Areas Of Control

For effectiveness, it is important to decide on the critical areas where control should be exercised. There are many advantages of identifying these areas of control (also known as types of control) so as to enable management to:

i)      Delegate authority and fixing responsibility;

ii)    Reduce the burden of supervising each activity in detail; and

iii)   Secure means of achieving satisfactory results.

Controls are actually needed in every area where performance and results directly and vitally affect the survival and prosperity of the organisation. These areas need to be specially mentioned. In this connection, Peter Drucker has identified eight key result areas where objective should be set and controls should be exercised. These are:

1)     Market standing

2)     Innovation

3)     Productivity

4)     Physical resources

5)     Financial resources

6)     Profitability

7)     Manager’s performance and attitude

8)     Public responsibility

Apart from the identification of key areas, control may be distinguished on the basis of their nature and purpose. Let us discuss them one by one.

 


1)     Physical and Financial Control: Physical controls refer to controls over the safety and maintenance of properties and assets, stocks of materials, stores, spare parts, and other articles on the task of quantitative and numerical measures. Financial controls include control over cash receipts and payments, fixed and working capital, income and expenditure as well as profits and the value of assets and liabilities.

 

2)    Control Over Actual and Anticipated Performance: Day-to-day operations need to be controlled to achieve the short-run objectives, targets and standards as well as continuing goals. This is another category of controls.

 

3)     Control Over Activities or Areas of Operations

i) Control over policies and procedures: Policies are formulated, procedures laid down to govern the behaviour and action of personnel in the organisation. These are generally controlled through manuals which are prepared by top management. Each individual in the organisation is expected to function according to manuals.

 

ii) Control over organisation: Organisation Charts and Manuals are used to keep control over organisation structure. Organisation manuals attempt at solving organisational problems and conflicts, making long-range organisational planning possible, enabling rationalisation of the organisation structure, helping in proper designing and clarification of each part of the organisation, and conducting periodic check on facts about organisation practice.

 

iii) Control over personnel: Generally the Personnel Manager or Head of the Personnel Department, whatever his designation may be, keeps control over personnel in the organisation. Sometimes, a personnel committee is constituted to act as an instrument of control over key personnel.

 

iv) Control on wages and salaries: Control over wages and salaries is exercised through job analysis and job evaluation. The functions are carried out by personnel and industrial engineering departments. Often, a wage and salary committee is constituted to provide help to these departments.

 

v) Control over costs: Control over costs is exercised through making comparison between standard costs and actual costs. Standard costs are set in respect of different elements of costs. Cost control is also supplemented by budgetary control system which includes different types of budgets. The Controller’s department provides information for setting standard costs, calculating actual costs, and pointing out differences between these two.

 

vi) Control over methods and manpower: Control over methods and manpower is required to ensure that each individual is working according to schedule. For this purpose, periodic analysis of activities of each department is conducted. The functions performed, methods adopted, and time consumed by every individual are studied to eliminate non-essential functions, methods and time. Many organisations create a separate department or section known as ‘Organisation and Methods’ to keep control over methods and manpower.

 

vii) Control over capital expenditure: Control over capital expenditure or acquisition of fixed assets exercised through the system of evaluation of projects and ranking of projects on the basis of their importance, generally on the basis of their earning capacity. A capital budget is prepared for the business as a whole. The budget is reviewed by the budget committee or appropriation committee. For effective control over capital expenditure, there should be a plan to identify the realisation of benefits from capital expenditure and to make comparison with anticipated results. Such comparison is important in the sense that it serves as an important guide for future capital budgeting activities.

 

viii) Control over service departments: It is effected:

a)    through budgetary control within operating departments,

b)    through putting limits upon the amount of service an individual department can ask for, and

c)    through authorising the heads of service departments to evaluate the request for service made by other departments and to use discretion about the quantum of service to be rendered to a particular department. Sometimes, a combination of the methods may be used.

 

ix) Control over line of products: Control over line of products is exercised by a committee whose members are drawn from production, sales and research departments. The committee controls the product-mix on the basis of studies about market needs. Efforts are made to simplify and rationalise the line of products.

 

x) Control over research and development: Control over research and development is exercised in two ways:

1)    by providing a budget for research and development, and

2)    by evaluating each project keeping in view savings, sales or profit potentialities. Research and development being a highly technical activity is also controlled indirectly. This is done by improving the ability and judgement of the research staff through training programmes and other devices.

 

xi) Control over foreign operations: Foreign operations are controlled in the same way as domestic operations. The tools and techniques applied are the same. The only difference is that the chief executive of foreign operations has relatively greater amount of authority.

 

xii) Control over external relations: External relations are regulated by the public relations department. This department may prescribe certain measures to be followed by other departments while dealing with external parties.

 

xiii) Overall control: Control over each segment of the organisation contributes to overall organisational control. However, some special measures are devised to exercise overall control. This is done through budgetary control, project profit and loss account and balance sheet. A master budget is prepared by integrating and coordinating budgets prepared by each segment. The budget committee reviews such budget. This budget acts as an instrument for overall control. Profit and loss account and balance sheet are also used to measure the overall results.

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