B3/MPA/SKS

UNIT-V
CONTROL
1. What is Control? State its features.

Ans. Control is the last function of management. Control is the regulation of work activity in
accordance with predetermined plans to ensure the attainment of organizational objectives.
Planning identifies the activities to be performed and controlling regulates these activities. Control
ensures work accomplishment according to plans. Control guides the activities in the desired
direction. Success of planning depends on the success of controlling. Therefore, planning and
controlling go side by side.

FEATURES (OR CHARACTERISTICS) OF CONTROL

The features of controlling may be understood on the basis of the following points:
(i)Basic function of management: Control is the concluding managerial function, and it involves
checking and correcting other functions. Effective control is required to get better results and to
achieve organizational objectives. There is no scope for controlling if everything goes well and
according to plan. Therefore, all other functions of management are linked to controlling functions.
(ii) Continuous process: Controlling is a continuous process, having no definable ends. It involves
review of performance and revision of standard operations on a continuous basis. Control continues
to exist as long as an organization exists.
(iii)Dynamic activity: Control involves continuous review of standards of performance. Control
results in corrective action that leads to change in other functions of management. The process of
control should be modern and dynamic so as to cope with new business environments.
(iv)Pervasive function: Control is a pervasive function as it is required at all levels of management
and in all types of organization. Controlling is done throughout the length and breadth of the
organization to secure optimum utilization of resources.
(v)Forward-looking approach: The process of controlling starts immediately after the actual
performance. It compares actual results with the planned (or expected) results and determines the
deviations between the two. Control is exercised to make the future bright. Control is futuristic as it
is to conform to plans.
(vi)Action-oriented process: Control is an action-oriented process in the sense that it starts after the
actual performance of activities. Control has no meaning if corrective action is not taken on the basis
of adverse deviation. Control ensures that each action on the part of the employees is checked in
conformity with predetermined standards.
(vii)Corrective measures: The essence of control is corrective action on the basis of feedback
information. Once deviations are brought on the surface, suitable corrective actions are necessary to
check the re-occurrence of such deviations in future. A good system of control facilitates timely
action so that there is minimum waste of time and energy.
(viii) Highly correlated with planning functions: Controlling is based on planning. Planning and
controlling go side by side. Planning lays down the attainable standards against which the actual
performance is compared for controlling functions. Controlling presupposes the existence of
planning. No control is possible without planning. Controlling functions aim at achieving the planned
target.
(ix)Normative force: Control sets the norms (or standards) for performance. The result of an
operation cannot be positive in the absence of proper control. Control sets the standard and makes
the employees reach (or cross) the standard for their personal distinction and prosperity of the

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organization. Control channelizes the efforts and energies of human factors towards expected
standards.
(x)Line function: It is the duty of every manager working in a line of authority to control the activities
of his subordinates. The process of controlling helps the line manager in discharging his
responsibility.

