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Modern Techniques of Controlling


Some popular modem techniques of controlling are described below:-

(i) Management audit

Management audit is a modem technique of controlling; in which the aim is to examine the efficiency of the management’s philosophies, policies, techniques etc. in successfully running an enterprise.

It may be defined as follows:

Management audit is an independent, overall and scientifically critical examination of the entire management process – with a view to discovering quality of management; and judging its success and failures in running and managing an enterprise. 

Conducting Management Audit

Management audit may be conducted either by an internal agency in the form of Management Audit Cell (MAC); or by an external agency such as management consultants. A growing tendency in the U.S.A. in regard to conducting management audit is to have certified management auditors for this purpose; so that a more objective view of management’s efficiency could be presented. 

Point of Comment

The scope of management audit is very wide. Management audit may cover areas like the following:

  • an appraisal of managers
  • economic functioning of the enterprise
  • fulfillment of major social responsibilities
  • functioning of the Board of Director
  • Soundness of organizational structure
  • intensity of sales promotion efforts
  • emphasis on research and development etc. 

Evaluation of Management Audit

Management audit, by identifying, deficiencies in management’s principles and practices helps in effecting structural improvements in the entire managerial system. Moreover, the fact of conducting management audit makes management more alert and progressive in its approach.

However, the scope of management audit is ill-defined. There is a lack of well defined principles and procedures for conducting management audit.

(ii) Internal Audit (or Operational audit)

An effective modem technique of controlling is the internal audit, now coming to be called operational audit.

The scope of internal audit is wider that external audit. It not only concerns with ensuring a true and fair recording of the accounting information; but also offers comments on various operational aspects of enterprise-life. Hence called operational audit.

Internal audit (or operational audit) may be defined as follows:

Internal audit is vouching and verification of accounting information by a staff of internal auditors; and is also concerned with examining the overall operational efficiency of the enterprise. 

Point of comment

In a way, internal audit also encompasses elements of management audit. 

Scope of internal audit

Internal audit, besides, including financial audit as the core aspect of it; includes consideration of the following:

  • appraisal of financial controls
  • compliance with policies and procedures
  • efficiency in utilizing resources
  • appraising quality of management performance etc. 

Evaluation of internal audit

Internal audit recommends improvements in the operational life of the enterprise, and provides managerial with a perennial supply of control information. It keep a moral check on all the members of the organization. However, installation and operation of internal audit system is much costly and time-consuming. Moreover, internal audit people have a lop-sided approach to their work: in that they have a tendency to look at every aspect of business operations form the accounting point of view.

(iii) Social audit

Social audit may be defined as follows:

Social audit is concerned with the measurement of social performance of an organization in contrast to it economic performance.

The concept of social audit was first developed by Howard R. Bowen in the U.S.A. in the fifties. The application of the concept of social audit may be attributed to an increasing awareness of social responsibilities by business enterprises .

Some time back, the Tata Iron and Steel Company Limited conducted a social audit in its organization; though the audit report was not made available to the general public.

(iv) Responsibility Accounting

Responsibility accounting is a technique of controlling borrowed from Management Accounting.

It is a system of controlling, whereby, the performance of managers is judged by assessing how far they have achieved the targets set for their departments or sections; or whose performance they are responsible.

Responsibility accounting may be defined as follows:

Responsibility accounting consists in dividing a business organization into responsibility centres, whereby, a distinct manager is assigned responsibility for achieving the predetermined target for his centre; and his success is judged by his ability in controlling the ‘controllable costs’ of his centre.

Points of comment 

(i)                 Under responsibility accounting system, costs are assigned to responsibility centres; rather than to products.
(ii)                Costs incurred by a responsibility centre are divided into two categories controllable and uncontrollable. The head of the centre is directly responsible for the control label costs of his centre.

(v) Human Resource Accounting (HRA)

Rensis Likert and D.E. Bowers have undertaken experiments in human resource accounting.

