CONTROLLING

Definition:- Control is the process by which managers ensure

that performance is in conformity with the plans and goals. It
involves setting of standards, measuring actual performance
and correcting the performance if it deviates from the
standards.
OR
Definition:- Controlling function can be defined as
comparison of actual performance with the planned
performance. If there is any difference or deviation then
finding the reasons for such difference and taking corrective
measures to stop these reasons so that in future there is a
match between actual and planned performance.

Characteristics/Nature:
1) Pervasive: Every manager has to exercise control over
the activities and behaviour of the subordinates.
However, the scope of control varies by level of
managers.
2) Universal process: Every control process involves four
steps or elements: Fixing standards, measuring actual
performance, Comparing performance with standards,
Taking corrective action if required. All these steps are
involved in every control process.
3) Continuous process: It is a continuous and a never
ending process. As long as the organisation exists,
managerial control continues to exist.
4) Dynamic process: It is a dynamic process. It is not static.
It involves continuous review of standards in the light of
changing situations and ensuring performance in
conformity with the standards.
5) Goal Oriented function: It makes sure everyone follows
the plan or work accomplished as per the plan and plan
always aim at achieving organisational plan.
6) It is forward looking: Control is always forward looking.
It aims at future. It not only aims at correcting the
current performance but also provides standards for
future performance.
7) Action oriented: Control is an action-oriented function.
It implied taking some corrective action to achieve
desired performance. Taking suitable action for
correcting the deviation from desired performance is
the essence of control.
8) Controlling and planning are twins: Control is one
function of management and its twin is planning. In
other words, controlling and planning are closely
related. These functions cannot be separated.
9) Wide scope: The scope of control is very wide. It covers
all the aspects of performance leading to desired results.
More specifically control includes the control of
quantity, quality, time and cost. Any aspect to control
these four aspects of performance can be included in its
scope.
OBJECTIVES OF CONTOLLING:
1) To direct the activities according to plans.
2) To establish the progress of the activities on the basis
of standards fixed.
3) To know the progress of the activities on the basis of
standards fixed.
4) To find out deviations and try to remove these
deviations.
5) To get the knowledge regarding quality cost and time
of work performed.
6) To regularise actions and behaviours.
7) To prevent dishonesty and establish order and
discipline.
8) To maintain flow in activities of the business.
9) To stop wastage and to minimise the cost.
10) To motivate employees.
11) To make decentralisation and delegation of
authority successful.
12) To ensure efficient and effective use of
organisational resources.
NEED FOR/IMPORTANCE OF CONTROLLING:
PROCESS OF CONTROLLING:
1) Establishment of standards: The first step in the process
of control is the establishment of standards of
performance. It may be noted that standards are the
objectives or plans against which actual performance
can be measured. Standards may be in several forms.
But they should be tangible, verifiable, and measurable.
More specifically, standards should be in quantitative as
well as in qualitative terms. The performance standards
are generally classified into four categories:
 Productivity standards: These standards state the
amount/number of product or service to be
produced during a given period time period.
  Time standards: These standards state the length
of time to be allowed to make a certain product or
perform a certain service.
 Cost standards: These standards state the cost
associated with producing a product or service.
 Quality standards: These standards set the level of
perfection desired.
 Behavioural standards: These standards prescribe
the desired type of behaviour of employees in an
organisation.
Standards should be effective, should satisfy the following
conditions:

2) Measurement of performance: The next step in the

control process is the measurement of actual
performance. Actual performance may be measured
through personal observation, samples, reports,
 accounting statements etc. But managers should
carefully select the methods, reports, accounting
statements etc. But managers should carefully select the
methods and time measurement. Measurement
methods may be quantitative aa well as qualitative or a
combination of both. Again, the time of measurement
should also be fixed with utmost care. Managers should
also decide a reasonable time interval for measurement
of performance. It should not be so short nor so long.
Too short time interval may involve too much expenses
whereas too long interval may not detect deviations in
performance in time. To make measurement of
performance worthwhile, it should be clear complete,
precise and objective.
