Revision Notes

Class – 12 Business Studies

Chapter 8 - Controlling

Definition
“Managerial Control implies the measurement of accomplishment against the
standard and the correction of deviations to assure attainment of objectives
according to plans.”

Koontz and O'Donnell

Meaning
Controlling is a process that entails comparing actual performance to the desired
outcome, so as to ensure the successful achievement of objectives. Setting standards,
measuring actual performance, and taking corrective action in case of deviations are
all part of the managerial role of controlling function.

Importance of Controlling
1. Controlling helps in achieving organizational goals: The controlling
function tracks progress toward organizational objectives and flags any
deviations so that remedial action can be taken.

2. Judging accuracy of standards: An effective control system allows

management to determine if the standards set are accurate or not by closely
monitoring changes in the organization's environment.

3. Making efficient use of resources: A manager can reduce resource waste by

effectively utilizing resources through the controlling process.
4. Improving employees’ motivation: An effective control system guarantees
that staff are aware of what they are expected to do as well as the performance
requirements. As a result, it inspires and assists them in delivering superior
results.

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 5. Ensuring order and discipline: By maintaining a careful eye on the activities
of its employees, the controlling function generates an atmosphere of order
and discipline in the firm.

6. Facilitating Coordination in action: The last and most crucial role of

controlling is to ensure that each department and employee is governed by
predetermined standards and goals that are well-understood and coordinated.
This guarantees that the organization's overall goals are met in a timely way.

Limitations of Controlling
1. Difficulty in setting quantitative standards: When standards cannot be
measured, a control system loses some of its effectiveness.

2. Little control on external factors: External elements such as government

legislation, technical advancements, and competition, among others, are
beyond the control of an organization.
3. Resistance from employees: Employees, for the most part, despise being
controlled by their bosses and they dislike being in constant vigilance of the
management.

4. Costly affair: Control is an expensive procedure because it necessitates a lot

of money, time, and effort in terms of setting standards, measuring
performance and correcting the deviations.

Features of Controlling
In an organization, control is a major goal-oriented function of management. It is a
process of comparing actual performance to the company's defined standards to
ensure that actions are carried out according to the plans, and if they aren't, corrective
action is taken.

1. Goal oriented: The attainment of defined goals or objectives determines the

success of any management effort.

2. Pervasive: Controlling is required in all types of organization whether it is

profit making, non-profit making, business or non-business, at all levels
whether it is top level management or middle level management or lower-
level management.

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 3. Continuous: Continuous performance development, is a real-time, forward-
looking approach to performance that businesses utilise to align and grow
their people while assisting them in their success.

4. Controlling is the process of reviewing staff performance: Through

controlling function, the management can keep a check on the performance,
dedication, and problem areas of the staff.
5. It is a forward-looking function: Controlling is a forward looking function,
as it helps in deciding the future course of action in case the actual
performance does not match with the standards set.

6. It is dependent on the planning: Controlling is dependent on the planning

function, as the comparison of actual performance is made with the planned
performance. Hence planning acts as a base for controlling.
7. Action oriented: The focus of management is on accomplishing the work
with the help of human resources. It is the effective and efficient coordination
of all available resources. The actions in an organisation are carried out by
subordinates, or workers, who work under the supervision of a manager.

Relationship Between Planning And Controlling

Planning and controlling are intertwined and mutually reinforcing in the sense that:
● Planning is required for effective control. The norm for controlling is set by
plans. Managers have no influence over anything if the standards aren't
defined ahead of time.

● Without controlling, planning is worthless. When control is exercised, it is

fruitful. It detects any deviations and takes corrective action if necessary.

● Controlling assesses the efficiency of planning and aids in the implementation

of remedial actions.

● Planning is forward-thinking, whereas controlling is backward-thinking.

Planning is a future-oriented activity since it entails thinking ahead and
establishing policies to maximize resource use in the future, which is why it
is referred to as a forward-looking function.

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 ● In controlling, we examine the employees' previous performance and compare
it to the established requirements. If there are any discrepancies between real
and expected performance or output, the controlling functions ensure that
future actual performance meets expected performance. As a result,
controlling is a function that looks ahead.
● As a result, planning and controlling are intertwined, and they walk hand in
hand. Controlling becomes more successful because of planning, whereas
planning enhances future controlling.

CONTROLLING PROCESS

1. Setting performance standards

2. Measurement of actual performance

3. Comparison of actual performance

with standards

4. Analyzing deviations

5. Taking corrective action

1. Setting Performance Standards:

● The criteria against which actual performance can be measured are known as
standards

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 ● Standards are the goals that an organisation aspires to achieve.
● Due to changes in the business environment, standards should be flexible
enough to be adjusted as needed.

● Standards could be qualitative or quantitative or it could also be time bound

or cost bound.

2. Measurement of Actual Performance:

● Performance standards are established first, and then actual performance is
assessed.

● Personal observation and sample checking should be used to measure

performance in an objective and reliable manner.

● Performance should be measured in the same terms that standards have been
defined to make comparisons easier.

● Performance can be checked simultaneously when the work is being

performed or after the completion of work.

3. Comparing Actual Performance with Standard:

● In this step, real performance is compared to the standard.
● If the performance meets the norms, everything appears to be under control.

● There can be three scenarios

○ Standards = Actual Performance

○ Standards > Actual Performance

○ Standards < Actual Performance

4. Analyzing Deviations:
The permissible range of variations is determined by assessing deviations
from the standards.

a. Critical Point Control: Control should be focused on key result areas

(KRAs) that are crucial to an organization's success. These KRAs have
been designated as important points.

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 b. Management by Exception: Exceptional management Control by
exception, often known as control by exception, is a key management
control philosophy based on the belief that attempting to control
everything leads to managing nothing. In other words, you can't control
everything at the same time.

For example, the company controller decides that corrective action is

needed when the expenses are greater than $10,000 or 20% higher than
projected. The goal of the management by exception approach is to only
worry management with the most significant deviations from the
business's planned course or performance.

5. Taking Corrective Action: Taking remedial action is the final step in the
controlling process. When the variance is within acceptable bounds, no
corrective action is necessary. When major aberrations occur, however,
corrective action is required like:

● Alarms are being installed.

● Equipment is redesigned or replaced.
● Tools are arranged which were needed for production.

● Work processes are being updated.

● In case of overestimation or underestimation of standards, the standards are

set again.

Techniques Of Managerial Control

Managerial control techniques can be divided into two broad categories:

● Traditional Techniques

● Modern Techniques.

● Traditional Techniques:

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