CONTROLING

The Management Process Planning, Controlling and Decision Making

May 13, 2010 Posted in Project Management Methodology Management Process is defined as activity which involves Planning, Controlling and Decision Making. Management Process describes functions of a manager and functions to enable the workers. Workers enablement gives authority to staff in the operation level to plan, control, and to make decisions without requiring authorization from middle or top management. Worker enablement is done based on the philosophy that the workers are considered very close to the job and are capable to give input and suggestions, to get ideas, and have an active role in problem solving. Workers are given permission to stop production so they can identify the problem and solve it. They are asked to give input and ideas which are used to improve the production process. The involvement to manage the company through workers enablement is a core element to promote continuous improvement. Worker enablement is similar to High Involvement Organization (HIO) which allows high participation of the workers in all aspects of the organization. High-involvement organizations are characterized by flat organizational structures with product- or customer-focused units rather than functional centers such as marketing, production and research and development. Planning is a detail formulation of activity to achieve defined goals. Planning requires clear goals and the identification of method to achieve those goals. As an example a factory manager can initiate a supplier evaluation program to identify and select suppliers who are willing and able to supply zero defect material. By promoting workers enablement, workers can identify the cause of defective materials or products and create a new method to reduce waste and product reworking. Controlling is a managerial activity to monitor the implementation of the plan and to make corrective actions whenever required. After a plan is made, the plan should be implemented; manager and workers need to monitor the implementation to ensure that the plan works as expected. Feedback is often used to evaluate and set the corrective actions to implement a defined plan. Based on the feedback, manager or worker can decide to keep the original plan and let it work, or to take corrective action or to re-plan it. This feedback can be in the form of financial report or performance report. Decision making is a process to choose the best solution among many alternatives. This managerial function is collaboration between planning and controlling. The quality of decision can be improved if all alternatives information can be collected and presented to manager. One

of the important roles of Accounting Information System is to supply the information to simplify the decision making process. Management process is a way to keep a project focused and productive. The project team has the authority to change or discontinue a part of or all of a project if it is not making minimum expectations. They also have the responsibility of working with the client in the event of needing a new timeline, miscalculated budget, or product delay. The management process might seem complicated, but in truth it is a simple progression of steps or tasks. At every phase the manager has the opportunity to ensure delivery on time and under budget.

Controlling - The Soul Of Management Process

By Rupal Jain
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Dictionary of Accounting terms defines Controlling as, "implementation of a decision method and the use of feedback so that the goals and specific strategic plans of the firms are optimally obtained. To do this, managers study accounting and other reports and compare them to the plans set earlier. These comparisons may show where operations are not proceeding as planned and who is responsible for what. The feedback that management receives may suggest the need to replan, to set new strategies, or to reshape the organizational structure". Controlling is the final function of management- other funtions are Planning, Organizing, Coordination, Staffing, Motivation, Communication and Direction; thus it ensures that the plans are executed properly; it helps in monitoring the management activities; and rectifying / correcting the wrong one's by taking corrective suitable actions at the right time. Controlling in an organization can be for time, materials, equipments, cost, budget, finance, operations, sales, etc. It can be done before the process begins (known as feedforward), during the process (known as concurrent), and after it finishes (known as feedback). Koontz and O'Donnell has rightly explained Controlling as, "the managerial function of Control is the measurement and correction of the performance of subordinates in order to make sure that enterprise objectives and the plans devised to attain them are accomplished".

