Everything you need to know about the managerial control. Control is an important function of management. It is an essential feature of scientific management.
In fact much of the precision of managerial education is focused on the improvement of control techniques. It is generally used for putting restrains over the elements being controlled. In managerial terminology, control is ensuring work accomplishment according to plans. It is a process that guides activity towards some predetermined goals.
Without control, a manager cannot do the complete job for managing. All other functions are the preparatory steps for getting the work done and controlling is concerned with making sure that there is proper execution of these functions. It ensures work accomplishment according to plans.
It is concerned with an evaluating performance so as to secure the best results of managerial efforts. It is an essential feature of scientific and successful management.
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Learn about:-
1. Definitions of Managerial Control 2. Scope or Areas of Managerial Control 3. Features 4. Importance 5. Process
6. Requirements to Make Control System Effective 7. Pre – Requisites for an Effective Managerial Control System 8. Network Techniques and Analysis 9. Advantages 10. Disadvantages.
Managerial Control: Definitions, Scope, Features, Importance, Process, Network Techniques, Advantages and Disadvantages
Contents:
- Definitions of Managerial Control
- Scope or Areas of Managerial Control
- Features of Managerial Control
- Importance of Managerial Control
- Process of Managerial Control
- Requirements to Make Control System Effective
- Pre – Requisites for an Effective Managerial Control System
- Network Techniques and Analysis of Managerial Control
- Advantages of Managerial Control
- Disadvantages of Managerial Control
Managerial Control – Definitions Provided by Ernest Dale, Koontz, O’Donnell, Weihrich, F.E.L. Brech, Henri Fayol and Dalton E.McFarland
Ernest Dale in his book “Theory and Practice of Management” has stated that –
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“The modern concept of managerial control envisages a system that not only provides a historical record of what has happened to the business as a whole but also pin points the reasons why it has happened and provides data that enable the chief executive or the departmental head to take corrective steps if he finds he is on the wrong track.”
Further, Koontz, O’Donnell and Weihrich have said-“Controlling as the measurement and correction of the performance of activities of sub-ordinates in order to make sure that enterprise objectives and the plans devised to attain them are being accomplished.”
Therefore, the managerial function of control implies measurement of actual performance comparing it with the standards set by plans and correction of deviations to ensure attainment of objectives according to plans.
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Thus, control is an important function of management. It is an essential feature of scientific management. In fact much of the precision of managerial education is focused on the improvement of control techniques. It is generally used for putting restrains over the elements being controlled. In managerial terminology, control is ensuring work accomplishment according to plans. It is a process that guides activity towards some predetermined goals.
(1) According to F. E. L. Brech, “Managerial control is checking current performance against pre-determined standards contained in the plans, with a view to ensuring adequate progress and satisfactory performances.”
(2) According to Henri Fayol -“In an undertaking control consists in verifying whether everything occurs in conformity with the plans adopted, the instruction issued and the principle established. Its object is to point out the weakness and error in order to rectify them and prevent occurrence. It operates on everything i.e., things, people and action.”
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(3) Dalton E. McFarland has said -“Control in its managerial sense is the presence in a business of that force which guides it to a pre-determined objective by means of pre-determined policies and decision.”
Thus, we see that managerial control is fundamental management function that ensures work accomplishment according to plans. It is concerned with measuring and evaluating performance so as to secure the best results of managerial efforts.
Managerial Control – Scope or Areas According to Holden,Fish and Smith: Managerial Control Over Policies,Control Over Organisation,Control Over Personnel and a Few Others
The scope of managerial control is very wide. It virtually covers all the areas of business, namely policies, procedures, men, money, machines and equipment, public relations, human relations, research and development and so on. Normally, managerial control is exercised by concentration on key areas of business on which the success of the business depends. It is known as “key-point control”. The key-points vary from enterprise to enterprise.
According to Holden, Fish and Smith, the scope and the main areas of managerial control are as follows:
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(1) Managerial Control over Policies:
The success of any business organisation to a large extent, depend upon that how far its policies are implemented. Hence, the need of control over policies is self-evident. In many enterprises, policies are controlled through policy manuals.
(2) Control over Organisation:
Control over organisation is accomplished through the development of organisation chart and organisation manual. Organisation manual attempts at solving organisational problems and conflicts, making long- range organisation planning possible, enabling rationalization of organisation structure, helping in proper designing of organisation and departments.
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(3) Control over Personnel:
All employees working at different levels, must perform their assigned duties well and direction of their efforts and controlling their behaviour in the process of control over personnel. Personnel director or personnel manager perhaps control plan for having control over personnel.
(4) Control over Costs:
Cost control is exercised by the cost accountant by setting cost standards for materials, labour and overheads and making comparison of actual cost-data with standard cost. Cost control is supplemented by budgetary control system.
