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.

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Importance of Controlling

Control is an indispensable function of management. Without control theof 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.

Limitations of Controlling

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

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.
Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition etc.
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)
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.

Setting performances standards
Measurement of actual performance
Comparison of actual performance with standards
Analysing deviations
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.

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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: Analysing 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.

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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.
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:

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.

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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:

Key Performance Indicators (KPIs): Measures financial efficiency, profitability, and cost management.
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

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Short Answer Type:

‘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.

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4. Mr. Arfaaz had been heading the production department of Writewell 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 companu, 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:

Explain the various steps involved in the process of control.

Ans:

Controlling process

Controlling is a systematic process involving the following steps.

Setting performances standards
Measurement of actual performance
Comparison of actual performance with standards
Analysing deviations
Taking corrective action

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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.

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.
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.

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

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Traditional Techniques of Managerial Control

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

Personal observation
Statistical reports
Break-even analysis
Budgetary control

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.

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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:

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Return on investment
Ratio analysis
Responsibility accounting
Management audit
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:

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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

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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.

4. Discuss the relationship between planning and controlling.

Ans: Planning and controlling are two closely related management functions that work together to achieve organizational goals.

Planning: This is the process of setting objectives, determining strategies, and developing action plans to achieve those goals. It involves outlining the steps required to reach the desired outcomes, identifying resources, and anticipating potential challenges. Planning is proactive, setting a direction for the organization to follow.

Controlling: This function involves monitoring performance to ensure that goals are being met and taking corrective actions when necessary. It includes measuring actual performance against the established plans, analyzing deviations, and implementing adjustments to keep the organization on track. Controlling is reactive, ensuring that activities stay aligned with the plans and adjusting strategies when necessary.

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Relationship:

i. Interdependence: Planning provides the blueprint for the organization, while controlling ensures that the plan is being executed effectively. Without planning, controlling would have no clear direction, and without controlling, the plans could go off course.

ii. Feedback Loop: Planning and controlling work in a cyclical manner. Planning sets the objectives, and controlling provides feedback on whether those objectives are being achieved. If discrepancies are found, planning may need to be adjusted, creating an ongoing loop of improvement.

iii. Corrective Actions: When controlling identifies deviations from the plan, corrective actions can be taken, which often lead to revisions in future planning. This ensures that the organization adapts and improves its approach over time.

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5. A company ‘M’ limited is manufacturing mobile phones both for domestic Indian market as well as for export. it had enjoyed a substantial market share and also had a loyal customer following. But lately is has been experiencing problems because its targets have not been met with regard to sales and customer satisfaction. Also mobile market in India has grown tremendously and new players have come with better technology and pricing. This is causing problems for the company. It is planning to revamp its controlling system and take other steps necessary to rectify the problems it is facing.

a. Identify the benefits the company will derive form a good control system.

b. How can the company relate its planning with control in this line of business to ensure that its plans are actually implemented and targets attained.

c. Give the steps in the control process that the company should follow to remove the problems it is facing

Ans

Identify the benefits the company will derive form a good control system.

Benefits the Company Will Derive from a Good Control System:

Improved Performance Monitoring: A good control system will enable the company to continuously track its performance against predefined goals, helping identify areas that need improvement.
Increased Efficiency: By establishing clear benchmarks and performance standards, the company can optimize resources and improve the efficiency of its operations, both in manufacturing and marketing.
Better Decision Making: A control system provides accurate and up-to-date data, helping management make informed decisions regarding product features, marketing strategies, pricing, etc.
Alignment with Objectives: With proper controls, the company can ensure that its business activities, from production to marketing, align with its strategic goals and objectives.
Early Problem Detection: The system can help detect issues early, such as declining sales, customer dissatisfaction, or inefficiencies in production, allowing the company to take corrective actions before problems escalate.
Enhanced Customer Satisfaction: By monitoring feedback and ensuring product quality and timely delivery, the company can improve its customer service and satisfaction.
Compliance and Risk Management: A good control system helps in managing financial, operational, and legal risks, ensuring compliance with industry standards and regulations.

b. How can the company relate its planning with control in this line of business to ensure that its plans are actually implemented and targets attained.