The Control Process is divided into several stages which are explained below: STEP I: - The organization sets targeted standards. STEP II: - They measure the actual outcome after completion of the task. STEP III: - They make comparison between the Targeted / Expected Standards and the Actual Outcome/ Result. STEP IV: - They take corrective actions if required or continues with the same process / strategy. STEP V: - The management them monitors the action regularly by proper follow-up and feedback to check and measures its effectiveness. Thus, it enables the management to compare the actual standards with the targeted one and set achievable, possible targets for the organization. "Control means to guide something in the direction it is intended to go" - Louis Allen. However, there are certain requisites of an effective Controlling which are: 1. The Goals has be Realistic and Descriptive, which should clearly specify the targets to be achieved, strategies for implementation / achievement of targets and also state why it is expected, what is expected, when it is expected and how it is expected. 2. It should be Flexible; for any modifications, rectification, changes in the formulated strategies. 3. It must be Measurable; since it compares the actual performance with the set target. 4. It should be Regular and Continuous activity; as it helps to find the deficiencies and suggest remedial measures in a continuous manner which ultimately eliminates wastages. 5. It must Facilitate Efficiency among and within the departments of the organization to enhance the overall productivity, profitability and co-ordination. 6. If there are certain shortfalls in the plan, it should suggest suitable solutions and remedies to overcome that. Thus, Controlling is rightly defined as a management function of: 1. Establishing benchmark or standards. 2. Comparing actual performance against them and, 3. Taking corrective action, if required. Rupal Jain, Lecturer, Atharva Institute of Management Studies (Mumbai), and I can be reached at jainrupal@sify.com Article Source: http://EzineArticles.com/?expert=Rupal_Jain

1. Definition of Control
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A control is a set of instructions that top leadership puts into place to prevent losses resulting from theft, fraud and technological malfunction. These instructions also help management ensure that expenses remain within budgetary limits.

Budgeting Defined

Budgeting is a business process in which senior executives and department heads set spending limits and cost thresholds for each business unit. At the end of each month or quarter, segment managers compare actual data with budget amounts and make adjustments. Sponsored Links


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Management Accounting Function

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Management accounting provides insight into a firm's cost structure and revenue processes. Cost structure refers to corporate manufacturing costs and administrative expenses, such as salaries, rent and utilities.

Budgetary Control Importance

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A budgetary control is a mechanism that helps senior managers ensure that spending limits are adequate. This control is important because spending excesses have an unfavorable impact on corporate profits.

Budgetary Control and Income Statement

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A budgetary control helps corporate leaders monitor revenue and expense levels in operating activities. Revenue is income that a firm generates by selling goods or providing services. An expense is a cost incurred through operations.

Budgetary Control and Cash Flows

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A budgetary control also ensures that corporate cash outflows (payments) and inflows (receipts) remain at adequate levels. A statement of cash flows indicates cash flows from operating activities, investing activities and financing activities.

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Read more: The Importance of Budgetary Control in Management Accounting | eHow.com http://www.ehow.com/facts_6750338_importance-budgetary-control-managementaccounting.html#ixzz1km0j9vqp
What is Controlling?

Controlling consists of verifying whether everything occurs in confirmities with the plans adopted, instructions issued and principles established. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. Controlling measures the deviation of actual performance from the standard performance, discovers the causes of such deviations and helps in taking corrective actions According to Brech, Controlling is a systematic exercise which is called as a process of checking actual performance against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs. According to Donnell, Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on right course. Controlling has got two basic purposes 1. It facilitates co-ordination 2. It helps in planning
Features of Controlling Function

Following are the characteristics of controlling function of management1. Controlling is an end function- A function which comes once the performances are made in confirmities with plans. 2. Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns. 3. Controlling is forward looking- because effective control is not possible without past being controlled. Controlling always look to future so that follow-up can be made whenever required. 4. Controlling is a dynamic process- since controlling requires taking reviewal methods, changes have to be made wherever possible. 5. Controlling is related with planning- Planning and Controlling are two inseperable functions of management. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. Planning presupposes controlling and controlling succeeds planning.

6. 7.

Budgeting and budgetary control

The following contains both new materials and updated extracts from my book Cost and Management Accounting published by Prentice Hall 1996

