Control Techniques Used in an Organization

This article throws light upon the four modern control techniques used in an organisation. The modern control techniques are: 1. Network Techniques-PERT, CPM 2. Responsibility Accounting 3. Management Audit 4. Human Resources Accounting.

Modern Control Technique # 1. Network Techniques-PERT, CPM:

PERT (Programme Evaluation and Review Technique) was developed by the social project office of the U.S. Navy in 1958. At the same time engineers at the Due Part Company, U.S.A. also developed CPM (Critical Path Method). PERT and CPM utilize the same principles.

The basic difference between the two is that CPM assumes the duration of every activity to be constant in the organisation, therefore, every activity in the organisation is either critical or not.

In PERT, uncertainty in the duration of activities is allowed and is measured by three parameters—most optimistic duration, most likely duration and most pessimistic duration. PERT/CPM is used either to minimize total time, minimize total cost, minimize cost for a given total time, minimize time for a given cost or minimize idle resources in the organization.

Process of PERT/CPM:

The whole process involved in the preparation of PERT/ CPM is as follows:

1. Identification of activities to be performed in order to complete programme project in the organisation.

2. Sequential arrangement of various activities of a project in the organisation.

3. Estimate of time taken by each activity in the organisation.

4. Network construction—all activities of programme are connected sequentially to form a network known as PERT network in the organisation.

5. On the basis of analysis, critical activities are determined in the organisation. These are represented by a critical path, which shows that of activities on this path are not completed in time the entire project will be delayed by the amount the event is delayed in the organisation. Thus, based on estimates, the earliest or latest start time of an activity can be calculated in the organisation.

Advantages:

As a tool of planning and control its specific contribution is as follows:

1. It helps in planning time schedules and costs and forces managers to plan because it is impossible to make a time-event analysis without planning and seeing how the pieces fit together in the organisation.

2. It also forces planning at lower levels because each manager has to plan the activities for which he is responsible in the organisation.

3. It focuses attention on critical activities because a delay in their performance will delay the whole project unless managers in the organisation are able to make up the time by shortening some future activities.

4. It poses for right action at right point and at right time in the organisation.

5. It forces all the components of a programme together in one chart, by showing the sequence and inter­relationships of different components, it permits simultaneous performance of the project of different parts of the project and highlights interdependence of different activities.

6. It forces managers to plan because it is impossible to make a time event network analysis without planning and seeing how the pieces fit together. Every subordinate is also forced to plan the events for which he is also responsible to finish the work assigned to them. Computation of the most likely time requires the manager to probe all uncertainties, pitfalls and possibilities in the project.

7. PERT makes possible a kid of feed-forward control, as a delay in one activity will affect succeeding activities and possibly the whole project, unless the management can somehow make up the time by shortening some future activities to finish the project in time.

8. Its network with its sub-systems creates a pressure for action at the right spot and levels in the organisation and at the right time to finish the project.

Limitations: 

Following are some of the limitations of PERT/CPM:

1. The basic difficulty comes in the way of time estimates for the completion of activities because activities are of no-repetitive type in the organisation.

2. It is not useful for routine planning of recurring events, such as mass production because once a repetitive sequence of events is clearly worked out, no elaborate continuing control is not required in the organisation.

3. It is a time-consuming and expensive technique.

4. It is not suitable when a programme is nebulous and a reasonable estimate of time schedule is not possible.

5. PERT puts major emphasis on time not cost of the project. Therefore, it may not be very useful when considerations other than time are involved in the project.

As PERT/CPM technique is developed for effective planning and control of complex project work using network analysis i.e. a network diagram is prepared to show the interdependence between the operations of a project.

This diagram reveals gap in the flow plan and the sequence of activities involved to enable management to plan and control the operations for realizing project objectives economically and efficiently, normally network analysis makes use of probability and linear programming.

PERT and CPM are primarily oriented towards control of the time spent in completing a project work. In both the techniques all activities of a project are integrated in a logical sequence to find out the minimum time required to complete the project work. The basic principles involved in PERT/CPM is same but there are some differences between them.

PERT:

i. PERT allows uncertainty in the duration of activities.

ii. Three time estimates (most optimistics, most pessimistic and most likely duration) are given.

iii. PERT is not applied wherever activity time are well known.

iv. PERT is events oriented involving events as the beginning and ending points of operations:

v. PERT is not necessarily have previous experience.

vi. PERT emphasis only time factor.

vii. PERT is most useful where time is of essence.

