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PRINCIPLES OF MANAGEMENT
Posted Date: 31 Jan 2008 Resource Type: Articles/Knowledge Sharing Category: AdSense Revenue Sharing
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Posted By: prakash Member Level: Silver
Rating:  Points: 5
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PRINCIPLES OF MANAGEMENT
What is direction?Why it is important? (Importance of directions)
Directing is concerned with telling people what to do and seeing that they do it as best as they can.
It includes assigning duties,explaining procedures, issuing orders, monitoring performance and correcting deviations.
It is a continuing and ever present function. Without direction other managerial activities become ineffective. In the absence of direction , it is not possible to use the manpower fully. Moreover, it facilitates changes in the organization. For example, there may be change in the organization structure due to environmental changes.
What are the elements of direction?
It includes the following functions viz- Supervision- Leadership- Communication and motivation.
Supervision means overseeing the subordinates at work.
Leadership means ability of the manager to induce his subordinates.
Communication means transfer of information from one person to another.
Motivation means inspiring the work force to perform the job better.
Supervision
The aim of supervision is to ensure that subordinates work efficiently to accomplish the task assigned to him .The functions of supervision is performed at all levels of management from top to bottom. Top management supervises the work of middle level managers. Middle managers supervise the work of supervisory staff (foreman) and the supervisory staff in turn supervises the working of operating workers.
Direction VS Supervision
Even though there is similarity of function between direction and supervision only the lowest level managers are designated as supervisors. One reason for this is that while all other levels of management have subordinates who are managers themselves, the supervisory staff deals with workers who are engaged in basic operations. The only other reason may be that while supervision is one of the many functions performed by managers at other levels, for the supervisory staff it is the primary function.
Qualities of a good supervisor
1. Knowledge about the organization .He must know the plus and minus points of his organization.
2. Technical ability- is needed-for issuing orders- devising suitable work methods- review of work and evaluation of performance.
3. Ability to talk well- He should be able to say what he means and his words should not convey anything that he does not mean. The supervisor should not talk with a stony expression on his face. A timely change in tone, facial expression or gestures can be far more effective in conveying one's ideas than a thousand spoken words.
4. Ability to listen- A good listener is a good conversationalist . The subordinates should not get the felling that he is talking to a stone wall. In case the subordinates loses track of the main point, the supervisor should skilfully try to bring him to the point. In any case he must not give an impression of lack of interest in the dialogue, by yawning, giving an unpleasant expression or looking at the watch every now and then.
5. Ability to memorise- He must remember all vital information.
6. Ability for orderly thinking- Confused thinking on his part may hamper the smooth flow of work and send wrong signals to his subordinates about his capacity to be the leader.
7. Ability to judge people- He should be familiar with the attributes and maturity level of his subordinates so as to know what each one of them can cope with, and what motivational measures would produce the desired results in their case.
8. Patience- He must avoid scolding or reprimanding the subordinates in public, because that would only make them small in front of others and even cause anger and frustration.
9. Ability to instruct- While giving directions to subordinates organisational policies and procedures should be kept in mind. Besides, instructing the subordinates the supervisor should also explain the reasons behind the directive.
10. Ability to delegate- Effective delegation requires some p rethinking about what to delegate, whom to delegate, when to delegate and how much to delegate. Work of routine nature may be delegated to the subordinates. When the performance of a job requires some exceptional handling superior presence is necessary.
Functions or Responsibilities of a supervisor
Every day a supervisor has to issue a number of orders to his subordinates . Orders are issued to eliminate confusion.
Essentials of an order
1. Simple- Order should be simple and clearly state- What is to be done? -Why it is to be done?-How it is to be done?- By whom it is to be done?- Where it is to be done?- When it is to be done?. .It should take into account the ability and willingness of the individual to whom it is addressed. Order should aim at seeking co-operation from the person to whom it is communicated.
2. Types of orders- It may be written or oral- It may be general or specific- It may be an operational order- It may be a written order.- A written order is necessary when the subordinates are at a distance place. A general order is used when the subordinates requires only broad guidelines. A specific order clearly explains each activity to be performed by the subordinates in specific terms. An operational order relates to the performance of a specific job -e.g purchase of 1000 bales of cotton. As against this, a procedural order indicates the procedures to be followed to do a job i.e Purchase of all ram materials locally.A definite order lays down the important operations to be performed by a subordinate. A sequential order on the other hand, indicate the sequence in which operations are to be performed.