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(5) Control over Methods:
This method is accomplished by conducting periodic analysis of activities of each department. The functions performed method adopted and time devoted by every employee is studied with a view to eliminate non-essential motions, function and methods.
(6) Control over Wages and Salaries:
Such type of control is done by having programme of job evaluation and wage and salary analysis. This work is done either by personnel department or industrial engineering department. Often a wage and salary committee is constituted to help these departments in the task of controlling wages and salaries.
(7) Control over Capital Expenditure:
It is exercised through a system or evaluation of projects, ranking of projects in terms of their ranking power and appropriating capital to various projects. A capital budget committee reviews the projects proposed and approves the projects of advantages to the firm. Capital budgeting, project analysis, break-even analysis, study of cost of capital etc., are some popular techniques of control over capital expenditures.
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(8) Control over Production:
Control over production is effected through studies about market needs, attitudes of customers and revision in product lines. Efforts are made to simplify and rationalize the line of products. Such efforts serve as control measures; Routing, Scheduling, Dispatching, Follow-up, Inventory Control, Inspection and Quality Control are some popular techniques of production control.
(9) Control over External Relations:
Public Relations department is responsible for controlling the external relations of the enterprise. It may prescribe certain measures for other operating departments which are instrumental in improving external relations.
(10) Control over Research and Development:
Such activities are highly technical in nature so no direct control is possible over them. By improving the ability and judgement of research, staff through training programmes and other devices, an indirect control is exercised on them. It is also exercised by having a research budget in the business.
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(11) Overall Control is Also Essential:
It is effected through budgetary control. Master plan is prepared for overall control and all the departments are involved in this. For effective control through the master plan, active support of top management is also essential.
Managerial Control – Features: An Essential Function,Planning and Controlling are Closely Related,Control is a Continuous Activity,Control is Forward Looking and a Few Others
The following are the main features of managerial control:
(1) It is an important managerial function.
(2) It involves the preparation of plans, setting goals and objectives and setting the standards.
(3) It involves the management of actual performance and recording the deviations, if any.
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(4) It is a step to ensure the performance according to the plans.
(5) Control is neither order giving nor command. It is not a negative one. It is positive and corrective providing guidance for further actions.
(1) It is an Essential Function of Every Manager:
Managerial control is such a managerial function where every manager from the president to the first line supervisor makes use that what is done will be that what is intended. The nature, scope and level of control will be governed by the level of manager exercising it. The area is also governed by the authority and responsibility of management.
(2) Planning and Controlling are Closely Related with Each Other:
According to Billy E. Goete -“Managerial planning seeks consistent, integrated and articulated programme, while managerial control seeks to compel events to conform to plans.” As a matter of fact, planning is based on control and control is based on planning. The process of control uses certain standards for measuring performance which are laid down by planning.
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The control process is twin, may reveal the deficiency of planning and may lead to the revision of planning. It may also lead to setting of new goals, changing the organisational structure, improving staffing and making major changes in the techniques of directing.
(3) Control is a Continuous Activity:
Managerial control is a continuing activity. It does not stop anywhere. According to Koontz, O’Donnell and Weihrich -“Just as the navigator continually takes reading to ascertain whether he is relative to a planned course, so should the business manager continually take reading to assure himself that his enterprise or department is on course.”
(4) Control is Forward Looking:
It is generally said that planning is looking ahead and control is looking behind. But its reverse is also true. The nature of managerial control is also forward looking because on the basis of evaluation of past performance the future guidelines can be prepared. It prevents deviations from occurring by anticipating their occurrence and taking suitable action beforehand.
(5) Managerial Control is People-Oriented:
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The approach of managerial control is people-oriented. Control is attained through people and not ‘things’. It is people who achieve control or who distort planned results. Subjective attitude of the people are more important for the success of control than objective figures about performance.
(6) Managerial Control is a Dynamic Process:
It involves continuous review of standards of performance and results in corrective action which may lead to changes in other functions of management.
Managerial Control – Importance: Control Guides Activity to Plan in Achieving Goal, Co-Ordination is Facilitated, Decentralization is Possible and a Few Others
Control is an important function of management. Without control, a manager cannot do the complete job for managing. All other functions are the preparatory steps for getting the work done and controlling is concerned with making sure that there is proper execution of these functions. It ensures work accomplishment according to plans. It is concerned with an evaluating performance so as to secure the best results of managerial efforts. It is an essential feature of scientific and successful management.
The importance of control is evident from the following:
(1) Control Guides Activity to Plan in Achieving Goal:
The essence of the concept of control is the adherence to the plan. It is a basis for the adoption of long- range planning. Long-range planning will be impossible unless a flood of control information flows from the appraisal of end results of current operation to keep such plans in proper track.