2. Briefly explain the steps in controlling process.

Ans. Managerial control is a systematic process involving the following steps:
(i)Establishment of standard of performance: Standard represents the planned performance to be
achieved during a specified period. Standard of performance are generally determined keeping in
view the capability and competence of the employee concerned. Standard is the yardstick with
which actual performance is to be compared. The control process starts with the establishment of
standards and methods for measuring the performance. Standards should be fixed in the light of
objectives set by the top management. Standards must be neither too high nor too low for any
performance achievement. Normally, standards are set in quantitative terms (such as time, cost,
money, output, man-hours, etc.).
(ii)Measurement of actual performance: The second step in the control process is to measure the
actual performance. The actual performance should be measured and expressed in the same unit as
the planned performance. There are several techniques for the measurement of performance (such
as personal observation, sample checking, management by exception, etc.). A sound management
information system should be developed for timely and accurate measurement of performance. The
measurement and reporting of actual performance may be done at periodical intervals (weekly,
monthly, quarterly, yearly, etc.). The performance should preferably be measured in quantitative
terms as far as possible.
(iii)Comparison of actual performance with the standards: The third step in the controlling process
is to compare the actual performance with the predetermined standards. The purpose of
comparison is to find out the extent of deviation and to identify the causes of deviation. If actual
performance matches with the standard, the manager feels that everything is within his control.
When actual performance exceeds the standard performance, the manager should appreciate the
employees for their achievement. If actual performance falls below the standard performance, the
manager should take immediate remedial action so that such a situation does not recur. Comparison
of performances helps in quick location of defects and results in rectification with minimum losses.
All deviations need not be reported to the management. Only deviations beyond the reasonable
limit should be brought to the notice of the top management.
(iv) Analysing the causes of deviation: The manager identifies and investigates various deviations so
as to get into the possible causes responsible for such a situation. There may be various reasons for
adverse deviations (such as defective processes, inadequacy of resources, structural drawbacks, lack
of proper monitoring, organizational constraints, external constraints, etc.). Therefore, it is
necessary to identify and isolate the appropriate causes of adverse deviations.
(v)Taking corrective action: Any corrective action is initiated on the basis of careful analysis of
possible causes of deviation. All controlling activities terminate at this point. Corrective actions are
employed taking note of the nature and type of deficiencies occurred. A corrective action may
involve a change in production method, modifying the existing process, change in the method of
selection of workers, change in the nature of supervision, use of quality materials, improving the
physical conditions of work, etc. Therefore, the essence of controlling lies in taking suitable
corrective action so as to improve performance.
8.8 LIMITATIONS OF CONTROL Controlling suffers from the following limitations:

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(i)Absence of perfect standards: There are some areas where standards cannot be fixed. In the
absence of quantitative standards, the performance cannot be measured accurately. Establishment
of a standard is prerequisite to make the control system effective. Quantitative standards cannot be
fixed for public relations, research, morale of employees, etc. This indicates the ineffectiveness of
the control process.
(ii)Uncontrollable factors: There are some external factors that cannot be controlled by the
management such as government policies, technological changes, social changes, strategy of
competitors, change in consumer preferences, etc.
(iii)Difficulty in fixing responsibility: Control loses its significance when it is not possible for the
management to fix the responsibility of the superiors and accountability of the subordinates. Control
loses its effectiveness when employees resist the exercise of control by the superiors.
(iv)Expensive process: Control is an expensive process because sufficient attention has to be paid to
observe the performance of the subordinates. It costs both money and time to fix and measure
standard performance and actual performance.
(v)Non-acceptance by subordinates: The success of control mainly depends on its acceptance by the
subordinates. Sometimes, subordinates resist control if they feel that it will reduce their freedom of
operation.
(vi)Difficulty of measurement: Sometimes, the task performed by employees cannot be accurately
measured. Loyalty of workers, morale of employees, etc., are not measurable in quantitative terms.
Moreover, corrective action cannot be adopted due to non-availability of information regarding
progress of work, actual performance, etc.
(vii)Lack of flexibility in standards: The standards should be altered from time to time to conform to
the present requirements. However, in reality, it is seen that once a standard is fixed, it cannot be
changed easily.

4. Briefly explain principles/requirements of effective control system.

Ans. The following are the essential requisites of an effective control system:
(i)Flexibility: A control system must keep pace with the continuously changing pattern of the
dynamic business world. As a result, the standards (i.e., criteria) should be altered from time to time
to conform to the present requirements. Adaptability to new conditions is the essence of a good
system of control.
(ii)Economical: The cost of setting up and implementing a control system should not exceed the
benefits derived from it. A good system of control must be economical and effective, both in terms
of money and time saved. The system of control must justify the expenses involved. For making a
control system economical, a principle of Management by Exception (MBE) and strategic point
control should be followed strictly.
(iii)Clarity: A system of control must be well-understood by both superior and subordinates.
Presentation of feedback information must be simple. The superior exercising control must
determine what is to be controlled, who is to be controlled, and what is sought through the control
system. Similarly, the subordinate must De certain as to what he is expected to contribute in this
regard.
(iv)Objectivity: The control system should aim at accomplishing the organizational goals. It is
essential to know clearly the objectives of the organization before planning a control system. The
impartial appraisal of performance is necessary for certainty of control. A control system is
acceptable and workable when standards are based on facts and objectives of the organization.