3. Introduction of work methods-He must study the work performed by each worker and each machine, if necessary he may introduce new methods of work and new machines. If workers resist to accept changes, he must convince them. Before assigning a job to a subordinates, he must consider his interest, ability and skills of the subordinates. It is necessary to prepare a job description showing clearly the duties and responsibilities of the workers to be selected and also the abilities and skills the ideal candidate should possess. For a new employee he must arrange for INDUCTON. The purpose of induction is to familiarize a new employee with the enterprise and help him to work effectively, as soon as possible. New employee should be briefed about -products manufactured by the company-lunch and tea breaks- canteen- telephone facilities. He must gather information about his family background, his experience- the place of his residence. If necessary he must train his subordinates and periodically he should ascertain whether the workers learnt what has been taught to them.
4. Handling grievances and enforcing discipline- A grievance is an expression of dissatisfaction. The supervisor should carefully en quire into the causes underlying each grievance and try to remove them. Reasons may be anything – Poor wages- Uninteresting work- bad working conditions- absence of good human relations- lack of opportunities for advancement-” Whether grievances are expressed or unexpressed, genuine or not, supervisor should ensure that his subordinates grievances are redressed quickly and satisfactorily. Indiscipline among workers is often the result of low wages, poor working conditions, and indifferent human relations. To tackle cases of indiscipline, the supervisor should, first of all, provide good leadership. Secondly, he should be fair and reasonable in his dealings with all subordinates. Any show of favoritism on his part may provoke others to disregard rules and regulations of the enterprise. Thirdly, he should set high standards of performance of his subordinates. Fourthly, before taking action against any subordinate, he should warn them sufficiently in advance so that the subordinate has no reason to complain later.
5. Enforcing safety- If he is slack in taking proper safety measures, the enterprise may have to pay huge amount of compensation to workers who meet with occupational accidents. Therefore he should make his workers safety conscious. He should request an expert to discover possible safety hazards in job procedures and practices. He should ensure regular inspection of machines and old equipment are quickly repaired and replaced. He should ensure provision of safe tools and equipment to his workers. He should ensure good house keeping in the factory.
LEADERSHIP
What is leadership?
Leadership is the ability to induce subordinates to perform the job confidently and enthusiastically Leadership is the knack of getting other people to follow.There must be working relationship between the leader and his follower. That means leader himself must be an active participant. The leader must set an ideal before his subordinates. His behaviour must stimulate the follower to work hard.
Nature of Leadership
1.A person may become leader by reason of his heredity or election .
2. By virtue of managerial positions one may acquire leadership- e.g, directors- executives- managers etc. 3. One may become leader by facilitating the achievement of group goals. 4.Leader is influenced by his followers by their contribution to the achievement of group goals. Leader influence the followers by his ideas, direction and support.
Need for leadership
1. Imperfect organizational structure- In every organization,informal groups exists as it is not possible to provide for all kinds of relationship in the formal organization structure .With effective leadership imperfection of a formal organization may be corrected and the formal and informal groups may be made to work in union.
2. Technological ,economic and social changes- Only an effective leadership can enable the organization to meet the challenges posed by environmental factors.For example, in the event of fall in demand, some products may be discontinued and alternative products may be introduced in the market.
3. Organizational growth- Business growth increases the problem of co-ordination and control at all levels.
4. Conflict between individual goals and group interests- Persons working in an enterprise come from different backgrounds and have different interests,values and beliefs. It creates a conflict between individual and group interests.
Leadership VS Headship
Headship refers to the exercise of legal and formal authortiy at all levels in the organization. Headship refer to people who are placed in their positions by virtue of official authority- e.g. Head of a family, or educational or military organization may exercise authority, but may not necessarily be the leader of his subordinates, because he may not be in a position to influence their activities. Leadership is essentially an influence process and leader must be able to inspire his subordinates.
Qualities of leadership
1. Physical and mental vigour- Leader needs tremendous stammina and vigour to sustain long hours of work.
2. Emotional stability- He must know how to control his anger and behave rationally.
3. Knowledge of human relations.- He should possess deep understanding of human behaviour,emotions, sentiments,motives etc.
4. Empathy- He must see things from others point of view.
5. Balance- He should be free from bias,prejudice and pre-conceived notions. Only then it is possible to decide issues on their merits.
6. Motivation- He must have the desire to lead people. If a person is forced to do his job under fear of punishment, he would behave more like a follower than a leader.
7. Communication skills-
8. Sociability- He should be friendly, helpful and easily accessible to subordinates.
9. Technical competence- He should be familiar with the jobs done at different work points in his department.
10. Teaching ability- The leader should demonstrate his subordinates the best way of accomplishing the jobs. He must help his subordinates to learn.
