Chapter – 8: CONTROLLING

MEANING OF CONTROLLING

‘Management 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’ Donnel

Controlling is the measurement and correction of the performance of the subordinates to make sure that the enterprise objectives and plans devised to
attain them are being accomplished. Controlling is not the last function of management but, it is the function, which brings back the management
cycle back to the planning function.

Features of Controlling

The control function of management has the following features: -

1. Goal – oriented Function

2. Pervasive Function

3. Continuous Process

4. Backward and forward looking Process

Importance of Controlling

Control is an indispensable function of management. A good control system helps an organization I the following ways: -

1. Accomplishing Organizational Goals

The controlling function brings to light the deviations, if any, from the goals and indicates corrective action. It thus, guides the organization
and keeps it on the right track so that organizational goals might be achieved.

2. Judging Accuracy of Standards

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.

3. Making Efficient use of resources

By exercising control, a manager seeks to produce wastage and spoilage of resources. Each activity is performed in accordance with
predetermined standards and norms.

4. Improving Employee Motivation

A good control system ensures that employees know well in advance what they are expected to do and what the standards of performance for
their appraisal are. This motivates them and helps them give better performance.

5. Ensuring Order and Discipline

Controlling helps to minimize dishonest behaviour on the part of the employees by keeping a close check on their activities. This creates on
atmosphere of order and discipline in the organization.

6. Facilitating Coordination in Action

Controlling provides direction to all activities and efforts. Each department and employee is governed by predetermined standards which are
all coordinated with one another.
Relationship between Planning and Controlling

Planning and Controlling are inseparable twins of management: -

- Planning without Controlling is meaningless

Once a plan become operational, controlling is necessary to monitor the progress, measure it, discover deviations and initiate corrective
measures to ensure that events confirm to plans.

- Controlling is blind without Planning

If the standards are not set in advance, managers have nothing to control as controlling involves comparison of results with the standards.
When there is no plan, there is no basis of controlling.

The relation between both can be shown as follows:

(Standards of Performance)

Planning Action Controlling

(Feedback)

Planning prepares the ground for controlling and controlling provides information for the revision and formation of new plans. Thus, both
planning and controlling reinforce each other.

- Planning is Prescriptive whereas Controlling is evaluative

Planning is an intellectual process involving thinking and prescribing on appropriate course of action for achieving objectives. Controlling
checks whether decisions have been translated into desired action.

- Planning and Controlling are both backward – looking as well as forward – looking function

Plans are prepared for future and are based on forecasts about future conditions so, it’s forward looking. Controlling is like a postmortem of
past activities to find out deviations from the standards. So, its backward looking.

However, it should be understood that planning is guided by past experiences and the corrective action initiated by control function aims to
improve future performance. Thus, Planning and controlling are both backward looking was well as forward looking function.

Thus, Planning and Controlling are interrelated and reinforce each other in the sense that:

(a) Planning based on facts makes controlling easier and effective, and

(b) Controlling improve future planning by providing information derived from past experience.

Controlling Process

Controlling is a systematic process involving the following steps:

1. Setting Performance Standards

Standards are the criteria against which actual performance would be measured. They are the benchmarks towards which the organization
strives to work.

They can be set in both quantitative and quantitative terms, For eg:
 Quantitative – Cost to be incurred, revenue to be earned, units to be sold, time to be spent on completion of a task etc.

Qualitative – Improving goodwill and motivation level of employees etc.

As far as possible, manager should try to set standards in quantitative terms in order to facilitate their comparison with actual performance. In
case of qualitative standards, they should be defined in a manner to make measurement easier.

Standards should be flexible enough to be modified according to internal and external changes to business.

2. Measurement of Actual Performance

Performance should be measured in an objective and reliable manner and as far as possible, in the same units in which standards are set, to
make their comparison easier. Rather than measuring performance when the task is completed, it should be done during the performance,
wherever possible. This ensures continuous and formative monitoring. Several techniques can be used for measuring actual performance like:

- Personal observation Sample checking

- Performance reports Calculation of certain ratios like Gross Profit Ratio, Net Profit Ratio

3. Comparing Actual Performances with Standards

Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in
quantitative terms. For eg: performance of a worker in terms of units produced in a week can be easily measured against the standard output
for the week.

4. Analyzing Deviations

Some deviations are definitely expected in all activities so it’s important to determine the acceptable range of derivations. Also, deviations in
key areas need to be attended more urgently as compared those in insignificant areas. For this managers use the following:

(a) Critical Point Control

They key result areas (KRAs), which are critical to the success of an organization, are set as critical points. If any thing goes wrong at
the critical points, the entire organization suffers. Therefore, control at such points is more important. For eg: In a manufacturing
organization, an increase of 5% in the labour cost may be more troublesome than a n 15% increase in postal changes.

(b) Management by Exception

Also called 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. For eg:

If acceptable range – 2% rise in labour cost, then only deviation beyond 2% say 5% rise, should be brought to the notice of
management and receive immediate action of management on priority basis.

Advantages of Critical Point and Management By Exception

- Saves time and efforts of managers as they deal only with significant deviations.

- Better utilization of managerial talent as it focuses managerial attention on important areas.

- Facilitates delegation of authority and increase morale of employees as route problems are left to the subordinates.

- Identifies critical problems, which need timely action to keep the organization in the right track.

Once the deviations are identifies, they need to be analyzed for their causes. They may have multiple causes like:
- unrealistic standards

- defective process

- inadequacy of resources

- structural drawbacks

- organization constraints and

- Environmental factors beyond organizations control

5. Taking Corrective Action

 When deviations are within acceptable limits – No corrective action is required.

 When they go beyond this range, especially in key areas – immediate managerial attention is required. In case, the deviation cannot be
corrected through managerial action, the standards may have to be revised.

Some examples of corrective action are: -

Causes of Deviation cc Corrective Action

- Obsolete machinery Technological up gradation of machinery

- Defective physical condition of work Improve physical conditions of work

- Defective machinery Repair or else replacement of machinery, etc.