8. Introduction 9. Budgets can be prepared for and used by anyone and anything. That is, we can

prepare and use personal budgets and organisations, ministries and non profit making organisations can all use them. 10. Budgets, by definition, have to be prepared in advance; and for this reason, they are often referred to in terms of their being part of a feedforward system. Feedback is a term frequently heard both in accounting and ordinary use. Feedforward, on the other hand tends to be less frequently heard, yet this word incorporates the most important aspect of budgeting: looking at situations in advance, thinking about the impact and implications of things in advance, attempting to take control of situations in advance. 11. Budgets 12. A budget is a plan expressed in quantitative and money terms. Budgets need to be prepared and approved in advance of the period in which they are to be used. Budgets can include some or all of income, expenditure, and the capital to be employed. Moreover, a budget can be drawn up for an entire organization, any segment of the organization such as a department or sales territory or division, or for a significant activity such as the production and sale of a specific product. 13. We should also add that a budget can include non monetary as well as monetary information in it. 14. Budgetary Control 15. Budgets are simply exercises in calculation unless they are used. When we use a budget, we do so as part of a system of budgetary control. That is, we have some basic ideas of what we want to do, we prepare budgets to help us achieve those ideas; and then once we have done whatever it is that we wanted to do, we check to see if we kept to our budget. 16. Budgetary control relates to the establishment of budgets relating the responsibilities of budget holders the needs of a policy. Budgetary control also relates to the continuous comparison of actual with budgeted results: it does this to try to ensure that the objectives of that policy are achieved; or to provide a basis for the change of those objectives. 17. In summary, a budget is a statement setting out the monetary, numerical or non quantitative aspects of an organisation's plans for the coming week or month or year. Budgetary control is the analysis of what happened when those plans

came to be put into practice, and what the organisation did or did not do to correct for any variations from these plans. 18. The benefits of budgeting 19. Many of us prepare budgets on a personal level: how much is my income for the month?; how much am I going to spend?; and, most importantly, is there anything left over? It seems true, however, that many businessmen do not prepare budgets for their businesses. Thus, even though managers prepare budgets for their relatively simple lives, when it comes to the much more complex situation of their business, they prefer to let cash inflows and outflows look after themselves. The purpose of this part of the chapter is to demonstrate that budgets are useful, informative and communicative. We will see that a budget is a necessity not a luxury. 20. We will also see some of the problems underlying organisations: the nature of the organisation and the interactions of the people working in them. By considering these problems, we will be considering ways in which your budgeting system, or the organisation itself, can be changed, if necessary, to overcome them. 21. Applicability of Budgeting and Budgetary Control 22. Budgeting can be applied to virtually every situation. It does not matter whether we work in the Public or Private Sector of the Economy. We may work for a profit making business or a non profit making business. Your company may be engaged in trading, manufacturing, or providing a service. In all of these situations, budgeting and budgetary control is of use to you. 23. As we will see, there are many issues underlying the use of a budgeting system that need careful consideration. For example, we will see that budgeting systems cannot just be imposed on an organisation nor do they run themselves. Managers at all levels often resent budgets and budget targets for a variety of reasons. 24. The budgeting process 25. It would be easy to dismiss the budgeting process as beginning when the first budget is prepared, and as being complete when the master budget is finalised. In reality, the budgeting process begins for many organisations a long time before the budget period begins; and the process ends once the budget period has ended. This means the budgeting process is a very lengthy process: typically, for a large organisation, the pre budgeting phase can begin up to a year before the budget period starts. 26. Jones and Pendlebury (1984), pp62-63, give us some insight into the beginning of the budgeting cycle when they present a "Timetable for preparation of detailed revenue budget and capital programme" for a Local Authority. They show that the process starts in June in the year preceding the budget period with the draft budget manual being sent to Finance Officers, who will discuss this