11. Honesty- He should be honest, sincere , fair and reasonable in his dealing with his subordinates.
Leadership styles
1. Autocratic style: Under this style, leader concentrate all authority in himself. He also exercise close supervision over his subordinates. The autocratic styles accomplishes the result through the use of authority,punishment and such other negative rewards.Under autocratic style, as there is no consultation with subordinates decisions can be quickly taken. Confidential matters can be kept secretly. But it may create among frustration among the employees since they have to follow the directions given by the leader blindly without asking any question.
2. Laissez Faire or Free rein leader:- In this sytle of leadership the leader depends upon the group and its members establish their own goals and make their own decisions. He assumes the role of just another member in the group.However, this style of leadership style is suitable when the organizational goals have been communicated well in advance and are acceptable to subordinates.As this style, provides complete freedom to subordinates their motivation and morale can be improved. However, leader's contribution is completely ignored in this style of leadership.
3. Democratic style:A democratic leader takes decisions only in consultation with his subordinates. Subordinates are freely allowed to communicate with the leader and also with their fellow subordinates. The chief advantage of this style of leadership is- better leader subordinate relations and higher job satisfcation. Grievances can be solved easily. However, decision making is delayed as the leader consults every one before taking any decisions. Some people may prefer minimum interaction with leaders and fellow subordinates may not like this style of leadership . 4. Paternalistic leader:- He is concerned with the well being of his followers and come to their rescue ever so often. This type of leadership can be successful only in cases where the followers possess job maturity and are only lacking psychological maturiy. Such a leader can produce an atmosphere of country club but can do little by way of accomplishment of tasks.Even otherwise, the competent people may feel frustrated due to lack of opportunity for showing initiative.
5. Expert or functional leader:- He does not command any formal authority. He is task oriented and most of his time is spent thinking about doing things faster and better.However, his success depends not only on his work, but also on the work of his followers.If his followers are not as serious and painstaking as he is, he may behave in a demanding fashion. Overtime, the situation may get from bad to worse, because the expert leader is by definition quite poor on the human relations.
6. Institutional leader:- He derives power over his followers due to the position occupied by him in the organizational hierarchy. At times, he may also derive power from his personality and behaviour. If he is not technical expert, he may suffer from inferiority complex. In that case, he may engage more and more in task behaviour and less and less in relationship behaviour. It may create a feeling of frustration among the followers.
Approaches to study of leadership
1. Trait theory:-According to this theory leaders should possess certain qualities and that good leaders possess such qualities to the maximum extent ..This theory concludes that by acquiring certain qualities one can become leader. However, this theory is criticized on the ground (a) it fails to state to what extent each of the traits should be present in an individual to become a successful leader.(b)personal traits are only a part of the whole environment, A person may prove successful in one situation due to some traits, but may fail in another situation.(c)This theory fails to formulate a common list of traits found in all successful leaders.
2. Situation theory of leadership:-The situation approach does not deny the importance of individual traits in leadership. But it goes further and asserts that leadership pattern is the product of situation and leadership will be different in different situations. Leader is considered as means of achieving the goals of the group and the members,One research study shows that individual commanding maximum useful information will sooner or later emerge as a leader.
Fred E.Fiedler has developed a contingency model of leadership effectiveness. He postulated two styles of leadership:- Human relations style and task oriented leadership. According to him, effectiveness of leadership is based on his ability to act in terms of situational requirements. Human relations style is oriented towards achieving good inter-personal relationship. Task directed style is concerned towards achieving the task assigned. According to him, three factors decide the leadership style. (a) Leader -member relationship (b) Role clarity © Power position of the leader. If all three factors are favourable to the leader, situation is favourable to the leader .If the opposite situation exists, the situation is very unfavourable to the leader.
Conclusion of Fiedler's contingency model:- (a) Task oriented leadership is style is suitable in group situation that are either favourable or very unfavourable to the leader.(b) Human relations oriented leadership is suitable in situations that are intermediate in favourableness.
Comments:- Depending on the maturity level of followers,leader may modify his style. If he has followers with low maturity levels, he will have to engage in a behaviour that is “high on task and low on relationship.(telling). If he has followers with low to moderate maturity levels, he will have to exhibit a behaviour that is “ high on task as also high on relationship”.If he has followers with moderate to high maturity level, he will have to engage in a behaviour “ low on task but high on relationship”.If he has followers with high maturity levels, the leader may adopt a behaviour that is “ low on relationship as also low on task relationship”.In simple words, task oriented leader is needed when difficult situation is encountered, when things are not clear,and work to be carried out and goals to be attained are ambiguous and have to be defined by the leader. In the intermediate situation a manager who is people oriented is likely to do better.
