Controlling:

Controlling and Coordination:

Control: Concept-Process-Limitations-Principles of Effective Control-Major Techniques of
control – Ratio Analysis, ROI, Budgetary Control, EVA, PERT/CPM, Emerging issues in
Management; Coordination: Meaning-Nature-Importance-Principles of Coordination.

Introduction:
One of the most essential qualities required in a manager is that he should command the respect
of his team. In order to seek planned results from the subordinates, a manager needs to exercise
effective control over the activities of the subordinates. Controlling is one of the most basic
functions of management, like planning, organizing, staffing, etc. Controlling is an important
function, and without controlling management can’t ensure the desired results.

Meaning:
Controlling can be defined as a function of making sure that actions of the employees of an
organization are directed towards the attainment of a common goal and the work is being
performed as planned by the management.

In simple controlling is a process of comparing the actual performance with the set standards of
the company to ensure that activities are performed according to the plans and if not then taking
corrective action.

Definitions:

According to Brech, “Controlling is a systematic exercise which is called as a process of

checking actual performance against the standards or plans with a view to ensure adequate
progress and also recording such experience as is gained as a contribution to possible future
needs.”

According to G. Terry, “Controlling can be defined as the process of determining what is to be

accomplished, that is the standard; what is being accomplished, that is the performance;
evaluating the performance; and if necessary applying corrective measures so that the
performance takes place according to plans, that is, in conformity with the standard”.
According to E.F.L. Brech: “Controlling is checking performance against predetermined
standards contained in the plans with a view to ensuring adequate progress and satisfactory
performance.”

Thus, controlling is the process through which managers regulates the operations of an
organisation to ensure the achievement of organisational goals and objectives.

Features of Controlling Function:

Following are the characteristics of controlling function of management:
1. Controlling is an end function: A function which comes once the performances are made in
conformities with plans.
2. Controlling is a pervasive function: which means it is performed by managers at all levels
and in all type of concerns.
3. Controlling is forward looking: because effective control is not possible without past being
controlled. Controlling always looks to future so that follow-up can be made whenever
required.
4. Controlling is a dynamic process: since controlling requires taking reviewal methods,
changes have to be made wherever possible.
5. Controlling is related with planning: Planning and Controlling are two inseparable
functions of management. Without planning, controlling is a meaningless exercise and
without controlling, planning is useless. Planning presupposes controlling and controlling
succeeds planning.
Process of Controlling:
Control process involves the following steps as shown in the figure:
1. Establishing standards: This means setting up of the target which needs to be achieved to
meet organisational goals eventually. Standards indicate the criteria of performance.
2. Classification of Standards: Control standards are categorized as quantitative and
qualitative standards. Quantitative standards are expressed in terms of money. Qualitative
standards, on the other hand, includes intangible items.
3. Measurement of actual performance: The actual performance of the employee is measured
against the target. With the increasing levels of management, the measurement of
performance becomes difficult.
4. Comparison of actual performance with the standard: This compares the degree of
difference between the actual performance and the standard.
5. Taking corrective actions: It is initiated by the manager who corrects any defects in actual
performance.

