# ii. the following formula: Standard hours of output/Actual

ii. Control actions that may be taken in response to a reported variance

iii. Calculation and evaluation of control ratios

Your time is important. Let us write you an essay from scratch
100% plagiarism free
Sources and citations are provided

Get essay help

We have discussed about control charts in our chapter on Quality Management Practices. Similarly, other control tools like, PERT, CPM, Gantt chart, etc., have been discussed in relevant chapters.

#### Control Ratios:

In any business the principle of 3-Es, i.e., economy, efficiency and effectiveness is followed. This requires extensive use of various control ratios to measure the variations between budgeted and actual performance. Similarly, the variance analysis also facilitates the measurement of the impact on profitability and the difference between the actual and standard budget. Capacity, efficiency and activity are the three control ratios.

These three ratios measure the resource input, productivity or resource usage and the volume of output respectively. The capacity ratio typically measures the degree of efficient utilization of the labour or human resources in terms of the actual total working hours and their comparisons with the budgeted one. To calculate the capacity ratio, we make use of the following formula:

Actual hours worked/Budgeted hours x 100 per cent

At 100 per cent, we consider the achievement of full capacity. Less than 100 per cent indicates under-utilization of the capacity and more than 100 per cent indicates over-utilization of the capacity.

To calculate the efficiency ratios, we make use of the following formula:

Standard hours of output/Actual hours worked x 100 per cent

With 100 per cent, we consider labour productivity is in accordance with the standard. With less than 100 per cent and more than 100 per cent, we consider labour efficiency (or productivity) is less than the standard requirement or more than the standard requirement respectively. More than 100 per cent labour efficiency is beneficial for the organization.

Similarly, activity ratio helps the organization to measure the output achievement over the budgeted requirement or the standards. Activity is the function of capacity and efficiency. It is computed using the following formula:

Standard hours of output/Budgeted hours x 100 per cent

With 100 per cent, we say that the output level is in conformity with the budget. Less than 100 per cent indicates the output level less than the budget, and more than 100 per cent indicates the achievement of output level more than the budget. The last one is a healthy sign.

#### Simple Control through Functional Task Analysis:

This helps in identification and description of different functions or activities to detail different operations and activities to perform a task. Through this, an organization can detail various activities involved to perform any specific task. Functional Task Analysis also enables organizations to quickly respond to the changes creatively and proactively, to remain competitive in the business. Please refer to the Functional Time-Use Analysis Form on the next page.