Techniques of managerial control Flashcards
Managerial Control techniques can be classified into two broad categories. What are these?
Technical and Modern techniques.
What are the traditional techniques of managerial control?
Personal observation, Statistical reports, Breakeven analysis, Budgetary Control
Personal Observation
This is a type of traditional technique of managerial control.
~Direct supervision by managers.
~Helps get firsthand information.
~Builds employee discipline, but is time-consuming.
~Not applicable to all types of jobs.
Statistical Reports
Traditional method of control that involves-
~Use of tables, charts, graphs, averages, ratios, percentages, correlation etc.
~Analyze performance trends and deviations quickly.
Breakeven Analysis
It is a traditional technique used by managers to analyze the relationship between volume, costs, and profits.
Specifies probable profits and losses at different levels of activity.
The formula for calculating the Breakeven Point.
Fixed Costs are divided by Selling Price per unit- Variable Cost.
Budgetary Control
All operations are planned in the form of budgets, and actual results are compared with budgetary standards.
Modern Techniques of Managerial Control
Return On Investment, Ratio Analysis, Responsibility accounting, Management audit, PERT AND CPM, Management Information System
Return on Investment (ROI)
It is a modern technique to determine whether capital was effectively employed to develop a decent level of income.
Divide net income before tax and interest by capital employed.
What are some ratios calculated under the Ration Analysis method of control?
1) Solvency Ratios
2) Liquidity Ratios
3) Profitability Ratios
4) Turnover Ratios
Responsibility Accounting
This is a modern technique of managerial control wherein different sections, organization and departments of an organization are set up as Responsibility centres. Holds the respective manager accountable in case of deviations.
Cost Centre
A cost or expense centre is a segment of an organization where the manager is held responsible for its operations. - Production department for the manufacturing unit.
Investment Centre
Responsible for the profits and all investments made in the centre. eg- assets.
Profit Centre
Segment where the manager is responsible for both revenue and cost. eg- repair and maintenance department.
Revenue Centre
It is a segment of an organization that is primarily responsible for generating revenue. eg- marketing department.
What is the importance of responsibility accounting?
It helps assign accountability and improves performance tracking.
It allows targeted decision-making by evaluating specific parts of the business.
What is Management Audit in managerial control?
Management Audit is a systematic and independent evaluation of the overall performance of an organization’s management.
It examines the management’s efficiency, effectiveness, and adequacy in decision-making, planning, organizing, and controlling.
What is the main objective of a Management Audit?
To identify weaknesses in the management process and suggest corrective measures for improving overall performance.
What are some areas reviewed in a Management Audit?
Decision-making process
Organizational structure
Policies and procedures
Communication systems
Delegation and coordination
PERT AND CPM
Programme Evaluation and Review Technique and Critical Path Method
Significance of PERT AND CPM
PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are modern techniques of managerial control used for planning, scheduling, and controlling complex projects.
How is PERT different from CPM?
PERT is used for projects with uncertain time estimates (focus on time).
CPM is used for projects with known, fixed time estimates and focuses on cost as well.
What is the Critical Path?
The longest path in the project network that determines the minimum time required to complete the project.
Any delay in these activities will delay the whole project.
Is PERT or CPM more useful for research and development projects?
PERT, as it deals with uncertain activity times, making it ideal for R&D and new projects.
What is a Management Information System (MIS)?
MIS is a computer-based system that provides managers with the necessary information to make effective decisions, control operations, and monitor performance.
What is the main purpose of MIS?
To provide timely, accurate, and relevant information to managers for planning, controlling, and decision-making.
How does MIS help in managerial control?
By offering real-time performance reports, identifying deviations, and helping in quick corrective actions, cost-effectiveness, supports planning and controlling at all levels
What type of ratio is used to evaluate the liquidity position of an organization?
Liquidity Ratios – These measure the ability to meet short-term obligations. (Example: Current Ratio)
What type of ratio is used to evaluate the solvency position?
Solvency Ratios – These assess the ability to meet long-term liabilities. (Example: Debt-Equity Ratio)
What type of ratio is used to evaluate the profitability of a business?
Profitability Ratios – These measure the firm’s ability to earn profit. (Example: Net Profit Ratio)
What type of ratio is used to evaluate the operational efficiency?
Turnover Ratios – These reflect the efficiency in utilizing resources. (Example: Inventory Turnover Ratio)
