MODULE 2

TECHNIQUES OF
MANAGEMENT
CONTROL
Subject PROCESS
Name : Management Control
System
DR. URMIL A R MENON
Module : 2 (Techniques of Management
Control Process)
Faculty Name : Dr. Urmila R MENON
 MANAGEMENT CONTROL
The management function of implementation of strategies is termed as ‘management control’.
It is defined as the process by which managers influence the members of the organization to
implement the organization strategies.
 MANAGEMENT CONTROL
PROCESS
Managerial control regulates the organisational activities.
It compares the actual performance and expected organisational standards and goals.
For deviation, it ensures that necessary corrective action is taken.
 TECHNIQUES OF MANAGEMENT
CONTROL PROCESS
There are various techniques of managerial control.
Can be classified into two broad categories.
a.Traditional
b.Modern
TRADITIONAL TECHNIQUES OF
MANAGERIAL CONTROL

STRATEGIC PLANNING

TRADITIONAL MANAGEMENT
INTERNAL AUDIT BUDGETARY CONTROL
CONTROL PROCESS

VARIANCE ANALYSIS
 MODERN TECHNIQUES OF
MANAGERIAL CONTROL
RESPONSIBILITY ACCOUNTING

MODERN MANAGEMENT
MANAGEMENT AUDIT RETURN ON INVESTMENT
CONTROL PROCESS

PERT AND CPM

 MANAGEMENT CONTROL
PROCESS
Manager differ in their technical abilities, the leadership styles, their interpersonal skills, their
experiences, in decision making , and in other ways.
Because of these differences, the details of management control process vary among companies
and among responsibility centers in a company.
TYPES OF MANAGERIAL
CONTROL
Product Finance
Control Control

HR Marketing
Control Control

Information Project
Control Control
 FINANCIAL CONTROL
Financial statements.
Financial Audits.
Ratio Analysis.
Budgetary Controls.
Break even analysis
Accounting
 MARKETING CONTROLS
Market Research
Test marketing
Marketing statistics
 HUMAN RESOURCE CONTROL
Checking quality of new personnel.
Goal setting.
Performance appraisals.
Disciplinary programmes.
Observations.
Development assessments.
 INFORMATION CONTROL
Confidential and sensitive information.
Control access to computer databases.
Watch on employee’s computer usage.
 PRODUCTION CONTROL
Inventory Control – ABC analysis, EOQ, JIT
Quality control – inspection, statistical quality control
 FINANCIAL CONTROL
Financial control is exercised through the following:
1.Financial statements: Income statement and Balance sheet
2.Financial audits: conducted to ensure that the financial management is done in line with the
generally accepted policies, procedures, laws, and ethical guidelines.
Audits may be external, internal, and management.
3. Ratio analysis: it monitors liquidity, profitability, debt, and activity related aspects.
 FINANCIAL CONTROL
4. Budgetary Control: It is the process of constructing budgets, comparing actual performance
with the budgeted ones, and revising budgets or activites in the light of changed conditions. It
may be top-down (prepare the budgets and ask the subordinates to use), bottom-up (figure
comes from lower levels and adjusted at upper levels), Zero based (justifying allocation of funds
on the basis of activities or goals), and flexible budgeting (varying standards and varying
allocations).
5. Break Even analysis: it is a tool of profit planning and deals with cost-volume-profit
relationships.
6.Accounting: Accounting includes responsibility accounting, cost accounting, standard cost
approach, direct costing, and marginal costing.
 MARKETING CONTROL
1.Market research: it is to assess customer’s needs, expectations, and the delivery, and the
competitive scenario.
2.Test marketing: To assess consumer acceptance of a new product, a small-scale marketing is
done. HUL uses Chennai for most of its test marketing.
3.Marketing statistics: Marketing managers control through marketing ratios and other statistics.
 HUMAN RESOURCE CONTROL
Human Resource Control is required to have a check on the quality of new personnel and also to
monitor performance of existing employees so as to determine firm’s overall effectiveness.
Goal setting, instituting policies, and procedures to guide them are to help them. Common
controls include performance appraisals, disciplinary programmes, observations, and
development assessments.
 INFORMATION CONTROL
All organizations have confidential and sensitive information to be kept secret.
How to control access to computer databases is very important.
This has become a key contemporary issue in control.
Organizations keep a watch on employee’s computer usage in general and internet in particular.
 PRODUCTION CONTROL
To ensure quality production in right quantity at right time economically production controls are
required.
Two of the important techniques include: inventory control (ABC analysis, Economic Order
Quantity, Just-in time inventory control) and quality control (through inspection, statistical
quality control).
 PROJECT CONTROL
Network analysis is most suitable for the projects which are not routine in minimizing cost and
completing project well in time. Network analysis makes use of two techniques- Programme
Evaluation Review Technique and Critical Path Method.
 STEPS IN MANAGEMENT
1. Establishment of objectives.
CONTROL PROCESS
2. Set standards and targets.
3. Measure performance.
4. Compare actual performance with standards.
5. Analyse variances.
6. Take corrective actions.
7. Communication and feedback.
8. Monitor and review.
9. Evaluate and improve.
 BUDGETARY CONTROL AND
ANALYSIS OF VARIANCE AS A
TOOL FOR MCS
Budget: A formal statement of the financial resources set aside for carrying out specific activities
in a given period of time. It helps to coordinate the activities of the organisation.
Budgetary control: A control technique whereby actual results are compared with budgets. Any
differences (variances) are made the responsibility of key individuals who can either exercise
control action or revise the original budgets.
 DEFINITION OF BUDGETARY
CONTROL
According to Institute of Cost and Management Accountants (ICMA), “the establishment of
budgets relating the responsibilities of executives to the requirements of a policy, and the
continuous comparison of actual with budgeted results, either to secure by individual action the
objective of that policy, or to provide a basis for its revision”.
 OBJECTIVES OF BUDGETARY
CONTROL
Defining the objectives of the enterprise.
Providing plans for achieving the objectives so defined.
Coordinating the activities of various departments.
Operating various departments and cost centers economically.
Increasing the profitability by eliminating waste.
Centralizing the control system.
Correcting variances from standards.
Fixing the responsibility of various individuals in the enterprise.
 COMPONENTS OF BUDGETARY
CONTROL
1. SETTING OBJECTIVES.
2. BUDGET PREPARATION.
3. BUDGET IMPLEMENTATION.
4. PERFORMANCE EVALUATION.
5. FEEDBACK AND REVISION.
 Budget and its Types