Controlling process thus regulates companies’ activities so that actual performance conforms to
the standard plan. An effective control system enables managers to avoid circumstances which
cause the company’s loss.
Importance of Control in Management:
1. Accomplishing Organizational Goals: Control measures the progress of organizational
goals and accentuates deviations, if any, and lays out the basis for corrective measures. It
ensures that the organizational goals are on track.
2. Efficient Use of Resources: Wastage and spoilage of resources are reduced. For example, in
damage control, the defective products are examined and the production will be modified to
reduce errors and produce error-free products and thereby reducing further wastage of
materials. Thus it ensures that resources are used in the most effective and efficient manner.
3. Judges Accuracy of Standards: The management will be able to verify whether the
standards set by the organization are accurate. According to the changes in the environment,
the standards can be reviewed and revised by exercising control.
4. Employee Motivation: When standards are set by the organization, employees will know
beforehand as to what is expected from them and perform accordingly, based on their
performance, they will be appraised. When control is practised to check the tasks, the
performances will be better and so will be the appraisals which in turn will motivate the
employees.
5. Ensuring Order and Discipline: Controlling keeps a close check on the employee’s
activities and ensures the activities are performed honestly. It fosters a sense of discipline and
order in the organization.
6. Facilitating Coordination in Action: At every level in the management, the activities of the
subordinates will be checked and coordinated by the managers which lead towards the
accomplishment of organizational goals.
Limitations of Control Management:
1. No Control over External Factors: The organizations do not have control over the changes
in the external environment, for example changes in technology, competition and changes in
consumer requirements.
2. Employee Resistance: Employees tend to oppose certain control procedures because it may
limit their freedom. For example, time tracker machines or CCTVs may not be accepted by
all employees.
3. Difficulty in Setting Standards: It gets difficult to measure performance because standards
cannot be defined quantitatively which arise due to different problem areas such as human
behaviours, employee morale and job satisfaction.
4. Costly: Controlling incurs a lot of expense, time, and effort hence gets costlier. It must be
ensured by the management that the cost involved in running a control system should not
exceed the benefits gained from it.
Principles of Effective Control:
We have six different principles of control in management. Each has its significance. Let's see all
the principles in detail.
1. Principle of Reflection: It is the basic principle of control. The principle of reflection of
plants plays a predominant role in the organization for its growth in terms of quality and
quantity. Planning and controlling are like side by side of a coin. This principle helps to
reflect all the plants that were designed in the first stage of the organization.
2. Principle of Prevention: It is another important principle of control that helps to prevent the
negative aspects of the firm at the initial stage. From the ancient days as we believe
prevention is better than cure, this principle helps to realize defects in the beginning and also
tries to find remedies for them. Feed-forward control is a famous technique used in the
principle of prevention.
3. Principle of Responsibility: Apart from the principles of control, responsibility is the basic
duty that should be owned by every employee from a lower level to a higher level of the
organization for its smooth and safe growth. It was also helpful in gaining name and fame for
the organization.
4. Principle of Exception: This principle majorly concentrates on minor exceptional cases that
may deviate slightly from the standards stated at the beginning of the organization. It also
takes care that these exceptions may not disturb or affect the growth of the organization.
5. Principle of Critical Points: Each organization plays several critical points because of
various factors. At that time, the principles of control in management help the managers to
pay more attention to these critical points, whether they are expected or unexpected.
6. Principle of the Pyramid: It is also one of the principles of control that explains the
delegation of authority as well as the direction of a message which can pass from the lower
level to a higher level. Even though it seems to be General, it plays a very significant role as
certain issues may rise for the middle-level employees because of superiors and subordinates.

Major Techniques of Control:

To enable managers effectively control the organisational activities a large number of controlling
techniques are available. Every manager should know these techniques and in which situation
these techniques are to be applied successfully.
Ratio Analysis:
Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational
efficiency, and profitability by studying its financial statements such as the balance sheet and
income statement. Ratio analysis is a cornerstone of fundamental equity analysis.
Types of Ratios:
1. Liquidity Ratios: Liquidity ratios measure a company's ability to pay off its short-term
debts as they become due, using the company's current or quick assets. Liquidity ratios
include the current ratio, quick ratio, and working capital ratio.
2. Solvency Ratios: Also called financial leverage ratios, solvency ratios compare a
company's debt levels with its assets, equity, and earnings, to evaluate the likelihood of a
company staying afloat over the long haul, by paying off its long-term debt as well as the
interest on its debt. Examples of solvency ratios include: debt-equity ratios, debt-assets
ratios, and interest coverage ratios.
 3. Profitability Ratios: These ratios convey how well a company can generate profits from
its operations. Profit margin, return on assets, return on equity, return on capital
employed, and gross margin ratios are all examples of profitability ratios.
4. Efficiency Ratios: Also called activity ratios, efficiency ratios evaluate how efficiently a
company uses its assets and liabilities to generate sales and maximize profits. Key
efficiency ratios include: turnover ratio, inventory turnover, and days' sales in inventory.
5. Coverage Ratios: Coverage ratios measure a company's ability to make the interest
payments and other obligations associated with its debts. Examples include the times
interest earned ratio and the debt-service coverage ratio.