draft with their departmental staff (with a view to adoption or amendment). The budgetary planning phase is completed in March (ready for an April start) when the printed budget book is published and the approved estimates are put into the financial control system. (Colville (1989) presents a similar view, but this time of the budgeting for a Police Authority in the UK). 27. The budget period 28. The budget period is the period for which a set of budgets is prepared: typically the budget period is of one year's duration, and will be designed to coincide with an organisation's financial, or fiscal, year. There is no reason why a budget period has to be one year, but typically it is. 29. On the other hand, if we are dealing with a project, then the budget will clearly be linked to that project. A three month project will have a budget covering the whole project and will thus be a three months budget. 30. Most organisations will divide their budget period into calendar months (or periods); whereas others have thirteen period years (all of an equal four week period). In certain situations, the budget period will be analysed according some particular feature of the work in that situation: for example, stockbrokers have their year divided into "accounts" of two and three weeks' duration. These divisions of a budget period are control periods. 31. Budget centres 32. In a similar way to the way in which the financial year is divided, the organisation will be divided up into budget centres. A budget centre is one part of an organisation for which budgets are prepared. That is, a budget centre, like a cost or profit centre, is a section of an organisation (division, department, building, individual) for which a separate budget is prepared. 33. Whilst there is a lot of organisational work that is put into budgeting and budgetary control, this page is concerned mainly with an outline and understanding of the preparation aspects of budgets. A later page may deal with the organisational and strategic aspects of budgetary control. 34. Interrelationships of budgets 35. One of the key reasons why management accountants and other planners are using spreadsheets more and more for budgeting purposes is because of the many inter relationships that exist in budgeting and budgetary control. If we are preparing budgets for our organisation we will quickly find that the sales budget has strong links with the stock budget and it has strong links with the cash budget. When, then, the sales budget is changed, the stock and cash budgets will also have to change. Similarly, if the stock levels are changed, as a result of a revision of managerial policy during the budgeting process, say, then that could impact on both the sales and cash budgets. 36. The more complex the organisation and the more complex the processes within that organisation, the greater the number and variety of interrelationships that

any budget for that organisation is bound to contain. The following diagram takes a general view of some of the interrelationships found in organisation. The diagram is relatively complex but we will find that a study of it helps us to understand the examples that follow.
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37. Not all organisations have all of these interrelationships; and, as we saw above,

some organisations prepare budgets only for part of the organisation so some aspects of the above diagram will apply to them and others will not. 38. Whenever you come across a budgeting and budgetary control situation, try to fit that situation to this diagram: make and not any changes you feel are necessary to the diagram following on from what you have found. 39. We can see that this diagram begins with the sales forecast and then the sales budget. This is not an accident; and it doesn't always have to be this way. The reason that sales are the starting point of the diagram is because the organisation on which the diagram is based must believe that sales are its limiting factor. Let's consider the limiting factor.

40. Limiting Factor 41. In the example that follows, we will find: "As far as sales are concerned, they

are fixed anyway: everything else depends on them." In the examples we are working through this will be true: everything the Andy's wholesaling organisation was does centres around its sales levels: both purchases and stock levels depended upon the level of sales for any given month. In this situation, Sales is considered to be the limiting factor (which is also known as the principal budget factor, and the key factor). 42. The limiting factor is anything that limits the activity of an entity. Examples of limiting factors are shortages of supply of a resource and a restriction on sales at a particular price. That is, the limiting factor is the one factor that dominates all other factors: the limiting factor can be any factor that is important to the carrying out of the organisation's activities can be the limiting factor. 43. Examples of the limiting factor 44. Each of the following can be, depending on the circumstances of the case, the limiting factor: 45. 1 Cash 2 Raw materials 3 Skilled labour 4 Land 5 Equipment 46. The crucial element concerning the limiting factor 47. The most important point about the limiting factor, then, is that this must be the budget that is prepared before all others. There is no point in preparing every budget except the raw materials budget only to find that the assumptions built into all other budgets means that the amount of raw materials needed just cannot be acquired. Similarly, if cash is the limiting factor, preparing any budgets that take no account of the cash position may lead to a lot of unnecessary work having to be carried out. 48. The following section uses an example to demonstrate the full impact of the inter relationships of budgets: it does so in a wholesaling environment. 49. Worked example 50. Andy is a wholesaler of cricketing equipment: he trades in cricket bats, pads, gloves, sweaters and so on. Andy's territory covers much of the South and East of England and his business is sufficiently large that he needs to consider each product line as its own revenue centre. To this end, he prepares detailed budgets line by line. Consider the following details for his purchases and sales of cricket bats. 51. Andy's assessment of the coming season is that the weather will be hot and dry, and the demand for cricket bats will be high from June and for the rest of the season (until early September). After September, Andy will concentrate on his

overseas business (selling to agents in India, Australia, New Zealand and South Africa). Andy's 1994
Sales (units) J 950 J 950 A 750 S 600 O 600 N 500 D 600

