Principles of Management (POM)

Lecture 6 & 7 Budget & Controlling -Anand Choudhary Principles Of Management (Anand Choudhary) 1

Summary until now!!

.Planning Know the objective then plan for What, When, How and Why and at what cost .Organization- Chief Executive defines this. Work Distribution . Departments /Sections .Staffing Right person at right place. Create specialists. .Communication- Internal/External .Co-ordinate, control and direct - These are separate functions .Leadership, Motivation & Decision making Principles Of Management (Anand Choudhary) 2

Summary until now!!

.Process of Management is required to achieve organizations objectives .Planning is the most essential element in management, it is basically the first and foremost function of management. It helps to achieve common goals .Forecasting involves detailed analysis of the past and present events to predict future Principles Of Management (Anand Choudhary) 3

Summary until now!!

.If assumptions made during forecasting are faulty, forecasting would be not correct .Short Term goals helps to achieve major goals and Objectives are subject to change with market conditions .Organizations are formed so that business objectives are achieved .Departmentation create specialists .Span of management- How many subordinates to report to a supervisor

Principles Of Management (Anand Choudhary)

Control
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Agenda!!
.What is control? .Characteristics and Features of Control .What is Budget? .Types of Budget Principles Of Management (Anand Choudhary) 6

Have you ever thought why ?

.Why .Why .Why .Why .Why .Why is attendance recorded in office/school? do you have a boss? you have annual appraisal? you have approvals mechanisms? is MIS required in office? you scan you PC with anti-virus?

Principles Of Management (Anand Choudhary)

Need for Control

.Continuously Improve performance to achieve organizational objectives .Benchmark against the standards and norm .Reduce error/probability of failure/Monitor behavior of employees Principles Of Management (Anand Choudhary) 8

Control
Control elements * * * * * * * Overall Organization (CEO) Finance (Finance Team) People (Support and HR teams) Public Relations (Marketing) Production (technical ) Expenditure (Day to day expense) Salary (Support)

Top Management

Technical Support

Middle Management

Administrative Support

Technical Core

Principles Of Management (Anand Choudhary)

Control Process!!
.Setting standards, rules and regulations .Comparison of performance to standards .Corrective action .Dynamic action needs to be different for different types of controls .Feedback, feed-forward(back to point 1) Principles Of Management (Anand Choudhary) 10

Methods of Control
1. 2. 3. 4. 5. Bureaucratic -- top down Objective -- observable measures Normative -- widely shared norms Concertive -- work group values Self-control -- self management 11

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Techniques used for Controlling

.Personal Observation .Statistical Method used for controlling deviations from preset standards in quantitative terms Principles Of Management (Anand Choudhary) 12

Techniques used in controlling

.Statistical Methods .ROI .MIS .Cost Accounting and Cost Control .Break Even Analysis .BEP=Fixed Cost/Contribution .Contribution= Selling Prices- Var cost per unit .PERT/CPM .GANTT Chart .Personal Observation .Audit .Internal Audit .External Audit .Management Audit .Standing Orders by management .Budgetary Control

.Zero Based Budgeting (Budget without considering past figures, recalculate each activity again)

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PERT /CPM
.PERT= Project/Program Evaluation Technique (used generally for one time problem occurrence) .CPM = Critical Path Method .Advantages of PERT/CPM .Prediction of deliverables .Planning resource requirements .Controlling resource allocation .Internal/External program review .Performance evaluation .Uniform wide acceptance

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Example PERT

PERT network chart for a seven-month project with five milestones (10 through 50) and six activities (A through F). In PERT the focus is on completion Time Principles Of Management (Anand Choudhary) 15

Example CPM
The essential technique for using CPM is to construct a model of the project that includes the following: .A list of all activities required to complete the project .The time (duration) that each activity will take to completion, and .The dependencies between the activities.

PERT chart for a project with five milestones (10 through 50) and six activities (A through F). The project has two critical paths: activities B and C, or A, D, and F - giving a minimum project time of 7 months with fast tracking. Activity E is sub-critical, and has a float of 2 months. In CPM the focus is on COST front.

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Example GNATT
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Limitations Of Pert/CPM
.Time consuming .Wrong estimations of cost and time .Since these are techniques of project control, Can be applied only to events occurring once, not for continuous improvements

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Feature of Control
.Controlling Process must be continuous in nature .Applicable at all levels- Universal .Control must be linked to future plans .Actionable- Corrective action to be taken on the issue identified

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Budgetary control
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What is Budget?
.A budget is your organizations financial plan of action for the coming year or period .The ability to accurately estimate income and expenditures .The organizations financial management team the staff and trustees involved in managing the organizations financial function -- must collaborate to create and manage a budget that anticipates how much those activities will cost .The operating budget includes projected revenue and expenses for the year ahead .Budgeting is not the responsibility of finance team, it is responsibility of each individual Principles Of Management (Anand Choudhary) 21

Budgetary Control
.Process of finding out how close are the operations and results with the planned budget. .What all You Budget For? Give examples .Money, Manpower, Material ,machines, markets etc .Basically Each and every resource requires Budgeting!!

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Objectives & Characteristics of Budgetary Control

Objectives of Budgetary Control 1. 2. 3. 4. 5. 6. Define Organizations monetary growth path Clear quantitative requirements Help break objectives department wise Help arrive at cash flow and fund flow statements Gain control over organization Recommends corrective actions to deviation Eliminate departmental influence on cost gathering and spending 23

Principles Of Management (Anand Choudhary)

Types of Budget
.Sales Budget .Key element of planning- With this no other budgets can be prepared .Prepared area wise/product wise/segment wise .Includes Selling and distribution cost budget

.Master Budget .One major end-end plan for the business .Broad level Department wise breakup of spending power

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Types of Budget (contd)

.Production Budget .Based on Sales Budget .Depicts the requirements of the production units to support the estimated budgets .Helps to produce quality products in less time .Time & Material .Generally in manufacturing unit for estimating the time and materials required to produce a product Eg: Equipment and labour required to produce make a road) .Production Cost Budget .R&D budget

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Types of Budget (contd)

.Property Budget .Building , land , machinery .Fixed budget .Remains unchanged come what may the situation

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Steps in Budget Preparation

.Form a budget committee .Gather Statistical information .Make Sound forecasts .Affix responsibilities to each department .Develop sound accounting and monitoring systems .Acceptance and Support from top management

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Advantages of Budgetary Control

.Tool to plan activities .Budget is a kind of plan- Futuristic, but based on passed data /trend study .Control expenses, utilizes resources .Fixes responsibility and establishes communication channels .Helps delegation of authority .Monitor growth and achivements Principles Of Management (Anand Choudhary) 28

Issues with Budgetary Control

.Co-operation .Inaccuracy .Rigidity Stops initiatives .Planning is Time consuming

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Thank You !!
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