What is Managerial Control?
The concept of managerial control does not only provide a historical record of what has happened to the business but also chalks out the reasons for its occurrence. Further, it provides data which enable the chief executive or the departmental head to take the rectifying step in that regard.
Koontz, O’Donnell and Weihrich have said “Controlling as the measurement and correction of the performance of activities of subordinates in order to make sure that enterprise objectives and the plans devised to attain them are being accomplished.”
What Does the Managerial Function of Control Imply?
The managerial function of control measures the actual performance as compared with the standards already set by plans and, management control also corrects the deviations to ensure attainment of objectives according to the predetermined plans.
Thus, we can say control is an important fundamental of management. This is an essential feature of scientific management. In fact, much of the execution of managerial education is focused on the improvement of the control techniques. It is generally used for putting restrictions over the elements being controlled. In managerial terminology, control ensures the accomplishment of work according to the plans. Managerial Control guides activity towards some predetermined goals.
Modern Management Techniques
Modern techniques of controlling are of a recent origin and are generally new in management literature. These techniques allow a new thinking process. These include:
1. Return on Investment
Return on investment (ROI) can be defined as one of the most important and useful techniques which provide the basics and guidance for measuring the performance of an investment.
2. Ratio Analysis
The organizations use ratios which are to be divided further, ratios help in analysing the various requirements of cash and capital in relation to current liabilities. The different types of ratios are –
Liquidity ratios
Solvency ratios
Profitability ratios
Turnover ratios
3. Responsibility Accounting
Responsibility accounting is defined as a system of accounting where overall involvement of different sections, divisions and other departments of an organization is established as responsibility centres.
4. Management Audit
Management audit is a systematic appraisal system for the overall managerial performance of an organization. Efficiency and effectiveness of management are judged by this technique.
5. PERT & CPM
PERT or programmed evaluation & review technique and CPM critical path method are important network techniques which are useful in planning & controlling. These techniques, therefore, help in performing various functions of management.
Traditional Techniques for Controlling
Traditional techniques are those techniques which have been used by the companies for a long period of time which include:
1. Personal Observation -
Personal observation is one of those techniques which provides first-hand information. This creates a psychological pressure on the employees to perform in a predetermined manner to achieve individual as well as organizational goals of the enterprise. This is a very time-consuming exercise which is not always effective for all kinds of jobs.
2. Statistical Report -
This is defined as an analysis of reports and data that is used in the form of averages, percentage, ratios, correlation, etc., Statistical Report presents useful information to the managers about the performance of the company in various areas.
3. Break-Even Analysis -
This is a technique used by the managers to study the relationship between the costs, volume & profits which determines the overall picture of the profit & losses at different levels of activity.
This is a no-profit and no loss zone of the sales volume, and this is known as the break-even point.
4. Budgetary Control -
Budgetary control can be defined as the technique of managerial control where all operations that are necessary to be performed are executed as per the need to be performed and planned in advance with budgets & actual results that are compared with the pre-established budgetary standards.
FAQs on Techniques of Managerial Control: An Overview
1. What is managerial control and why is it important?
Managerial control is the process of ensuring that an organisation's activities are performed according to its plans. It involves comparing actual performance with set standards, identifying any differences, and then taking corrective action. It's crucial because it helps the organisation achieve its goals, use resources efficiently, and adapt to changes in the business environment.
2. What are the main categories of managerial control techniques?
Managerial control techniques are broadly divided into two main categories based on their approach and time of development. These are:
- Traditional Techniques: These are methods that have been used by companies for a long time, such as personal observation, statistical reports, break-even analysis, and budgetary control.
- Modern Techniques: These are newer methods suited for today's complex business world, such as Return on Investment (ROI), ratio analysis, responsibility accounting, PERT/CPM, and Management Information Systems (MIS).
3. Can you explain Break-Even Analysis as a control technique?
Break-Even Analysis is a technique used to study the relationship between costs, sales volume, and profits. It identifies the 'break-even point' (BEP), which is the level of sales where total costs equal total revenue. At this point, the company makes no profit and no loss. Managers use this tool to understand how changes in sales or costs will affect profits and to make better decisions about pricing and production.
4. How is Return on Investment (ROI) used for controlling performance?
Return on Investment (ROI) is a modern technique that measures the overall profitability of a business or its individual departments. It is calculated by dividing the net income by the total investment. As a control tool, managers can set a target ROI for different divisions. By comparing the actual ROI with the target, they can evaluate which divisions are performing well and which need improvement.
5. What are the different types of responsibility centres in a business?
Responsibility accounting is a system where different departments are treated as 'responsibility centres'. The main types are:
- Cost Centre: A department where the manager is responsible only for the costs incurred, like a manufacturing unit.
- Revenue Centre: A department where the manager is held accountable for generating revenue, like a marketing department.
- Profit Centre: A department where the manager is responsible for both costs and revenues, such as a specific product division.
- Investment Centre: A department where the manager is responsible for costs, revenues, and the investments made in that centre's assets.
6. How do traditional and modern controlling techniques differ in their focus?
The main difference lies in their focus and approach. Traditional techniques, like budgetary control, are primarily concerned with the past. They compare past results to set standards and focus heavily on cost control. In contrast, modern techniques are more forward-looking. They focus on improving overall performance, quality, and strategic goals, not just costs, and often involve a more proactive and holistic approach to management.
7. Why is 'Management by Exception' considered an efficient way to control?
Management by Exception is an important principle which states that a manager’s attention should be focused only on significant deviations from the standard. If everything is proceeding as planned, it does not require top management's attention. This is efficient because it saves managers' time and energy, allowing them to concentrate on major problems where their input is most valuable, rather than getting lost in minor details.
8. In what kind of business situation would PERT and CPM be the most useful control techniques?
PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are powerful techniques best suited for planning and controlling large, complex, one-time projects. They are most useful for projects like constructing a building, launching a new product, or organising a major event. These methods help identify the most critical activities that affect the project's completion time, allowing managers to focus resources and control potential delays effectively.
9. How does a Management Information System (MIS) support the process of managerial control?
A Management Information System (MIS) is a computer-based system that gives managers the information needed to run the business. For control, an MIS is extremely helpful as it provides accurate and timely data on actual performance, helps compare this performance against set standards quickly, and generates reports that highlight any deviations. This allows managers to take fast and well-informed corrective action.
10. What are the limitations of using budgetary control as a management tool?
While widely used, budgetary control has limitations. Firstly, budgets are based on estimates and forecasts about the future, which can be inaccurate in a rapidly changing business environment. Secondly, they can sometimes be too rigid, discouraging flexibility and new ideas if employees are only focused on meeting the numbers. Finally, budgeting can sometimes lead to internal conflicts if departments view it as a competition for limited funds.