CLASSIFICATION

Classification
Classification Functional
Rolling Budget according to
according to time Classification
flexibility
 ROLLING BUDGET
It is a continuous budget that is updated regularly when the earlier budget period expires or we
can say it is an extension of existing period budget.
Continually updated to add a new budget period by recent budget period is completed.
It involves the incremental extension of the existing budget model.
By doing so, a business always has a budget that extends one year into the future.
Rolling budget is also known as Budget Rollover.
 ACCORDING TO TIME
Long range plan – Beyond 1 year
Short range plan – 3,6,12 months
Current plan – 1 month
ACCORDING TO FLEXIBILITY

FLEXIBLE
FIXED BUDGET
BUDGET
 FIXED BUDGET AND FLEXIBLE
BUDGET
Fixed Budget: It is a budget that remains constant, irrespective of the levels of activity, that is,
the budget is created for a standard volume of production.
Flexible Budget: It can be understood as the budget created for different production levels or
capacity utilization, that is, changes in accordance with the activity level.
While fixed budget operates in only production level and under only one set of condition,
flexible budget comprises of several budgets and works in different conditions.
 FIXED BUDGET AND FLEXIBLE
BUDGET
FIXED BUDGET FLEXIBLE BUDGET

The budget designed to remain constant, The budget designed to change with the
regardless of the activity level reached is fixed change in the activity levels is flexible budget.
budget.
Prepared for different capacity activity levels
Prepared only for one level activity. or for any level of activity.
The values will not change when actual level The values are adjusted to the actual level of
of activity changes. activity attained.
Comparison between actual and budgeted It provides a good base for making a
levels cannot be done accurately, if there is a comparison between the actual and budgeted
distinction in their activity levels. levels.
 ACCORDING TO FUCNTION

