CHAPTER 8

CONTROLLING

Que. Define controlling
Ans. Controlling is the process of verifying functional performance is in conformity with planned performance & taking corrective action where necessary.
1. It provides that performance of work is in accordance with the organizational plans policies & programmes.
2. It enables managers to detect deviations in performance if any, rectify them and to prevent their repetition in future

Que. Explain the importance of controlling function of Management.
Ans. The controlling function has vital importance in the management of organization. The following are some of the benefits:
1. Controlling helps the organization in achieving objectives: - Controlling helps in achieving the objectives of the firm as closely as possible to the predetermined objectives. It ensures that the use of human & material reassures is in the best possible manner. Actual performance is compared with the planned objectives & if any deviation is found remedial action are initiated.
2. Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.
3. Optimum utilization of resources: Controlling helps in best possible use of human, physical and financial resources. It ensures that the work is done as desired in terms of cost, quality and time. It prevents misuse and wastage of resources.
4. Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivates them and helps them to give better performance.
5. Ensuring order and discipline: Controlling ensures order and discipline in the organization it provides standards against which actual performance is measured. Evaluation of performance against standard performance induces employees to perform well.
6. Facilitating coordination in action: Controlling facilitates co-ordination between different departments by laying down standard performance. It also helps in avoiding duplication of activities and secures harmony in effort.
Que. What are the limitations of controlling?
Ans. Although controlling is an important function of management, it suffers from the following limitations.
(i) Difficulty in setting quantitative standards: It is very difficult to set standard in quantitative terms. This makes measurement of performance and their comparison with standards a difficult task. Employee morale, job satisfaction and human behaviour etc can not be measured in quantitative terms.
(ii) Little control on external factors: External factors such as government policies, technological changes, competition etc. are generally cannot be controlled by any enterprise
(iii) Resistance from employees: Control is often resisted by employees. They see it as a restriction on their freedom..
(iv) Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort. A small enterprise cannot afford to install an expensive control system. It cannot justify the expenses involved.
Que. Planning and controlling are interdependent and interrelated activities. Explain
Ans. Planning & controlling are interdependent & interrelated activities.
(1) They are interdependent in the sense that
(a) Planning provides basis for the controlling activities. In the absence of planning the controlling activities cannot be performed because no fixed standards are available with which actual performance may be compared. It cannot be determined whether the performance is good bad or reasonable.
(b) Controlling ensures realizing planned goals efficiently. In the absence of controlling no purpose is served by planning. Predetermined goals can be achieved only through the help of control which involves noting deviations from the standards & taking correcting decisions or revising plans if necessary.
(2) Planning & controlling are interrelated in the sense that
a. Planning is based on facts make controlling easier & effective
b. Controlling improves future planning by providing information derived from past experience.
So we can conclude that planning without controlling is meaningless & controlling without planning to blind.
Que. Planning is looking ahead and controlling is looking back. Explain.
Ans. Planning and controlling are forward looking. Planning is looking ahead in the sense that it set the standards to be achieved in future whereas controlling seeks to compel events conform to plans. Controlling is looking back in the sense that it measures the actual performance relating to past and compasses it with the standards. Controlling is not only looking back but also looking forward in the sense that it helps in the adoption of new plans and revision of the existing plan on the basis of comparison of actual performance with the fixed standards. It ensures better utilizations of resources in future by rectifying the mistakes.
Que. Explain the steps involved in controlling process.
Ans. There are certain steps in the controlling process which are explained below:
Setting Performance Standards:-The first step in controlling process is establishment of standards. Standards are targets against which actual performance can be measured. It is therefore necessary that the standard should be fixed in the light of objectives set by the management. These standard should be specified and are set in a measurable terms such as units, costs, profits, time etc.
Measurement of actual performance:- The second step in the controlling process is measurement of performance. It is measured by evaluating the work actually done and result achieved. Actual performance of an activity can be measured in terms of quality and quantity of work done. This should be a constant, on going activity for organizations. It is preferable to get reports on performance of an employee at regular intervals if it is qualitative work.
Comparing actual performance with standards After measuring performance the next step is to compare actual performance with the standards established earlier. There is usually a difference in the performance levels and the standards. The deviation from the standard has to be assessed and analysed to find the causes.
Analysing Deviations: Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Critical point control and management by exception should be used by a manager in this regard.
(i). Critical Point Control: It is neither economical nor easy to keep a check on each and every activity in an organisation. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organisation. These KRAs are set as the critical points. If anything goes wrong at the critical points, the entire organisation suffers. For instance, in a manufacturing organisation, an increase of 5 per cent in the labour cost may be more troublesome than a 15 per cent increase in postal charges.
(ii). Management by Exception: An effective control system should be control by exception. If manages try to control everything they may end up by controlling nothing. In large organizations it is very difficult to control all the activities. If control is to be effective & economical it must pay attention only on factors critical to performance. Managers should concentrate on important deviations; it will result in a more effective control system.
5. Taking corrective action The last step in controlling process is to take corrective actions on the basis of factors causing deviation between standards fixed and actual performance. Such corrective action is taken to prevent the reoccurrence of deviation in future. A corrective action may be improving performance, revise the standards set earlier. The corrective action is under taken by those in authority Where significant deviations occur and huge losses in terms of money and reputation of the organization are involved serious action should be considered.

