In management, Controlling is one of the most important functions in an organization which is goal-oriented. Types of Control techniques in management are Modern and Traditional control techniques. Feedforward, feedback and concurrent controls are also types of management control techniques.
Controlling helps the managers in eliminating the gap between organizations actual performance and goals. Controlling is the process in which actual performance is compared with the company standards. Comparing it gives the visibility that activities are performed according to strategy or not. If it is not performed then necessary corrective action should be taken. Let us learn more about Control Techniques in Management.
Types of Control Techniques in Management
Management theorists and experts have devised several techniques over the years. They often divide these techniques into two categories: traditional and modern. Traditional types of techniques generally focus on non-scientific methods. On the other hand, modern techniques find their sources in scientific methods which can be more accurate.
Traditional Types of Control Techniques in Management
- Budgetary Control
- Standard Costing
- Financial Ratio Analysis
- Internal Audit
- Break-Even Analysis
- Statistical Control
Despite the emergence of modern techniques, traditional practices are still widely in use these days. Let us discuss them one by one.
Budgeting simply means showcasing plans and expected results using numerical information. As a corollary to this, budgetary control means controlling regular operations of an organization for executing budgets.
A budget basically helps in understanding and expressing expected results of projects and tasks in numerical form. For example, the amounts of sales, production output, machine hours, etc. can be seen in budgets.
There can be several types of budgets depending on the kind of data they aim to project. For example, a sale budget explains selling and distribution targets. Similarly, there can also be budgets for purchase, production, capital expenditure, cash, etc.
The main aim of budgetary control is to regulate the activity of an organization using budgeting. This process firstly requires managers to determine what objectives they wish to achieve from a particular activity. After that, they have to lay down the exact course of action that they will follow for weeks and months.
Next, they will translate these expected results into monetary and numerical terms, i.e. under a budget. Finally, managers will compare actual performances with their budgets and take corrective measures if necessary. This is exactly how the process of budgetary control works.
Standard costing is similar to budgeting in the way that it relies on numerical figures. The difference between the two, however, is that standard costing relies on standard and regular/recurring costs.
Under this technique, managers record their costs and expenses for every activity and compare them with standard costs. This controlling technique basically helps in realizing which activity is profitable and which one is not.
Financial Ratio Analysis
Every business organization has to depict its financial performances using reports like balance sheets and profit & loss statements. Financial ratio analysis basically compares these financial reports to show the financial performance of a business in numerical terms.
Comparative studies of financial statements showcase standards like changes in assets, liabilities, capital, profits, etc. Financial ratio analysis also helps in understanding the liquidity and solvency status of a business.
Another popular traditional type of control technique is internal auditing. This process requires internal auditors to appraise themselves of the operations of an organization.
Generally, the scope of an internal audit is narrow and it relates to financial and accounting activities. In modern times, however, managers use it to regulate several other tasks.
For example, it can also cover policies, procedures, methods, and management of an organization. Results of such audits can, consequently, help managers take corrective action for controlling.
Break-even analysis shows the point at which a business neither earns profits nor incurs losses. This can be in the form of sale output, production volume, the price of products, etc.
Managers often use break-even analysis to determine the minimum level of results they must achieve for an activity. Any number that goes below the break-even point triggers corrective measures for control.
The use of statistical tools is a great way to understand an organization’s tasks effectively and efficiently. They help in showing averages, percentages, and ratios using comprehensible graphs and charts.
Managers often use pie charts and graphs to depict their sales, production, profits, productivity, etc. Such tools have always been popular traditional control techniques.
Solved Examples for you
Question: Consider the following statements and mention which traditional type of control technique they relate to.
(1) This technique uses the financial statements of a business.
(2) Regular/recurring costs form the basis of this technique.
(3) Budgets of various kinds form the basis of this technique.
(4) This technique triggers corrective measures beyond a certain minimum performance threshold.
(5) The scope of this technique was previously narrow but has become wider and diverse these days.
(6) This technique uses pie charts and graphs.
(1) Financial ratio analysis
(2) Standard Costing
(3) Budgetary control
(4) Break-even analysis
(5) Internal audit
(6) Statistical control