HRA might be defined as follows:

HRA is accounting for people in an organization; which involves a measurement of costs incurred by an enterprise to recruit, select, hire and train human assets and a measurement of the economic value of people to the enterprise.

Point of comment

Other techniques of controlling emphasize on profits, costs, performance etc; but ignore the value of the human asset which makes for all the difference in organizational performance.

Approach to measuring the value of human assets

There are two approaches to measuring the value of human assets:

-Original costs of human assets i.e. costs incurred in acquiring, compensating and training people.

-Replacement costs i.e. the costs required to replace a specific person.

An individual’s value to an organization is the present worth of the set of future services that he/she is expected to provide during the period of his/her stay in the organization. 

Evaluation of HRA

HRA helps management by providing valuable information for effective planning and managing human resources. With the help of measurement of costs of human assets, management can select persons with highest expected realizable value.

However, the biggest limitation of HRA is the basic problem involved in measuring the value of human assets – whether it should be based on original costs or replacement costs.

Many organizations, particularly, in the U.S.A. are following HRA.

(v) Management Information System (MIS)

Management Information system (also known as MIS) is an integrated technique for gathering relevant information from whatever source it originates and transferring it into unusable form for the decision-makers in management. It is a system of communication primarily designed to keep all levels of organizational personnel abreast of the developments in the enterprise that affect them. MIS provides working tools for all the management personnel in order to take the best possible action at the right time with respect to the operations and functions of the enterprise for which they are largely responsible. The emphasis of MIS is on information for decision-making. MIS facilitates control from several angles:

  1. MIS performs a useful triple service function to management. Actually MIS itself is a three stage process – data generation, data processing and information transmission. MIS enhances the management’s ability to plan, measure and control performance, and taking necessary and corrective action.
  2. Facilitates total performance. MIS provides more specialized and technical kind of information for the concerned managers. MIS provides multiple types of information for all management levels on a baffling variety of organizational matters.
  3. Takes into account several critical dimensions. MIS takes into account – the real time requirements, frequency of requirement, accuracy requirement, data reduction requirement, storage requirement etc. MIS objectively determines what information is needed by whom, and with what frequency.
  4. MIS reduces overload of information. MIS stresses the information that is most useful to the decision-maker. Any firm, large or small, that uses a formalized approach or electronic data processing system for its daily business has foundation of MIS. But normally, the larger the organization the more likely that MIS can be used by top management in establishing company policies and plans, monitoring the company performance and adapting the company strategies in response to changing circumstances.

(vi) Network analysis techniques- PERT/CPM 

(a) Introduction:

PERT (Programme Evaluation and Review Technique) was developed by the special project office of the U.S. Navy in 1958. Almost at the same time, engineers at the DuPont Company U.S.A. developed CPM (Critical Path Method). Though there are some differences between PERT and CPM; yet both these techniques utilize the same principles.

(b) Application in PERT/CPM

Some of special areas for the application of PERT/CPM are given below:

(i)                 Building/construction projects

(ii)               Ship building

(iii)             Airport facilities building

(iv)             Installation of computer systems

(v)               Publication of books

(c) Steps in PERT/CPM

The application of PERT/CPM involves the following steps :

(i) Identification of components

The first step towards the application of PERT/CPM is an identification of all key activities or events necessary for the completion of the project.

The term activity may be defined as an operation or a job to be carried out; which consumes time and resources. It is denoted by an arrow, in the network diagram.

The term event may be defined as the beginning or completion of an activity. It is denoted by a circle in the network diagram.

(ii) Sequencing of activities and events

A network diagram is prepared to show the sequence of activities and events. It has a beginning and a terminal point for the project. It also depicts a number of paths of activities from the beginning to the completion of the project. For sake of convenience, each event is given a serial number.

(iii) Determination of estimated time

For completion of the project during the contract period; it is -essential to determine the expected time required to complete each activity.

