Unit 5

CONTROLLING

Controlling can be defined as that function of management which helps to seek planned
results from the subordinates, managers and at all levels of an organization. The controlling
function helps in measuring the progress towards the organizational goals & brings any
deviations, & indicates corrective action.

Definition of Controlling:

Controlling is a process ensuring organizational resources and performance align

effectively with established objectives.

Importance of Alignment: It aligns activities across departments, fostering coherence

between actions and strategic organizational goals efficiently.

Example: Production Tracking: Tracking production output against quarterly targets

exemplifies controlling’s critical role in operational effectiveness.

Role of control

Control-Planning Synergy: Effective control functions inform future planning, ensuring

organizational strategies remain adaptable and aligned with objectives.

Continuous Feedback Mechanism: The feedback loop enhances planning quality by

integrating performance metrics with strategic adjustments for improved outcomes.

Equipment Monitoring: Monitoring equipment maintenance in manufacturing exemplifies

proactive control that prevents costly downtimes and production delays.

Types of strategic control

Premise control

Premise control is necessary to identify the key assumptions, and keep track of any change
in them so as to assess their impact on strategy and its implementation.

Implementation control

The implementation of a strategy results in a series of plans, programmes, and projects.

Implementation control can be implemented by identifying and monitoring strategic

requirement with respect to market success. It also helps in determining whether to go for
diversification or not.

Strategic surveillance

Designed to monitor a board range of events inside and outside the company that are likely
to threaten the course of firm’s strategy.

Special alert control

It is based on trigger mechanism for rapid response and immediate reassessment of

strategy in the light of sudden and unexpected events.

• Crises and critical situations that occur unexpectedly and threaten the course of a
strategy
Steps in control process

Establishing standards: This means setting up of the target which needs to be achieved to
meet organisational goals eventually. Standards indicate the criteria of performance.
Control standards are categorized as quantitative and qualitative standards. Quantitative
standards are expressed in terms of money. Qualitative standards, on the other hand,
includes intangible items.

Measurement of actual performance: The actual performance of the employee is

measured against the target. With the increasing levels of management, the measurement
of performance becomes difficult.

Comparison of actual performance with the standard: This compares the degree of
difference between the actual performance and the standard.

Taking corrective actions: It is initiated by the manager who corrects any defects in actual
performance.

Controlling process thus regulates companies’ activities so that actual performance

conforms to the standard plan. An effective control system enables managers to avoid
circumstances which cause the company’s loss.

Budgeting and Budgetary Control:

Budgeting:

A widely used tool for management control is budget. It is a quantitative expression of plan
of action. It refers to the plan of an organization expressed in financial terms. It determines
financial estimations relating to various activities of an organization for a fixed period of
controlling actual performance.

The following are the important definitions of a budget:

“A budget is pre-determined statement of management policy during a given period
provided a standard for comparison with the results actually achieved”. — J. L. Brown &
L.R. Howard

“A budget is a financial or quantitative statement prepared prior to a defined period of time

of the policy to be pursued during that period for the purpose attaining a given objective”.—
I. C. W. A England

From the above definitions the following characteristics can be summarized:

(1) A budget generally relates to a given future period

(2) It differs from objectives or policies because it is set down in specific numerical terms

(3) It should be flexible

(4) It is fundamental to the organization and hence, it receives the attentions and support of
the top management.

Budgetary Control:

It is the process of preparing various budgeted figures for the organization for the future
period and then comparing with the actual performance for finding out variances. This
enables management to find out deviations and take corrective measures at a proper time.
Hence, a budget is a means and budgetary control is the end result.

(1) “Budgetary control is system which uses budget as a means of planning and controlling
all aspects of producing and or selling commodities or services”.

(2) “Budgetary control is the planning in advance of the various functions of business so
that the business as a whole can be controlled”.

From the above two definitions, the following characteristics of budgetary control can
be extracted:

(1) It implies the planning of activities for each department.

(2) It involves recording of actual performance for sake of comparison and control.

(3) It involves taking the necessary steps to improve the situation and to prevent further
deviations.

(4) It involves the co-ordination among various department plans and budgets.
Characteristics of a effective control
• Accuracy
• Timeliness
• Flexibility
• Acceptability
• Integration
• Economic Feasibility
• Corrective Action
• Emphasis on Exception

Establishing control systems

Establishing control systems in controlling involves setting standards and measuring
performance against those standards

• Set standards
The first step in controlling is establishing standards that guide the organization’s
performance. Standards help ensure that the organization’s actions are directed
towards its goals.
• Measure performance
After setting standards, managers measure actual performance and compare it to
the standards. This step helps managers determine if their plans are working as
intended.
• Analyze performance
Managers analyze the results to evaluate whether objectives have been met,
efficiencies achieved, or goals obtained.
• Take corrective action
If there are discrepancies between actual performance and goals, managers take
corrective action to fix the problem.
• Follow up
Managers follow up on corrective action to ensure it is taken to its logical
conclusion.
Control frequency an method
Control Frequency:-

• Control frequency is refers to how frequently the controls need to be exercised

within a given period of time.
• Control Frequency depends upon the several factors

Factors:-

1. The quality expectations

2. Process speed
3. Scope for corrections
4. Project cost
5. Urgency
6. Any other factor affecting the cost, quality, time, and service

METHODS:-

1. Constant Controls
2. Periodic Controls
3. Occasional Controls

Constant Control :-

a) Self control
b) Clan control (group control)
c) Standing Plans (imposing policies, procedures and rules to improve
employees behaviour.)

Periodic controls :-

a) Regular Meetings and Reports

b) Budgets
 c) Audicts they two types
1. Accounting audits
2. Management audits

Occasional Controls :-

a) Observation (cameras, electronic devices, Management By Walking around)

b) Exception Principle (gives authority to employees to interact with manager
directly)
c) Special Reports (requesting special reports from employees)
d) Project Control (associated with projects and programs to implement control
system