Chapter 8: Controlling

MEANING OF CONTROLLING

Controlling is one of the important functions of a manager. In order to seek planned results from the subordinates, a manager needs to exercise effective control over the activities of the subordinates. In other words, controlling means ensuring that activities in an organization are performed as per the plans. Controlling also ensures that an organization’s resources are being used effectively and efficiently for the achievement of predetermined goals. Controlling is, thus, a goal-oriented function.

Importance of Controlling

Control is an indispensable function of management.  Without control the of best of plans can go awry. A good control system helps an organization in the following ways:

• Accomplishing organizational goals: The controlling function measures progress towards the organization goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organization and keeps it on the right track so that organizational goals might be achieved.
• Judging accuracy of standards:  A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.
• Making efficient use of resources : By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner.
• Improving employees motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivation them and helps them to give better performance.
• Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimize dishonest behavior on the part of the employees by keeping a close check on their activities. The box explains how on important company was able to track dishonest employees by using computer monitoring as a part of their control system.

Limitations of Controlling

 Although controlling is an important function of management, it suffers from the following limitations.

1. Difficulty in setting quantitative standard: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. This makes measurement of performance and their comparison with standards a difficult task. Employee morale, job satisfaction and human behavior are such areas where this problems might arise.
2. Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition etc.
3. Resistance from employees: Control is often resisted by employees. They see it as a restriction on their freedom. For instance, employees might object when they are kept under a strict watch with the help of closed circuit televisions (CCTVs)
4. Costly affair: Control is a costly affair as it involves a lot of expenditure, time and efforts. A small enterprise cannot afford to install an expensive control system. It cannot justify the expenses involved. Managers must ensure that he costs of installing and operating a control system should not exceed the benefits derived from it.

Controlling process

Controlling is a systematic process involving the following steps.

1. Setting performances standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. Analyzing deviations
5. Taking corrective action

Step 1: Setting performance standards:The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Thus, standards serve as benchmarks towards which an organization strives to work.

            Standards  can be set in both quantitative as well as qualitative terms. For instance, standards set in terms of cost to be incurred, revenue to be earned, product units to  be produced and sold, time to be spent in performing a task, all represents quantitative standards. Sometimes standards may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards. The table in the next page gives a glimpse of standards used in different functional areas of business to gauge performance.

Step 2: Measurement of Actual Performance:Once performance standards are set, the next step is measurement of actual performance. performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier.

            It is generally believed that measurement should be done after the task is completed. however, wherever possible, measurement of work should be done during the performance. For instance, in case of assembling task, each part produced should be checked before assembling, Similarly, in a manufacturing plant, levels of gas particles in the air could be continuously monitored for safety.

Step 3: Comparing Actual performance with Standards:  Comparing Actual performance with Standards: This step involves comparison of actual performance with the standards. Such comparison will revel the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standards output for the week.

Step 4: Analyzing Deviations: Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard. 

1. Critical point control: It is neither economical nor easy to keep a check on each and every activity in an organization. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organization.
2. Management by Exception: Management by exception, which is often referred to as control by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management.

Step: 5: Taking Corrective Action: The final step in the controlling process is taking corrective action. No correcting action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished.

Very Short Answer Type:

1. State the meaning of controlling.

Ans: controlling means ensuring that activities in an organization are performed as per the plans. Controlling also ensures that an organization’s resources are being used effectively and efficiently for the achievement of predetermined goals. Controlling is, thus, a goal-oriented function.

2. Name the principle that a manager should consider while dealing with deviations effectively.

Ans: Management by exception.

3. State any one situation in which organization’s control system losses is effectiveness.

Ans: An organization’s control system can lose effectiveness when it’s difficult to define standards in quantitative terms

4. Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Ans:

1. Key Performance Indicators (KPIs): Measures financial efficiency, profitability, and cost management.
2. Financial Reporting Accuracy: Assesses the accuracy and timeliness of financial reports and compliance with standards.

5. Which term is used to indicate the different between standard performance and actual performance?

Ans: The term used to indicate the difference between standard performance and actual performance is deviation

Short Answer Type:

1. ‘Planning is looking ahead and controlling is looking back.’ Comment.

ANS: Planning involves setting objectives and decorum the future course of action to achieve them. Thus, it is regarded as forward looking. Controlling involves a post-mortem of the past activities of an enterprise and finding out deviations from the targeted standard. Thus, it is regarded as a backward looking function.

2. ‘An effort to control everything may end up in controlling nothing.’ Explain.

ANS: When someone tries to control everything, they may end up controlling nothing because over-management leads to overwhelming complexity, resistance, inflexibility, and burnout. Spreading attention too thin causes errors and overlooked details, while excessive control often alienates others, resulting in non-cooperation or rebellion. Additionally, rigid thinking prevents adaptability to unforeseen challenges, and the effort to maintain control can lead to exhaustion, ultimately reducing effectiveness. By focusing on priorities and allowing for collaboration, one can achieve better outcomes without the pitfalls of over-control.

3. Explain how management audit serves as an effective technique of controlling.

ANS: A management audit is an effective control technique as it systematically evaluates management practices to ensure efficiency, effectiveness, and alignment with organizational goals. It identifies weaknesses, ensures compliance with policies, and promotes accountability. By providing feedback for improvement, aligning strategies, and managing risks, it enhances decision-making and fosters innovation. This helps in optimizing resources, improving performance, and ensuring the organization remains on track for long-term success.

