Controlling

Concept of Controlling
 Controlling refers to the process of evaluation and assessment of the work done.
 Under the process of controlling, standards are set for various tasks and activities.
 Accordingly, the various tasks and activities are evaluated against the set
standards.
 Deviations from the set targets are identified, and corrective actions to be taken
are decided.
 Thus, controlling refers to the process of ensuring that the various activities and
tasks in the organisation are carried out according to the pre-defined goals and
objectives.
 It ensures that deviations if any are identified and appropriate corrective action is
taken.

Nature of Controlling
1) Goal-oriented function: It ensures that everyone follows the plan or the work is
accomplished as per the plan and tries to achieve the goals of the organisation.

2) Pervasive function: It is an activity performed not only by top level managers but
also by managers working at all levels, i.e. top, middle and operational levels.

3) Both backward and forward looking function: The work which is done is
assessed and deviations from the pre-determined standards are evaluated. Based
on the deviations, the controlling function seeks to take the required corrective
action. In this way, controlling evaluates the actual performance (by comparing it
with) and guides future actions.

4) Continuous function: Controlling is an ongoing process. This function is carried out

till the time an organisation survives.

Importance of Controlling in an Organisation

1) Achieving goals: Controlling ensures that various activities are carried out correctly
according to the plans. It ensures that deviations if any are identified and appropriate
corrective action is taken. This helps the organisation to be on track and achieve its goals.
2) Reviewing standards: An effective control system ensures that the standards are set
accurately. As the business environment changes, it ensures that the standards are also
reviewed so as to adapt to the changes taking place. BUSINESS com
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3) Enables efficiency in resource utilization: An effective control system ensures that
there is minimum wastage of resources. In other words, it ensures that the resources are
utilized
optimally and in the most efficient manner.
4) Better motivation: With controlling, employees know what is expected from them and
how their performance would be evaluated. This clarity motivates employees to perform
better.
5) Maintain order: Controlling helps to keep a close watch on the activities and behaviour
of
employees. In this way, it helps in maintaining order and discipline in the organisation.
5) Ensures coordination: With proper controlling, the efforts of the various
departments can be unified towards the common goals and objectives of the
organisation. The existence of predefined standards of evaluation ensures
coordination in the activities of various departments.

Limitations of Controlling Function

1) Setting standards in quantitative terms: For an effective control system, it is important

that the standards are set in measurable or quantitative terms. However, it may not be
possible in every case. When the standards are not set in quantitative terms, it becomes
difficult to evaluate performance.
2) No control over external forces: An organisation cannot control external forces such as
government policies and technical changes. A change in such forces changes the
standards of evaluation and thereby the entire control system.
3) Resistance: Close and continuous monitoring may receive resistance from employees
which would make controlling difficult.
4) Expensive: A controlling system involves cost in terms of money, time and effort. A
small
organisation may not be able to afford the costs involved in the control
system.BUSINESS STUDIES CONTROLLING
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Relationship between Planning and Controlling
1) Nature and concept
Controlling is closely related to planning. A good control system requires set standards
for
evaluation.
These standards are provided by the plans defined by the organisation. In other words,
plans serve as the base for controlling.
2) Interdependent and interlinked
Controlling is essential for effective implementation of plans. It is essential to keep a
close watch on the plans, identify any deviations and take appropriate corrective actions.
Without proper controlling, planning would be futile. In a similar manner, planning
forms the base for controlling. Without planning, there would be nothing to control.
Controlling is done only when there are predetermined standards against which
evaluation can be done.
While planning involves intellectual thinking, decision making and deciding a course of
action, controlling ensures that plans take the required course of action.
3) Both are backward and forward looking
Both concepts of planning and controlling are interlinked as they are forward looking
and
backward looking. Planning is a process wherein it is decided what is to be done and
accordingly deciding the required course of action. In other words, planning involves
deciding the goals and objectives which are to be achieved and deciding the actions
through which they are to be achieved. In this way, planning helps in predicting future
actions; thus, it can be said to be looking ahead.
As against planning, the controlling function involves assessing and evaluating past
performance in order to figure out any deviations in pre-defined standards. As controlling
assesses past performance, it can be said to be backward looking.
However, it must be remembered that planning decides the goals and actions for the
future, but these decisions are taken on the basis of experiences and previous controlling
actions. Thus, planning involves looking back as well.
In a similar manner, controlling not just involves assessing past performance but also
decides corrective actions to be taken (in the future) and forms the base for plans.
Thus, the controlling function looks forward as well.
Hence, it can be concluded that both planning and controlling are forward looking as well
as backward looking.