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(v)Suitability: A control system should be tailored to fit into the needs of the organization. The
control system must conform to the nature of the job and the area to be controlled. It must follow
the pattern of the organization. Different types of control are needed in marketing, finance,
production, and other departments.
(vi)Quick action: Effective control implies quick action, as delay makes control ineffective. The
essence of a control system is taking corrective action quickly. It is not enough for a control system
to discover deviations only. Devising appropriate remedial measures is essential for making a control
system effective. Speed is required both in reporting defects as well as in their corrective action.
(vii)Concentration on exception: The control system points out the deviations. In reality, all
deviations do not have an equal impact. Therefore, the control system should concentrate on more
serious and major deviations so as to save time and resources. Effective control can be achieved if
critical points can be identified and close attention is given for adjusting these points.
(ix)Forward looking: The control system should be directed towards the future. The task of control is
to detect potential (or actual) deviations from the plans so as to permit prompt corrective action.
Control focuses attention on providing early information regarding the changes in the environment.
It reports the deviations from the plans quickly in order to safeguard the future.
(x)Constant feedback: Feedback is the process of adjusting future actions based on the information
regarding past performance. No control can succeed unless it is planned on the basis of information
collected through investigation. It is difficult to suggest corrective action unless the defect is brought
to notice on the basis of feedback.

5. Name and explain the various techniques of Controlling

Ans. Control is a fundamental managerial function. Managerial control regulates the organizational
activities. There are various techniques of managerial control which can be classified into two broad
categories namely- (1)Traditional techniques and (2)Modern techniques

(1)Traditional Techniques of Managerial Control: Traditional techniques are those which have been
used by the companies for a long time now. These include:

(i)Personal Observation: This is the most traditional method of control. Personal observation is one of
those techniques which enables the manager to collect the information as first-hand information.
It also creates a phenomenon of psychological pressure on the employees to perform in such a manner
so as to achieve well their objectives as they are aware that they are being observed personally on their
job. However, it is a very time-consuming exercise & cannot effectively be used for all kinds of jobs.

(ii)Statistical Reports: Statistical reports can be defined as an overall analysis of reports and data which
is used in the form of averages, percentage, ratios, correlation, etc., present useful information to the
managers regarding the performance of the organization in various areas.
This type of useful information when presented in the various forms like charts, graphs, tables, etc.,
enables the managers to read them more easily & allow a comparison to be made with performance in
previous periods & also with the benchmarks.

(iii)Break-even Analysis: Breakeven analysis is a technique used by managers to study the relationship
between costs, volume & profits. It determines the overall picture of probable profit & losses at
different levels of activity while analyzing the overall position.
The sales volume at which there is no profit, no loss is known as the breakeven point. There is no profit
or no loss. Breakeven point can be calculated with the help of the following formula:
Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit

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(iv)Budgetary Control: Budgetary control can be defined as such technique of managerial control in
which all operations which are necessary to be performed are executed in such a manner so as to
perform and plan in advance in the form of budgets & actual results are compared with budgetary
standards.
Therefore, the budget can be defined as a quantitative statement prepared for a definite future period
of time for the purpose of obtaining a given objective. It is also a statement which reflects the policy of
that particular period.

(2)Modern Techniques of Managerial Control: Modern techniques of controlling are those which are of
recent origin & are comparatively new in management literature. These techniques provide a
refreshingly new thinking on the ways in which various aspects of an organization can be controlled.
These include:

(i)Return on Investment: Return on investment (ROI) can be defined as one of the important and
useful techniques. It provides the basics and guides for measuring whether or not invested capital has
been used effectively for generating a reasonable amount of return. ROI can be used to measure the
overall performance of an organization or of its individual departments or divisions. It can be calculated
as under:
Net income before or after tax may be used for making comparisons. Total investment includes both
working as well as fixed capital invested in the business.