3) Comparison of performance against standards: The
third step in the control process is the comparison of
actual performance with the finds no standards. At this
step, manager finds out the degree of variation or
deviation between actual performance and the
standard. Where manager find no deviation, no further
action is required. Then the control process is deemed
to have completed. When deviation is found in the
performance, manager has to find out the extent of
deviation. If the deviation is within the tolerance limits,
manager need not bother. However, if the deviation
exceeds the tolerance limits, the manager's attention is
needed. In such a case, manager has to take some
corrective action.
 4) Taking corrective action: The fourth and final step in the
control process is to take correction. At this point,
manager should find out the cause of deviation. If the
cause is beyond the control, manager can do nothing. If
the cause is controllable, manager may either:
(a) correct actual performance.
(b) revise the standards.
Manager may correct actual performance by:
(i) providing training.
(ii) revising compensation plan.
(iii) redesigning job.
(iv) changing the strategy.
(v) changing the organisation structure and so on.
When he decides to take corrective action, he should
take it immediately. Immediate action corrects
problems at once and gets performance on track.
PRINCIPLES OF CONTROL:
1) Principle of objectives: This principle states that control
must contribute to the achievement of objectives. In
other words, control must facilitate the accomplishment
of organisational objectives.
2) Principle of standards: This principle requires that for
ensuring effective control, accurate and objective
standards should be established. These standards
should be specific and capable of being measured. Good
standards will generally be accepted as fair and
reasonable by the workers being measured.
3) Principle of strategic point control: This principle states
that for effective control manager's focus should be on
strategic or key points of performance. Effective and
efficient control requires focus on those crucial activities
or operations where variation from standards would
cause greatest harm.
4) Principle of efficiency of control: This principle states
that control system should be able to detect deviations
quickly and to take corrective action immediately with
minimum of cost. The results of the control should be
worth their cost-both in monetary and human term.
5) Principle of control of responsibility: This principle
holds that control should be exercised only by the
manager responsible for the execution of the particular
plan.
6) Principle of future-directed control: This principle states
that effective control system should aim at preventing
present as well as future deviations from the standards.
7) Principle of direct control: This principle states that
control system should be designed to maintain direct
contact between the controller and the controlled. Such
a control system will ensure high quality of managerial
actions and behaviour.
8) Principle of reflection of plans: This principle requires
that control system must be so designed to reflect the
character and structure of plans. It will help in
implementing the plans effectively.
9) Principle of organisational suitability: This principle
states that controls should be tailored to fit the
 organisation structure. Responsibility for execution of
plans and for correction of deviations should clearly
point out in the organisation structure. Deviations from
plans can best be corrected when they are associated
with specific managerial positions having responsibility
and accountability for action.
10) Principle of individuality of controls: This principle
states that controls must be designed to meet the needs
of the individual manager. More specifically control
system should be tailored to suit the personality, quality
and authority of the manager.
11) Principle of control by exception: This principle
holds that a manager should be concerned with and
concentrate only on exceptional deviations i.e.
significant deviations and ignore others.
12) Principle of flexibility of controls: This principle
prescribes that controls should be flexible enough to
meet the needs of changing conditions.
13) Principle of review: This principle holds that
control system should be reviewed periodically.
14) Principle of action: This principle states that
control should be followed by appropriate action. Any
control is justifiable if measures are undertaken to
correct the potential or actual deviation from the
standards or plans.
ESSENTAILS/CHARACTERISTICS OF EFFECTIVE CONTROL
SYSTEM:
1) Goal-oriented: A control system is effective only when
it is goal- oriented. Therefore, before formulating a
control system, its goals should be set and properly
understood by all concerned. Moreover, everyone
should be made known what is his role and expected of
him to contribute to the system.
2) Accurate: A control system should be accurate. It must
generate accurate and reliable information. Inaccurate
information from a control system may cause the
managers to take inappropriate action or no action.
3) Timeliness: Control system should be able to provide
timely information. The best information has little
value if it is delayed. Hence, control system should be
able to receive and evacuate information quickly and
timely for timely corrective action.
4) Objective: An effective control should be as objective
as possible and not biased. It should be fair and
reasonable to those about whom information is being
received and evaluated.
5) Understandable: A control system may fail if it cannot
be understood by the users i.e. employees. A control
system that is difficult to understand can cause
unnecessary mistakes and confuse or frustrate
employees. Difficult system may even be ignored by
the employees and very purpose of the system may be
defeated. Hence, a control system should be easy to
understand.