(2) Appraisal and Measurement of Actual Performance:
The process of control provides standards or norms for appraisal and measurement of actual performance. These standards of performance are established through managerial planning keeping in mind the end results of the efforts. The essence of control is action which adjusts operations to pre-determined standards.
(3) Co-Ordination is Facilitated:
Co-ordination is facilitated by the control function of management. In the context of pre-determined goals and standards, control keeps all activities and efforts within their boundaries and schedules and it makes them to move towards a common direction. All types of wastes whether of time, money or efforts can be successfully avoided through the control function of management.
(4) Control Keeps a Check on Other Functions of Management:
It bridges the gap between thinking functions and doing functions of management. It brings to light all bottlenecks to work performance not possible to be revealed by initial planning. It provides necessary feedback information for taking suitable remedial action.
(5) Decentralisation is Possible:
The modern system of control has encouraged top management to extend the frontiers of decentralisation without losing ultimate control. It makes the sub-division of work possible. It makes communication system improved and successful. Since management involves the co-ordination of a group it requires communication among its members. Control is so closely related to communication that some writers do not attempt to distinguish between these two.
Henri Fayol in his book General and Industrial Management has said that – “Management control consists of verifying whether everything occurs in conformity with the plans adopted, the instructions issued and principles established. It has for object to point out weaknesses and errors in order to rectify them and prevent recurrence. It operates on everything, things people, action.”
Control is an important function of management. Without control, a manager cannot do the complete job of managing. All other functions are the preparatory steps for getting the work done and controlling is concerned with making sure that there is proper execution of these functions. Control is necessary whenever a manager assigns duties and delegates authority to a sub-ordinate. He must exercise control over the actions of his sub-ordinates so as to ensure that the delegated authority is being used properly.
Further, Henri Fayol has stated that – “The road signals at a busy road crossing appropriately illustrate the significance of control. Just as road signals are essential to ensure accident-free and smooth traffic, management control devices are necessary in any organisation for its smooth functioning.” By controlling, the management ensures that resources are obtained and used economically and efficiently for the achievement of organisational objectives.
A good control system provides timely information to the manager which is very much useful for taking corrective actions. Control simplifies supervision by pointing out the significant deviations from the standards of performance. It keeps the subordinates under check and brings discipline among them. It also enables the expansion of span of supervision at various levels in the organisation.
Managerial Control – 6 Major Steps: Key Areas to be Monitored, Establishing Standards, Measuring Performance, Compare Performance with Standards and a Few Others
The top management initially must decide what elements of the environment and the organisation need to be monitored, evaluated and controlled. The four key areas to be monitored and controlled are – the macro environment, mission and objectives, the industry environment and internal operations.
Step # 1. Key Areas to be Monitored:
I. Macro-Environment:
One of the key areas to be monitored is the macro-environment of the company. This area should be focused first. Normally individual companies cannot influence the environment significantly. But the external environmental forces must be continuously- monitored as the changes in the environment influence the implementation of the plans of the company.
II. Mission and Objectives:
This includes modifying any one or more of the areas like company’s mission, objectives, plans, goals, strategy formulation and implementation. The modification depends upon the nature and degree of changes and shifts in the environment.
III. Industry Environment:
The manager also monitors and controls the industry related environment. The environmental forces may not be as they were planned. The changes in the environment may provide new opportunities or pose new threats. The plan, therefore, should be modified accordingly.
The industry environment of the future should be considered by the top management for the purpose of evaluation and control.
IV. Internal Operations:
The manager has to evaluate the internal operations continuously in view of the changes in the macro-environment and industry environment. The manager has to introduce changes in internal operations when changes in the environment affect the plans.
Step # 2. Establishing Standards:
Evaluating an organisational performance is normally based on certain standards. These standards may be the previous year’s achievements or the competitor’s records or the fresh standards established by the management. Qualitative judgements like the qualitative features of the product or service in the last year may be used.
Quantitative measures like Return on Investment (ROI), Return on sales may also be used for judging the performance. Companies should establish the standards for evaluating the performance of the strategies taking several factors into consideration.
The standards may include:
1. Quality of Products/Services.
2. Quantity of Products to be Produced.
3. Quality of Management.
4. Innovativeness/Creativity.
5. Long-term investment value.
6. Volume of sales and/or market share.
7. Financial soundness in terms of return on investment, return on equity capital, market price of the share, earning per share etc.
8. Community and environmental responsibility in terms of amount spent on community development, variety of facilities provided to the community, programmes undertaken for environmental protection and ecological balance etc.
9. Soundness of human resources management in terms of percentage of employee grievances redressed, employee satisfaction rate, employee turnover rate, industrial relations situation etc.
10. Ability to attract, develop and retain competent and skilled people.
11. Use of company’s assets.
12. Production targets, rate of capacity utilisation, design of new products, new uses of existing products, rate of customer complaints about the product quality, suitability of ingredients etc.
