Class Business

12 Studies
 Controlling
“Controlling function leads to goal achievement, an
organization without effective control is not likely to
reach its goal.”
Ricky W. Griffin
 The controlling function can be defined as the
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 in future
there is match between actual and planned
performance.
 Controlling means ensuring that activities in
 Features / Characteristics of
Controlling
Controlling is a
 Controlling function makes sure everyone follows the plan or work is
accomplished as per the plan and plan always aim at achieving
Goal Oriented
organizational goal.
Function  Controlling is, thus, a goal oriented function.
 Controlling is not the task of top-level managers only but managers working at all
Controlling is an
levels, i.e., top, middle and operational level perform controlling functions.
all Pervasive  It is a primary function of every manager.
Function
 Controlling is backward looking function as managers
Controlling is
compare the planned performance with actual
Both Backward
performance.
Looking as well as  Controlling is forward looking also because it does not end
Forward Looking only by comparing past performance with future but it
Function also suggest measures to remove the reasons for
 failure
Controlling is not a one time job but it is an ongoing
of plans.
process as it is carried on till the organization is
Controlling is a surviving.
Continuous Function  Controlling should not be misunderstood as the last
function
of management. It brings the management cycle back
to the planning function.
 Importance of
Controlling
Improving
employee
Making motivation
efficient use Ensures
of order and
resources discipline
Importance of
Controlling

Judging Facilitate
the coordination
accuracy of in action
standards Helps in
achieving
organizational
goals
 Helps in Achieving Organizational Goals
 When the plans are made in the organization these are directed towards the achievement of organizational goals.
 The controlling function ensures that all the activities in the organization take place according to plan.

Judging Accuracy of Standards :

 Through strategic controlling we can easily judge whether the standard or target set are accurate or not.
 An accurate control system revises standard from time to time to match them with environmental changes.

Making Efficient Use of Resources :

 Like traffic signal control guides the organization and keeps it on the right track.
 Each activity is performed according to predetermined standards.
 As a result, there is the most effective use of resources.

Improving Employees Motivation :

 An effective control system communicates the goals and standards of appraisal for employees to subordinates well in
advance.
 It thus, motivates them and helps them to give better performance.

Ensures Order And Discipline :

 Effective coordination system keeps the subordinates under check and makes sure they perform their functions efficiently.
 Sharp control can have a check over dishonesty and fraud of employees by keeping a close check on their activities.

Facilitates Co-ordination In Action :

 Coordination makes sure that proper direction is taken and that various factors are maintained properly.
 All the departments are controlled according to predetermined standards which are well coordinated with one another.
Steps in the Controlling Process(SM CAT)
Setting Performance Standards

