CONTROLLING
CONTROLLING
Controlling refers to comparison of actual performance with the planned performance and taking corrective actions, in case of
deviations between actual and planned performance.
Controlling cannot prevent deviations. But, it can minimise them by taking actions and decisions that reduce their recurrence.
FEATURE OF CONTROLLING
•Controlling is a goal-oriented function as it aims to ensure that resources are used effectively and efficiently to achieve
predetermined goals.
• Controlling is a pervasive function as control is exercised at all levels of management. The nature and extent of control may
differ from level to level. Moreover, controlling is required in both business and non-business organisations.
Controlling is both a backward looking as well as forward looking function.
It is a backward-looking function as it measures and compares actual performance with standards fixed in the past.
PROCESS OF CONTROLLING
8.6 CONTROLLING PROCESS
Controlling is a systematic process involving the following steps:
Setting Performance Standard :
The first step in the controlling process is the establishment of standards of performance. Standards are the criteria against
which actual performance is measured. Thus, standards serve as benchmarks or yardsticks towards which an organisation
strives to work.
Standards can be set in both Quantitative as well as Qualitative terms.
• Quantitative Standards:
They are the standards which can be shown in figures. In quantitative terms, standards are expressed in terms of cost to be
incurred, revenue to be earned, units to be produced and sold, time to be spent in performing a task and so on.
:At the time of setting standards, a manager should try to set standards in precise quantitative terms as this would make their
comparison with actual performance much easier. For instance, reduction of defects from 10 in every 1,000 pieces produced to 5
in every 1,000 pieces produced by the end of the quarter.
. Moreover, standards should be set up for short-term so that errors can be detected early and timely actions can be taken in case
of any deviation
.
• Qualitative Standards: They are the standards which cannot be shown in figures. Improving goodwill and motivation level of
employees are examples of qualitative standards.
• Whenever qualitative standards are set, efforts should be made to define standards in a manner that make their measurement
easy.
For instance, some fast food chains like Pizza Hut, fix standards in terms of time taken to serve a customer in order to enhance
customers' satisfaction.
Standards should be flexible so that they may be modified as per changes taking place in the business environment.
2. Measurement of Actual Performance :
Once the standards have been established, the second step is to measure the actual performance.
• Performance should be measured in an objective and reliable manner. It can be done using several techniques like personal
observation, sample checking, performance reports, etc. To make the comparison easier, performance should be measured in the
same units in which
standards are set.
Generally, performance is measured after the task. But, if possible, it should be done during the performance. For example, Maruti
Udyog thoroughly checks each part before assembling them into the car.
• Measurement of performance of an employee may require preparation of 'Performance Report by his superior.
The performance can also be measured through calculation of certain ratios like Gross Profit Ratio, Return on Investment, etc. at
periodic intervals.
Progress of work in certain operating areas like marketing may be measured by number of units sold and that of production
department by number of units produced and number of defective pieces in a batch.
• In case of small organisations, each piece produced may be checked to ensure that it conforms to quality specifications laid
down for the product. However, in large organisations, sample checking is conducted in which certain pieces are checked at
random for quality.
3. Comparison of Actual Performance with Standards :
The third step in controlling process is to compare the actual performance with the standards.
• Such comparison will reveal the deviation between the planned and actual performance.
•Comparison is easy when standards are set in quantitative terms. For instance, it is easy to compare performance of a worker in
terms of units produced in a week.
•If actual performance matches the standards, then everything is within control and process of controlling ends.
However, if there is mismatch or deviation, i.e. actual performance falls short of standards, then the extent of deviation is
determined.
If the deviation is minor, then it should be ignored.
But if the deviation is major, then it needs immediate action.
4. Analysing Deviations :
Some deviation in performance is expected in all activities. So, the next step in controlling process is to analyse the deviations.
For this, an acceptable range of deviation must be fixed as significant deviations need more attention as compared to minor
deviations.
• Moreover, deviations in key areas of business need to be attended more urgently as compared to deviations in certain
insignificant areas.
In this regard, managers use 'Critical Point Control' and 'Management by Exception'.
Critical Point Control: According to this, control system should focus on Key Result Areas (KRAs), which are critical to the overall
performance of an organisation. If anything goes wrong at the critical
points the entire organisation suffers .
So, attention must be paid on such critical points as it is neither economical nor easy to keep a check on each and every activity.
For example, in a manufacturing organisation, an increase of 5% in the labour cost may be more troublesome than a 15%
increase in postal charges
.
2. Management by Exception or Control by Exception:
According to this principle of management control, manager should give attention to significant deviations, which go beyond the
permissible limit.