6) Flexible and forward looking: The modern organisation
operates in a dynamic environment where change is
 inevitable. Hence, control system should be flexible
and forward looking. It should be flexible enough to
adjust the changing circumstances. It should be able to
take advantages of new opportunities and face
challenges successfully. It must also keep pace with the
ever-changing pattern of dynamic business world.
7) Economical: A control system must be economical to
operate. cost of control system should not exceed the
value of its benefits. But the economy need not be
exercised at the cost of effectiveness of the system.
However, to minimise the cost, management should try
to impose the least possible controls. It should be
remembered that control should not become the end,
rather control should be used as a means to achieve
the objective.
8) Reasonable standards: A control system should use
reasonable and attainable control standards. If they are
too high or unrealistic, they will not be achieved and
hence will not motivate employees. Some employees
may even be forced to attain the standards. In such a
case, they may resort to unethical or illegal short cuts.
Therefore, the control system should enforce the
standards that challenge and induce people to reach
higher performance levels. They should never be
demotivating or encouraging deception.
9) Strategic point control: Management cannot control
everything that happens in an organisation. Hence,
managers should focus on those points or factors that
are strategic or key to the organisation's performance.
 They should focus on those crucial activities and
operations where variation from standards would
cause the greatest harm.
10) Consistent to organisation structure: A control
system should be consistent with the organisation
structure. It should be consistent with organisation's
activity relationship as well as with the authority
relationships. In other words, flow of information for
control system should correspond with the
organisational relationships. Only such a system can
determine who controls what, who provides
information, who will control whom and so on.
11) Emphasis on exception: A control system should be
based on exception principle. This principle states that
managers should concentrate on exceptional
deviations from the standard. It is due to the fact that
managers cannot control all the activities. Hence,
managers should concentrate on the exceptional
deviations or the significant deviations in performance
from the standards.
12) Multiple criteria: A control system should contain
multiple criteria of control. It means that it should
include quantitative as well as qualitative criteria of
control. Such criteria are more logical and objective.
They are more difficult to manipulate. They promote
more accurate evaluation of performance.
13) Corrective action: An effective control system not
only helps to detect deviation from the standard but
also suggests the actions to be taken to correct the
 deviation. Thus, an effective control should be able to
point out the defect and specify the corrective act.
14) Participation: In order to formulate an effective
control system, participation of all concerned should be
ensured. In other words, control system should be a
joint effort of the manager and his subordinates,
Proper participation can greatly influence the success
of control system.
15) Suitability: It is a matter of fact that every
organisation is different in its size, operations and
needs. Hence, the system and techniques of control
will differ from organisation to organisation. Moreover,
the system and techniques will also differ from level to
level in the organisation. Hence. control system should
be designed and tailored to suit the needs of a
particular organisation.
16) Self-control by sub-systems: A control system
should within it have a self-control system for each
sub-system or department. If a department can have
its own control system, much of the detailed controls
can be handled within the department. These
departments with self-control can then be tied
together by the overall control system.
17) Direct control: A control system should be
designed to maintain direct contact between the
controller and the controlled. Even when there are
number of control systems provided by staff specialists,
the supervisor at the first level is still important
because he has direct knowledge of performance.
 18) Human factor: Every control system involves
human beings and hence affected by human factors.
Hence, a technically well-designed control system may
fail if human and psychological factors are ignored.
Hence, the physiological and psychological factors of
human beings (i.e. needs of human beings) should be
considered while formulating a control system.
19) It should consider and give allowance to the factors
which cannot be controlled.
20) The system should watch the means used to
achieve the ends.
21) The control factor should be an effective feedback
mechanism.
TECHNIQUES OF CONTROL:
➢ Traditional Techniques:
1) Personal observations: Personal observation
technique is the oldest and most important technique
of control. Under this technique, managers
Occasionally visit personally the subordinates at work
place and observes their performance. If they find any
deviation, give instructions on the spot. Personal
observation is important because it permits first-hand
evaluation of work. But control through personal
observation is time consuming and busy managers
cannot find enough time to inspect personally.
However, it should be noted that there is no
substitute for direct personal observation and
contact.
2) Setting examples: It is the old saying that "example is
better than precepts." Some managers follow this
saying and put good examples of performance before
subordinates and expect the same from them.