Measurement Of Actual Performance

Comparing Actual Performance with

standards

Analysing Deviations
Taking Corrective Action
1) Setting Performance Standards :
 The first step in the controlling process is setting up of
performance standards.
Standards are the criteria against which actual performance would be
measured. Thus, standards serve as benchmarks towards which an
organization strives to work.
 Standards can be set in both quantitative as well as qualitative
terms.
 Examples of quantitative standards :
i. Cost to be incurred
ii.Revenue to be earned
Examples of
qualitativestandards
i. Improving goodwill
ii. Improving motivation
level of employees
 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.
 Standards should be flexible enough to be modified whenever
required. Due to changes taking place in the internal and external
2) Measuring of Actual Performance :
 After setting up of standards the performance of the employees
is measured by evaluating the actual work done by the
employees.
 There are several techniques for the measurement of
performance. These are :
a) Performance Reports : Measurement of performance of an
employee may require preparation of performance report by his
superior.
b) Accounting Ratios : Measurement of a company's performance
may involve calculation of certain ratios like gross profit
ratio, return on investment etc. at periodic intervals.
c) Personal Observation : Progress of work in certain operating areas
like marketing may be measured by considering the number of
units sold, increase in market share etc., whereas, efficiency of
production may be measured by counting the number of pieces
produced and the number of defective pieces in a batch.
d) Sample Checking : In small organizations, each piece produced
may be checked to ensure that it conforms to quality
specifications laid down for the product. In large
organizations, certain pieces are checked at random for
3) Comparing Actual Performance with
Standards :
 After measuring the performance, the
manager compares the actual performance
with the planned performance and
standard.
 If there is a match in both then the
controlling functions end there only. But if
there is a mismatch or deviation then the
manager tries to find out the extent of the
deviation.
 If the deviation is minor then it should
be ignored. But if the deviation is more,
then timely actions must be taken.
4) Analysing Deviations :
 All deviations need not be brought to the notice of top management.
 A range of deviations should be established and only cases beyond this range
should be brought to the knowledge of top level management.
 They must be divided the deviations into two categories deviations need to
be attended urgently in one category and minor or insignificant decisions in
other category :
a) Critical Point Control :
 It means keeping a focus on some key areas (KRAs) and if there is
any deviation in these key areas, then it must be attended urgently.
 Key areas are those which have an impact on whole organization.
 For example: In a manufacturing organization, an increase of 5% in
the labour cost may be more troublesome than a 15% increase in
postal charges.
b) Management By Exception :
 It means a manager who tries to control everything may end
up controlling nothing.
 The deviations which are beyond the specific range should only be
handled by managers and minute or minor deviations can be
ignored.
 For example: If production cost increases by Rs 2, it can be ignored but
if it increases more than Rs 2, then managers must try to find out the
reasons for deviations which need immediate attention.
5) Taking Corrective Action :
 On comparing the actual performance with the planned
performance, then the next step is to know the
reasons for such deviations and try to remove
deviations in future.
 The managers take measures to bring back everything
on track, i.e. according to plan.
 Taking corrective measures may involve :
a) Let the situation remains the same if the deviations
are minor.
b) Redesigned the plans or strategies if these are
overstated or not matching with the present
day business environment.
c) Taking corrective measures to improve the
performance so that in future it matches with the
plan.
 The manager must take corrective measure only by finding
 Relationship between Planning &
Controlling
Planning and controlling are inseparable twins of management. The planning and controlling
functions of management are very closely related.
The relation between both the function is explained as follows :
Nature and Concept
 Planning is the basic function of every enterprise as in planning we decide what is to be
done, how it is to be done when it is to be done and by whom it must be done.
 Controlling means keeping a check that everything is under the plan and if there is any
deviation, taking preventive measures to stop that deviation.
 The meaning of controlling makes it clear that controlling function is undertaken for
right and timely implementation of plans.

Planning & Controlling are Interdependent and Interlinked

 Planning and controlling functions always co-exist or have to exist together as one
function depends on the other.
 The controlling function compares actual performance with the planned performance and if there is no planned
performance then the controlling manager will not be able to know whether the actual performance is ok or not.
 On the other hand, the planning function is also dependent on controlling function as plans are not made only on papers
but these have to be followed and implemented in the organization. The controlling functions make sure that everyone
follows the plan strictly.
 So, both functions are interlinked and interdependent as for the successful execution of both the functions planning
and controlling must support each other.
 Planning and Controlling both are Backward and Forward
 Looking
Controlling is backward looking because like a postmortem of past activities, the managers look back to
the previous year's performance to find out its deviation from the standard.
 Planning is also backward looking because planning is guided by past experiences and feedback
report of controlling function.
 Planning is forward looking because plans are prepared for future. It involves looking in advance
and making policy for maximum utilization of resources in future.
 Controlling is also forward-looking because controlling does not end only by comparing past performance with standard.
It involves finding the reasons for deviations and suggests the measures so that these deviations do not occur in future.
 So, this statement is correct as planning and controlling are both forwards looking as well as backwards looking.

Planning is Prescriptive whereas, Controlling is Evaluative

 Planning is basically an intellectual process involving lot of thinking, and caparison to prescribe a particular course
of action for achieving objectives.
 Controlling evaluate or check whether the desired cause of action is followed or not.

Controlling Takes Place Based on Certain Standards, Developed by Planning

 The standards of performance which serve as the basis of controlling are provided by planning.
 If the standards are not set in advance, managers have nothing to control.
 In other words, without planning, there is no predetermined
understanding of the desired performance.
 Planning is a prerequisite for controlling.
 Thus, controlling is blind without planning.
Feedback
in The controlling function does not end by
taking corrective action as it is a
Controllin
continuous process. Feedback refers to
g list of reasons for deviations of plans or
for inefficiency in overall working of the
organization; along with reasons the
corrective measures are also specified in
the feedback report and feedback acts
as a base to establish the standard for
next year and the controlling process
again starts from the 1st Step.