6. Market Prospect Ratios: These are the most commonly used ratios in fundamental
analysis. They include dividend yield, P/E ratio, earnings per share (EPS), and dividend
payout ratio. Investors use these metrics to predict earnings and future performance.

Return on Investment:
Return on Investment (ROI) – Return on Investment is one of the ratio used as a tool for
measuring the overall efficiency of the firm. It shows the relationship between profits ( after
interest and tax ) and the proprietors fund.

ROI =
Investment consists of fixed assets and working capital used in business. Profit on investment is
a reward for risk taking. If the ROI is high then the financial performance of a business is good
and vice-versa.
ROI is a tool to improve financial performance. It helps the business to compare its present
performance with that of previous years’ performance. It helps to conduct inter-firm
comparisons. It also shows the areas where corrective actions are needed.
Budgetary Control:
Budget refers to the plan of an enterprise expressed in financial or physical terms. It lays down
financial estimates relating to various programmes or activities for a defined period on the basis
of given objectives. These estimates are intended to serve as targets or standards for the purpose
of controlling actual performance. For a business firm, budgets generally include plans to
produce and sell goods at costs and prices which will bring the desired profit.
Thus, budgeting consists of formulation of plans for future activity. It lays down objectives and
programmes of action. It also provides yardsticks by which deviations from planned
achievements can be measured.
Budgetary Control, as a technique of managerial control, refers to the principles, procedures and
practices of achieving given objectives through budgets. Thus, budgetary control involves
preparation of budgets, relating the responsibilities of managers to budgeted activities, and the
continuous comparison of actual with budgeted results. It aims at securing the objectives as per
the budget and providing a basis for its revision, if necessary.
There are various types of budgets like;
 Sales budget,
 Purchase budget,
 Production budget,
 Fixed budget,
 Flexible budget,
 Cash budget,
 Zero base budget etc
Budgetary Control is a system of control whereby budgets are prepared for future period and
compared with the actual results for finding out the variations. Corrective actions are taken in
case of deviations.
Economic Value Added (EVA):
This measure was devised by management consulting firm Stern Value Management, originally
incorporated as Stern Stewart & Co. Economic value added (EVA) is a measure of a
company's financial performance based on the residual wealth calculated by deducting its cost of
capital from its operating profit, adjusted for taxes on a cash basis. EVA can also be referred to
as economic profit, as it attempts to capture the true economic profit of a company.
EVA is the incremental difference in the rate of return (RoR) over a company's cost of capital.
Essentially, it is used to measure the value a company generates from funds invested in it. If a
company's EVA is negative, it means the company is not generating value from the funds
invested into the business. Conversely, a positive EVA shows a company is producing value
from the funds invested in it.
The formula for calculating EVA is:

EVA = NOPAT - (Invested Capital * WACC)

Where:
 NOPAT = Net operating profit after taxes
 Invested capital = Debt + capital leases + shareholders' equity
 WACC = Weighted average cost of capital

PERT and CPM:

Programme Evaluation and Review Techniques (PERT): was developed in 1950s by the US
Navy’s project division. It describes the basic network techniques which includes Planning,
Monitoring and Controlling the project. It is applied in aerospace and industrial projects. PERT
is a statistical tool used to reduce both time and cost required to complete the project
Critical Path Method (CPM): was developed by E.I Dupont de Nemours company in 1956 to
aid in the scheduling of routine plant overhaul, maintenance and construction work. Critical path
method is determent by identifying the longest stretch of department activities and measuring the
time required to complete them from start to finish.

Emerging Issues in Management:

Following are the major issues in management:

1. Globalisation of Business: The globalisation is one of the major emerging issues for
management. Globalisation means making the business boundryless. Being globally we
should have to deal with different time zone, different culture, and different technology. So it
is difficult to manage all these issues at once.
Technology: Technology includes any equipment, tools or operating methods that are
designed to make work fast and more efficient. In this modern age every managements are
using technology for the business.

