Types of Management Control

Recently updated on April 13th, 2023 at 06:17 pm

10 Types of Control Techniques

The ten types of traditional techniques of controlling are discussed below:-

  1. Direct Supervision and Observation

‘Direct Supervision and Observation’ is the oldest technique of controlling. The supervisor himself observes the employees and their work. This brings him in direct contact with the workers. So, many problems are solved during supervision. The supervisor gets first-hand information, and he has better understanding with the workers. This technique is most suitable for a small-sized business.

  1. Financial Statements

All business organizations prepare Profit and Loss Account. It gives a summary of the income and expenses for a specified period. They also prepare Balance Sheet, which shows the financial position of the organization at the end of the specified period. Financial statements are used to control the organization. The figures of the current year can be compared with the previous year’s figures. Ratio analysis can be used to find out and analyses the financial statements. Ratio analysis helps to understand the profitability, liquidity and solvency position of the business.

  1. Budgetary Control

A budget is a planning and controlling device. Budgetary control is a technique of managerial control through budgets. It is the essence of financial control. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee.

  1. Break Even Analysis

Break Even Analysis or Break Even Point is the point of no profit, no loss. For e.g. When an organization sells 50K cars it will break even. It means that, any sale below this point will cause losses and any sale above this point will earn profits. The Break-even analysis acts as a control device. It helps to find out the company’s performance. So the company can take collective action to improve its performance in the future. Break-even analysis is a simple control tool.

  1. Return on Investment (ROI)

Investment consists of fixed assets and working capital used in business. Profit on the investment is a reward for risk taking. If the ROI is high then the financial performance of a business is good and vice-versa.

ROI is a tool to improve financial performance. It helps the business to compare its present performance with that of previous years’ performance. It helps to conduct inter-firm comparisons. It also shows the areas where corrective actions are needed.

  1. Management by Objectives (MBO)

MBO facilitates planning and control. It must fulfill following requirements:

  • Objectives for individuals are jointly fixed by the superior and the subordinate.
  • Periodic evaluation and regular feedback to evaluate individual performance.
  • Achievement of objectives brings rewards to individuals.
  1. Management Audit

Management Audit is an evaluation of the management as a whole. It critically examines the full management process, i.e. planning, organizing, directing, and controlling. It finds out the efficiency of the management. To check the efficiency of the management, the company’s plans, objectives, policies, procedures, personnel relations and systems of control are examined very carefully. Management auditing is conducted by a team of experts. They collect data from past records, members of management, clients and employees. The data is analyzed and conclusions are drawn about managerial performance and efficiency.

  1. Management Information System (MIS)

In order to control the organization properly the management needs accurate information. They need information about the internal working of the organization and also about the external environment. Information is collected continuously to identify problems and find out solutions. MIS collects data, processes it and provides it to the managers. MIS may be manual or computerized. With MIS, managers can delegate authority to subordinates without losing control.

  1. PERT and CPM Techniques

Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM) techniques were developed in USA in the late 50’s. Any programme consists of various activities and sub-activities. Successful completion of any activity depends upon doing the work in a given sequence and in a given time.

10. Self-Control

Self-Control means self-directed control. A person is given freedom to set his own targets, evaluate his own performance and take corrective measures as and when required. Self-control is especially required for top level managers because they do not like external control.

The subordinates must be encouraged to use self-control because it is not good for the superior to control each and everything. However, self-control does not mean no control by the superiors. The superiors must control the important activities of the subordinates.

Types of Control

  1. Feed-Forward Controls

Feed forward controls are future-directed: they attempt to detect and anticipate problems or deviations from the standards in advance of their occurrence (at various points throughout the processes). They are in-process controls and are much more active, aggressive in nature, allowing corrective action to be taken in advance of the problem.

Feed forward controls thus anticipate problems and permit action to be taken before a problem actually arises.

Feed forward control devices are of two broad categories: diagnostic and therapeutic.

Diagnostic controls seek to determine what deviation is taking (or has taken) place. The sales manager, for instance, who receives the monthly sales figures (showing sales quota results) is virtually working with a diagnostic control device. It will no doubt indicate deviations from the acceptable standard (i.e., what is wrong) but not why. Discovering the ‘why’ is often the most difficult part of the process.