Process of Controlling
Steps involved in the controlling process:

1) Setting standards
The first step is setting standards against which the actual performance is evaluated.
The standards can be in both qualitative terms (such as improved coordination, higher
goodwill) and quantitative terms (such as sales targets, production targets).
It must be kept in mind that the set standards should facilitate easy comparison.
Set standards need to be flexible enough to cope with changes in the business
environment.
2) Measuring actual performanceBUSINES STUDIES CONTROLLING
The next step in the controlling process is to measure the performance of the various
activities. For this, various techniques can be used such as personal observation and
performance reports.
As far as possible, performance needs to be measured in the same units in which
standards are set.
This measurement should be exact and reliable such that it facilitates easy comparison
with the set standards.
Moreover, the measurement of performance can be at various stages in the activity or
at the completion of the activity.
3) Comparing performance
After the actual performance is measured, it is then compared with the pre-defined
standards.
This helps in assessing whether there are any deviations/deficiencies in performance.
Accordingly, it helps in identifying the required corrective actions to be taken.
4) Analysing deviation
With the comparison of the actual performance with the set standards, the deviations in
performance are identified. For analysing deviations, the following methods can be used:
o Critical point control: According to this technique, rather than controlling all the
activities in the management, only the key result areas (KRAs) which affect the entire
organisation should be focused on.
o Management by exception: According to this technique, only significant deviations
which are above an acceptable range should be controlled. An attempt must not be made to
control
everything.
Deviations should not only be identified but their causes must also be recognised.
Some
causes for deviations can be infeasible standards, deficiencies in process or dynamic
business environment.
5) Corrective measures
In case deviations are beyond the acceptable range, it becomes necessary to take
corrective action.
It must be ensured that the deviations do not occur again.
6) Feedback
The controlling function does not end by taking corrective action as it is a continuous
process.
After suggesting corrective measures, a feedback report is prepared.
List of reasons for deviation of plans or for inefficiency in the overall working of an
organisation and corrective measures are specified in the feedback report.
It acts as a base to establish the standard for the next year, and the controlling
process again starts from the initial step.BUSINESS STUDIES CONTROLLING
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Techniques of Managerial Control
The techniques of managerial control can be classified in two categories namely:-
i. Traditional Techniques and
ii. Modern Techniques.

A. Traditional techniques have been in use by managers since long ago. The following
are traditional techniques of managerial control:
1) Personal observation: Under this technique, managers directly oversee the work done.
It ensures that managers get the right information, and prompts workers to perform up to
the mark. However, this technique proves to be very time consuming and cannot be used
in cases where a large number of tasks or activities are to be performed.
2) Statistical reports: A statistical analysis of the performance is done in the form of
averages, ratios and percentages. Such statistical analysis helps in easy comparison of
actual performance with set standards and also with past performance.
3) Breakeven analysis: It comprises a study of relationship between costs, volume and
profits. Under this technique, the costs and profits at various levels of quantity are studied.
Accordingly, the level of output where the profit is maximised is identified. Breakeven is
said to occur when there is neither profit nor loss. That is the total revenue earned by the
organisation equals the total cost incurred.
4) Budgetary control: Under the technique of budgetary control, budgets are prepared for
each activity and operation in the organisation. Here, the term budget refers to defining the
goals and objectives which are to be achieved in quantitative terms. Then the actual
results of the activities are
compared with the budgetary standards. Accordingly, the work done is assessed and
evaluated. Deviations from the set standards are identified and corrective actions are
decided.
FeedbackBUSINES

B. Modern techniques refer to techniques which are recent in origin. The following are
modern techniques of controlling:
1) Return on investment: Return on investment refers to the benefits from investment.
In other words, it is an assessment of whether the investment is beneficial. In an
organisation, managers use this technique for comparing the performance of various
departments or for comparing present actions and past performance.
2) Ratio analysis: Various ratios are calculated to analyse financial statements. The
most commonly used ratios are as follows:
Liquidity Ratio: Analyses the short-term solvency of a business
Solvency Ratio: Evaluates the long-term solvency of a business
Profitability Ratio: Determines the position of the business with regard to profitability
Turnover Ratio: Analyses whether the activities are carried out efficiently
3) Responsibility accounting: Under the system of responsibility accounting, various
divisions in the organisation are set up as responsibility centres. Each division is given a
target and it is the responsibility of the head of the division to achieve the set target.
Different types of responsibility centres in an organisation can be cost centre, investment
centre, profit centre and revenue centre.
4) Management audit: Under this technique, a systematic assessment is made of the
overall work and activities of the management of the company. The basic objective of this
technique is to evaluate efficiency and effectiveness in the tasks of the management.
Accordingly, it helps in identifying the areas which require corrective actions.
5) PERT and CPM: Programme Evaluation and Review Technique (PERT) and Critical
Path Method (CPM) are based on network analysis. Under these techniques, the entire task
is divided into various smaller activities. Each activity is then accorded a timeline and a
cost estimate. In this way, it helps in effective execution of the tasks and activities.
6) Management and information system: Management Information System (MIS) is a
computerbased controlling technique wherein managers are provided with timely data
and information so as to help in the decision-making process. MIS proves to be cost
effective in terms of information
management.