(ii)Ratio Analysis: Ratio analysis can be used to find out and analyse the financial statements. Ratio
analysis helps to understand the profitability, liquidity and solvency position of the business.

(iii)Responsibility Accounting: Responsibility accounting can be defined as a system of accounting in

which overall involvement of different sections, divisions & departments of an organization are set up as
‘Responsibility centres’. The head of the centre is responsible for achieving the target set for his centre.

(iv)Management Audit: Management audit refers to a systematic appraisal of the overall performance
of the management of an organization. The purpose is to review the efficiency &n effectiveness of
management & to improve its performance in future periods.

(v)PERT & CPM: PERT (programmed evaluation & review technique) & CPM (critical path method) are
important network techniques useful in planning & controlling. These techniques, therefore, help in
performing various functions of management like planning; scheduling & implementing time-bound
projects involving the performance of a variety of complex, diverse & interrelated activities.

(vi)EVA: Economic Value Added (EVA) is an important tool to measure financial performance. It
indicates net wealth or value created by the company. Its major goal is to maximise shareholders’
wealth. According to EVA, managers earn return on assets (or capital) above the cost of capital. It
compares actual rate of return against the target rate of return and measures its true economic
profit.
Economic value added indicates how much economic value is added by the company to its assets. It
measures economic value created by a company over and above its profits less any capital
investments made to earn profits. EVA may be positive or negative.

6. Explain the new challenges emerging in front of management. (Emerging issues in

management).

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Ans. Managerial functions are keys to organizational success. Therefore several challenges confront
today and these challenges mainly arise from the significant change in the outside world. Some of
the major emerging issues and challenges that all management faces are listed below:

(i) Globalization: The globalization of business is the major emerging challenges for management. It
occurs when an organization extends its activities to other parts of the world, actively participates in
other markets, and competes against organizations located in other countries. Transactions of
business organizations take place across national boundaries. Globalization made the world a global
village. In this process, a manager’s job is changing with the following Emerging Issues and
Challenges for Management:

(a)Increased foreign assignments

(b)Working with people from different cultures
(c)Coping with anti-capitalism backlash
(d)Overseeing movement of jobs to countries with low-cost labour
(e)There is external competition for markets, and also for resources.

(ii)Ethics and Social responsibility: The increasing concern of roles and state of ethics in business.
Managers are concerned because of the complexity of ethics in decision making. Society is generally
expecting more from business organizations. These organizations expect to contribute to the quality
of life and society. Environmental issues have become matters of widespread concern. The manager
will determine the extent to which these social responsibilities and ethical issues are handled and
managed.

(iii)Workforce diversity: The people in organizations are becoming more heterogeneous

demographically (disability, gender, age, national origin, non-Christian, race, and domestic partners).
A diverse workforce includes women, physically disabled, senior citizens, etc. Managing this diversity
has become a global concern.
Diversity is not managed properly. There is a potential for higher turnover, more difficult
communication, more interpersonal conflicts. Managers should recognize the differences among
employees and respond to them in ways that will ensure employee commitment.

(iv) Empowerment: Decision making is pushed down to the operating level. Workers are now being
given the freedom to make choice about the schedule, procedures, and solving work-related
problems. Earlier managers were encouraged to get their employees to participate in the work-
related decision. Now managers allow employees full control of their work. Thus managers engaged
in empowering employees. Similarly, the manager provides more information to employees to make
them aware of the problem and the prospects of their organization.

(v)Technology: The technological environment consists of innovations, techniques, and the

organized knowledge of the way of doing things. The modern business is characterized by newer and
ever-changing technological developments. This calls for the technological perspective in
management. They need to recognize and anticipate technological changes. Technological changes
result in a modification in products and services; in the way, they are produced and marketed. The
managers must, therefore grasp a proper understanding of these aspects of technological context.

