Every organisation aims at achieving some goals from its business activities and it is

essential to ensure whether or not the firm is performing activities according to the pre-
determined goals. The controlling function of management helps an organisation in
ensuring the same. Hence, controlling means comparing the actual performance of an
organisation with the planned performance and taking corrective actions if the actual
performance does not match the planned performance. Controlling cannot prevent the
deviation in actual and planned performance; however, it can minimise the deviations by
taking corrective actions and decisions that can reduce their recurrence.
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
Control is the process of bringing about conformity of performance with planned action.

Nature of Controlling
1. Controlling is a goal-oriented function of management. It aims at ensuring that the
resources of the organisation are used effectively and efficiently for the achievement of pre-
determined organisational goals.
2. Controlling is a continuous process. It means that once the actual performance and
standard performance of a business are compared and corrective actions are taken, the
controlling process does not end. Instead, the firms have to continuously review the
performance and revise the standards.
3. Controlling is all-pervasive. It means that the controlling function is exercised by the
firms at all levels of management. The extent of control and nature of the function may vary
at every level. Also, a controlling process is required in both non-business and business
organisations.
4. Controlling process is both a forward-looking and backward-looking function. As a
forward-looking function, it aims at improving the future performance of an organisation on
the basis of its past experiences. However, as a backward-looking function, it measures and
compares the actual performance and planned performance (fixed in past) of the
organisation.
Importance of Controlling
Controlling function is important for every organisation due to the following reasons:
1. Accomplishing Organisational Goals
Controlling is a goal-oriented process as it aims at determining whether the pre-determined
plans are being performed accordingly and whether required progress is made towards the
achievement of the objectives. With the help of controlling, an organisation can keep the
business activities on the right track and can achieve the organisational goals effectively
and efficiently, and take the necessary corrective actions if required.
2. Judging Accuracy of Standards
An effective controlling process can help an organisation in verifying whether or not the
firm has set the standards accurate. It also helps in keeping a check on the changes taking
place in the business environment and making required changes in the standards whenever
it is necessary.
3. Making Efficient Use of Resources
Controlling helps an organisation in reducing wastage of resources, as it aims at ensuring
that every activity of the firm is performed according to the pre-determined goals.
4. Improving Employee Motivation
As controlling process includes comparing the pre-determined goals of an organisation with
its actual performance, it properly communicates the role of employees in advance. It
means that the employees know in advance on what standards their performance will be
measured, compared, and appraised. This set of pre-determined goals motivates them to
give a better performance.
5. Ensuring Order and Discipline
An efficient control system in an organisation can help its managers in creating an
atmosphere of discipline and order in the firm. Besides, controlling also helps in keeping a
continuous check on the employees so they can minimise undesirable activities, such as
theft, corruption, fraud, etc.
6. Facilitating Coordination in Action
Controlling process also helps an organisation in facilitating coordination between different
divisions and departments by providing the employees with unity of direction. In other
words, every employee and department of the organisation is governed by a pre-determined
set of goals. It also motivates employees in achieving these common goals through
coordination to avoid duplication of efforts.

Features of a Good Control System

1. Suitable: A good control system should be suitable for the needs and nature of
the organisation.
2. Simple: A good controlling system should be easy to operate and understand.
3. Economical: The cost of setting, implementing, and maintaining a control
system should not be more than the benefits gained from it.
4. Flexible: A good control system should have the ability to adjust according to
the changing business environment and internal conditions.
5. Forward Looking: A good control system should move in a forward direction
so that the managers can easily determine the deviations before they actually
happen in the organisation.
6. Objective: The standards of the organisation, its measurement of performance,
and corrective actions should be impersonal and objective.
 7. Management by exception: A good control system should focus its attention on
the significant deviations which are crucial for the organisation, instead of
looking for the deviation which does not have much impact on the business.

Limitations of Controlling

1. Difficulty in Setting Quantitative Standards

When an organisation cannot define its standards in quantitative terms, the controlling
system becomes less effective. For example, it is difficult to measure the human behaviour
of employees in quantitative terms, which makes it difficult for the firm to measure their
performance from the standards.

2. Little Control on External Factors

The controlling system of an organisation can effectively control the internal factors;
however, it is not easy to control the external factors of an organisation. For example, a
firm can check and control any change in its production (internal factor), but cannot keep a
check on the changing technological advancement, government policies, etc. (external
factors).

3. Resistance from employees

The effectiveness of the controlling system highly depends on whether or not the
employees have accepted the process. It means that if the employees think of the control
system as a restriction on their freedom, they will resist the system. For example, the
employees of an organisation might object when they are kept under various restrictions
making them feel their freedom is being taken.

4. Costly Affair
Controlling is an expensive process, which means that every employee’s performance has
to be measured and reported to the higher authorities, which requires a lot of costs, time,
and effort. Because of this reason, it becomes difficult for small business firms to afford
such an expensive system. Besides, a controlling system is effective only when the benefits
gained from it exceed the expenses made on them.