3. Behavioural theory:-This theory says that success in leadership depends more on what the leader does than on his traits. In simple words, effective leadership is the result of effective role behaviour. There is dynamic interaction between the leader and the followers and leader produce different styles while dealing with his followers.
Functions of a leader
1.Taking initiative:-A leader has to take all initiatives to lead the business activities.
2. Integration of individual objectives and organizational objectives:- He must make people to contribute for the development of the organization. If there is conflict between individual objectives and organizational objectives, he must solve them.
3. Building team work:- The leader is the captain of a team. The leader cannot succeed without team work. He must help his subordinate to grow faster in his career and encourage him to take more responsibilities.
4. Handling grievances and enforcing discipline:- He must en quire about grievances of employees, whether it is expressed by them or not. He must ensure that subordinate grievances are redressed quickly and satisfactorily.
Co-ordination
What is Co-ordination?
Co-ordination means integration of the various activities of the organization. When people in the organization act for different purpose, it will serve no purpose,That is why Co-ordination is called as “ The essence of management”.
Why Co-ordination is necessary? (Importance or need for co-ordination)
(1)Interdependence between two or more departments:-Interdependence between individuals/ departments may be pooled, sequential, and reciprocal. Pooled interdependence means departments are relatively independent of one another, but individually make a distinct contribution to the larger organization.e.g Holding and subsidiary company relationship. Sequential interdependence means output of one becomes the input of the other. e.g. Relationship between spinning and weaving departments. Reciprocal interdependence means each department is dependent for its inputs on the others. Here, the degree of dependence is high.e.g The relationship between the production department and maintenance department is an example of reciprocal interdependence.
(2)Time orientation:- It may be defined as the length of time required to obtain information/results as regards performance of a given task. For certain departments, solution to their problems must be found quickly- e,g Production department – otherwise it cannot continue its activities. However, the same level of urgency does not apply to Product research department-which may take months to develop a new product.
(3) Goal orientation:-Often, different goal orientation may pose a problem of co-ordination. All departmental heads are concerned only with their departmental activities,rather than to have a view in the context of realizing the overall organizational objectives.
Techniques of Co-ordination:-According to Louis A.Allen, “ Balancing,timing and integrating are the basic techniques of co-ordination. Balancing means making adequate provision. Timing means synchronizing the time schedule of different activities in such a way that they support and reinforce one another. Integration means unification of diverse interests and activities to accomplish the overall organizational objectives.
Co-ordination Mechanism:-
1. Rules and procedures:-It will serve as guidelines as regards the action to be taken in a given situation.” Individuals and groups may change, the rules and procedures will be relatively permanent.
2. Hierarchy:-Any shortcoming of co-ordination by means of rules and procedures may be made good by hierarchy or a common supervisor. For example , a problem which equally concerns the production and sales departments may be solved by the general manager who is a common supervisor to both the departments.
3. Fix targets and schedules for the interacting departments:- If each department is handed a task to be completed within the given period- co-ordination will be much easier.
4. Liaison roles:- Any one or more persons may be assigned the duty of resolving issues between two or more interacting departments. They cannot avoid stress situations. Hence it is necessary to select a competent person for playing this role.
5. Task forces:- Temporary task force consisting of representatives from the interacting department may be formed to solve a problem. Once the problem is solved,the task force may be wound up.
6. Co-ordination department:- A full fledged department with requisite formal authority may become necessary when all other methods of co-ordinations are found to be inadequate.The co-ordination department may be staffed with specialists in different fields such as production, marketing, finance etc and the head may be asked to report directly to the top management.
Principles of direction:-
1. Principles of maximum individual contribution.
2. Principles of harmony of objectives:- Common interest must prevail over individual interests, but factors like ambition, laziness, tend to reduce the importance of general interest. The impact of these factors can be reduced through appropriate direction.
3. Principles of unity of command:- Dual command creates conflicts, confusion ,disorder and instability in the organization.
4. Communication should be short and sweet:- Communication system should avoid unnecessary queries and explanation from superior.
5. Use of informal organization:- Since formal organization structure creates frustration among employees, it is necessary to encourage informal organization.
6. Appropriate leadership style should be followed.
7. Follow-up :- It is necessary to know the difficulties faced by the employees and accordingly order should be modified or replaced.
Control
What is control?
Control means setting standards for measuring performance and correcting deviations with a view to achieve the desired result. Planning and control is closely related. In planning of an organization activities, the fundamental goals and objectives and methods for obtaining them are established. The control process, on the other hand, measures progress towards these goals. Controlling is not possible without objectives as control is intended to achieve and accomplish objectives.” Control without planning is like crying over the split milk. Planning without control is like leaping in the dark”.