13. Corporate image among the customers and general public.
14. Market place performance.
15. Standards relating to the organisational variables include freedom and autonomy, level of control, responsibility, formal organisation and degree of formality and informal organisation scope for innovation and creativity.
Step # 3. Measuring Performance:
The manager has to measure the performance of various areas of the organisation before taking an action. Performance may be measured through quantitative terms or qualitative terms. Reports and statements help to measure the actual performance through quantitative terms and managerial observations help to measure performance through qualitative terms.
Production, sales, profitability, staff cost etc. can be measured through quantitative terms and quality of the product, employee’s performance, attitude etc. can be measured through qualitative terms.
Step # 4. Compare Performance with Standards:
Once the performance of different aspects of the organisation is measured, it should be compared with the predetermined standards. Standards are set to achieve the already formulated organisational goals and plans. Organisational standards are yardsticks and benchmarks that place organisational performance in perspective.
The manager should set standards for all performance areas of the organisation based on organisational goals and strategies. Normally, the standards vary from one company to the other company. Further, they also vary from time to time in the same company. The standards developed by General Electric Company can be used as model standards.
These standards include:
i. Profitability Standards:
They include how much gross profit, net profit, return on investment, earning per share, percentage of profit to sales, the company should earn in a given time period.
ii. Market Position Standards:
These standards include total sales, sales region-wise and product-wise, market share, marketing costs, customer service, customer satisfaction, price, customer loyalty shifts from or to other organisation’s products etc.
iii. Productivity Standards:
These standards indicate the performance of the organisation in terms of conversion of inputs into output. These standards include capital productivity, labour productivity, material productivity etc.
iv. Product Leadership Standards:
They include the innovations and modifications in products to increase the new uses of the existing product, developing new products with new uses etc.
v. Human Resources Standards:
These standards include providing competitive salaries, benefits and different aspects of quality of work life. They also include human resources performance, productivity, turnover rates, absenteeism rates providing challenging and creative jobs etc.
vi. Employee Attitude Standards:
They include employees’ favourable attitude towards the nature of work, organisation, salaries, benefits, working environment, quality of work life, treatment by superiors etc.
vii. Social Responsibility Standards:
All organisations discharge their responsibilities towards different sections of the society. These standards are related to the services of organisations towards community, government, employees, suppliers, creditors etc.
viii. Standards Reflecting Balance between Short-Range and Long-Range Goals:
Short- range and long-range strategies should be balanced successfully. Standards in these areas should bring balance between these two goals.
Step # 5. Take No Action, if Performance is in Harmony with Standards:
If the performances of various organisational areas match with the standards, the manager need not take any action. He should just allow the process to continue. However, he can try to improve the performance above the standards, if it would be possible, without having any negative impact on the existing process.
Step # 6. Take Corrective Action, if Necessary:
Managers should take necessary corrective action, if performance is not in harmony with standards. If the deviation is positive i.e. performance is above the standards continuously, revises the standards. On the contrary, if performance is below standard, take steps to improve the performance.
The managers compare the performance with standards. If they find any deviation between the standards and performance, they should take corrective action to bridge the gap between the standards and performance.
Causes of Deviations:
It is very easy to conclude that someone made a mistake, when deviations are identified. But the deviations maybe the result of an unexpected move by a competitor, or changes in external environment.
Therefore, the manager should consider the following before making a decision, in this regard:
1. Was the cause of deviation internal or external?
2. Was the cause random, or should it have been anticipated?
3. Is the change temporary or permanent?
4. Are the present plans still appropriate?
5. Does the organisation have the capacity to respond to the change needed?
Corrective Action:
Corrective action may be defined as change in a company’s operations to ensure that it can more effectively and efficiently reach its goals and perform its established standards.
Plans that do not achieve standards produce three possible responses viz.:
(i) To revise plans,
(ii) To change standards and
(iii) To take corrective action in the existing process without changing standards and plans.
Change in plans may require a ‘fine tuning’ of the existing strategy or complete changes in plans. If it is realised that the existing standards are unrealistic under the present conditions, the manager should reset the standards taking the existing conditions into consideration.
Corrective action may be as simple as to increase the price or may be as complex as change the chief executive officer. Deviations require re-examination of the company’s mission, objectives, and relationship to its environment, internal strengths, weaknesses and plans. After having an idea of the process of control, now we shall study the types of control. Now, we shall discuss the control techniques.
Managerial Control – Requirement to Make Control System Effective: Objectives of the System of Control, Control Should be Forward Looking and a Few Others
Managerial control is an essential feature of successful management. In fact, much of the precision of a managerial education is focused on the improvement of control techniques. As we are aware that managerial control is a process that guides activity towards some pre-determined goal.
The essence of the concept of managerial control is in determining whether the activity is achieving the desired results. To achieve the desired results, the system of control must be effective and adequate one.
