CHAPTER 8 CONTROLLING

1. Judging Accuracy of Standards a Process of Controlling

Forward as well as backward
2. Analysing Deviation b looking
3. Taking Corrective action c Limitations of Control
4. Resistance from Employees d Controlling process
5. Standard e Process of Controlling
6. Controlling f Overview of past things.
7. Setting performance standards g Performance measure criteria
8. Function of controlling h Controlling

One & Two Marks

1. What is meant by Controlling?
ANS:- controlling means ensuring that activities in an organisation are performed as per the
plans.

2. Expand PERT/CPM/MIS.
PERT:- Programme Evaluation and Review Technique
CPM:- Critical Path Method
MIS:- Management Information System (EACH ONE MARKS)

3. What is Ratio Analysis?

ANS:- Ratio Analysis refers to analysis of financial statements through computation of ratios.
4. What is controlling?
Ans. It means ensuring that activities in an organization are performed as per the plans. It is a
comparison between actual & planned activities.
5. Define Managerial Control
Ans. As per Koontz and O’ Donnel- "Managerial Control implies the measurement of
accomplishment against the standard and the correction of deviations to assure attainment of
objectives according to plans."
6. What is ‘Standard’ in controlling process?
Ans. It is the criteria (yardstick) against which the actual performance would be measured.
Multiple Choice Questions
1. An efficient control system helps to
a. Accomplish organizational objectives b. Boost employee morale
c. Judges accuracy of standard d. All of the above.
2. Controlling function of an organisation is
(a)Forward looking (b)Backward looking
(c)Forward as well as backward looking (d) None of the above
3. Management audit is a technique to keep a check on the performance of
(a) Company (b) Management of the company
(c) Shareholders (d) Customers
4. Budgetary control requires the preparation of
(a) Training schedule (b) Budgets
(c) Network diagram (d) Responsibility centres
5. Which of the following is not applicable to responsibility accounting?
(a) Investment Centre (b) Accounting centre
(c) Profit centre (d) Cost centre

Important Questions (1/2marks)

1. State any two traditional techniques of managerial control.
2. What is Personal Observation
3. What is statistical reports
4. What is Break-even analysis
5. What do you understand by Budgetary Control? State any two types of budgets.
6. State any two advantages of Budget.
7. State any two modern techniques of managerial control.
8. Give the meaning of Return on Investment.
9. What is Ratio Analysis? State any two types of ratios.
10. What is Responsibility Accounting? State any two types.
11. Give the meaning of Management Audit and any two advantages.
12. What is MIS? State any two advantages.
PRACTICAL ORIENTED QUESTION
AS A MANGER OF AN ORGANIZATION, WHAT ARE THE MODERN TECHNIQUES OF
CONTROLLING YOU WOULD LIKE TO ADOPT?
EXERCISE QUESTIONS
1. Name the principle that a manager should consider while dealing with deviations
effectively.
Ans. The principle of management that a manager should consider while dealing with deviations
effectively is management by exception. According to this technique ‘an effort to control
everything may end up in controlling nothing’. Thus, only significant deviations which are
beyond the permissible limit should be acknowledged.
For example, Management may decide that an increase in production cost by Rs 2 per unit can
be checked at the supervisory level and any further increase is to be tackled by management.
2. State any one situation in which an organisation’s control system loses its effectiveness
Ans. An organisation's control system loses its effectiveness when standards cannot be
defined in quantitative terms.
For example, it is difficult to set standards for accessing 'Employee Morale' in employees as
every individual is motivated by different motives and drives.
3. Give any two standards that can be used by a company to evaluate the performance of
its Finance & Accounting department.
Ans.The standards that can be used by a company to evaluate the performance of its Finance &
Accounting department are:
a) Inventories
b) Liquidity
c) Capital expenditures
d) Flow of capital.
4. Which term is used to indicate the difference between standard performance and actual
performance?
Ans. The term used to indicate the difference between standard performance and actual
performance is 'Deviation'. On comparing Actual performance with Standard performance, the
'deviations' are revealed.
5. ‘Planning is looking ahead and controlling is looking back.’ Comment.
Ans. Planning is looking ahead and controlling is looking back. This statement is partially true.
Planning is a psychological process of 'thinking and deciding in advance' about 'what is to be
done' and 'how it is to be done'. It is a mental activity that includes deciding the goals and also
the actions through which they are to be accomplished. Thus, it is said that planning is looking
ahead as it involves predicting the future.
Controlling on the other hand, involves an assessment of the past performance and evaluating
them against the set standards. In this sense, controlling is said to be a backward looking
function.
However, both these statements are only partially true.
Though planning is a futuristic concept but it is based on past actions and experiences. Planning
for future cannot take place without peeping into the past. Similarly, though controlling involves
assessment of past performance, it also aims at improving the future performance by taking the
required corrective actions. Hence, we can say that planning and controlling are backward
looking as well as forward looking functions.
6. An effort to control everything may end up in controlling nothing.’ Explain
Ans. The statement, 'an effort to control everything may end up in controlling nothing' is in
regard with the principle of 'Management by Exception'.
It stresses on the fact that everything cannot be effectively controlled. According to this principle,
rather than controlling each and every deviation in performance, an acceptable limit of
deviations in various activities should be set and only those deviations that go beyond the
acceptable range should be brought to the notice of the managers for control.
In other words, only the major deviations which are beyond permissible limit should be
acknowledged. For instance, suppose the acceptable range of increase in the input cost is set at 3
percent.
In this case, only a more than 3% increase in the input cost (say 7%) should be brought to the
notice of the managers. On the other hand, a less than 3% increase (say 1%) should be neglected.
Hence, an effort should be there to control only the major things instead of trying to control
everything.
7. Explain how management audit serves as an effective technique of controlling.
Ans. Refer to advantages of Management Audit.
8. 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 Prasad, fell short of his daily production target by 10 units for two days consecutively. Mr.
Arfaaz approached MsVasundhara, the CEO of the Company, to file a complaint against Mr.
Bhanu 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 MsVasundhara should consider while taking her
decision is Management by Exception. According to this technique ‘an effort to control
everything may end up in controlling nothing’. Thus, only significant deviations which are
beyond the permissible limit should be acknowledged.
In this case, Mr. Bhanu had fallen short of only 10 units, he should not be terminated for such a
small deviation.
CASE QUESTIONS
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 it 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 from 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.