Features of control:-
1. Control is a never ending activity:- Control includes analysis of goals, establishment of standards, measurement of performance, remedial action with the help of organizational policies and procedures.
2. Control is exercised at all levels:- Top management- Exercise administrative control-based on objectives , plans and policies- Middle management implements plans and policies- Lower level management keep a control on the operations.
Objectives of control:-
1. To ensure high efficiency 2. To re frame organizational goals, polices and objectives.
3.To keep a proper check and control over direct and indirect expenses.
Importance of control:-
1. Achievement of goals. 2. Control is a basis for future action. 3.Control facilitates co-ordination. 4.Removes the burden of supervisors. 5. Extension of decentralization:- When proper methods ,policies are clearly communicated to subordinates they develop self-confidence and they need not always depends on their superiors.
Process of control:-
1. Establishment of standards:- Standards serve as a basis for measuring performance. It is the duty of the planner to set the standard and communicate clearly to those from whom the results are expected so that they do not face any difficulty in achieving the goals Standards may be of different types. (a) Physical standards- Lab our hours per unit of output, units of production per machine hour.(b).Cost standards- such as direct and indirect cost per unit produced, selling cost per unit of sales(c)Revenue standards such as average sale per customer(d) Capital standards such as the rate of return on capital invested, ratio of current assets to current liabilities. (e) Intangible standards such as competence of managers and employees, success of a public relation pro gramme.
2. Measurement of performance:-Deviations have to be predicted in advance so as to take corrective action can be taken for the achievement of the goals. It is advisable to measure performance while the activity is in progress. Measurement of performance can be done by personal observation as in the case of subordinate being observed while they are engaged in work and by a study of various reports. If the purpose is to catch trouble while it is forming then control should be done at various strategic points rather than at the end of the process.
3. Comparison of actual performance with standards- Self explanatory.
4. Finding out deviations :- Causes of deviations should be found out after collecting relevant informations. Reasons for product failure may be anything- it may be due to the fault of the production department or it may be due to the poor marketing strategy adopted by the salesman.
5. Correction of deviations:- Correction involves improvement in technology, direction, supervision,setting goals,restructuring the organization, and revision of targets. In effective leadership may lead to labour turnover. If the organization structure is defective-e.g An employee is expected to report to two bosses- . Employees may feel the absence of informal organization.
Essentials of control process:-
1. Control should be tailored to plans and positions:-The more the relationships are clear and definite, the easier it will be to correct deviations from standards.
2. Control system should be designed to suit individual managers:- If the manager fails to understand the control system, it is useless. What is not understood cannot be used at all. Some managers may like to have information in mathematical models while some others may not prefer such models.
3. Control system should be economical:- The question of economy has to be decided taking into consideration, the importance of the activity, the size of operation, the expenses which might be incurred in the absence of control and the contribution made by the control system.
4. Active participation:-Every worker in the organization must be asked to take active part in the discussion and exchange of views while selecting the system of control.
5. Information feedback;-Reports on the performance at the lower levels must be available to the manager on a regular basis. Otherwise, he cannot take prompt remedial action.
Limitations of control:-
1. Lack of satisfactory standard:-It is difficult to set standards for jobs of advisory nature.
2. Effects of external factors:-e.g Changes in government tax policies, new inventions or discoveries,changes in the fashions and liking of the customers cannot be checked by the system of control.
3. More expensive device- Self explanatory
4. Human reactions to control- Control creates tension in the minds of workers and their actions and thinking is affected. Some times, workers may give false reports about the performance.
Control techniques
1.Budgeting:-” A budget is a statement of anticipated results during a designated time period expressed in financial and non-financial terms”. Usually, the following budgets are prepared in any organization. (a) Sales budget- The first step in the budget exercise is preparation of sales budget. It lays down the sales potential in terms of quantity, value,period and product. The factors to be considered in preparing sales budget are population trend,consumer purchasing power,nature of competition,past sale etc. (b) Selling and distribution cost budget:- It includes advertising cost,research and development cost, transport cost etc. © Production budget:- This budget is based on the sales budget. The main purpose of this budget is to maintain an optimum balance between sales , production and inventory position of the firm. (d) Production cost budget -This budget is based on the production budget. The production cost budget is subdivided into various sub-budgets like raw materials budget, lab our budget,production overhead budget etc. Labour cost may be divided into direct and indirect labour cost. Production overheads may be divided into fixed, variable and semi-variable. (e) Capital expenditure budget
This budget outlines specifically, capital expenditure for plant, machinery and equipment. It also points out the plans concerning investment, expansion, growth , replacement etc.