The under-mentioned are the important requirements for making any control system effective:
(1) The Objectives of the System of Control:
The system of managerial control must be goal oriented and by objectives. As objectives clarify the expected results in meaningful and realistic terms, they provide the control standards with which actual performance can be measured. The system of control should be according to the nature and needs of organisation.
(2) System of Managerial Control Should be Employee-Oriented:
Modern system of managerial control should be employee-oriented rather than work-oriented. Control should be exercised on people who have machine and materials. People generally oppose any control measure. Therefore, their attitude should be made to change by proper education about control and its significance.
(3) Control Should be Forward Looking:
Control should be forward looking in character. It should bring out the deviation, if any in light at an earliest possible. It must focus on strategic points with exceptions.
(4) There Should be Adequate Authority for Exercising Control:
Control is effected through managerial positions in the organisation structure. So each managerial position must be vested with adequate authority for exercising control. Allocation of fixed duties and responsibilities goes a long way towards securing effective control in the organisation.
(5) Control Should be Simple and Balanced:
Control must be simple and balanced in nature. A control device that is not intelligible cannot be practiced by the manager. Therefore, the control tools must be simple and intelligible in both controller and controlled.
(6) Economy Must be Maintained in the Organisation:
Economy is an important requirement of any control system. It is a truism to state that the control must be worth its results. A simple control procedure proves to be economical.
(7) There Must be Flexibility:
Even the best plans and other pre-determined criteria need to be changed from time-to-time. Therefore, the system of control should provide for some change but it must be kept in mind that its basic structure need not be changed.
(8) Other Characteristics:
Managerial control should not be a negative control. It must be positive and constructive. It must be helpful. Control need not be considered as command. It is a guidance. The management should recognise the importance of human beings in control systems.
Ultrich, Learned and Booz has said that “The meaning which people give a control system in terms of their own outlook is as critical as the technical design of the system.”
Managerial Control – Pre – Requisites for an Effective Managerial Control System
Henri Fayol in his book has written that-“From the analysis of the requirements of a good control system, it is quite obvious that planning is the basis of control, action its essence, delegation its key and information its guide. As far as planning is concerned, control has an important relation with planning.”
Following are the important pre-requisites for an effective managerial control system:
(1) Objectives of the Organisation Must be Known:
Before planning a control system, it is essential to know the objectives of the organisation very clearly. The system must be directed towards the potential or actual deviations from plans and objectives early enough to permit effective corrective action.
(2) Efficiency of Control Techniques:
Managerial control techniques are efficient when they detect deviations from standards and make possible corrective action with the minimum of unsought consequences.
(3) Responsibility to Implement the Plans:
The main responsibility for the exercise of control should rest in the manager charged with the implementation of plans.
(4) Direct Contact between the Controller and the Controlled:
Every control system should be designed to maintain a direct contact between the controller and the controlled. Joseph L. Massie has said that “Even when there are a number of control systems provided by staff specialists, the foreman at the first level is still important because he has direct knowledge of performance.”
(5) It Should be Suitable to the Organisation:
Managerial control should be tailored to suit the organisation. “The flow of information concerning current performance should correspond with the organisational structure employed. If a superior is to be able to control overall operations, he must find a pattern that will provide control for individual parts.” Budgets, ratios and other techniques may be used in controlling different departments.
(6) The System Must Have Flexibility:
“A good control system must keep pace with the continuously changing pattern of the dynamic business world.” It must be responsive to changing conditions. It should be adaptable to new developments including the failure of the control system itself. Plans may call for an automatic system to be backed up by a human system that would operate in an emergency; likewise, an automatic system may back up a human system.
(7) The System Must Have Self-Control:
“Units may be planned to control themselves. If a department can have its own goals and control system, much of the detailed controls can be handled within the department. These sub-systems of self-control can then be tied together by the over-all control system.”
(8) Managerial Control may be by Exception:
According to this principle, only significant deviations from standards, whether positive or negative require management’s attention as they constitute exceptions. An attempt to go through all deviations tends to increase unnecessary efforts and to decrease attention on important problems.
(9) Human Factor Must be Given Proper Attention:
A good and efficient control system should be worker centred rather than work centred as control is exercised on the workers who do the work. It must find the persons accountable for results whenever large deviations take place and they must be guided and directed and reprimanded, if necessary. Therefore, the human factor must be given proper attention while controlling. A technically well designed control system may fail because the human beings react unfavourably to the system.
(10) It Must be Economical:
The systems of managerial control must be worth their costs. They must justify the expenses involved. A good control system is justifiable if the savings anticipated from it exceed the expected costs in its working. Small scale production unit cannot afford expensive control system.
Robert Anthony in his book has said that “Management control is a process carried on within the guidelines established by planning. The process is intended to make possible the achievement of planned objectives effectively and efficiently.”
