Question 2

Explain the techniques of managerial control.


The various techniques of managerial control may be classified into two broad categories: traditional techniques and modern techniques.

Traditional Techniques: traditional techniques are those which have been used by the companies for a long time now. However, these techniques have not become obsolete and are still being used by companies. The following are traditional techniques of managerial control.

  1. Personal Observation: This is the most traditional method of control. Personal observation enables the manager to collect first hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job. However, it is a very time- consuming exercise and cannot effectively be used in all kinds of jobs.

  2. Statistical Reports: Statistical analysis in the form of averages, percentages, ratios, correlation, etc., present useful information to the managers regarding performance of the organisation in various areas. Such information when presented in the form of charts, graphs, tables, etc., enables the managers to read them more easily and allow a comparison to be made with performance in previous periods and also with the benchmarks.

  3. Breakeven Analysis: Breakeven analysis is a technique used by managers to study the relationship between costs, volume and profits. The sales volume at which there is no profit, no loss is known as breakeven point. It helps the manager in estimating profits at different levels of activities.

  4. Budgetary Control: Budgetary control is a technique or managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards. This comparison reveals the necessary actions to be taken so that organisational objectives are accomplished.

Modern Techniques: Modern techniques of controlling are those which are of recent origin and are comparatively new in management literature. These techniques provide a refreshingly new thinking on the ways in which various aspects of an organisation can be controlled. Following are the modern techniques of managerial control.

  1. Return on investment: Return on Investment (ROI) is a useful technique which provides the basic yardstick for measuring whether or not invested capital has been used effectively for generating reasonable amount of return.

  2. Ratio Analysis: Ratio Analysis refers to analysis of financial statements through computation of ratios. The most commonly used ratios used by organisations can be classified into the following categories:

                      a. Liquidity Ratios
                      b. Solvency Ratios
                      c. Profitability Ratios
                      d. Turnover Ratios

  1. Responsibility Accounting: Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘Responsibility Centers’. The head of the centre is responsible for achieving the target set for his centre.

Responsibility centres may be of the following types:

                      a. Cost Centre
                      b. Revenue centre
                      c. Profit Centre
                      d. Investment Centre

  1. Management Audit: Management audit refers to systematic appraisal of the overall performance of the management of an organisation. The purpose is to review the efficiency and effectiveness of management and to improve its performance in future periods. It is helpful in identifying the deficiencies in the performance of management functions.

  2. PERT and CPM: PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques useful in planning and controlling. These techniques deals with time scheduling and resource allocation for these activities and aims at effective execution of projects within given time schedule and structure of costs.

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