Examples set by managers become the norm of
behaviour for the subordinates. For instance, if a
manager sets the example of punctuality, his
subordinates tend to follow the same easily. Thus,
behaviour and actions of subordinates can be
controlled through exemplary behaviour of the
manager.
3) Plans and policies: Organisational plans include
strategies, policies, procedures, methods, rules,
programmes etc. These all are important tools that
guide and control the actions of all the organisation
members. These prevent deviations in actions and
behaviour and ensure uniformity of actions and
decisions. Thus, they play crucial role in controlling
activities.
4) Organisation-charts and manuals: Organisation-
charts and manuals are the documents that provide a
clear picture of relationships, duties and
responsibilities of organisation members. These can
be used to compare performance of the members.
Thus, these can serve as important control
techniques.
5) Disciplinary system: Disciplinary system provides for
reprimand. censures, criticism, disciplinary action,
punishment etc. Thus, it is a negative technique of
 control. For minor but regular lapses on the part of an
employee reprimand is issued. Where employee
repeatedly makes mistakes or where mistakes are
grave, strict disciplinary action is taken. Disciplinary
system can ensure control but through negative
means. It is through fear and pain. It is demoralising.
Hence, it does not create congenial work climate.
Managers should, therefore, be judicious in making
use of this technique of control.
6) Written instructions: Written instructions are issued
from time to time to the organisation members.
These provide latest information and instructions in
the light of changing rules and conditions. These may
provide additional knowledge and even remove
misconceptions of the members. Instructions may be
issued through personal/individual letters, circular
letters, bulletin, notes etc. These are the
supplementary control techniques.
7) Statistical data: Statistical data are important source
of control. Statistical data are collected and presented
in the form of tables, charts and graphs. They are
analysed in numerous ways such as mean, mode,
standard deviations, regression, correlation. These
data serve important role in the areas of production
control, quality control, inventory control and so on.
8) Special reports and records: Special operational
reports and records are also prepared in addition to
normal reports and records. These are non-routine
reports prepared by experts. They contain much
 deeper information. They are actually investigative
reports. They, therefore, indicate the depth of the
problem and suggest the means of correcting/solving
the problem.
9) Financial statements: Financial statements include
the 'profit and loss account' and 'balance sheet'.
These show the working and financial position of a
business. These are used as techniques of control. For
this purpose, financial statements of different time-
periods are compared and analysed. Moreover,
comparison and analysis of financial statements of
different firms are also made. The conclusions drawn
from such comparison and analysis are used for
controlling financial performance of the firm.
10) Operational audit: The audit is an effective tool of
control. Operational audit relates to the internal
operations of the firm. Statutory audit is more of a
nature of financial operations. Some firms use
internal audit with the help of special internal staff or
external audit team. It provides an overall review of
working of the entire organisation. It can reveal to
what extent established policies, procedures, rules,
work standards and methods have been followed in
the day-to-day working of the organisation. This
information can be used to control the operations of
the organisation.
11) Break-even Analysis: Break-even analysis is a
graphical technique of control. It is a technique of
identifying the number of units of a product that must
 be sold in order to generate enough revenue to cover
costs. Thus, is a technique of finding out a point of
break-even where total cost equals to the total
revenue. Thus, this technique is useful in controlling
production and sales volume in order to avoid loss.
12) Standard costing: Standard costing is a technique
of cost control. Under this technique, standard costs
of material, labour, overheads etc. are determined.
Then, actual costs are recorded and compared with
the standard costs and variances are found out. Then
causes of variance are found out. Finally, measures
are taken to prevent variances in future.
13) Budgets/budgetary control: Budgets are used as a
control device by almost all the managers. A budget is
a numerical statement showing the allotment of
resources to specific activities. Managers prepare
various types of budgets for various activities. They
include revenue budget, capital budget. expenditure
budget, production budget, sales budget, master
budget and so on, Budgets are used as a technique to
control the concerned activity. When budgets are
used as a technique of control, it is called the
budgetary control. It is a process of finding out what
is being done and comparing the actual results with
the related budget data and finding out the deviations
and correcting the deviation. Thus, budgetary control
helps managers to control the cost or use of
resources as planned.