(f)Cash budget:-This budget gives the anticipated receipts and disbursements for the budget period.
(g)Master budget:- A master budget gives a summary of all the functional budgets and shows how they affect the business as a whole.
Merits of budgeting:- (1) Budget minimizes wastages and losses. (2) Budget help people to learn from past experience. (3) Budget helps to eliminate uncertainties and in having planned approach for various activities.(4) Budget improves co-ordination, Lower level managers are motivated in accepting and meeting budgets as they have had a hand in shaping budgets. However, while preparing budgets changes in internal and external environment should be kept in mind. Normally, the standard once fixed are allowed to continue for several years. As budgets are used to evaluate results, in efficient employees do not whole-heartedly co-operate with the system.
Performance budgeting : Means laying down of performance standards as yardsticks for assessing deviations of actual performance from the planned performance. Standards used for performance budgeting are mainly non-financial. For example, in the case of education budget, the number of school-going children, or the number of schools may be an aid for explaining how the financial resources allocated for the purpose in the past have been used, and the need to make further allocations for the future.
Zero-base budgeting: -Under zero base budgeting, all activities are re-evaluated each time when budget is formulated. The manager must justify why a particular programme or activity or function should be continued. This budgeting involves four basic steps. The first step involves identification of activities or functions performed by every manager in a specified area. The second step involves analysis of those activities and functions. The third step relates to determining the priority of the individual activity and functional areas. The fourth step concerns the allocation of resources to individual activity or functional ares based on its importance to accomplishment of organizational activities.
Limitations of budgeting:-
1. Inexact estimates: Effectiveness of budgetary control systems depends on the accuracy of the estimates. 2.Flexibility:- Budgets require revision to suit the requirement of the environment. This will call for continued experimentation with various techniques of budgeting. Only after years of trial and error, an enterprise can develop satisfactory method of budgeting.
3. Participation of managers at all levels is required to make budgeting exercise successful
2. Standard Costing: The cost of production determines the profit earned by an enterprise. Under standard costing system, standards for various components of cost are fixed. All expenses should be kept within the standards fixed.
3. Production control :- Production control activities may be classified as follows (a) Routing- It means the sequence of operations to be performed . It may also include analysis of material required and items to be procured. (b) Scheduling:- It is concerned with determining when activities relating to manufacturing would commence, and the time when individual operations will be performed. © Dispatching :-It is concerned with directing the departments and workers concerned to begin work and authorizing the issue of tools, materials etc. (d) Follow up :- It relates to keeping track of material requisitions and production schedules. Techniques of production control:- PERT is used for the purpose of production control. Computers are used to process the orders received from customers,determine the availability of materials, maintain inventory records and prepare production reports.
4.Inventory control:- Inventory control refers to controlling the kind, amount, location, movement and timing of the various commodities used in and produced by the industrial enterprises. Excessive inventory represents a wasteful investment of the capital of the business. Besides, interest cost of such an investment,there are also other costs such as insurance, spoilage, obsolescence etc. Inventory control is achieved by recording all inventory movements in and out of stores e.g. issues to production centers, defective items returned to suppliers, returns from production centers etc. Inventory control may also be exercised by providing established parameters , such as ( a) Safety inventory levels (b) Maximum inventory level © re-ordering level(d0 danger level. Besides, inventory turnover ratio is useful to find out the movement of stocks. ABC analysis is used to control the investment in inventory cost. For controlling the investment in spare parts, VED analysis is used.
5. Break even analysis:- Break even analyses depict the overall volume of sales necessary to cover costs. In break even point, the enterprise neither earns a profit nor incurs a loss. Breakeven analysis can be used in the following ways. (a) Identifying the minimum sales volume to prevent loss. (b) Identifying the minimum sales volume to meet established profit objectives. © Providing information regarding the effect of raising or lowering prices. (d) Providing data to take decisions such as dropping or adding a new product lines. Sometimes, manufacture of a product is subject to a limiting factor. For example, if there is a shortage of particular type of lab our, then production will be restricted by this factor. In that case, contribution per unit of limiting factor is calculated. The formula is
contribution\limiting factor For example two products A and B gives a contribution of Rs 25 each. For producing product A 6 hours is required. For product B 8 hours is required. As a result , product A gives a contribution of 4.16( Using the above formula) and B gives a contribution per unit as Rs 3.12. Therefore product A has to be manufactured.
6. Profit- and loss control:- Under this system of control, each branch or product division is charged with a well-defined mission or responsibility as regards sales and expenses. The person heading the branch or division is held accountable for its performance. For this reason,each branch or division is called as responsibility centre.
