Friday, May 30, 2014

Essentials of an Effective control system


The following are the essentials or basic requirements of an effectively control system:
1)      Suitable: The control system must be suitable for the kind of activity intended to serve. Apart from differences in the systems of control in different business, they also vary from department to department and from one level in the organization to the other. A system of control useful at a higher level of management will be different in scope and nature from that in use at the operative level. Several techniques are available for control purposes such as budgets, break-even points, financial ratios and so on. The manager must be sure that he is using the technique appropriate for control of the specific activity involved.
2)      Understandable: The system must be understandable, i.e., the control information supplied should be capable of being understood by those who use it. A control system that a manager cannot understand is bound to remain ineffective. The control information supplied should be such as will be used by the managers concerned. It is, therefore, the duty of the manager concerned to make sure that the control information supplied to him is of a nature that will serve his purpose.
3)      Economical: The system must be economical in operation, i.e., the cost of a control system should not exceed the possible savings from its use. The extent of control necessary should be decided by the standard of accuracy or quality required. A very high degree or standard of accuracy or quality may not really be-necessary. Undue complexity of the control system should be avoided to keep a check on the costs of control. It, therefore, becomes necessary to concentrate the control system on factors, which are strategic to keep the costs down and the system economical.

4)      Flexible: The system of control must be flexible, i.e. workable even if the plans have to be changed. In case the control systems can work only on the basis of one specific plan, it becomes useless if the plan breaks down and another has to be substituted. A good control system would be sufficiently flexible to permit the changes so necessitated.
5)      Expeditious: Nothing can be done to correct deviations, which have already occurred. It is, therefore, important that the control system should report deviations from plans expeditious. No useful purpose can be served by a deviation detected months after its occurrence. The objective of the control system should be to correct deviations in the immediate future.
6)      Forward Looking: The control system must be forward looking, as the manager cannot control the past. In fact, the control system should be so designed so as to anticipate possible deviations, or problems. Thus deviations can be forecast so that corrections can be incorporated even before the problem occurs.
7)      Organizational Conformity: Since people carry on activities, and events must be controlled through people, it is necessary that the control data and system must conform to the organizational pattern. The control data must be so prepared that it is possible to fix responsibility for the deviations within the areas of accountability.
8)      Indicative of Exceptions at Critical Points: The management principle of exception should be used to show up not only deviations but the critical areas must also be fixed for most effective control.
9)      Objectivity: As far as possible the measurements used must have objectivity, particularly while appraising a subordinate's performance, the subjective element cannot be entirely removed. Here die personality of both the manager as well as his subordinately would be reflected in the final judgment and ca/j bias the appraisal. These of indefinite terms can frustrate the subordinate like being told that he is not doing a good job. He is likely to react more favourably to objective standard.

10)   Suggestive Of Corrective Action: Finally, an adequate control system should not only detect failures must also disclose where they are occurring, who is responsible for them and what should be done to correct them. Overall summary information can cover up certain fault areas. For instance, it is insufficient to show merely a decline in the profits. The reason for such declined or which also is indicated, such drop in the sales volume or an increase in the costs. Even this is insufficient. The information should also disclose in which market areas the sales decline which specific costs had increased. Where a system merely detects deviations but does not indicate corrective action, the control system becomes an exercise in futility.