The Principles of control can be defined as different methodologies, techniques used by

the managers to control and monitor various business activities which help for the growth of
the organization. These principles also help to protect and safeguard the organization, its
assets, liabilities, resources, etc. Given below are the list of principles of controlling:

 Principle of Reflection of Plans - Planning and controlling go hand in hand. If any

entity has a proper plan, then it is much easier to make a control system for that entity.
Overall, a proper plan means the control will be more effective. It is the basic
principle of control. The principle of reflection of plants plays a predominant role in
the organization for its growth in terms of quality and quantity. Planning and
controlling are like side by side of a coin. This principle helps to reflect all the plants
that were designed in the first stage of the organization.
 Principle of Prevention - There is a concept named as prevention is better than cure.
This will apply to the control function as well. Hence, control does not always focus
 on the improvement but also on solving the problems as well. It is another important
principle of control that helps to prevent the negative aspects of the firm at the initial
stage. From the ancient days as we believed prevention is better than cure, this
principle helps to realize defects in the beginning and also tries to find remedies for
them. Feedforward control is a famous technique used in the principle of prevention.
 Principle of Future Directed Control - Control is a function which looks forward.
With the help of relevant information controls can be directed towards the future and
can help in making things much better.
 Principle of Efficiency of Control - It is very necessary and important that there
needs to be efficiency in the approaches and techniques of the system of control.
 Principle of Action - Control function will only be justified only when there will be
remedial action to take. Pointing out the drawbacks will not be enough. There is a
need to take action as well to make the management effective and efficient. Every
task cannot be made with a plant design on paper. It should take a physical form and
put it into action. Then only we can move forward either in Life or in work. This
principle of action is also an extension of finding out defects and deviations. It helps
to take necessary remedial actions for the findings.
 Principles of Standards - There are predetermined standards which are already being
set up by the company and that needs to be achieved by the workers.
 Principles of Assurance of Objectives - Just by detecting the deviations in the work,
the company's objectives can be achieved on a quick and more efficient and effective
basis.
 Principle of Organizational Suitability - For having an efficient and effective
control, the business organisation structure must be well integrated and clear. It is the
most important principle of control in management. Every organization needs to
choose a set of principles that are suitable for that particular organization because
every organization may vary from its type, size, methodologies, etc.

 Principle of Responsibility: - Apart from the principles of control, responsibility is

the basic duty that should be owned by every employee from a lower level to a higher
level of the organization for its smooth and safe growth. It was also helpful in gaining
name and fame for the organization.

 Principle of Exception: - This principle majorly concentrates on minor exceptional

cases that may deviate slightly from the standards stated at the beginning of the
organization. It also takes care that these exceptions may not disturb or affect the
growth of the organization.

 Principle of Critical Points: - Each organization plays several critical points because
of various factors. At that time, the principles of control in management help the
managers to pay more attention to these critical points, whether they are expected or
unexpected.
  Principle of the Pyramid: - It is also one of the principles of control that explains the
delegation of authority as well as the direction of a message which can pass from the
lower level to a higher level. Even though it seems to be General, it plays a very
significant role as certain issues may arise for the middle-level employees because of
superiors and subordinates.

 Principle of Future-directed Control: - This principle of control is completely

contrasted to the above principle, which is the feedback principle. It is simply known
as the feed-forward principle. Along with the low-level employees, planning and
controlling the action, the high-level employees will forecast and monitor the
activities going on in the firm, and it takes care of all the activities that need to move
smoothly without any deviations or disturbances.
 Principle of the Standard: - Every organization has a set of standards that need to be
obeyed and followed by all levels of the organization. These should be productive and
qualitative, for example, punctuality, delegating work, reporting to the required
people, etc., all these Commander standards should be transparent and specific to their
organization.

 Principle of Objective: - It is the most common principle of control. Because every

organization's motive is to achieve its objective either monetary benefit or fame or
any other, this principle always monitors the works for the final objective. It also
controls all the deviations and looks after the remedies facilitated to that particular
deviation.

There are various techniques of managerial control which can be classified into two broad
categories namely-

 Traditional techniques

 Modern techniques

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.
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. Breakeven point can be
calculated with the help of the following formula:

Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit

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.
Therefore, the budget can be defined as a quantitative statement prepared for a definite future
period of time for the purpose of obtaining a given objective. It is also a statement which
reflects the policy of that particular period. The common types of budgets used by an
organization.
Some of the types of budgets prepared by an organisation are as follows,

 Sales budget: A statement of what an organization expects to sell in terms of

quantity as well as value

 Production budget: A statement of what an organization plans to produce in the

budgeted period

 Material budget: A statement of estimated quantity & cost of materials required

for production

 Cash budget: Anticipated cash inflows & outflows for the budgeted period

 Capital budget: Estimated spending on major long-term assets like a new factory
or major equipment

 Research & development budget: Estimated spending for the development or

refinement of products & processes

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:

 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. It can be
calculated as under-
Net income before or after tax may be used for making comparisons. Total investment
includes both working as well as fixed capital invested in the business.

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. Responsibility centers may be of the following types:

 Cost center

 Revenue center

 Profit center

 Investment 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.

Therefore, these techniques are so interrelated and deal with such factors as time scheduling &
resources allocation for these activities.
Solved Example for You

Q.1 Explain how management audit serves as an effective technique for controlling?

Ans. Management Audit judges the overall performance of the management of an organization.
It aims at reviewing the efficiency and effectiveness of management and improving its future
performance. Its basic purpose is to identify the deficiencies in the performance of management
functions. It also ensures updating of existing managerial policies.

Q2 Write a short note on budgetary control?

Ans: Under this technique, different budgets are prepared for different operations in an
organization in advance. These budgets act as standards for comparing them with actual
performance and taking necessary actions for attaining organizational goals.

A budget can be defined as a quantitative statement of expected result, prepared for a future
period of time. The budget should be flexible so that necessary changes if need be, can be easily
made later according to the requirements of the prevailing environment.