(vi)Building a Competitive Advantage: Increasing efficiency in reducing the number of resources

used to produce goods and services. Also increasing quality introducing Total Quality Management
(TQM) to improve quality. Similarly to increasing Speed, Flexibility, and Innovation Adapting to bring

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new products to market faster. Increasing Responsiveness to Customers Empowering employees to

deal with customers.

(vii) Development of the environment: Environmental issues are major issues in management these
days. These issues like deforestation, global warming, depletion of the ozone layer, toxic wastage,
and pollution of land, air, and water. May not be these issues are a matter of to an enterprise. But,
these matters draw the attention of different social, business and political institutions.

(viii) Quality and productivity: It is practically the quality and productivity that are supplementary or
auxiliary to each other. Quality supports to maximize productivity and which ultimately minimizes
per unit cost of output. And, minimizing cost depends on the skills of the manager.

(ix) Innovation and change: The innovation of new knowledge and change of expectation of
stakeholders are emerging challenges to the present manager or management. Where facing the
change is a critical challenge to the manager. It or change may occur in the attitude and behaviour of
stakeholders like competitors, customers, employees, suppliers, and lenders. Thus, it is an important
responsibility of managers to handle such a change in a scientific and practical way.

(x)Knowledge management: Employees are the primary source of knowledge. And as far as possible
their ideas should be accumulated to prepare plans and policies. It is due to the expectation of
society such as new ideas, new things and creativity in the product or service from any organization.
And, on the basis of requirement, it is essential to hire new knowledge from outside.

Hence, these are the following Emerging Issues and Challenges in Management.

7. What is network analysis? Explain the techniques of network analysis.

Ans. The network analysis techniques are used in order to introduce an element of precision in
planning and control. These techniques deal with time-scheduling and resource allocation of a
variety of complex and interrelated activities.
The following two networking techniques are aimed at efficient execution of projects within a given
time schedule at minimum cost:
(1)Programme Evaluation and Review Technique (PERT): This technique was first used in the USA in
1957 as a tool of planning and control. PERT specifies the procedures to be used in project
management. It is used to compute the total time required to complete a project and identify
bottleneck activities that can delay the project completion. It enables a project manager to schedule
and coordinate various activities so that the project can be completed on scheduled time. It also
takes into account the degrees of uncertainty in the estimation of time of a project. PERT facilitates
controlling as it uses statistical analysis along with probability calculations, concerning the project
completion by a certain period. It helps in controlling the project by checking the progress of project
against a predetermined schedule. It helps the manager to revise the project In case any changes are
required.
The following steps are involved in the process of PERT analysis:
(i)Identifying the activities of the project;
(ii)Estimating the time involved in various activities;
(iii)Expressing interrelationships between activities;
(iv)Drawing a network involving various activities under a project;
(v) Using the network to obtain the scheduling data.

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(2)Critical Path Method (CPM): This technique was first used in the USA in 1958 by Du Pont De
Nemours Company. It is used for planning and controlling the shortest path (i.e., sequence of
activities) for accomplishing the project. It is a graphical presentation (network) of a project
depicting the flow of well-defined activities and events. CPM focuses on the events that require
maximum attention; otherwise the entire project is bound to be delayed. It leads to saving of cost as
well as time. CPM enables the project manager to deploy resources from non-critical activities to
critical activities without delaying the overall project.
CPM is used as a controlling device to monitor activities of the project by comparing actual progress
against planned progress. It can be used to determine various cost variances for initiating corrective
action.
The following steps are involved in the process of CPM analysis:
(i)Sub-dividing a project in terms of specific activities;
(ii)Determining interdependence and sequence of activities;
(iii)Preparing á network by assigning time and cost of all activities involved;
(iv)Identifying the critical path through the network;
(v)Monitor and control the progress of the project.