➢ MODERN TECHNIQUES:
1) Return on investment or ROI: Return of
investment (ROI) is a technique of control of overall
performance. It measures the rate of return on
investment ze capital employed. This technique is
based on the assumption that goal of business is
not to maximise profits but to optimise return on
capital employed. Therefore, in this technique
profit of the organisation is not taken in absolute
terms but is considered in terms of capital
employed. The ROL is calculated as-

Managers compare rate of return between two or more

periods of the Organisation or of the two or more other
organisations and try to reach certain conclusion. On the
basis of such conclusion, managers control the activities
and operations of their own organisation.
2) Management audit: Management audit is yet
another new technique of control. Management
audit is a systematic technique of evaluation of the
working and effectiveness of management of an
organisation. It is designed to make an assessment
for the effectiveness of entire management
process, this audit is conducted by an independent
team of expert from relevant areas. This audit is a
periodic event. The audit team collects many facts
 and information from office records, personal
interviews with the members of organisation. It
also gathers information through questionnaires
circulated among the members and clients or
customers of the organisation. The audit team then
makes certain recommendations for future
guidance of management, Management uses these
recommendations for controlling the working and
performance of the organisation.
3) Management information system or MIS:
Management information system (MIS) is a system
of collecting, processing and transmitting
information needed by managers. More
specifically, this system is a centre of facilities and
personnel for collecting, processing, storing,
transmitting information needed for managing an
organisation. Managers use this information for
planning, decision-making as well as for controlling
the activities of the organisation. In this way MIS is
a technique of control.
4) Zero-base budgeting or ZBB: Zero-base budgeting
is a new approach to budgeting and used as control
technique. It is a budgeting technique which does
not consider figures of previous period or year
while preparing a budget. It prepares budget afresh
without considering the figures of earlier year or
period. It takes into account the needs of the
activity. Therefore, manager has to justify his entire
budget on the basis of facts of the prevailing
 situations. Such a budget can control the activities
in the light of current situations or conditions.
5) PERT/CPM: PERT and CPM are network techniques
that are also used in controlling the actions and
performance. PERT stands for "Programme
Evaluation and Review Technique" and CPM stands
for "Critical Path Method. Though these techniques
differ slightly, they are based on the same principle.
PERT/CPM is technique of scheduling complex
projects involving many activities. In this technique,
a network diagram is prepared that displays the
sequence of activities needed to complete a project
and time and cost associated with each activity.
Thus, PERT not helps in planning the schedule of a
project but also helps managers to monitor and
control progress of the project, identify possible
obstacles, and shift resources as necessary to keep
the project on schedule. Thus, with a PERT/CPM a
manager can ensure control of complex projects.
LIMITATIONS OF/DIFFICULTIES IN CONTROL:
1) Difficulty in setting standards: There are many areas in
the context of a business where measurable standards
of performance just cannot be set. importance among
such areas are employee morale, customer reaction,
and research and development. In the absence of these,
control function becomes less effective.
2) Difficulty in qualification: Sometimes standards cannot
be fixed in terms of quantity. Hence, control becomes
even more difficult.
3) Influence of external factors: There may be an effective
control system but external factors which are not in the
ambit of management may have adverse effect on the
working. These factors may be government policy,
technological changes, change in fashion, etc. The
influence of these factors cannot be checked by the
control system in the organisation.
4) Expensive: The control system involves huge
expenditure on its exercise. The performance of each
and every person in the organisation will have to be
measured and reported to higher authorities. This
requires a number of persons to be employed for this
purpose. If the performance cannot be quantitatively
measured then it will be observed by the superiors. The
exercise of control requires both time and effort.
5) Opposition from subordinates: The effectiveness of
control process will depend upon its acceptability by
subordinates. Since control interferes with the individual
actions and thinking of subordinates, they will oppose it.
It may also increase the pressure of work on
subordinates because their performance is regularly
monitored and evaluated. The factors are responsible
for the opposition of controls by subordinates.
6) Difficulty in pinpointing responsibility: Control process
is concerned with identifying the factors responsible for
deviations. But, in modern times, it is difficult to do so,
 because a number of persons are concerned with the
performance of a single job. To the extent it is so,
control is weakened.
7) Time consuming: There are cases when control
becomes time consuming exercise. It is due to the
nature of techniques used and the work itself.
8) Limits of corrective action: Sometimes deviations are
found but no Corrective action is possible. Sometimes,
corrective action cannot be taken quickly and damages
cannot be controlled.