CHAPTER 8

CONTROLLING
CONCEPT OF CONTROLLING
Controlling means ensuring that activities in an organization are performed as per the plans.
Controlling also ensures that an organization’s resources are being used effectively and
efficiently for the achievement of predetermined goals. It can be defined as comparison of
actual performance with the planned performance. The controlling functions finds out how
far actual performance deviates from standards, analyses the causes of such deviations and
attempts to take corrective actions based on the same.
“Managerial Control implies the measurement of accomplishment against the standard
and the correction of deviations to assure attainment of objectives according to plans.”
- Koontz and O’ Donnel
Controlling should not be misunderstood as the last function of management. It is a
function that brings back the management cycle back to the planning function. The
controlling function finds out how far actual performance deviates from standards, analyses
the causes of such deviations and attempts to take corrective actions based on the same.
This process helps in formulation of future plans in the light of the problems that were
identified and, thus, helps in better planning in the future periods. Thus, controlling only
completes one cycle of management process and improves planning in the next cycle.

NATURE OF CONTROLLING/FEATURES OF CONTROLLING:

1. Controlling is a goal oriented function:

Controlling as a function of management ensures that the overall directions of
individuals and groups are consistent with short and long range plans of the organization.
So it is completely a goal oriented function.
2. Controlling is an all pervasive function:
Controlling is a function which is applicable to all types of organizations and at all levels.
For example, the top managers are concerned with administrative control, which is
exercised through broad policies, plans and other directives. The middle level managers are
concerned with the executive control for the purpose of getting the plans, policies, and
programmes executed. At the lower level, supervisors exercise operational control to ensure
successful performing of actual operations.
3. Controlling is a continuous function:
Control is not a onetime activity. Rather, it is a dynamic process that involves constant
analysis of actual and planned performance. The resultant deviations, if any, are corrected
as per the need of the situation. For example, if a firm X Ltd., a readymade garment
manufacturing unit sets a target of manufacturing 10,000 premium shirts in a month and is
only able to manufacture 8,000 shirts than The controlling mechanism will help
in finding the deviation and causes associated with it. This process will carry on every
month for the organizational in this case.
4. Controlling is both a backward looking as well as forward looking function:
Effective control is not possible without analyzing our past mistakes. So from this point of
view, we can call it backward looking. But the business environment is ever changing and
controlling helps bring in changes in the organization in a conducive manner. So we cannot
ignore the forward looking aspect of it as well.

IMPORTANCE OF CONTROLLING
(MR JOG Coordinating the actions)
(i) Accomplishing organisational goals:
The controlling function measures progress towards the organisational goals and
brings to light the deviations, if any, and indicates corrective action. It, thus,
guides the organisation and keeps it on the right track so that organisational goals
might be achieved.
(ii) 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.
(iii) Making efficient use of resources:
By exercising control, a manager seeks to reduce wastage and spoilage of
resources. Each activity is performed in accordance with predetermined standards
and norms. This ensures that resources are used in the most effective and efficient
manner.
(iv) 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.
(v) Ensuring order and discipline:
Controlling creates an atmosphere of order and discipline in the organisation. It
helps to minimise dishonest behaviour on the part of the employees by keeping a
close check on their activities.
(vi) Facilitating coordination in action:
Controlling provides direction to all activities and efforts for achieving
organisational goals. Each department and employee is governed by
predetermined standards which are well coordinated with one another. This
ensures that overall organisational objectives are accomplished.
CONTROLLING PROCESS
Controlling is a systematic process involving the following steps.
Step 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. Standards can be set in
both quantitative as well as qualitative terms. 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.
However, whenever qualitative standards are set, an effort must be made to define them in a
manner that would make their measurement easier. For instance, for improving customer
satisfaction in a fast food chain having self-service, standards can be set in terms of time
taken by a customer to wait for a table, time taken by him to place the order and time taken to
collect the order. It is important that standards should be flexible enough to be modified
whenever required.
Step 2: Measurement of Actual Performance:
Once performance standards are set, the next step is measurement of actual performance.
Performance should be measured in an objective and reliable manner. There are several
techniques for measurement of performance. These include personal observation, sample
checking, performance reports, etc. As far as possible, performance should be measured in
the same units in which standards are set as this would make their comparison easier.
Step 3: Comparing Actual Performance with Standards:
This step involves comparison of actual performance with the standard. Such comparison will
reveal the deviation between actual and desired results. Comparison becomes easier when
standards are set in quantitative terms. For instance, performance of a worker in terms of
units produced in a week can be easily measured against the standard output for the week.
Step 4: Analysing Deviations:
Some deviation in performance can be expected in all activities. It is, therefore, important to
determine the acceptable range of deviations. Also, deviations in key areas of business need
to be attended more urgently as compared to deviations in certain insignificant areas. Critical
point control and management by exception should be used by a manager in this regard.
1. 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.
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.

2. Management by Exception:
Management by exception, which is often referred to as control by exception, is an
important principle of management control based on the belief that an attempt to
control everything results in controlling nothing. Thus, only significant
 deviations which go beyond the permissible limit of gas particles in the air could
be continuously monitored for safety.
For instance, if the plans lay down 2 per cent increase in labour cost as an acceptable
range of deviation in a manufacturing organisation, only increase in labour cost
beyond 2 per cent should be brought to the notice of the management. However, in
case of major deviation from the standard (say, 5 per cent), the matter has to receive
immediate action of management on a priority basis.

Advantages of Critical Point Control and Management by Exception

1. It saves the time and efforts of managers as they deal with only significant
deviations. 2. It focuses managerial attention on important areas. Thus, there is
better utilisation of managerial talent.
3. The routine problems are left to the subordinates. Management by exception,
thus, facilitates delegation of authority and increases morale of the employees.
4. It identifies critical problems which need timely action to keep the organisation
in right track.

Step 5: Taking Corrective Action:

The final step in the controlling process is taking corrective action. No corrective action is
required when the deviations are within acceptable limits. However, when the deviations go
beyond the acceptable range, especially in the important areas, it demands immediate
managerial attention so that deviations do not occur again and standards are accomplished.