Traditional and Modern Techniques
A number of techniques or tools are used for the purpose of managerial control. Some of the techniques are used for the control of the overall performance of the organisation, and some are used for controlling specific areas or aspects like costs, sales, etc. The various techniques of control can be classified into categories, viz.,
(1) Traditional or Conventional techniques and
(2) Modern or Contemporary techniques.
The important Traditional or Conventional techniques are:
a. Budgetary Control
b. Standard Costing
c. Break-even Analysis
d. Inventory Control
e. Internal Audit
f. Statistical Data Analysis
g. Personal Observation
h. Production Planning and Control
The Important Modern or Contemporary techniques are:
a. Financial Statement Analysis
b. Return on Investment Control
c. Management Information System
d. Management Audit
e. Zero-base Budgeting
f. Human Resources Accounting
g. Responsibility Accounting.
a. Budgetary Control: According to J.A. Scott, “Budgetary control is the system of management control and accounting in which all operations are forecasted and so far as possible planned ahead, and the actual results compared with the forecasted and planned ones”.
b. Standard Costing: According to the ICMA, England, “Standard cost is a pre-determined cost which is calculated from management’s standards of efficient operation and the relevant necessary expenditure”.
c. Break-even Analysis or Cost-Volume-Profit Analysis: Cost-Volume-Profit Analysis or Break-even Analysis is the study of the interrelationship between the cost (i.e., cost of production), volume (i.e., the volume of production and sales), the prices and the sales value, and the profits. In other words, it is the study of the inter-relationship between the cost (i.e., cost of production), volume (i.e., volume of production and sales), prices (i.e., selling prices) and profits.
d. Inventory Control: Inventory is the stock of raw materials, work-in-progress, finished goods, consumable stores and spare parts and components at any given point to time. So, inventory control means control over different items of inventory or stock. “It is defined as physical control of stock items and implementing the principles and policies relating thereto”.
e. Internal Audit: Internal audit is a continuous and systematic review of the accounting, financial and other operations of a concern by the staff specially appointed by the management for the purpose. In other words, it is the auditing for the management conducted by the staff specially appointed for the purpose to ensure that the work of the concern is going on smoothly, efficiently and economically.
f. Statistical Data Analysis: It is a technique under which statistical data of the past and the present relating to the important aspects of the business are used for managerial control. The statistical data are collected from books and registers of the concern and presented to the management in a systematic manner in the form of tables, charts, graphs, etc.,
g. Personal Observation: Under the technique of personal observation, the managers keep a close personal observation of the employees. In other words, the manager observes whether the workers are doing what they are expected to do.
h. Production Planning and Control: According to S. Elon, “Production planning and control may be defined as the direction and co-ordination of the firm’s material and physical facilities towards the attainment of pre-specified production goals in the most efficient and valuable way”.
a. Financial Statement Analysis: Financial statements are a means of managerial control. They can be used by the management for measuring and controlling the profitability, liquidity and the financial position of the business. By comparing the financial statement of the current year with those of the previous years and also by comparing the financial statement of their concern with those of other concerns engaged in the same industry.
b. Return on Investment Control: Profits are the measure of overall efficiency of business. Profit earned in relation to the capital employed in a business is an important control device. ROI is used to measure the overall efficiency of a concern. It reveals how well the resources of a concern are used, higher the return better are the results.
c. Management Information System (MIS): Management Information System (MIS) is an approach of providing timely, adequate and accurate information to the right person in the organisation which helps in taking right decisions.
d. Management Audit: Management audit is an investigation by an independent organisation to find out whether the management is carried out most effectively or not. In case there are drawbacks at any level then recommendations should be given to improve managerial efficiency.
e. Zero-Base Budgeting (ZBB): In the words of Peter A Pyher, “Zero-base budgeting is a planning and budgeting process which requires each manager to justify his entire budget request in detail from scratch and shifts the burden of proof to each manager to justify why he should spend money at all. The approach requires that all activities be analysed in ‘decision packages’ which are evaluated by systematic analysis and ranked in order of importance”. From his definition, it is clear that Zero-base budgeting is a technique of preparing the budget in which the previous year is not taken as the base, and every year is taken as a new year for preparing the current year’s budget.
f. Human Resources Accounting: The American Accounting Association has defined human resources accounting as “the process of identifying and measuring data about human resources and communicating this information to interested parties”.
g. Responsibility Accounting: Responsibility Accounting is defined as “a system designed to accumulate and report costs by individual levels of responsibility. Each supervisory area is charged only with the cost for which it is responsible and over which it has control.”