BUSINESS STUDIES

CLASS – 12th (2023-2024)

Chapter 08 – Controlling
 DEFINITION
“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.

 MEANING
Controlling is a process that entails comparing actual performance to the desired
outcome, so as to ensure the successful achievement of objectives. Setting
standards, measuring actual performance, and taking corrective action in case of
deviations are all part of the managerial role of controlling function.

 IMPORTANCE OF CONTROLLING
1. Controlling helps in achieving organizational goals: The controlling
function tracks progress toward organizational objectives and flags any
deviations so that remedial action can be taken.
2. Judging accuracy of standards: An effective control system allows
management to determine if the standards set are accurate or not by closely
monitoring changes in the organization's environment.
3. Making efficient use of resources: A manager can reduce resource waste by
effectively utilizing resources through the controlling process.
4. Improving employees’ motivation: An effective control system guarantees
that staff are aware of what they are expected to do as well as the performance
requirements. As a result, it inspires and assists them in delivering superior
results.
5. Ensuring order and discipline: By maintaining a careful eye on the activities
of its employees, the controlling function generates an atmosphere of order and
discipline in the firm.
6. Facilitating Coordination in action: The last and most crucial role of
controlling is to ensure that each department and employee is governed by
predetermined standards and goals that are well-understood and coordinated.

 LIMITATIONS OF CONTROLLING
1. Difficulty in setting quantitative standards: When standards cannot be
measured, a control system loses some of its effectiveness.
2. Little control on external factors: External elements such as government
legislation, technical advancements, and competition, among others, are
beyond the control of an organization.
3. Resistance from employees: Employees, for the most part, despise being
controlled by their bosses and they dislike being in constant vigilance of the
management.
4. Costly affair: Control is an expensive procedure because it necessitates a lot
of money, time, and effort in terms of setting standards, measuring
performance and correcting the deviations.

 FEATURES OF CONTROLLING
In an organization, control is a major goal-oriented function of management. It is a
process of comparing actual performance to the company's defined standards to
ensure that actions are carried out according to the plans, and if they aren't,
corrective action is taken.
1. Goal oriented: The attainment of defined goals or objectives determines the
success of any management effort.
2. Pervasive: Controlling is required in all types of organization whether it is
profit making, non-profit making, business or non-business, at all levels whether
it is top level management or middle level management or lower-level
management.
3. Continuous: Continuous performance development, is a real-time, forward-
looking approach to performance that businesses utilise to align and grow their
people while assisting them in their success.
4. Controlling is the process of reviewing staff performance: Through
controlling function, the management can keep a check on the performance,
dedication, and problem areas of the staff.
5. It is a forward-looking function: Controlling is a forward-looking function, as
it helps in deciding the future course of action in case the actual performance
does not match with the standards set.
6. It is dependent on the planning: Controlling is dependent on the planning
function, as the comparison of actual performance is made with the planned
performance. Hence planning acts as a base for controlling.
7. Action oriented: The focus of management is on accomplishing the work with
the help of human resources. It is the effective and efficient coordination of all
available resources. The actions in an organisation are carried out by
subordinates, or workers, who work under the supervision of a manager.

 RELATIONSHIP BETWEEN PLANNING AND CONTROLLING

Planning and controlling are intertwined and mutually reinforcing in the sense that:
1) Planning is required for effective control. The norm for controlling is set by
plans. Managers have no influence over anything if the standards aren't defined
ahead of time.
2) Without controlling, planning is worthless. When control is exercised, it is
fruitful. It detects any deviations and takes corrective action if necessary.
3) Controlling assesses the efficiency of planning and aids in the implementation
of remedial actions.
4) Planning is forward-thinking, whereas controlling is backward-thinking. Planning
is a future-oriented activity since it entails thinking ahead and establishing
policies to maximize resource use in the future, which is why it is referred to as
a forward-looking function.
5) In controlling, we examine the employees' previous performance and compare
it to the established requirements. If there are any discrepancies between real
and expected performance or output, the controlling functions ensure that
future actual performance meets expected performance. As a result, controlling
is a function that looks ahead.
6) As a result, planning and controlling are intertwined, and they walk hand in
hand. Controlling becomes more successful because of planning, whereas
planning enhances future controlling.

 CONTROLLING PROCESS
1. Setting Performance Standards:
 The criteria against which actual performance can be measured are known as
standards
 Standards are the goals that an organisation aspires to achieve.
 Due to changes in the business environment, standards should be flexible
enough to be adjusted as needed.
 Standards could be qualitative or quantitative or it could also be time bound or
cost bound.

2. Measurement of Actual Performance:

 Performance standards are established first, and then actual performance is
assessed.
 Personal observation and sample checking should be used to measure
performance in an objective and reliable manner.
 Performance should be measured in the same terms that standards have been
defined to make comparisons easier.
 Performance can be checked simultaneously when the work is being performed
or after the completion of work.

3. Comparing Actual Performance with Standard:

 In this step, real performance is compared to the standard.
 If the performance meets the norms, everything appears to be under control.
 There can be three scenarios -
(i) Standards = Actual Performance (ii) Standards > Actual Performance
(iii) Standards < Actual Performance

4. Analysing Deviations:
The permissible range of variations is determined by assessing deviations from the
standards.
a. Critical Point Control: Control should be focused on key result areas
(KRAs) that are crucial to an organization's success. These KRAs have been
designated as important points.
b. Management by Exception: Exceptional management Control by
exception, often known as control by exception, is a key management
control philosophy based on the belief that attempting to control everything
leads to managing nothing. In other words, you can't control everything at
the same time.
For example- The company controller decides that corrective action is needed
when the expenses are greater than $10,000 or 20% higher than projected. The
goal of the management by exception approach is to only worry management with
the most significant deviations from the business's planned course or
performance.

5. Taking Corrective Action:

Taking remedial action is the final step in the controlling process. When the
variance is within acceptable bounds, no corrective action is necessary. When
major aberrations occur, however, corrective action is required like:
 Alarms are being installed.
 Equipment is redesigned or replaced.
 Tools are arranged which were needed for production.
 Work processes are being updated.
 In case of overestimation or underestimation of standards, the standards are
set again.