Therapeutic controls tell us both what and why, and then proceed to take corrective action. For example, engines having internal control system such as an engine speed governor and automatic transmission are designed to take necessary corrective actions when warranted by the conditions.

An example of utilisation of such control can be found in case of a manager who conducts employee training using the coaching method. When, for instance, the trainee is performing the task, the manager observes him closely by standing on his side. The objective is to discover if any deviations from the intended processes take place.

In case a deviation occurs, the manager observes it, diagnoses the reason for the incorrect technique, and corrects the deviation immediately (i.e., without any loss of time). Thus the control and correction take place during the process itself, not after a few days.

  1. Concurrent (Prevention) Control

Concurrent control, also called steering control because it allows people to act on a process or activity while it is proceeding, not after it is proceeding, nor after it is completed. Corrections and adjustments can be made as and when the need a rises. Such controls focus on establishing conditions that will make it difficult or impossible for deviations from norms to occur.

An example of concurrent control is the development by companies of job descriptions and job specifications. It may be recalled that job description identifies the job that has to be done, thus clarifying working relationships, responsibility areas, and authority relationships. It thus assists in preventing unnecessary duplication of effort (work) and potential organisational conflict.

In a like manner job specification identifies the abilities, training, education and characteristics needed of an employee to do the work. It is control device inasmuch as it works to prevent a person who is totally unqualified and unfit from being selected for the job, thereby saving money and time, and thus precluding potential poor performance.

  1. Feedback Controls

Feedback control is future-oriented. It is historical in nature and is also known as post-action control. The implication is that the measured activity has already occurred, and it is impossible to go back and correct performance to bring it up to standard. Rather, corrections must occur after the act.

Such post-action controls focus on the end results of the process. The information derived is not utilised for corrective action on a project because it has already been completed. Such control provides information for a manager to examine and apply to future activities which are similar to the present one. The basic objective is to help prevent mistakes in the future.

Controlling Process in Business Management

  1. Setting Performance Standards

The first step in the process of controlling is concerned with setting performance standards. These standards are the basis for measuring the actual performance.

Thus, standards act as a lighthouse that warns & guides the ships at sea. Standards are the benchmarks towards which efforts of entire organization are directed. These standards can be expressed both in quantitative and qualitative terms.

Examples of Quantitative Standards:

  • Revenue to be earned.
  • Units to be produced and sold.
  • Cost to be incurred.
  • Time to be spent in performing a task.
  • Amount of inventories to be maintained etc.

Examples of Qualitative Standards:

  • Improving motivation level of employees.
  • Improving labour relations.
  • Improving quality of products.
  • Improving goodwill etc.
  1. Measurement of Actual Performance

Once the standards have been determined, the next step is to measure the actual performance. The various techniques for measuring are sample checking, performance reports, personal observation etc. However, in order to facilitate easy comparison, the performance should be measured on same basis that the standards have.

Following are some of the ways for measuring performance:

(a) Superior prepares a report regarding the performance of an employee.

(b) Various ratios like gross profit ratio, debtor turnover ratio, return on investment, current ratio etc. are calculated at periodic intervals to measure company’s performance.

(c) Progress made in areas like marketing can be measured by considering the number of units, increase in market share etc.

(d) In small organisations, each unit produced can be checked personally to ensure the quality standards.

(e) In large organisation, the technique of sample checking is used. Under this technique, some pieces are checked at random for quality specifications.

  1. Comparing Actual Performance with Standards

This step involves comparing the actual performance with standards laid down in order to find the deviations. For example, performance of a salesman in terms of unit sold in a week can be easily measured against the standard output for the week.

  1. Analysing Deviations

Some deviations are possible in all the activities. However, the deviation in the important areas of business needs to be corrected more urgently as compared to deviation in insignificant areas. Management should use critical point control and management by exception in such areas.

  1. Taking Corrective Action

The last step in the process of controlling involves taking corrective action. If the deviations are within acceptable limits, no corrective measure is required. However, if the deviations exceed acceptable limits, they should be immediately brought to the notice of the management for taking corrective measures, especially in the important areas.

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