“Planning is looking ahead and managerial control is looking behind”.
Eminent authors of management are of this opinion that planning and control both are two important managerial functions. Generally speaking planning is done in advance. It involves the selection of objectives, policies, procedures and programmes for attaining enterprise goals. Thus, planning is done with the aim of chalking out future course of action. Its main purpose is to provide a guideline for individuals engaged in the enterprise goals. That is why it is generally said that planning is looking ahead.
Control, on the other hand, consists in verifying whether everything occurs in conformity with the plans adopted, the instructions issued and the principles followed. Thus, control is a measuring and corrective device. It measures performance against goals and plans. It is an action necessary to assure that objectives of plans, policies and standards are being attained.
The basic idea of control is comparison of actual performance with the planned performance for managerial action. As actual performance recasts to past, it is generally said that control is looking behind.
Since control amounts to compelling events of conform to plans, it is evident that these both are intimately related. Planning is deciding the course of future action while control is ensuring their realisation. Though control looks behind to measure the performance of past its nature is also forward looking.
It contributes the adoption of new plans, revision of the existing plans and modifying the procedures. Thus, planning is always tempered with control information. On the other hand, planning provides the basis standards, objects and strategies for control. Thus, to conclude it can be said that planning and controlling both are dependent on each other.
Managerial Control – Network Techniques and Analysis of Managerial Control
The network techniques have been defined as an activity or as an operation required to accomplish a particular goal. An activity requires a specific span of time for completion. An event is a point in terms of time when an activity is begun or completed. In a project, some activities are sequential while others are concurrent to each other. The former are those which are to be arranged in a particular order. In other words, they are inter-related.
The network analysis has been widely recognised as a management tool in both commerce and industry. It is a system of planning and controlling the project activities. Under network analysis, a project is broken down to small activities or operations which are arranged in a logical sequence. After this, the order in which various operations should be performed is decided. A network diagram may be drawn to present the relationship between all the operations involved.
The diagram will reveal the gaps in the flow plan. The network thus drawn shows the interdependence of various activities of a project and also points out the activities which have to be completed before the others are initiated.
Following are the important characteristics of a network analysis:
(1) The objective is to be finished within the specified time otherwise there is a penalty.
(2) Various activities are to be completed in an order – however a number of activities are performed simultaneously while there are many other activities which can be started only when some other activities are completed.
(3) The cost of any activity is proportional to its time of completion.
(4) There can be hurdle in the process and the resources to be allocated may be limited.
A network graph consists of a number of points each of which is connected to one or more of the routes or edges. It is a set of operations and activities describing the time- orientation of a composite project.
The object of network analysis is to help in planning, organising and controlling the operations to enable the management in accomplishing the project economically and efficiently. A number of network techniques have been developed by various research scholars. Popular among them are two.
They are:
1. PERT (Programme Evaluation and Review Technique)
2. CPM (Critical Path Method).
Both PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) recognise the inter-related nature of elements within large work projects. Any project whether it is construction of a building or manufacture of a hydrogen bomb, is a complex network of inter-related activities.
1. PERT (Programme Evaluation and Review Technique):
PERT is an important technique in the field of project management. This technique was first used in 1957-1958 in U.S.A. as a tool of planning and controlling the “Polaris Missiles Program” by Booz, Allen and Hamilton in association with the U.S. Naval Department. It involves basic network technique which includes planning, monitoring and controlling of projects.
In addition to its use in schedule planning and control the network concept in PERT provides the framework for treating a wide range of project management problems. Recognising this fact, the Navy Special Project office of U.S.A. extended the PERT to include the elements of cost and technical performance.
PERT is a time event network analysis technique designed to watch how the parts of a programme fit together during the passage of time and events. It involves the application of network theory to scheduling problems.
In PERT we assume that the expected time of any operation can never be determined exactly. This was developed as a research and development planning tool to estimate timings of various activities with enough certainty. It is being used by many big organisations for conducting the initial review of new projects.
It helps in planning the time and resources in case of projects. It can be employed with great advantage in those cases (e.g., non-repetitive project, research and development and defence projects) where a project cannot be easily defined in terms of time and resources required.
It is employed in construction of ships, buildings and highways, in the planning and launching of new products, in the publication of books, in the installation and debugging of computer systems. These systems are used in conjunction with computers. A computer programme is employed that permits calculations to be made without reference to a flow chart or diagram.
In using PERT the basic steps involved are as follows:
(1) Identify the component activities that must be performed.
(2) Show the sequence of the component activities in the network.
(3) Perform an analysis of the time required to complete individual activities and the entire project.
(4) Improve upon the initial plan through modifications.
(5) Control the project.
(6) Re-evaluate and revise as experience dictates.
