIOUS TOOLS FOR CONTROLLING.
HOWEVER APPLICATION OF THESE CONTROL TECHNIQUES
DEPEND ON SITUATION AND REQUIREMENTS OF THE
ORGANISATION.
42. REFERENCES
MANAGEMENT- HEINZ WEIHRICH, MARK V. CANNICE,
HAROLD KOONTZ.
MANAGEMENT- STEPHEN P. ROBBINS, MARY COULTER
MANAGEMENT- STONER, FREEMAN, AND GILBERT.
PRINCIPLES AND FUNCTIONS OF MANAGEMENT- J.K.JAIN.
WWW.WIKIPEDIA.ORG.
WWW.ASK.COM.
WWW.GOOGLE.COM.