7. Financial statements and Ratios analysis:- Financial statements helps managers to know the past trends which is very useful to predict future trends. Managers use financial statements to compare the performance of their organizations with other organization. Ratio analysis is used to draw meaningful conclusion. Liquid ratio measures the firm's ability to repay its short-term obligations. Debt-equity ratio indicates how much of the firm's total funds are financed through debt. Inventory turnover ratio explains how fast the goods are sold. The ratio analysis comparisons can be made in one of two ways- (a) Comparison over a time period. (b) Comparison with similar organization or with industry as a whole. The first type of comparison will indicate how the organization performance has changed. The second type suggest how well the organization is doing relative to its competitors.
8.Internal and external audit:- Audit is conducted to find out errors and frauds. Internal audit is done by the employees of the concern to suggest ways to prevent errors and frauds and to suggest management whether the polices have been implemented properly. External audit is conducted by a chartered accountant to express opinion about the financial status of the company. Detecting errors and frauds is not the primary job of the external auditor. That is why, internal auditor is appointed by the most of the organizations.
9. PERT-and CPM :- Both PERT and CPM are primarily oriented towards achieving better managerial control of time spent in completing a project. Under both the techniques, a project is decomposed into activities and then all the activities are integrated in a highly logical sequence to find the shortest time required to complete the entire project.The main difference between PERT and CPM lies in the treatment of time estimates. PERT was created primarily to handle research and development projects in which time spans are hard to estimate with any degree of accuracy. CPM, on the other hand, is usually concerned with projects that the organization has had some previous experience with. Time estimate, therefore can be made with relative degree of accuracy.
3.
PERT-CPM
The Programme Evaluation and Review Technique is elaboration of the scheduling concept discussed under the production control. It was developed U.S.Navy, as a system for planning and monitoring the development of Missile. It is similar to the Critical Path Method(CPM).
The PERT is concerned with planning and controlling of complex projects consisting of many-interrelated activities and events, some of which are performed simultaneously, and others which are performed sequentially, one after another. PERT diagram is constructed showing (a) the activities to be performed (b) the evens which would mark the beginning or end of the activities concerned: (c) The number of days it would take to perform each activity. For example, if an organization plans to manufacture 5000 T.V sets per annum, the entire project may be divided in to the following activities.-(a) Acquiring Land (b) Applying for import license, issue of license, and release of foreign exchange (c) Call invoice for import equipment , select suppliers and place orders.(e) Customs clearance and the transportation of imported equipment (f) Hiring of technical staff (G) Training of people (H) Starting production
The start or termination of an activity is represented by a circle. For each activity, one arrow is used. Each and every event is assigned a serial number or alphabet. For completion of each activity, three estimates of time span are calculated i.e optimistic time , pessimistic time i.e the longest time and normal time i.e most likely time. Then the time estimates are combined into a single workable time i.e expected time. It is necessary to identity those activities the completion of which is critical for the completion of the project. The critical path consist of those activites, which form the longest route through the net work. If any activity on the critical path is delayed, then the completion time of the final project is bound to be delayed. Resources of the organization are earmarked for the activites on the critical path, according to the needs of the situation.
The PERT net work diagram given below shows the steps to be followed in constructing a large building, assuming the necessary design work has been completed and required manpower and financial capacity is in existence. In this chart, solid lines represent critical activities and thin lines denotes the non-critical activites.
The completion and slack time for the different path is as follows.
Completion time Slack time
Top path: A+B+D+G+H=312 days 312-312=0
Middle path: A+C+D+G+H=262 days 312-262=50 days
Lower path: A+C+E+G+H= 195 days 312-195= 117 days
The top path in this case will be critical path. Any delay in this path will mean the delay of the completion of the project. The other paths have slack variables and hence financial and human resources could be diverted to these paths may be diverted to critical paths, with a view to speeding up work on the critical path.
96 days 84 days 72 days 60 days
60 days 45 days
30 days
PERT VS CPM
(1) PERT plays more attention on the time dimension of a project planning and control. CPM pays more attention to the cost dimension.
(2) PERT Considers three time estimates for calculating the expected time. CPM considers only one time estimate.
(3) CPM considers every activity as critical. PERT considers only some of the activities as critical.
RETURN ON INVESTMENT:-
Profit earned in relation to the capital employed in a business is an important device of control. The return on investment is calculated by dividing the net operating profit (Earnings before interest and tax) by operating capital employed in the business.