4. Mr. Arfaaz had been heading the production department of Write well Products Ltd., a firm manufacturing stationary items. The firm secured an export order that had to be completed on a priority basis and production targets were defined for all the employees. One of the workers, Mr. Bhanu prased, fell short of his daily production target by 10 units for two days consecutively. Mr. Arfaaz approached MsVasundhara, the CEO of the company, to file a complaint against MrBhanu Prasad and requested her to terminate his services. Explain the principle of management control that MsVasundhara should consider while taking her decision.

ANS: The principle of management control that MS Vasundhara must consider while making her decision is management by exception. It means that any attempt to control everything results in controlling nothing. Only those deviations must be brought to notice which are beyond the permissible limit. In this case, Mr. Bhanu hairstyle has fallen short of his daily production target only by 10 units. This is only a small deviation and it is not right to terminate him on the basis of this.

Long Answer Type:

1. Explain the various steps involved in the process of control.

Ans:

Controlling process

Controlling is a systematic process involving the following steps.

1. Setting performances standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. Analyzing deviations
5. Taking corrective action

Step 1: Setting performance standards:The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Thus, standards serve as benchmarks towards which an organization strives to work.

            Standards  can be set in both quantitative as well as qualitative terms. For instance, standards set in terms of cost to be incurred, revenue to be earned, product units to  be produced and sold, time to be spent in performing a task, all represents quantitative standards. Sometimes standards may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards. The table in the next page gives a glimpse of standards used in different functional areas of business to gauge performance.

Step 2: Measurement of Actual Performance:Once performance standards are set, the next step is measurement of actual performance. performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier.

            It is generally believed that measurement should be done after the task is completed. however, wherever possible, measurement of work should be done during the performance. For instance, in case of assembling task, each part produced should be checked before assembling, Similarly, in a manufacturing plant, levels of gas particles in the air could be continuously monitored for safety.

Step 3: Comparing Actual performance with Standards:  Comparing Actual performance with Standards: This step involves comparison of actual performance with the standards. Such comparison will revel the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standards output for the week.

Step 4: Analyzing Deviations: Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard. 

1. Critical point control: It is neither economical nor easy to keep a check on each and every activity in an organization. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organization.
2. Management by Exception: Management by exception, which is often referred to as control by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management.

Step: 5: Taking Corrective Action: The final step in the controlling process is taking corrective action. No correcting action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished.

2. Explain the techniques of managerial control.

Ans: The concept of managerial control does not only provide a historical record of what has happened to the business but also chalks out the reasons for its occurrence. Further, it provides data which enable the chief executive or the departmental head to take the rectifying step in that regard. There are two type technique

Traditional Techniques of Managerial Control

Traditional techniques are those which have been used by the companies for a long time now. These include:

1. 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.

2. 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.

3.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.

4.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

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:

1. Return on investment
2. Ratio analysis
3. Responsibility accounting
4. Management audit
5. PERT & CPM

1.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

2.Ratio Analysis

The most commonly used ratios used by organizations can be classified into the following categories:

• Liquidity ratios
• Solvency ratios
• Profitability ratios
• Turnover ratios

3.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 centers’. The head of the center is responsible for achieving the target set for his center.

4.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.

5.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.

3. Explain the importance of controlling in an organization. what are the problems faced by the organization in implementing an effective control system?

Ans:  Control is an indispensable function of management.  Without control the of best of plans can go awry. A good control system helps an organization in the following ways:

• Accomplishing organizational goals: The controlling function measures progress towards the organization goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organization and keeps it on the right track so that organizational goals might be achieved.
• Judging accuracy of standards:  A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.
• Making efficient use of resources : By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermind standards and norms. This ensures that resources are used in the most effective and efficient manner.
• Improving employees motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivation them and helps them to give better performance.
• Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimize dishonest behaviour on the part of the employees by keeping a close check on their activities. The box explains how on important company was able to track dishonest employees by using computer monitoring as a part of their control system.

problems faced by the organization in implementing an effective control system

1.Resistance to Change: Employees and even managers may resist changes associated with the implementation of a control system, especially if they feel it threatens their autonomy or performance.

2.Inadequate Communication: If the control system is not communicated clearly to all members, it may lead to misunderstandings and confusion, affecting its effectiveness.

3.Lack of Proper Metrics: Sometimes, organizations fail to set appropriate performance indicators or standards, making it difficult to assess performance accurately and fairly.

4.Excessive Control: Over-monitoring can create a sense of distrust, lower employee morale, and reduce innovation. It may lead to micromanagement, which can be counterproductive.

5.Cost of Implementation: Developing and maintaining an effective control system requires investment in resources, time, and technology. Small organizations, in particular, may struggle with the costs associated with this process.

6.Changing External Conditions: External factors like market conditions, economic factors, or regulatory changes can affect the effectiveness of a control system. An effective control system needs to be flexible to adapt to these changes.

7.Complexity in Integration: In large organizations, integrating control systems across different departments, regions, or functions can be complex, requiring coordination and alignment.

8.Delayed Feedback: A control system that provides feedback too late may prevent corrective actions from being taken in time, allowing small issues to become major problems.

In conclusion, while control is critical for the success and smooth functioning of an organization, its implementation requires careful planning, clear communication, and adaptability to changing circumstances.