# UNDERSTANDING CONTROL

In simple words “Control” means keeping actual position within expected limits. When one talks of Cost Control, one does not mean “Cost Savings” but ensuring that Actual Costs remain within Estimated Costs. Savings, if any, are incidental and not Raison D’être of installing a cost or budgetary control system.

- COST CONTROL

Also called budgetary control. Actual Cost is matched with Budgeted Cost and difference, if any, is analyed into price variance and quantity (efficiency) variance.

Let us start with an example of a truck which was engaged to transport a heavy container to a place 1,000 km away in four days @10 hours per day. At the same time, the associated cost was estimated at Rs.70,000 or Rs.70 per km. (This represented out of pocket expenses and not Overheads such as depreciation, annual maintenance, driver salary and road taxes etc.) These figures are enough to lay down a cumulative daily budget as shown in Fig 1.

Now, we will watch the actual progress. Suppose, at the end of day one, the driver reported that he had covered a distance of 150 km and spent a sum of Rs.13,500. From this, we can work-out many useful indicators like (i) delays, (ii) cost overruns (exceeding budget), (iii) further cost & time to reach the destination, and (v) status at the time of reporting. This is shown below, while necessary explanation would follow:

- BCWP vs. ACWP

Difference between BCWP & ACWP shows cost variance while between BCWS & BCWP - Time Variance.

For Day-one, the budget was Rs.17,500 but actual expenses were lesser at Rs.13,500. But we cannot compare them as the budget was for 250 km whereas the expenses were incurred for only 150 km. We should calculate BCWP which in this case would be actual km x standard cost or 150 x 70 =10,500. Deducting this from the actual, we get Rs.3,000 as over spending ( 13,500 – 10,500 =3,000 ). If we deducted BCWP from BCWS, we get a figure in Rupees which can be converted into time. For example, there is a difference of 7,000 between BCWS (17,500) and BCWP (10,500). We know that the truck was supposed to run 25 km per hour which in term of Rupees would be Rs.1,750 (25 x 70). If we divide the difference of 7,000 with this amount, the result would be 4 which represented time of delay.

There is another way to calculate the delay. We can divide Daily Expectation of 250 km with time-frame of 10 hours and get 25 km per day. Since the truck has covered only 150 or equivalent to 6 hours (150 divided by 25), we can say that the truck was delayed by four hours ( 10 hrs – 6 hrs = 4 hrs).

So far only 150 km have been covered, leaving a balance of 850 km out of total 1,000 km. Since actual speed had been 15 km per hour, another 56.66 hrs (850 divided by 15) would be required. Similarly, one can work out actual cost per km which in this case was Rs.90 (13,500 divided by 150). On this basis, we can predict further cost by multiplying the figure with the remaining km.

If the performance was not viewed as satisfactory, the Boss had option to change the driver or the truck. Considering the truck had to pull out of heavy city traffic plus un-expected police checks, no action was taken except the driver was instructed to make up the shortfall as far as possible.

In the last column, Status Index is given which is a multiplication of time dimension (BCWP divided by Budget) and Cost Dimension ( BCWP divided by Actual Cost). A Status Index of 1 is OK, lower than one puts one on the alert and more than is good. But if it is very high, it should be concern to the Boss as perhaps the Standard was set too low.

For Day-Two, the driver reported covering an additional distance of 300 km at a cost of Rs.21,000. Adding them in Day-One figures, we can work out that the truck has so far covered a total distance of 450 km (150+300), improving the performance to 22.5 km per hour (450 divided by 20 hours). We can use this for estimating further time for the remaining 550 km (1,000-450 ). We find that it would take another 24.44 hours to reach the destination ( 550 divided by 22.5 = 24.44). Since, we had two days left, the situation had turned comfortable.

As far cost, the driver had so far incurred a cost of Rs.34,500 (13,500+21,000). The chart would accordingly appear as follows:

On the third day, the truck ran for 275 km at an additional expenses of Rs.22,000. The would change the position as follows:

On fourth and final day, additional 275 km were covered at a cost of Rs.12,650. This brought a material change in the situation as show below:

- Concurrent Control

It real-time control. In many countries, the vehicles are fitted with trackers and the management knows fully well how they are doing.