Financial Master
Operating 1. Cash The aggregation of all
2. Capital Expenditure the lower level
1. Revenue Budget Budget budgets which are
2. Marketing Expenses 3. Budgeted Balance calculated by various
Budget Sheet functional areas of the
3. Logistic Budget 4. Budgeted Cash Flow business.
4. R & D Budget 5. MBO
 VARIANCE ANALYSIS AS A TOOL
FOR MCS
Variance analysis is a technique used in managerial accounting and performance management to
compare actual financial results against planned or budgeted figures.
It involves analysing the differences (variances) between actual performance and expected
performance to understand the reasons behind these differences.
Variance analysis helps identify areas of success or concern, enabling management to take
corrective actions to improve future performance.
There are several types of variances commonly analysed in variance analysis: Revenue variances
and expenses variances
 DEFINITION OF VARIANCE
ANALYSIS
ICMA:- “Variance analysis is the resolution into constituent parts and explanation of variances”.
S.P. Gupta:- “Variance analysis is the measurement of variances, location of their root causes,
measuring their effect and their disposition”.
TYPES OF VARIANCE ANALYSIS

REVENUE VARIANCES EXPENSES VARIANCES

SALES Manufacturing
Non-Manufacturing
variances
 INTERNAL AUDIT AS A TOOL FOR
MCS
Internal audit is a department or an organization of people within a company that is tasked with
providing unbiased, independent reviews of systems, business organization's, and processes.
Internal audit is independence and objectivity consulting service, which is design to add value to
the business and improve the entity’s operation.
It provides a systematic and disciplined approach to evaluating and assessing risk management,
internal control, and corporate governance.
 TYPES OF INTERNAL AUDIT

3. Information
1. Compliance Audits 2. Environmental Audits
Technology Audits

4. Operational Audits 5. Performance Audits

 TYPES OF INTERNAL AUDIT
1.Compliance Audits
It evaluate compliance with applicable laws, regulations, policies, and procedures. Some of these
regulations may have a significant impact on the company’s financial well-being. Failure to
comply with some laws, such as the Foreign Corrupt Practices Act (FCPA) or General Data
Protection Regulation (GDPR), may result in millions of dollars in fines or preclude a company
from doing a business in certain jurisdictions.
 TYPES OF INTERNAL AUDIT
2. Environmental Audits
It assess the impact of a company’s operations on the environment. They may also assess the
company’s compliance with environmental laws and regulations.
 TYPES OF INTERNAL AUDIT
3. Information Technology Audits
It may evaluate information systems and the underlying infrastructure to ensure the accuracy of
their processing, the security and confidential customer information or intellectual property.
They will typically include the assessment of general IT controls related logical access, change
management, systems operations, and backup and recovery.
 TYPES OF INTERNAL AUDIT
4. Operational Audits
It assess the organization’s control mechanisms for their overall efficiency and reliability.
5. Performance Audits
It evaluate whether the organization is meeting the metrics set by management in order to
achieve the goals and objectives set forth by the Board of Directors.
 PERFORMANCE REPORTING AS
TOOL FOR MCS
Performance reporting is the process of collecting raw data, understanding the relation between
the goals and process and creating and distributing performance information to stakeholders.
According to Anticlue.net “there is an added aspect of reporting and that is the clarification of
the use of resources to obtain the goals that have been set”
So work performance reports are the physical or electronic representation of work performance
information intended to generate decisions, actions, or awareness.
 The data should include in a
Performance Report are
1.Data on work performance: This information outlines the work that is being performed,
completed recently and what the follow up steps will be.
2.Units of performance measurement: These measurements include schedule variances, cost
variance, cost performance index, schedule performance index and planned value among
others. These values help with reporting unbiased and relevant quantifiable information, thus
making better reports.
3.Completed forecast: This measure is the predictor of future roadblocks in the process. Forecast
completion, or completed forecast is often expressed using two factors: estimate to complete,
which gives time and amount predictions for completing a project.
 The data should include in a
Performance Report are
4. Measure for quality control: Activities that compare results to quality standards and processes
are called quality control measures. These are put in place to ensure the product provided is of
the highest quality.
5. Project management plan: This contains the performance measurement baseline, which is the
basis for approved management control.
6. Requested changes approval: In the change request approval input, any changes that have
been approved, they need to be placed in front of stakeholders so these changes can be
communicated and implemented.
7. Produced actions: These refer to all actions, results, products associated with producing and
completing the task.
 TYPES OF PERFORMANCE
REPORT
Sta
tus
• Describe where the project now stands.
Rep
ort

Prog
ress
• Describing what the project team has accomplished.
Rep
ort

Foreca
• Predicting future project status and progress
sting
THANK YOU