2. Quality and Productivity: Quality and Productivity are also emerging issues in the present
business world. In the past, many managers assumed that it could increase output only by
decreasing quality. However, present managers have concluded that such an assumption is
almost always wrong. They have recognized that quality and productivity are interrelated to
 each other. The introduction of quality enhancement programme provides broadly, three
positive results to the management.
Firstly, the number of defects will be decreased causing a low return of defects from
customers.
Secondly, when number of defects goes down, the involvement of resources to rework on
the defectives will decrease resulting in minimized wastage of resources. and
Thirdly, when employees become responsible to maintain quality, it reduces the need for
quality inspectors as a result of which efficiency and effectiveness of an organisation will
improve.

3. Ethics and Social Responsibility: Social responsibility has become a growing concern for
managers today. Ethics is an individual’s personal beliefs about what constitutes right and
wrong. It is developed through family, experience, personal values and morals and situational
factors.
Most vital ethical concern of modern managers is to know how an organisation treats its
employees, how employees treat the organisation, and how an organisation treats other
economic agents like customers, competitors, suppliers and unions etc. It is also a part of the
managerial function to use leaders, culture, training, codes and guidelines to help employees
and other economic agents to maintain ethical behaviour which is ever changing.

4. Workforce Diversity: Workforce diversity is increasing in the organisation today because of

changing population dimensions. There are several dimensions of diversification; however
the important ones are age, gender and ethnicity. The overall age of the workforce is
increasing.
Similarly, more women are getting involved in the workplace, and this diversification in the
workforce can affect an organisation differently. From one angle it can be the source of cost
advantage, source of resource acquisition, marketing, creativity, problem-solving and system
of flexibility. From another angle it could be a source of conflict in an organisation.

5. Innovation and Change: The innovation of new knowledge to fulfill the expectations of the
stakeholders is increasing today. It has become a fact of everyday life for everyone in
business operations. At present managing change is a critical challenge to the managers.
Change may occur in an attitude and behavior of stakeholders like competitors, customers,
 employees, suppliers and lenders. It is an important responsibility of managers to handle such
changes scientifically and practically. They have to improve the quality of products and
services to fulfill the changing needs of the customers.
Besides, managers can use a variety of tools to harmonize the working environment of the
organisation like the implementation of the reward system, the development of
entrepreneurship and organisational culture.
6. Empowerment of Employees: Employees are the major element of the internal environment
of the organisation. When managers and employees embrace the same values and have same
goals, it becomes convenient to achieve organisational objectives.
To maintain a mutual relationship between managers and employees it is essential to delegate
the decision-making authority to subordinate level employees, which is a challenging task. At
present employees have become more powerful due to decentralised authority and labour
unions affiliated to political parties and this has been a serious problem for many
organisations.
7. Knowledge Management: In this competitive environment, knowledge has become power.
And society expects new ideas and new things and creativity in product or service from any
organisation. To fulfill each social expectation, the manager has to accumulate knowledge
and ideas from all the members involved in the organisation. A model manager must be
flexible to manage knowledge and consider the situational factor.
8. Technological Development: Today technological development is an ever-growing process.
Technological developments tend to increase the aspirations and expectations of the
customers, investors, competitors and employees and other stakeholders of an organisation. It
also develops a concept of competitive environment among manufacturers and suppliers.
9. Multi-cultural Effects: An innovation of modern transportation and communication system
has tied the multi-cultured people together. They work together to meet their common and
professional objectives even if they have different traditions, values, social attitudes,
religious beliefs and living approaches. The involvement of cross-cultural professionals in
organisations is continuously increasing. Management is effective only when it can maintain
co-ordination among multi-cultural professionals.
Conclusion: In conclusion, there are lots of emerging issues for management in these days. In
the era of global competition, managers must be competent enough to hustle with the global
market and situational factors. Globalisation is shrinking the globe in a narrow vision. To make
the business successful and competitive firstly managers should be competitive and updated.

Ratio Analysis, ROI, Budgetary Control, EVA, PERT/CPM, Emerging issues in Management;
Coordination: Meaning-Nature-Importance-Principles of Coordination.