THE NEW INDIAN SCHOOL W.L.

L
KINGDOM OF BAHRAIN
CLASS: XII BUSINESS STUDIES
CHAPTER 8 – CONTROLLING
NOTES
Controlling can be defined as comparison of actual performance with the planned performance.
CONTENT:
 Controlling – meaning , features & importance
 Relationship between planning & controlling
 Steps in controlling
Controlling means ensuring that activities in an organisation are performed as per the plans. Controlling also
ensures that an organisation’s resources are being used effectively and efficiently for the achievement of
predetermined goals. The controlling functions finds out how far actual performance deviates from
standards, analyses the causes of such deviations and attempts to take corrective actions based on the same.
Features
1. Controlling is a goal oriented function: Controlling as a function of management ensures that the
overall directions of individuals and groups are consistent with short and long range plans of the
organization. So it is completely a goal oriented function.
2. Controlling is an all pervasive function: Controlling is a function which is applicable to all types of
organizations business and non-business and at all managerial levels.
3. Controlling is a continuous function: Control is not a one-time activity. Rather, it is a dynamic
process that involves constant analysis of actual and planned performance. The resultant deviations,
if any, are corrected as per the need of the situation.
4. Controlling is both a backward looking as well as forward looking function: Under controlling past
performance is analysed, therefore controlling is backward looking. On the basis of this past
performance analysis, remedial action is taken to make future performance better, in this way
controlling is forward looking.
5. Controlling is a dynamic process: Since controlling requires taking reviewable methods, changes
have to be made wherever possible.
Importance
1. Controlling helps in achieving organisational goals: The controlling function measures progress
towards the organizational goals and brings to light/indicates corrective action.
2. For Evaluating/Judging accuracy of standards: A good control system enables management to verify
whether the standards set are accurate or not by careful check on the changes taking place in the
organisational environment.
3. Making efficient use of resources: By the process of control, a manager seeks to reduce wastage of
resources.
4. Improves employee’s motivation: A good control system ensures that employees know well in
advance what they are expected to do & also the standard of performance. It thus motivates & helps
them to give better performance.
 5. Facilitating Coordination in action: In controlling each department and employee is governed by
predetermined standards which are well coordinated with one another. Control provides unity of
direction.
6. Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the
organization by keeping a close check on the activities of its employees.

CONTROLLING PROCESS
1. Setting Performance Standards: Standards are the criteria against which actual performance would
be measured. Thus standards become basis for comparison and the manager insists on following of
standards. Standards can be set in both quantitative as well as qualitative terms. It is important that
standards should be flexible enough to be modified whenever required.
2. Measurement of Actual Performance: Performance should be measured in an objective and reliable
manner which includes personal observation, sample checking. Performance should be measured in
same terms in which standards have been established, this will facilitate comparison.
3. Comparing Actual Performance with Standard: This step involves comparison of actual performance
with the standard. Such comparison will reveal the deviation between actual and desired
performance. If the performance matches the standards it may be assumed that everything is under
control.
4. Analysing Deviations: The deviations from the standards are assessed and analysed to identify the
causes of deviations. Deviations are analysed in the light of pre-determined deviation tolerance limit
and key result areas.
a) Critical point control (CPC): It is neither economical nor easy to have a check on all the activities
of an organisation. Hence, the manager should pay more attention on those activities which are
important and critical to the success of an organisation. These are known as Key Result Areas-
KRA’s. Example: 2% increase in stationery cost is not critical. But 2% increase in wages ,salaries
are critical.
b) Management by Exception (MBE): A manager should take corrective action only when there is
exceptional deviation i.e. when they cross the permissible limit or acceptable range. Deviations
within acceptable range are ignored. Example: Wastage within normal wastage range may be
ignored. But if wastage crosses this limit and becomes abnormal then management should control.
 5. Taking Corrective Action: The final step in the controlling process is taking corrective action. No
corrective action is required when the deviations arewithin the acceptable limits. But where
significant deviations occur corrective action is taken.

Relationship between Planning and Controlling

Planning and controlling are interrelated and infact reinforce each other in the sense that:
i. Planning is pre-requisite for controlling: Plans provide the standard for controlling. Thus, without
planning, controlling is blind. If the standards are not set in advance managers have nothing to
control.
ii. Planning is meaningless without controlling: It is fruitful when control is exercised. It discovers
deviations and initiates corrective measures. Effectiveness of planning can be measured with the help
of controlling
iii. Planning and controlling both are forward looking: Planning is a future oriented function as it
involves looking in advance and making plans based on forecasts about future conditions. Controlling
is referred to as looking forward because the corrective action in controlling is taken to prevent the
recurrence of the deviations in future.
iv. Planning and controlling are both looking back: Planning is looking back because new planning is
guided by the problem identified in the past. Controlling is looking back as it compares the actual
performance with standards. This involves scrutinising the events after they have taken place. Thus,
planning and controlling cannot be separated. The two are supplementary function which support
each other for successful execution. Planning makes controlling effective whereas controlling
improves future planning.
v. Planning is prescriptive whereas, controlling is evaluative - Planning is basically an intellectual
process involving thinking, whereas controlling checks whether decisions have been translated into
desired action.
Planning based on facts makes controlling easier and effective and Controlling improves future
planning by providing information derived from past experience.