Under PERT, three time estimates for the completion of each activity are made –

  • Optimistic or the shortest time
  • Pessimistic or the longest time
  • Normal or most likely time

(iv) Determination of the critical path

At this stage, it is required to identify the sequence of those activities whose completion is critical for the timely completion of the project. Once the critical path is known; the management will be in a position to deploy resources more fruitfully; to spot troubles early and apply controls where these are most essential.

Point of comment

There must be no delay in the completion of activities which lie on the critical path; otherwise the entire project will be delayed.

(v) Modification in the initial plan

The initial plan may be modified by resequencing some activities that lie along the critical path. When this is possible, it will result in a shorter time for the completion of the project.

(d) Distinction between PERT and CPM

Though basic principles involved in PERT and CPM are the same; yet some differences between the two may be expressed as follows:

(i)                 PERT is event oriented; whereas CPM is activity oriented.

(ii)               In CPM it is assumed that the duration of every activity is constant; and hence only one time estimate is given for each set of activities. On the other hand, PERT allows for uncertainty in the duration of activities; and hence three time estimates optimistic (or the shortest time), pessimistic (or the longest time) and normal (or the most likely time) are given.

(iii)             CPM requires some previous work experience for the completion of each activity; which is not necessary in PERT.

(iv)             CPM is used where cost is the main consideration; while PERT is used where time is the main consideration.

(e) Evaluation of PERT/CPM 


Following are the main advantages of PERT/CPM

(i)                           PERT/CPM provides an analytical approach to the achievement of project objectives which are defined clearly. It thus facilities better utilization of time, efforts and capital.

(ii)                         It identifies most critical elements and pays more attention on these. It, thus, facilitates ‘ control by exception’ and increases effectiveness in handling projects.

(iii)                       PERT/CPM brings all the components of a project together in the flow chart and permits simultaneous performance of different parts of the project.

(iv)                       PERT/CPM forces managers to analyze all possibilities and uncertainties. It, thus, helps to minimize time and cost overruns.

(v)                         It provides a kind of feed forward control; because delay in one activity affects all succeeding activities. Management can take action in advance, by effecting modifications of future activities.


Major limitations of PERT/CPM are as follows:

(i)                 It is not possible to accurately estimate time and cost involved in various activities of a project. Errors in estimation can make PERT/CPM erratic and unreliable.

(ii)               PERT/CPM is time-consuming and expensive. As such, small firms cannot afford to take advantage of these techniques.

(iii)             PERT/CPM cannot be applied with regard to assembly line operations, in which scheduling of operations is more guided by the speed of machines.

(iv)             PERT/CPM lays stress on time and cost control; overlooking other aspects of the project like quality and design of the project. 

(vii) Self-control

People often resist to externally imposed control. The best controlling system is that in which people opportunity for exercising self-control has.

Situation creating conditions for exercising self-control.

Some of the situations providing opportunities for self-control may be: 

(1) Management By Objectives (MBO)           

Under MBO, there is a great possibility that people will exercise self-control; because they have their own hand in setting objectives for themselves; and are more likely to be committed to those objectives.

(2) Delegation of Authority

Successful delegation of authority requires attitudes of mutual trust and confidence between the superior and the subordinates. A superior may not like to impose controls on a responsible and competent subordinate; and may allow him to exercise self-control – as a measure to motivate him.

(3) Assignment of Challenging Work

When some challenging nature of work is assigned to an individual; the job itself creates situations in which only self-control could be exercised by the individual on himself.

(4) Highly Dedicated Employees

In case of highly dedicated employees, there is not much need to impose controls over them; as they could be assumed to be self-starters. They may be left to exercising self-control. 

Points of Comment 

  1. Even in situations of externally imposed controls; there is provision for exercising self control. In fact, minute-to-minute control by a manager over subordinates’ performance is never possible.
  2. People must not be left entirely to exercising self-control. There must be an ideal mix of externally imposed controls and self-controlling philosophy.