52. Stocks at the end of any month is to be set at the level of 100 bats plus 20% of

the number of bats scheduled to be sold in the following month. Required 53. For the seven month period June to December 1994, prepare the stock and purchases budget and the sales budget: the selling price per bat is 20 and the purchase price per bat is 15. 54. Solution to the worked example 55. The first part of the solution to this example is the purchases budget, expressed in terms of units. The format is that we start the schedule with the opening stock, add purchases and subtract the closing stock to leave us with the sales amounts. Purchases Budget (Units): Cricket bats 1994 Balance b/d
Purchases Balance c/d Sales J J A S O 290 290 250 220 220 950 910 720 600 580 1,240 1,200 970 820 800 290 250 220 220 200 950 950 750 600 600 N 200 520 720 220 500 D 220 640 860 260 600

56. Once we have the units situation sorted out, it is a straight forward matter to

multiply the relevant parts of the stock and purchases budget by the relevant cost and sales values, so that we obtain the stock, purchases and sales budgets expressed in terms of monetary amounts. Stock Budget (): Cricket bats
Opening stock Closing stock 57. J J A S O N D 4,350 4,350 3,750 3,300 3,300 3,000 3,300 4,350 3,750 3,300 3,300 3,000 3,300 3,900

Purchases budget (): Cricket bats Purchases

58. J J A S O N D 14,250 13,650 10,800 9,000 8,700 7,800 9,600

Sales budget (): Cricket bats Sales

J J A S O N D 19,000 19,000 15,000 12,000 12,000 10,000 12,000

59. Interrelationship aspects 60. The interrelationship aspects of this example have probably not bothered us so

far: the nature of interrelationships is that they often pass by unnoticed! In order to arrive at the purchases in units, we have had to determine the opening and closing stock amounts, and we were given the sales units. Thus, if we have calculated the stock budgets incorrectly, the purchase amounts will be wrong, and the purchases budget will be misleading. Similarly, an error in the sales budget guarantees an error in the purchase and stock budgets. 61. We can assess the extent of the interrelationships between the various budgets we are preparing by, for example, changing one of the variables involved in this example. Assume the stock levels are to be set at 50 bats plus 20% of the sales units for the following month: what effect does that have on the purchases, opening and closing stock budgets? 62. Expressing the results in units and values, the revised budgets are: Stock and Purchase REVISED budget (Units): Cricket bats 1994 Balance b/d Purchases Balance c/d Sales
63. J 240 950 1190 240 950 J 240 910 1150 200 950 A 200 720 920 170 750 S 170 600 770 170 600 O 170 580 750 150 600 N 150 520 670 170 500 D 170 640 810 210 600

Stock REVISED Budget (): Cricket bats Opening

J 3,600 J 3,600 A 3,000 S 2,550 O 2,550 N 2,250 D 2,550

stock
J J 3,000 A 2,550 S 2,550 O 2,250 N 2,550 D 3,150

Closing stock

3,600

Purchases REVISED budget (): Cricket bats

J J A S O N D

Purchases

14,250 13,650 10,800 9,000 8,700 7,800 9,600

66. 67. The workings for these revised schedules are identical to the workings for the

original budgets. 68. The effects of what we have done are that the opening and closing stock units and values have changed, but the effect on purchases and sales has been nil. As far as sales are concerned, they are fixed anyway: everything else depends on them. Purchases can change with stock levels, but since the change to stock levels is constant between opening and closing stock, there is no overall change to purchases. 69. Conclusions 70. This page has introduced the basic ideas and theory underlying budgeting and budgetary control. We have explored the ideas underlying budgets: what they are and what they contain, whether that be monetary, qualitative or non quantitative aspects. We have also seen that budgeting needs to be used as part of a budgetary control system, otherwise budgets are merely arithmetical exercises that mean little. 71. We have also seen the basic elements of the budgeting process, the budget period and budget centres. Finally, this page has also shown the interrelationships that exist between the various parts of a budget and the nature and meaning of the limiting factor.
72.