CBSE Class 12 Business Studies

Revision Notes
CHAPTER – 8
CONTROLLING

Meaning & Definition: Controlling involves comparison of actual performance with the
planned performance. If there is any difference or deviation, then finding the reasons for
such difference and taking corrective measures or action to stop those reasons so that they
don‘t re-occur in future and that organizational objectives are fulfilled efficiently.

Importance of Controlling

1. Controlling helps in achieving organizational 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 organizational environment.

3. Making efficient use of resources: By the process of control, a manager seeks to reduce
wastage of resources.

4. Improves employees 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.

Nature of Controlling/Features of Controlling

1. Goal oriented: Controlling is directed towards accomplishment of organizational goals in

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the best possible manner.

2. Pervasive: Controlling is an essential function of every manager and exercised at all levels
of management.

3. Continuous: It is not an activity to be pursued in the end only; it has to be done on a

continous basis.

4. Controlling is looking back: Controlling involves measurement of actual performance and

its comparison with the desired performance. It is the process of checking and verification.

5. Controlling is forward looking: It is related to future because it seeks to improve future

results on the basis of experience gained in the past.

6. Depends on planning: It pre supposes existence of planning because without planning no

control is possible.

7. Action oriented*: Control has no meaning if no corrective action is taken; So timely action
should be taken to prevent deviations.

8. Primary Function of Management* – controlling is performed at all levels and in all types
of organizations.

9. Brings back management cycle back to planning:* Control should not be viewed as the last
function. In fact it links back to planning. Controlling involves

• Comparing actual performance with standards • Finding out deviations • Taking corrective
action so that they don‘t repeat in future These are the guidelines when future planning is
done. Thus controlling not only completes one cycle of management process and also helps
to improve planning in the next cycle.

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Relationship between Planning and Controlling

Planning and controlling are interrelated and in fact reinforce each other in the sense that-

1. 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.

2. Planning is meaningless without controlling. It is fruitful when control is exercised. It

discovers deviations and initiates corrective measures.

3. Effectiveness of planning can be measured with the help of controlling.

4. Planning is looking ahead and controlling is looking back: Planning is a future oriented
function as it involves looking in advance and making policies for the maximum utilization
of resources in future that is why it is considered as forward looking function. In controlling
we look back to the performance which is already achieved by the employees and compare it
with plans. If there are deviations in actual and standard performance or output then
controlling functions makes sure that in future actual performance matches with the
planned performances. Therefore, controlling is also a forward looking function. Thus,
planning & controlling cannot be separated. The two are supplementary function which
support each other for successful execution of both the function. Planning makes controlling
effective whereas controlling improves future planning.

Controlling Process

1. Setting Performance Standards: Standards are the criteria against which actual

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performance would be measured. Thus standards become basis for comparison and the
manager insists on following of standards.

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.

5. Taking Corrective Action: The final step in the controlling process is taking corrective
action. No corrective action is required when the deviation are within the acceptable limits.
But where significant deviations occur corrective action is taken.

Limitations of Controlling

1. Difficulty in setting quantitative standards:

Control system loses its effectiveness when standards of performance cannot be defined in
quantitative terms. This makes comparison with standards a difficult task.

e.g areas like human behaviour, employee morale, job satisfaction cannot be measured
quantitatively.

2. Little control on external factors:

An enterprise cannot control external factors like government policies, technological

changes, competition. etc.

3. Resistance from employees:

Control is resisted by the employees as they feel that their freedom is restricted. E.g

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employees may resist and go against the use of cameras to observe them minutely.

4. Costly:

Control involves a lot of expenditure, time and effort. A small enterprise cannot afford to
install an expensive control system.

Managers must ensure that the cost of installing and operating a control system should not
exceed the benefits derived from it.

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 Key Notes
Chapter-8
Controlling

• Controlling means ensuring that activities in an organization are performed as per the
plans. Controlling also ensures that an organization’s resources are being used effectively
and efficiently for the achievement of predetermined goals. It can be defined as comparison
of actual performance with the planned performance. 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.
• Importance of Controlling:
1. Controlling helps in achieving organizational 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 organizational 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.
• Nature of Controlling/Features of Controlling:
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 and at all levels. For example, the top managers are concerned
with administrative control, which is exercised through broad policies, plans and other
directives. The middle level managers are concerned with the executive control for the
purpose of getting the plans, policies, and programmes executed. At the lower level,
supervisors exercise operational control to ensure successful performing of actual
operations.

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 Key Notes

3. Controlling is a continuous function: Control is not a onetime 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. For example, if
a firm X Ltd., a readymade garment manufacturing unit sets a target of manufacturing
10,000 premium shirts in a month and is only able to manufacture 8,000 shirts than The
controlling mechanism will help in finding the deviation and causes associated with it.
This process will carry on every month for the organizational in this case.
4. Controlling is both a backward looking as well as forward looking function:
Effective control is not possible without analyzing our past mistakes. So from this point
of view, we can call it backward looking. But the business environment is ever changing
and controlling helps bring in changes in the organization in a conducive manner. So we
cannot ignore the forward looking aspect of it as well.
5. Controlling is a dynamic process: Since controlling requires taking reviewable
methods, changes have to be made wherever possible.
6. Controlling is a positive process: George Terry says, the function of controlling is
positive – it is to make things happen, i.e. to achieve the goal within stated constraints, or
by means of the planned activities. Controlling should never be viewed as being negative
in character – as a hurdle in getting objectives won. Controlling is a managerial necessity
and a help, not an impediment or a hindrance.
• Relationship between Planning and Controlling:
Planning and controlling are interrelated and in fact reinforce each other in the sense that:
1. 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.
2. Planning is meaningless without controlling. It is fruitful when control is exercised. It
discovers deviations and initiates corrective measures.
3. Effectiveness of planning can be measured with the help of controlling.
4. Planning is looking ahead and controlling is looking back: Planning is a future
oriented function as it involves looking in advance and making policies for the maximum
utilization of resources in future that is why it is considered as forward looking function.
In controlling we look back to the performance which is already achieved by the
employees and compare it with plans. If there are deviations in actual and standard
performance or output, then controlling functions makes sure that in future actual

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 Key Notes
performance matches with the planned performances. Therefore, controlling is also a
forward looking function. Thus, planning & controlling cannot be separated. The two are
supplementary function which support each other for successful execution of both the
function. Planning makes controlling effective whereas controlling improves future
planning.
• 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.
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. Analyzing Deviations: The deviations from the standards are assessed and analyzed to
identify the causes of deviations.
5. Taking Corrective Action: The final step in the controlling process is taking corrective
action. No corrective action is required when the deviation is within the acceptable
limits. But where significant deviations occur corrective action is taken.
• Limitations of Controlling:
1. Little control on external factors: Generally, no enterprise can control external factors
such as government policies, technological changes, competitions etc.
2. Resistance from employees: Control is often resisted by employees. They see it as a
restriction on their freedom e.g. Employees may resist and go against the use of cameras
to observe them minutely.
3. Costly affair: Control is a costly affair as it involves a lot of expenditure of time and
efforts.
4. Difficulty in setting quantitative standards: Control system loses some of its
effectiveness, when standards cannot be defined in quantitative terms. In the absence of
quantitative standards, comparison with standards becomes difficult.

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