Controlling Techniques 2

Types of Techniques Of Control
Traditional Techniques Techniques Of Control Modern Techniques
Traditional Techniques
Personal Observation
Good Organized Structures

Unity Of Objectives, policies, procedures and methods Statistical reports and analysis Break-even analysis Budgetary control
Modern Techniques
Management Audit Return on investment (ROI) Responsibility accounting PERT and CPM
Personal Observation
Personal Observation Good organization structures Unity of plans Statistical reports and analysis
Break-even analysis
Also known
Inter relationship between cost of production, volume of production and profits. Also known as Cost volume analysis Cost is broken in two categories fixed and variable. Break even point
Break-even analysis
Determines the minimum volume of sales at which costs are fully recovered
Control over variable costs

It can be applied to estimate profits at different levels of activity Estimate turnover for desired profits
Categorizing cost into fixed or variable is very difficult Fixed cost are not constant throughout Cost line and revenue line are not linear always Factor prices, technology and product mix are dynamic
Budgetary control
Sales Budget Production Budget Financial/quantitative statement prepared prior to a definite period of time of the policy to be pursued during Materials Budget that period for obtaining a given purpose. Labor Budget Future plan of action Expressed in monitory or in physicalOverhead units Budget Cash can Budget Provides standard by which performance be evaluated and corrective actions can be taken Capital Expenditure Budget Highly useful in periodical controlling Master Budget Budget making- planning and administration of budgetcontrolling
Flexible Budgeting
Fixed budgeting doesnt show changes in costs according to level of activity
Flexible budget copes with future changes.
It gives budgeted cost according to level of activity

Realistic and practical (as accurate values of sales and production can not be stated)
Performance Input/output or costs/results Budgeting budget

Steps: Correlates financial and Difficulty in setting goals in physical aspects Identify the goals terms of performance Improve budget formulation, Requires structural changes Prepare a schedule review and decision making Link all expenses in organization Develop measure of performance Effective performance audit Annual budgets and development plans become synchronous Highlights the end results to be achieved than money to be spent
Zero-base Budgeting(ZBB)
Traditional system relies too much on past experience Stifles innovation and creativity
In of ZBB, comprehensive analysis and Constraints Time consuming budgetaryreview and of budget ismade Traumatic for budget organizational goal makers Freedom and flexibility Extensive security may Steps: Objective evaluation discourage innovation* Activities are divided in decision packages Low priority activities All activities are evaluated and ranked can be eliminated Resource allocation according to priority
Budgetary Control
Steps : Clarity in planning Inflexibility Preparation of budgets Means of coordination Inaccuracy Measurement and continuous comparison Control by exception Distortion of goals Corrective actions Fixing responsibility Expenditure Revision and modification in budgets Optimum resources Hiding inefficiencies Objectives: utilization No substitute for Standard for performance management To detect shortcomings and avoid waste of resources
Management audit
Quality of management is very important; it decides success or failure of an organization
Scientific and overall appraisal of quality of management Locates deficiencies Constructive and comprehensive review of management of team of organization
Scope :
Organizational structure Executive appraisal Functioning of management board Soundness of earnings Economic functioning Service to stockholders Research and development Fiscal policy Production efficiency Sales vigor
Return on investment
Return capital on capital employed The essence of this technique is profit is taken not as an absolute figure but is considered in relation to the invested capital
Responsibility accounting
It is a system of accounting in whereby the performance is judged by assessing the achievement of every individual.
Types: Cost Centre Profit Centre Investment Centre

Controlling Techniques 2

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Types of Techniques Of Control

Traditional Techniques Techniques Of Control Modern Techniques

Good Organized Structures

Control over variable costs

Fixed budgeting doesnt show changes in costs according to level of activity

Flexible budget copes with future changes.

It gives budgeted cost according to level of activity

Performance Input/output or costs/results Budgeting budget

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