(7) Time estimates are obtained from either past data or from people experienced in a particular activity optimistic to; pessimistic tp and most likely tm times must be estimated so that the expected (average time) te can be calculated from the following equation –
PERT uses ‘Probability’ and “Linear programming” for planning and controlling the activities. Probability helps in estimating the timings of various activities in the project, and linear programming is used to maximise the achievement of the project objective. With the help of these tools, PERT can foretell the probability of achieving the project targets leading to main objective of the project.
The following are the main features of PERT:
(1) All individual Tasks are shown in a Network- Events are shown by circle. Each circle represents an event – a subsidiary plan whose completion can be measured at a given time.
(2) Each Arrow Represents an Activity- The time consuming elements of a programme, the effort that must be made between events.
(3) Three-time Values are Used in PERT; i.e., – (a) Optimistic time, (b) Most likely time, and (c) Pessimistic time.
Activity Time is the elapsed time required to accomplish an event. In the original PERT, three time values are used as follows:
(x) t1 (Optimistic time) – It is the best estimate of time if everything goes exceptionally well.
(y) t2 (Most likely time) – It is an estimated time which the project engineer believes necessary to do the job or it is the time which most often is required if the activity is repeated a number of times.
(z) t3 (Pessimistic time) – It is also an activity under adverse conditions. It is the longest time and rather is more difficult to ascertain.
The experiences have shown that the best estimator of time out of several estimates made by the project engineer is-
Here, it is assumed that the time estimates follow better distribution.
(4) The Next Step is to compute the Critical Path and the Slack Time- A critical path or critical sequence of activities is one which takes the longest time to accomplish the work and the least slack time.
Slack- Slack signifies the freedom for rescheduling or to start the job. It can be calculated by the difference between EFT (Earliest Finish Time) and LET (Latest Finish Time) for any job.
EFT (Earliest Finish Time) – This is the sum of the earliest start time plus the time duration for any event.
LFT (Latest Finish Time) – It is calculated from the LET of lead event. For its calculation total project time is required. The Total Project Time is the shortest possible time required is completing the project.
A job for which the slack time is zero is known as critical job. The critical path can be located by all these activities or events for which slack time is either zero or float time is the least.
Float Time – Float time is the difference between the maximum time available to finish the activity and the time required to complete it. There are so many activities where the maximum time available to finish the activity is more than the total time, required to complete it. This difference is known as ‘Float’.
PERT is very important managerial planning and control at the top level concerned with the over-all responsibility of a project.
PERT has following advantages or merits:
(1) PERT forces managers and sub-ordinate managers to make a plan for production because time event analysis is quite impossible without planning and seeing how the pieces fit together.
(2) PERT encourages management control by exception – It concentrates attention on critical elements that may need correction.
(3) It enables forward-working control as a delay will affect the succeeding events and possibly the whole project. The production manager can somehow make up the time by shortening that of some other event.
(4) The network, system with its sub-systems creates a pressure for action at the right spot and level and at the right time.
(5) PERT can be effectively used for re-scheduling the activities.
Limitations or Disadvantages in Using PERT:
The uses of PERT techniques are subject to the following limitations:
(1) It is a time consuming and expensive technique.
(2) It is based on Beta distribution and the assumption of the Beta distribution may not always be true.
(3) PERT is not suitable when programme is nebulous and a reasonable estimate of time schedule is not possible.
(4) It is not useful for routine planning of recurring events such as mass production because once a repetitive sequence is clearly worked out; elaborate and continuing control is not required.
(5) The expected time and the corresponding variance are only estimated values.
Conditions under which PERT may be used:
If the situation lacks the following features PERT will be of little benefit:
(1) The project must be one whose activities clearly are distinct and separate.
(2) The project and activities must have all clear starting and ending dates.
(3) The project must not be complicated by too many inter-related tasks.
(4) The project must be one—whose activities afford alternative sequencing and timing.
Can PERT Function under Limited Resources:
PERT assumes that if there are sufficient resources available to complete all activities that are scheduled then less problem or no problem. But if there are conflicts, limited amount of labour, limited resources then –
(1) Schedule the shortest activity first.
(2) Schedule the activity with the lowest variance.
(3) Schedule the jobs for a particular organisation unit i.e., division department etc.
(4) Schedule the activities with the least slack time.
2. CPM (Critical Path Method):
Introduction:
The Critical Path Method or Analysis (CPM) is an important tool in production, planning and scheduling.
Gnatt Charts are Also One of the Tools of Scheduling:
But they have one disadvantage for which they are found to be unsuitable. The problem is that the sequence of operations of a project or the earliest possible date for the completion of the project as a whole cannot be ascertained. This problem is overcome by this method of Critical Path Analysis.