8. Distinguish between PERT and CPM.

Ans.
Basis PERT CPM
1.Meaning PERT is a popular project management
CPM is a statistical algorithm which
technique that is applicable when the
has a certain start and end time for
time required to finish a project is not
a project.
certain
2.Model Type PERT is a probabilistic project The CPM is a deterministic project
management tool. management tool.
3.Focus The main focus of PERT is to minimise The main focus of CPM is on a
the time required for completion of the trade-off between cost and time,
project with a major emphasis on cost-
cutting.
4.Orientation type PERT is an event-oriented technique CPM is an activity-oriented
technique
5.Time-Cost In PERT, time is not related to cost. In CPM, the objective is developing
Relationship an optimum time-cost relationship.

8. What is EVA? What are its merits and demerits?

Ans. Meaning: See question no.5

Merits of EVA:
(a) It maximises the return of company above its cost of capital. The focus is on stakeholders
(management or employees) and not owners (shareholders) only.

(b) It attempts to optimise the capital structure by minimising the cost of capital.

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(c) It is an incentive tool for employees to improve organisational performance as they share surplus
profits of the company.

(d) It optimizes the use of capital by investing in outlets that provide maximum returns. The aim is to
maximise the difference between return on capital and cost of capital.

Demerits of EVA:
(i) EVA is based on financial accounting methods which can be manipulated by managers.

(ii) Another serious limitation of EVA is that it is based on short-term orientation of employee
performance evaluation.

10. What is ROI? What are its merits and demerits?

Ans. Return on investment (ROI) can be defined as one of the important and useful techniques. It
provides the basics and guides for measuring whether or not invested capital has been used effectively
for generating a reasonable amount of return. ROI can be used to measure the overall performance of
an organization or of its individual departments or divisions. It can be calculated as under:
Net income before or after tax may be used for making comparisons. Total investment includes both
working as well as fixed capital invested in the business.

Return on Investment = Net Profit (after taxes) - Total Investments (in assets)
Advantages of ROI:
(i)ROI focuses management's attention on earning the best size of profit possible on the capital
available.
(ii)ROI offers a sound basis for intra-organisational and inter-organisational comparison. It places
high values on the effective and efficient use of organisational resources.
(iii)ROI is helpful in authority decentralisation. Each manager, in-charge of a department or section is
responsible for earning certain rate of return, but enjoys complete freedom in running his
department. Such autonomy gives additional incentive managers for higher efficiency.
(iv)ROI is a total control system in the sense that rate of return reflects the objective of the
organisation. If this rate is satisfactory, other control systems like budgetary, costing, ratios, reports
may be taken as satisfactory.
Limitations of ROI: The control technique of ROI is not without limitations. Some such limitations are
listed as follows:
(i)The use of ROI is associated with the fixation of a standard rate of return against which the actual
is compared. What should be this standard return is often questionable. The comparisons of rates of
return are hardly enough because they do not tell what the optimum rate of return should be.
(ii)Another problem comes in the way of evaluation of investment. The question is at what cost the
assets should be valued - at original cost, depreciated cost, or replacement cost. In an inflationary
economy, the problem of price adjustment becomes more acute, whatever basis of valuation is
adopted.
(iii)The managers may be influenced to make decisions that are not the best for the long-run
interests of the firm merely for the sake of making the current period rate of return on capital
employed 'look good'.
(iv)The ROI technique sometimes hampers diversification if it has no flexibility. This is because of the
fact that the rate of return is determined by the amount of risk-higher the risk, higher the desirable
rate of return.

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10. What is budgetary control? Explain the objectives of budgetary control.

Ans. Budgetary Control: Budgetary control can be defined as such technique of managerial control in
which all operations which are necessary to be performed are executed in such a manner so as to
perform and plan in advance in the form of budgets & actual results are compared with budgetary
standards.
Therefore, the budget can be defined as a quantitative statement prepared for a definite future period
of time for the purpose of obtaining a given objective. It is also a statement which reflects the policy of
that particular period.