Capital employed means the aggregate of the written down value of all fixed assets and net current assets. (other than non-operating assets or fictitious assets). Depreciation is reduced as the funds made available through such charges are reinvested in fixed assets or used as working capital. Current liabilities are reduced as investment in current assets is financed by current liabilities. The main advantage of this method is it can be used for measuring the performance of different divisons, or products of the same organization. Moreover, resource allocation in an organization can be made of more rational basis. However , it is subject to two important limitations- (a ) Calculation of standard return is difficult. (b) In an inflationary economy, it is wise to value the assets after considering the price level changes. If it is valued at historical cost, ROI may not be accurate.
MANAGEMENT AUDIT:-
Management audit is an evaluation of management as a whole. It is an independent and critical examination of the entire management process. Thus, it examines the total managerial process of planning, organizing, staffing, directing and controlling. Indeed, company’s plans, objectives, policies, procedures , systems of control personnel relations are measured to evaluate the management achievement. Management audit can either be conducted by external agency such as management consultants or by internal agency in the form of management audit cell. The auditor has to report the deficiencies of top management to the same people.
MANAGEMENT INFORMATION SYSTEM:-
Management information can be defined as the system of providing needed information to each manager at the right time, in right form to facilitate decision making. It is based on the fact the same input data can be used for a number of outputs. For example, data on inventory can be used by managers in production accounting, and purchase departments. As the same data is used for multiple purpose, it is necessary to develop a system for gathering, processing, and flowing information. The first element in MIS may be called as MIS determinants. Factors like opportunities and risks, management decision making process, available technology, is very useful to the managers. The Second MIS element is Key Success variables. These factors determine success or failure of the organization. The well designed information system should bring information about these factors to the managers.
CYBERNETICS:-
It may be defined as the science of communication and control in complex and man-machine systems. Cybernetics revolves around artificial intelligence by providing computers with memories and computational facilities and information systems which are concerned with sensing events in the environment and responding to them in a suitable manner. For example, in modern factories for internal movement of raw and processed materials and manufacturing operations, automated equipment is used.
HUMAN RESOURCE ACCOUNTING;-
It may be defined as the “ Accounting for people as an organizational resource. There are two approaches for measuring the value of human assets. Valuation at original costs and valuation at replacement costs.
The original cost of human assets can be divided in to acquisition costs and learning costs. Acquisition cost includes recruitment costs, selection costs, hiring, and placement costs. In this process, some people may not be selected, or they may be selected but do not join the organization. However, organization has to incur some costs on them also. The learning costs are incurred in training a person in order to make him effective in the position meant for him.
The replacement costs refers to the costs to replace a specific person. An individual value to an organization can be defined as the present worth of future services that he is expected to provide during the period he is expected to remain in the organization. Flamholtz has given the variables affecting individual’s expected realizable value. (The IERV) is a function of two things; the individual’s ability and factors like job satisfaction, and motivation. Many organization in the U.S.A are following the human resource accounting approach. The main advantages of this method is , organization can select a person with highest expected realizable value. It is very useful to the managers for making effective use of human resources in the organization. Further, it provides necessary data to device suitable promotion policy, congenial work environment, and job satisfaction to the people.
PRINCIPLES OF CO-ORDINATION:-
1. Direct contact:- Mary Follett says that co-ordination can be achieved by direct contact of the responsible people.
2. Early stages:-Co-ordination should be started in the early stages of planning and policy making. In simple words, while framing policies, it is necessary to consult all people who implement those policies.
TYPES OF CO-ORDINATION:-
1. Internal co-ordination :- It takes place between the branch offices, plants, departments, sections and other divisions of an enterprise.
2. External co-ordination :- It refers to the co-ordination between the organization and the outsiders. It may exist between the organization and the customers or its suppliers or the government. Public relations officers appointed to achieve external co-ordination.
3. Vertical co-ordination:- Vertical co-ordination takes place between the different levels of the organizational unit.
4. Horizontal co-ordination: It refers to co-ordination between horizontal departments at the same level in the managerial hierarchy.
CO-ORDINATION AND MANAGERIAL FUNCTIONS:-
1. Co-ordination and planning:- Managers must see that the various plans are interrelated.
2. Co-Ordination and Organizing:- The organization structure should define authority and responsibility of every person in the organization clearly.
3. Co-Ordination and Staffing :-While staffing, the manager should should employ the right man for the right job so that co-ordination can be achieved.
4. Co-ordination and controlling:- While controlling, if the actual performance is not up to the standard, the manager takes remedial action and synchronize the efforts to achieve the standard.. i.e while controlling he co-ordinates.
5. Co-ordination and communication :- Regular flow of information among the various persons helps in resolving conflicts and misunderstandings.
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