As would be observed from the foregoing, the Boss had been in full control of the situation at all the times. He knew well what was expected from the driver, what actual situation was, the difference between the two and whether it warranted any action or not. There were many stages when the performance was below standard yet there was enough time to take corrective action. This is what is called “Control”.

- PROGRESS INDICATORS

A large number of progress indicators are available in various text books. A manager may choose those which are relevant to the project progress such as Status Index, Overall Progress Index, BAC etc.

The situation can be presented graphically. If a Boss has many on-going projects, he or she can see at a glance which projects need his or her attention. It is known as "Management by Exception" where a manager intervenes only when there is a wide deviation in estimates and actuals.

The graph is given below. It can be extended to show position at the end of the project such as Total Expect Cost or Estimated Completion Time which forewarn the management to take necessary action if situation cannot brougt under control.

## Comments

This post is steller! You definitely know how to keep a reader entertained. Between your wit and your pictures, I was almost moved to start my own blog (well, almost..ahaha) Excellent job. I really loved what you had to say, and more than that, how you presented it. Too cool! Stellar Phoenix

thank you sir to share this link now i got it .

informative hubpage ..

A very informative article. Example is very good. Easily understandable. Thank You Sir.

I happened to go through this and found very informative especially the way of explanining. There were a few confusions with respect to the subject which have now been clarified.

I must say that Mr. Hafeez is doing an outstanding job for us by bringing more and more study material on hub pages. Thank you so much.

Thank you so much sir for sharing this, its really help me to understand it more clearly..

Truly excellent post. Real hardwork is evident behind such posts. We are getting to learn unique concepts we never even heard of before.

nice article

thanks sir

Thank you for such a nice explanation its help to clear my quries obout the topic

Thankyou sir for explaining my question with such good and understandable words . I got the answer that from where these further costs and time came from ... thankyou once again .....

Thank you Mr. Hafeez for sharing this important managerial tool. The explanation backed by the example made the concept so easy to grasp and understand. I would appreciate if another example depicting a different scenario can be shared to ingrain the concept.

Thank you for explainin me now i understand the topic

Thank you sir for introducing such important managerial control tool. This can really help us in keeping real time control over our projects as the project progresses and we do not get any surprise variation at the end of project.

Regards,

Mushtaq Ahmed

Than you Sir for providing this. Now I can understand the

Than you Sir for providing this. Now I can understand

Thank you so much for sharing such an informative article .

Thankyou sir for this informative post some of points which i was confused about are not cleared by this post ... Sir still i need to ask onething that in the second chart in further column where cost is 76500 in first day and second day is 42167 and the time 56.67 and 24.44 sir could you please tell me from where we got these data ... i will b very much thankful to you ...........

Thank you sir for this post,

It realy helped me clear some of the queries that i had about the topic

thank you again

Its really an excellent effort, which clarify many confusing points.

Hope to be benifitted again `form new article.

ASSALAMUALKUM

PERFECT EXPLANATION AS YOU GIVE IN THE CLASS.

THANK YOU FOR ITS FURTHER EXPLANATION.

Excellent post. It cleared all the minor points that I was confused about. I'll ask other students also to visit this article and clear their concepts.

Thanx Sir for providin such a useful material but ill u please explain me the relation b/w BCWS and BCWP..well itz really informative and helpful to us.

I have traveled in Mexico where bus system is very efficient. Once while traveling to Mexico City, I noticed two numbers on the top-inside of front wind-shield glass like 90 and 88. I do not know Spanish neither other passengers traveling with me had any knowledge of English. So I can only guess that 90 was the speed limit and 88 actual speed.

I say this because whenever the bus came near the city the two numbers dropped to 60 and 58. Maybe there was a GPS or tracker in the bus which was showing maximum allowed speed and maybe the bus can be stopped if the driver tries to be over smart.

Of course, this would be real-time control as against feedback control explained by Mr. Hafeezrm in a very interesting way.

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