Objectives of Budgetary Control:

Budgetary control is essential for policy planning and control. It also acts an instrument of co-
ordination. The main objectives of budgetary control are the follows:

(i)To ensure planning for future by setting up various budgets, the requirements and expected
performance of the enterprise are anticipated.

(ii) To define the responsibilities of each supervisor, manager and other personnel, so that every
member of the organization knows about his job, rights and duties.

(iii) To provide a benchmark for making a comparison between standard targets and the actual
results, and identify the reasons for so, in order to take necessary actions to correct the divergence.
(iv) To make optimum utilization of the organization’s resources in order to increase productivity and
profitability.
(v) To monitor that the firm is not deviated from the path of its long term objectives, without being
affected by contingencies.
(vi) To identify where efforts are required to cope with the situation.

11. Explain the merits and limitations of budgetary control system.

Ans. Advantages of Budgetary Control:

The budgetary control system help in fixing the goals for the organization as whole and concerted
efforts are made for its achievements. It enables ‘economies in the enterprise. Some of the
advantages of budgetary control are:

(i)Maximization of Profits: The budgetary control aims at the maximization of profits of the
enterprise. To achieve this aim, a proper planning and co ordination of different functions is
undertaken. There is a proper control over various capital and revenue expenditures. The resources
are put to the best possible use.

(ii)Co-ordination: The working of different departments and sectors is properly coordinated. The
budgets of different departments have a bearing on one another. The co-ordination of various
executives and subordinates is necessary for achieving budgeted targets.

(iii)Specific Aims: The plans, policies and goals are decided by the top management. All efforts are
put together to reach the common goal, of the organization. Every department is given a target to
be achieved. The efforts are directed towards achieving some specific aims. If there is no definite
aim then the efforts will be wasted in pursuing different aims.

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(iv)Tool for Measuring Performance: By providing targets to various departments, budgetary control
provides a tool for measuring managerial performance. The budgeted targets are compared to
actual results and deviations are determined. The performance of each department is reported to
the top management. This system enables the introduction of management by exception.

(v)Economy: The planning of expenditure will be systematic and there will be economy in spending.
The finances will be put to optimum use. The benefits derived for the concern will ultimately extend
to industry and then to national economy. The national resources will be used economically and
wastage will be eliminated.

Limitations of Budgetary Control:

Despite of many good points of budgetary control there are some limitations of this system. Some of
the limitations are discussed as follows:

(i)Uncertain Future: The budgets are prepared for the future period. Despite best estimates made
for the future, the predictions may not always come true. The future is always uncertain and the
situation which is presumed to prevail in future may change. The change in future conditions upsets
the budgets which have to be prepared on the basis of certain assumptions. The future uncertainties
reduce the utility of budgetary control system.

(ii) Budgetary Revision Required: Budgets are prepared on the assumptions that certain conditions
will prevail. Because of future uncertainties, assumed conditions may not prevail necessitating the
revision of budgetary targets. The frequent revision of targets will reduce the value of budgets and
revisions involve huge expenditures too.

(iii)Discourage Efficient Persons: Under budgetary control system the targets are given to every
person in the organization. The common tendency of people is to achieve the targets only. There
may be some efficient persons who can exceed the targets but they will also feel contented by
reaching the targets. So budgets may serve as constraints on managerial initiatives.

(iv)Problem of Co-ordination: The success of budgetary control depends upon the co-ordination
among different departments. The performance of one department affects the results of other
departments. To overcome the problem of coordination a Budgetary Officer is needed. Every
concern cannot afford to appoint a Budgetary Officer. The lack of co-ordination among different
departments results in poor performance.

(v) Conflict among Different Departments: Budgetary control may lead to conflicts among
functional departments. Every departmental head worries for his department goals without thinking
of business goal. Every department tries to get maximum allocation of funds and this raises a conflict
among different departments.

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