Que. Explain different techniques of Management control.
Ans. The various techniques of managerial control may be classified into two broad categories: traditional techniques, and modern techniques.
Traditional Techniques
Traditional techniques are those which have been used by the companies for a long time now. However, these techniques have not become obsolete and are still being used by companies.
These include:
1. Personal Observation This is the most traditional method of control. Managers examine individual’s work activities by the way of on the spot overseeing and observation.
Advantages
(a) Personal observation enables the manager to collect first hand information.
(b) It also creates a psychological pressure on the employees to perform well.
Disadvantages:-
(a) It is a very time-consuming exercise.
(b) It cannot effectively be used in all kinds of jobs.
2. Statistical Reports:- It is in the form of averages, percentages, ratios, correlation, etc., Such information when presented in the form of charts, graphs, tables, etc., enables the managers to read them more easily and allow a comparison to be made with performance in previous periods.
3. Breakeven Analysis: Break-even analysis is a useful tool of control for the managers. It shows the relation between cost and sales revenue at different levels of sales and their effect on the profits. A break-even point is one which shows the level of sales at which total costs are exactly covered by the total sales revenue. At this point there is no profit or loss. So it is also called the point of ‘No profit, No loss’. To earn profits a business firm must sell a quantity more than that indicated by the break even point. Costs are of two types: Fixed cost which ordinarily does not change with changes in the level of production, e.g., factory rent, factory manager’s salary, and variable costs which change proportionately with changes in the level of production. the total cost
is the aggregate of both fixed and variable costs. Break-even analysis can be shown with the help of a chart.
The total cost line begins from the point O on the Y-axis. OL is the fixed cost line which shows the existence of fixed cosed even when there is no sales. At point 'e', total cost line and sales line intersect each other which means total cost is equal to revenue at that point and there is no profit or loss. This is the break even point. If sales are less than this point, there will be loss and if sales are more than that, there will be profit. Profit is the excess of revenue over costs. If costs are reduced profits will increase. Again if sales revenue increases and costs remain the same, profit is made. Management, therefore, strives to reduce costs by cost control and increase sales revenue through sales promotion activities. Break-even analysis helps managers to calculate profits and losses at various levels of sales
4. Budgetary Control A budget is a plan of future operations expressed in financial or numerical terms. The act of making the budget is called budgeting and when control is exercised through budgets it is called budgetary control. This gives you brief idea of budgeting. In big organisations, different budgets are prepared for separate activities. The production budget shows what quantity will be produced each month and during the year, the Sales budget will indicate sales targets for different regions and different periods (monthly, quarterly, etc.), cash budget will provide estimates of receipts and payments under various heads, and so on. In short, the budgets give a clear indication of the results to be achieved by managers in their respective functions. From time to time the budgeted and actual results are compared and if any deviation is noticed, corrective action is taken so that in future budgeted and actual figures may coincide.