CPM:

i. CPM assumes that the duration of every activity is constant, and therefore every activity is either critical or not.

ii. Only one time estimate is given for each set of activities

iii. CPM is applied wherever activity time are well known.

iv. CPM is activity oriented.

v. CPM assumes some previous work experience essential for the completion of each activity.

vi. In CPM both cost and time estimates are used.

vii. CPM may be used where cost is the main consideration.

Thus the difference between PERT & CPM is one of degree rather than of kind.

The process of PERT/CPM consists of the following steps:

(i) The activities and events that should be performed to complete a programme are clearly identified in the PERT/ CPM. Event is the actual performance of a task at a given point of time while an activity represents time and resources for progressing from one event to another

in the project. Events provide a basis for measuring the progress of a programme in the project. Every activity occurred is represented by a circle and every activity occurred by an arrow. Each event occurred indicates initiation or termination of an activity.

(ii) A sequential arrangement of activities is decided in such a way that a particular event cannot be performed without completing the proceeding events. The activities are arranged in a logical sequence and the order in which they are to be performed is decided.

(iii) A correct estimate is made of time to be taken by each activity in the project.

Three time estimates are made:

(a) optimistic time showing the minimum time required if everything goes exceptionally well in the project;

(b) pessimistic time showing the maximum time of activity in the project; and

(c) most probable time which lies in between the two.

(iv) The last step is to determine the critical path to finish the project early. It is the longest path in network in terms of the time. If activities on this path are not completed in time, the entire project will be delayed which will lead to heavy loss.

It is critical because the time spent on the activities that lie along this path determines the total time taken in completing the project. Since all other paths are shorter they have some slack time.

The above steps in PERT network can be illustrated with an example of a factory project. The various activities in this project, their sequence and the expected or most likely time for each activity are given in Table below.

In the figure given below the critical path consists of events 1,2,3,4,6 and 11, which is 54 weeks to finish the project. The timely completion of the factory depends on these activities. Delay caused in other activities will not delay the completion of the factory provided that the expected time plus delay do not exceed the critical path of 59 weeks.

Thus, PERT is a type of network analysis employed to recognize identify and control all interconnected links in a complex system over an extended period of time. Events and activities are the basic building blocks of a PERT network. Activities are time-consuming elements in a programme and they begin and end with an event indicating the completion of a distinct portion of the programme.

Each event is numbered and connected by activities to those events, which must proceed it and those, which follow it to finish the project. A typical PERT network may consist of thousands of interconnected events to finish any project.

Modern Control Technique # 2. Responsibility Accounting:

The concept of responsibility in the organization center is important in the organisation of responsibility accounting. A responsibility center is an organisation unit, such as, division, departments, or section headed by a responsible person where responsibility is fixed on its head for the target fixed in respect of that organization unit.

There are three types of responsibility centers, profit centers and investment centers in the organisation. The head of a responsibility center is responsible for the activities to be performed at that center and also responsible for the controllable costs in the organisation.

Modern Control Technique # 3. Management Audit:

Management audit is an evaluation of management as a whole in the organisation. It is an independent and critical examination of the entire management process in the organisation. Thus it examines the total managerial process of planning, organising, staffing, directing and controlling in the organisation.

A person to conduct management audit should have a thorough knowledge and understanding of management principles, behavioral aspects and the functional areas of management in the organisation. Management audit takes the form of reports. The reports should be specific and must go beyond the typical audit reports.

Modern Control Technique # 4. Human Resources Accounting:

Eric Flamholtz defines human resources accounting as the “accounting for people as organisation resources. It involves measuring the costs incurred by business firms and other organisations to recruit, select, hire, train and develop human assets. It also involves measuring the economic value of people of the organisations.”

This definition suggests two approaches for measuring the value of human assets, valuation of original costs and valuation at replacement costs in the organisation.

Social Audit:

Social Audit is concerned with the social performance of an organisation in contrast to its economic performance measured in the financial audit in the organisation. Social audit has been defined as “commitment to systematic assessment of and reporting and some impact.—” Howard R. Boween.

The concept of social audit is being applied to business organisations only on a very limited scale as measurement of their social performance. The increasing awareness of social responsibility by business organisations may bring more application of social audit in the organisation.

Curson and Steiner have emphasized that a social audit should contain:

(i) An enumeration of social expectations and the organisation’s responses.

(ii) A statement of corporation’s social objectives and the priorities attached to specific activities.

(iii) A description of the corporation’s goals in each programme area of the activities it will conduct

(iv) A statement indicating the resources committed to achieve objectives and goals and

(v) A statement of the accomplishments and progress made in achieving each objective and goal.