Techniques of Managerial Control

Managerial control is a crucial function that regulates organizational activities by comparing actual performance with expected standards and goals. As management evolves, so do the techniques used for controlling. These techniques can be broadly classified into two categories: Traditional Techniques and Modern Techniques.

Traditional Techniques of Managerial Control

1. Personal Observation

   • Description: This technique involves managers observing employees directly in their work environment.
   • Advantages: Provides firsthand information and creates a psychological incentive for employees to perform well, knowing they are being observed.
   • Limitations: Time-consuming and not feasible for all job types.

2. Statistical Reports

   • Description: Involves the use of data analysis techniques such as averages, percentages, and ratios to evaluate organizational performance.
   • Advantages: Simplifies complex data into understandable formats like charts and graphs, allowing for easier comparisons with historical data and benchmarks.

3. Break-even Analysis

   • Description: This technique analyzes the relationship between costs, volume, and profits to identify the sales volume at which there is neither profit nor loss.
   • Formula:
     $$text{Breakeven Point} = frac{text{Fixed Costs}}{text{Selling Price per Unit} – text{Variable Costs per Unit}}$$Breakeven Point=Selling Price per Unit−Variable Costs per UnitFixed Costs​

4. Budgetary Control

   • Description: A technique where budgets are prepared in advance, and actual results are compared against these budgets to assess performance.
   • Types of Budgets:
     • Sales Budget: Expected sales in quantity and value.
     • Production Budget: Planned production levels.
     • Material Budget: Estimated material requirements.
     • Cash Budget: Anticipated cash flows.
     • Capital Budget: Spending on long-term assets.
     • Research & Development Budget: Spending on product and process development.

Modern Techniques of Managerial Control

1. Return on Investment (ROI)

   • Description: Measures the effectiveness of capital investments in generating returns. It assesses both overall organizational performance and departmental performance.
   • Formula:
     $$text{ROI} = frac{text{Net Income}}{text{Total Investment}}$$ROI=Total InvestmentNet Income​

2. Ratio Analysis

   • Description: Utilizes various financial ratios to evaluate an organization’s performance. Key categories include:
     • Liquidity Ratios: Measure the ability to meet short-term obligations.
     • Solvency Ratios: Assess long-term financial stability.
     • Profitability Ratios: Evaluate the ability to generate profit.
     • Turnover Ratios: Analyze operational efficiency.

3. Responsibility Accounting

   • Description: A system that assigns accountability to various sections or departments within an organization, known as “Responsibility Centers.” Types include:
     • Cost Center: Responsible for costs incurred.
     • Revenue Center: Focuses on revenue generation.
     • Profit Center: Responsible for both revenues and costs.
     • Investment Center: Responsible for profitability and investment decisions.

4. Management Audit

   • Description: A systematic evaluation of management performance to assess efficiency and effectiveness and to improve future performance.

5. PERT (Program Evaluation and Review Technique) & CPM (Critical Path Method)

   • Description: Techniques used for planning and controlling projects, helping managers schedule and allocate resources for complex activities effectively.