This is based on a fact: "if you try to control everything, you may end up controlling nothing". So, a range of deviations should be
established and attention must be paid beyond such range.
be
For example, if actual labour cost is within an acceptable range of deviation (say, 2%), then it can be ignored. However, if it
deviates by 15%, then it needs immediate attention of management.
After identifying the major deviations, their causes need to be analysed. The causes may unrealistic standards, defective process,
lack of resources, structural drawbacks, organisational constraints and external environmental factors (like changes in prices or
changes in government policies) beyond the control of the organisation. It is necessary to identify the exact causes, so that an
appropriate corrective action can be taken.
5. Taking Corrective Action
The final step in the controlling process is taking corrective action. There is no need for corrective action, when the deviations are
within acceptable limits.
:However, if deviations go beyond the acceptable range, especially in important areas, it demands immediate managerial
attention so that deviations do not occur again and standards are accomplished.
• For example, if target production could not be met due to lack of skills, then corrective action might involve training of
employees. If project is running behind schedule, corrective action might involve assigning of additional workers and equipment
to the project.
• In case the deviation cannot be corrected through managerial action, the standards may have to be revised.
RELATIONSHIP BETWEEN PLANNING AND CONTROLLING
Planning and controlling are inseparable twins of management. There is a close and reciprocal relationship between planning and
controlling because:
1. Controlling is Blind without Planning: Controlling takes place on the basis of standards developed by planning. If the standards
are not set in advance, managers have nothing to control. So, when there is no plan, there is no basis of controlling.
2. Planning without Controlling is Meaningless: Once a plan becomes operational, controlling is necessary to monitor the
progress, measure it, discover deviations & initiate corrective measures to ensure that events conform to plans. Thus, planning
without controlling is meaningless.
3. Planning is Prescriptive and Controlling is Evaluative :
• Planning is a prescriptive process as it prescribes the most appropriate course of action to achieve the objectives.
Controlling is an evaluative process as it evaluates whether planned decisions have been translated into desired action.
4. Both are Backward-Looking as well as Forward-Looking functions :
It is often said that planning is looking ahead and controlling is looking back. However, the statement is only partially correct.
•Planning is viewed as a forward-looking approach as plans are prepared for future and are
based on forecasts about future conditions.
Planning is also a backward-looking function as plans are guided by the past experiences
. Controlling is considered a backward-looking function as it measures and compares actual performance with standards fixed in
the past.
Controlling is also a forward-looking function as it aims to improve future performance, based on experience gained in the past.
So, planning and controlling are both backward-looking as well as forward-looking functions.
Conclusion
Thus, planning and controlling are interrelated and reinforce each other as:
Planning based on facts makes controlling easier and effective; and
• Controlling improves future planning by providing information derived from past experience.
PRINCIPLES OF CONTROLLING
1. Establishment of Standards:
Defining Clear Standards:
This involves setting specific, measurable, achievable, relevant, and time-bound (SMART) goals and objectives for all aspects of
the organization's operations.
Communicating Standards:
Ensure that all relevant personnel understand the standards and how their performance will be measured.
2. Measurement of Performance:
Collecting Data:
This involves gathering information about actual performance, which can include metrics like sales figures, production output,
quality levels, customer satisfaction, etc.
Regular Monitoring:
Performance should be monitored regularly to identify deviations from the established standards.
3. Comparing Performance with Standards:
Analyzing Deviations:
This involves comparing the actual performance data with the set standards to identify any discrepancies or areas where
performance is falling short.
Identifying Root Causes:
It's crucial to determine the reasons for any deviations from standards to ensure that corrective actions are targeted and
effective.
4. Taking Corrective Action:
Addressing Deviations:
Once deviations are identified, appropriate corrective actions should be taken to bring performance back in line with the
standards.
Feedback and Improvement:
The control process should also include a mechanism for providing feedback to employees and making improvements to the
system.
5.Principle of Responsibility: Establish clear lines of accountability for all aspects of the control process.
6•Principle of Flexibility: Control systems should be adaptable to changes in the environment and should not be too rigid.
7•Principle of Exception: Focus control efforts on deviations from standards rather than trying to control every aspect of the
organization.
8•Principle of Efficiency: Control systems should be cost-effective and efficient in their operation.
9•Principle of Equity: Control systems should be fair and equitable in their application.
10•Principle of Prevention: Proactive controls should be implemented to prevent problems from arising in the first place.
By adhering to these principles, organizations can create effective control systems that ensure that their operations are aligned
with their goals, resources are used effectively, and that performance is consistently monitored and improved.
