Traditional Control Techniques

The control function of management is a systematic effort to set performance standards with planned objectives, to compare actual performance with the predetermined standards, to determine whether there are any deviations and to adopt suitable measures to ensure that performance is in conformity with the plans.

A variety of tools and techniques have been developed and used over the years for purposes of managerial control. Some of these techniques are termed as traditional and others as modem. The traditional techniques of control have been found useful for a long period of time in the past and some of these are still used by organisations. Two such techniques commonly used are: Budgetary Control and Standard Costing. Let us discuss about them in detail.


Budgetary Control

Simply stated, a budget refers to the plan of an enterprise expressed in financial or physical terms. It lays down financial estimates relating to various programmes or activities for a defined period on the basis of given objectives. These estimates are intended to serve as targets or standards for the purpose of controlling actual performance. For a business firm, budgets generally include plans to produce and sell goods at costs and prices which will bring the desired profit. Thus, budgeting consists of formulation of plans for future activity. It lays down objectives and programmes of action. It also provides yardsticks by which deviations from planned achievements can be measured.

Budgetary Control, as a technique of managerial control, refers to the principles, procedures and practices of achieving given objectives through budgets. Thus, budgetary control involves preparation of budgets, relating the responsibilities of managers to budgeted activities, and the continuous comparison of actual with budgeted results. It aims at securing the objectives as per the budget and providing a basis for its revision, if necessary.

The commonly used budgets are: Expense budget, Revenue budget, Cash budget, Capital budget, Sales budget, Production budget, Purchase budget, Labour budget, Master budget, etc.


Standard Costing

Standard costing as a technique of control may be defined as a system which involves the use of predetermined ‘standard costs’ relating to each item of cost and for each line of product, manufactured or service rendered.

Standard cost refers to a predetermined estimate of cost which can be used as a standard or yardstick. It suggests what the cost should be under given conditions. Standard costs form the basis of control under standard costing. Actual costs are compared with the standards, variations, if any, are analysed, and suitable action is taken to correct adverse tendencies. Thus, standard costing may be regarded essentially as a tool of cost control.

Standard costing is an essential part of budgeting and budgetary control. It may be noted that budgetary control is a broader function. It consists of setting objective and planning business activities for all departments; it lays down standards of cost and expenses as well as targets of sales income. Standard costing provides the basis of framing the expense budgets particularly in respect of direct material and labour costs.

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