a. Identify the benefits the company will derive from a good control system.
When company starts following a good control on operations, If leads to derive benefits which
are -
(i) Helps in achieving desired goals.
(ii) Judging accuracy of operations.
(iii) Making efficient and effective use of resources.
(iv) Improving employee morale.
(v) Ensuring proper flow of orders and the whole system is in discipline
(vi) It facilitates the co-ordination and improve the performance of every individual
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.
Planning helps in setting up of targets for the company and controlling assures that the
accomplishment of the planned targets of the company.
Controlling gives effective information about the actual performance of the company for next
steps of planning. Planning is the first function of business and management. It includes
directing, organizing, and selection of workers etc. Controlling measures the performance with
set standards of the company.
In business planning without controlling is not possible because controlling is important
because it gives assurance that outcomes of operations are fulfilled as early as possible to meet
the company level targets. If there are no standards there is nothing to control.
c. Give the steps in the control process that the company should follow to remove the
problems it is facing.

i. Setting Standards: Setting up of standards involves developing the benchmarks against which
the actual performance is to be measured. The standards can be set in qualitative (such as
number of initiatives taken by an employee) as well as quantitative terms (such as in the form of
sales targets, units to be produced).

ii. Measuring Actual Performance: Once the standards are set, the next step is to measure the
actual performance of the activities. This may be done through various techniques such as
personal observation and performance reports.

iii. Comparing the Performances: Performances once measured are then compared with the
set standards. Such a comparison helps in assessing the deviations in the work. Thereby, it
guides the managers in taking the necessary steps so as to improve the performances.

iv. Analysing Deviation: Every organisation faces deviations when comparing the actual
performance with the pre-developed standards. Thus, it is important to find the deviations that
are in the permissible range. It is said that deviations in key areas should be attended first. For
analysing the deviations the managers generally use 'Critical Point Control' and 'Management by
Exception'. Once the deviations are recognised, the cause for it must be identified.

v. Corrective Measures: When deviations go beyond the admissible limits, there arises a need
for the management to take corrective actions. This is the last step of controlling which aims at
correcting the deficiencies of the organisation so that the errors do not occur again.

CASE 2
Mr Shantanu is a chief manager 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 track of the performance of all the employees in the organisation so that targets
are achieved effectively and efficiently.
a. Describe any two features of Controlling highlighted in the above situation.
b. Explain any four points of importance of Controlling. (Write by your own)

Describe any two features of Controlling highlighted in the above situation.

ANS. The two features of controlling highlighted in the above situation are:
i. Goal-oriented process: Since, controlling ensures that an organisation’s resources are
effectively and efficiently utilized for achievement of goals, it is regarded as a goal-oriented
process.
ii. Continuous: Control should not be misunderstood as the last function of the management
process. By analysing deviations and taking corrective action, it helps in formulating better
plans for the future. Thus, it is a function that brings the management cycle back to planning and
is regarded as a continuous function.
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