CPM is used for scheduling special projects where the relationship between the different parts of projects is more complicated than that of a simple chain of task to be completed one after the other. The method (CPM) can be used at one extreme for the very simple job and at other extreme for the most complicated tasks.
CPM is the most versatile planning and control technique used in business. It was first employed in U.S.A. in 1958 by the E. I. du Pont de Nemours Company. Unlike PERT, it is applied in those projects where activity timings are relatively well-known. It is used for planning and controlling the most logical sequence of activities for accomplishing a project. Under CPM, the project is analysed into different operations or activities and their relationships are determined and shown on the network diagram.
The network or flow plan is then used for optimizing the use of resources and time. CPM marks critical activities in a project and concentrates on them. It is based on the assumption that the expected time is actually the time taken to complete the project. CPM is suitable for construction projects and plant maintenance.
An eminent management writer has written that “A CPM is a route between two or more operations which minimises or maximises some measures of performance. This is the sequence of activities which will require greatest normal time to accomplish. It means that the sequence of activities which require longest duration are singled out.”
It is called a critical path because any delay in performing the activities on this path may cause delay in the whole project. So, such critical activities should be taken up first.
According to John L. Burbidge – “One of the purpose of critical path analysis is to find out the sequence of activities with the largest sum of duration times and thus find the minimum time necessary to complete the project. This critical series of activities is known as the “Critical Path.”
Under CPM – the project is analysed into different operations or activities and their relationships are determined and shown on the network diagram. So, first of all a network diagram is drawn. After this, the required time or some other measure of performance is posted above to the left of each operation circle.
These times are then combined to develop a schedule which minimises or maximises the measure of performance for each operation. Thus, CPM marks critical activities in a project and concentrates on them. It is based on the assumption that the expected time is actually the time taken to complete the object.
The main Objects of CPM are:
(1) To find the difficulties and obstacles in the course of production process.
(2) To assign time for each process.
(3) To ascertain the starting and finishing times of the work.
(4) To find the critical path and the minimum duration time for the project as a whole.
Situation where CPM be Effectively Used:
CPM techniques can be used effectively in the following situations:
(1) In production planning
(2) Location of and deliveries from a warehouse
(3) Road systems and traffic schedules.
(4) Communication network.
The application of CPM leads to the following advantages:
(1) It provides an analytical approach to the achievement of project objectives which are defined clearly.
(2) It identifies most critical elements and pays more attention to these activities.
(3) It assists avoiding waste of time, energy and money on unimportant activities.
(4) It provides a standard method for communicating project plants, schedules and cost.
Thus, CPM technique is a very useful analysis in production planning of a very large project.
Managerial Control – 6 Important Advantages of Managerial Control
Following are the important advantages of an effective system of managerial control:
(1) Managerial Control Reduces the Chances of Mistakes:
Managerial control provides the basis for future action. It will reduce the chances of mistakes being repeated in future by suggesting preventive steps.
(2) It Helps a Lot in Decision-Making:
Managerial control facilitates decision making. The process of control is complete only when corrective measures are taken. This requires taking a right decision as to what type of follow-up action is to be taken.
(3) It Facilitates Decentralisation of Authority:
An effective and proper system of managerial control facilitates decentralisation of authority because the top executives get the feedback information constantly which helps them to ensure that the decisions taken at the lower levels are consistent with the policies of the enterprise and are in the interest of the enterprise.
(4) It Points Out the Shortcomings of the Organisation:
Managerial control and planning go hand in hand. It is the only means to ensure that the plans are being implemented in the real sense. Control points out the shortcomings of not only planning but also other functions of management such as organising, staffing and directing.
(5) It Helps in the Co-Ordination of the Activities of Various Departments:
Managerial control helps in co-ordination of the activities of the various departments of the enterprise by providing them unity of direction.
(6) It Has Positive Impact on the Behaviour of the Employees:
The existence of the managerial control system has a positive impact on the behaviour of the employees. They are cautious while performing their duties as they know that they are being observed by their superiors.
Managerial Control – 4 Major Disadvantages of Managerial Control
It has been observed that the managerial control system may have to face the following limitations:
(1) This System Cannot Control the External Factors:
Under this system an enterprise cannot control the external factors such as government policy, technological changes, fashion changes and so on.
(2) It is an Expensive Process:
Managerial control is an expensive process because sufficient attention has to be paid to observe the performance of the subordinates. This requires an expenditure of a lot of time and effort.
(3) It Reduces or Curtails the Freedom:
The effectiveness of managerial control mainly depends on their acceptance by the sub-ordinates. They may resist controls if they feel that these will reduce or curtail their freedom. It also loses its significance when it is not possible to fix the accountability of the subordinates.
(4) Very Often is Loses Its Effectiveness:
This system loses its effectiveness when standards of performance cannot be defined in quantitative terms.
For Example – It is a very difficult task to measure the human behaviour and employees’ morale.