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Ans-

Relating Planning with Control to Ensure Plans are Implemented and Targets Attained:

Setting Clear Targets and Performance Standards: During the planning phase, the company should set specific, measurable, achievable, relevant, and time-bound (SMART) targets, such as sales numbers, market share, and customer satisfaction levels. These targets should align with the overall strategy.
Developing Action Plans and Procedures: The company should define action plans for each department (sales, marketing, production, etc.) that detail the necessary steps to achieve the targets. These plans should be regularly reviewed and updated based on performance.
Monitoring and Measuring Progress: Regular control mechanisms, such as sales tracking, customer feedback surveys, and production efficiency reports, should be in place to measure progress towards the targets.
Adjusting Plans Based on Feedback: If the control system identifies discrepancies between actual performance and target goals (e.g., lagging sales or customer complaints), the company should be able to adjust its plans, such as tweaking product features, revising marketing strategies, or improving customer service.
Continuous Communication and Coordination: Effective planning requires coordination across different departments. Ensuring that there is clear communication about the plans and how they will be monitored will help improve the likelihood of successful execution

C) Give the steps in the control process that the company should follow to remove the problems it is facing

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Ans-

Steps in the Control Process the Company Should Follow to Remove Its Problems:

Establish Standards or Benchmarks: The company must first define performance standards. These could include sales targets, customer satisfaction ratings, market share, and quality standards for products. They should reflect current industry trends, customer expectations, and internal goals.
Measure Actual Performance: The company should collect data on actual performance. This could include sales figures, market trends, customer satisfaction surveys, production output, and feedback from distributors or retailers.
Compare Actual Performance with Standards: The company should compare the actual results against the established benchmarks. Discrepancies (e.g., lower sales or declining customer satisfaction) should be identified.
Analyze the Causes of Variations: The company needs to analyze the reasons for any discrepancies. For example, if customer satisfaction is low, the issue could lie in product quality, customer service, or pricing. If sales targets are not met, the cause could be competition, outdated technology, or ineffective marketing.
Take Corrective Actions: Based on the analysis, the company should take corrective actions. This could include enhancing product features, revising pricing strategies, improving marketing efforts, or improving the customer service experience.
Monitor the Effectiveness of Corrective Actions: After implementing corrective measures, the company must monitor the situation to ensure the problems are resolved. If the actions have been successful, it will reflect in improved sales and customer satisfaction. If not, further adjustments are required.
Continuous Improvement: The control process should be ongoing, with continuous feedback loops. The company should regularly review performance and adjust strategies to adapt to market changes, technological advances, and customer demands.

6. Mr. Shantanu is a chief manger of a reputed company that manufactures garments. He called the production manager and instructed him to keep a constant and continuous check on all the activities related to his department so that everything goes as per the set plan. He also suggested him to keep a trick of the performance of all the employees in the organization so that targets are achieved effectively and efficiently,

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a. Describe any two features of controlling highlighted in the above situation. (Goal Oriented, continuous and pervasive-any 2).

b. Explain any four points of importance of Controlling.

Two features of controlling highlighted in the above situation:

ANS:

Continuous Monitoring: Mr. Shantanu instructed the production manager to keep a constant and continuous check on all activities. This highlights the feature of controlling where the performance of activities is constantly observed to ensure that they align with the set plans and objectives.
Corrective Action: Mr. Shantanu emphasized the need for monitoring the performance of employees to ensure targets are achieved effectively and efficiently. This indicates that controlling involves taking corrective actions whenever deviations from the plan are detected.

b. Four points of importance of controlling:

ANS:

Ensures Goal Achievement: Controlling helps in monitoring whether the activities are being performed as per the plans, ensuring that organizational goals and targets are achieved effectively.
Improves Efficiency: Through continuous monitoring and corrective actions, controlling helps identify inefficiencies or bottlenecks, leading to improvements in the utilization of resources.
Facilitates Coordination: It ensures that different departments or activities are aligned and work together in a coordinated manner, avoiding conflicts or duplications of effort.
Helps in Decision-Making: By providing feedback on performance, controlling aids management in making informed decisions about corrective actions, resource allocation, and future strategies.

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