CONTROLING FUNCTION

Controlling consists of verifying whether everything occurs in conformities

with the plans adopted, instructions issued and principles established.

Controlling ensures that there is effective and efficient utilization of

organizational resources so as to achieve the planned goals. Controlling measures
the deviation of actual performance from the standard performance, discovers
the causes of such deviations and helps in taking corrective actions

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 Donnell, “Just as a navigator continually takes reading to ensure

whether he is relative to a planned action, so should a business manager
continually take reading to assure himself that his enterprise is on right
course.”

Controlling has got two basic purposes

1. It facilitates co-ordination
2. It helps in planning

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.
Controlling as a management function involves following steps:

1. Establishment of standards- Standards are the plans or the targets

which have to be achieved in the course of business function. They can
also be called as the criterions for judging the performance. Standards
generally are classified into two-
a. Measurable or tangible - Those standards which can be measured
and expressed are called as measurable standards. They can be in
form of cost, output, expenditure, time, profit, etc.
b. Non-measurable or intangible- There are standards which cannot
be measured monetarily. For example- performance of a manager,
deviation of workers, their attitudes towards a concern. These are
called as intangible standards.

Controlling becomes easy through establishment of these standards

because controlling is exercised on the basis of these standards.

2. Measurement of performance- The second major step in controlling is to

measure the performance. Finding out deviations becomes easy through
measuring the actual performance. Performance levels are sometimes
easy to measure and sometimes difficult. Measurement of tangible
standards is easy as it can be expressed in units, cost, money terms, etc.
Quantitative measurement becomes difficult when performance of
manager has to be measured. Performance of a manager cannot be
measured in quantities. It can be measured only by-
a. Attitude of the workers,
b. Their morale to work,
c. The development in the attitudes regarding the physical
environment, and
d. Their communication with the superiors.

It is also sometimes done through various reports like weekly, monthly,

quarterly, yearly reports.

3. Comparison of actual and standard performance- Comparison of

actual performance with the planned targets is very important.
Deviation can be defined as the gap between actual performance and
the planned targets. The manager has to find out two things here-
extent of deviation and cause of deviation. Extent of deviation means
that the manager has to find out whether the deviation is positive or
negative or whether the actual performance is in conformity with the
planned performance. The managers have to exercise control by
exception. He has to find out those deviations which are critical and
 important for business. Minor deviations have to be ignored. Major
deviations like replacement of machinery, appointment of workers,
quality of raw material, rate of profits, etc. should be looked upon
consciously.
Therefore it is said, “If a manager controls everything, he ends up
controlling nothing.” For example, if stationery charges increase by a
minor 5 to 10%, it can be called as a minor deviation. On the other hand, if
monthly production decreases continuously, it is called as major deviation.

Once the deviation is identified, a manager has to think about various cause
which has led to deviation. The causes can be-

a. Erroneous planning,
b. Co-ordination loosens,
c. Implementation of plans is defective, and
d. Supervision and communication is ineffective, etc.

4. Taking remedial actions- Once the causes and extent of deviations are
known, the manager has to detect those errors and take remedial
measures for it. There are two alternatives here-

a. Taking corrective measures for deviations which have occurred; and

b. After taking the corrective measures, if the actual performance is not
in conformity with plans, the manager can revise the targets. It is here
the controlling process comes to an end. Follow up is an important step
because it is only through taking corrective measures, a manager can
exercise controlling.

IMPORTANCE OF CONTROLLING

a) Decentralization of authority

Since managers at every level of an organization have to exercise control, the

controlling process leads to decentralization. This, in turn, enables middle and
lower level managers to have some autonomy in making decisions. An
organization that distributes authority at every level always works smoothly and
efficiently.

b) Increasing managerial abilities

By enabling all managers to possess the autonomy to make decisions,

controlling enhances their managerial abilities. With these skills, managers can
further their organization’s goals by adapting to diverse situations and
problems. Furthermore, this also helps managers grow and develop at an
individual level by giving them new experiences.

c) Using resources effectively

The most important function of controlling is to compare actual performances

with expected results. This, in turn, helps managers understand where they are
lacking and how they can improve their performances. Using this knowledge,
managers can use all available resources optimally and prevent their wastage.

d) Facilitating coordination

In every business organization, managers and employees always have to

coordinate and work with each other collectively. Controlling improves this
coordination by basically demarcating all activities and efforts into fixed
boundaries. It brings together all the resources of an organization and enables
its personnel to work together with unified efforts.

e) Structuring human behaviour

Since all organizations have to depend on humans for functioning, they need to
regulate human behaviour of their employees. Controlling rationalizes this
human behaviour and prevents employees from behaving arbitrarily and badly.
It basically does so by providing for sanctions in case employees do not
prescribe to expected standards of behaviour. For example, managers often
take disciplinary action against employees who take unauthorized leaves.

f) Achieving efficiency and effectiveness

A good control system can always greatly boost an organization’s efficiency and
effectiveness. It generally does this by identifying deficiencies in an
organization’s functioning and suggesting improvement measures. Managers use
control to achieve their targets in this manner.

Limitations of control

i) Difficulty in setting qualitative standards

ii) No control over external factors
iii) Resistance from employees
iv) Its costly
Types of control:

1. Feedback control: Feedback control involves gathering information

about a past activity or action, and evaluating that information, and
taking steps to improve similar activities or action in the future.
Feedback control is historical in nature and is also known as post-action
control. The implication is that the measured activity has already
occurred, and it is impossible to go back and perform correctly to bring it
up to standard. It is the least active of the controls and is generally a
basis for reactions. Feedback allows managers to use past performance
information to inform future performance in line with planned objectives.
2. Concurrent control: The process of monitoring and adjusting ongoing
activities and processes is known as concurrent control. Concurrent
controls are dynamic engagement in a current process where
observations are made in real-time. Such controls are not necessarily
proactive, but they can prevent problems from getting worse. For this
reason, we often describe concurrent control as real-time control as it
relates to current. A set of procedures are implemented to monitor
project execution in order to find and solve problems or potential
problems in a timely manner.
3. Feed forward control: Feed forward is a management and
communication term that alludes to a representative or an association
to give a controlled impact from which you are expecting output. Feed
forward controls are future-directed, they attempt to detect and
anticipate problems or deviations from the standards in advance of
their occurrence. They are in-process control and are very active,
aggressive in nature, allowing corrective action to be taken in advance
of the problem.
4. Behavioral control: Behavioral control involves direct evaluation of
managerial and employee decision making, not the results of managerial
decisions. Behavioral control identified rewards for a wide range of
criteria, such as in a balanced scorecard. When there are many external
and internal factors, behavioral control and appreciative rewards are
more appropriate that may affect the relationship between manager’s
decisions and organizational performance. They are also suitable when
managers must coordinate resources and capabilities across different
business units.
5. Financial and non-financial controls: Financial controls involve the
management of a firm’s costs and expenses so that they can be
controlled in relation to budgetary amounts. Thus, in this way
management determines which aspects of its financial position, such as
profitability, sales or assets, are most important for the organization,
 tries to forecast them through budgets, and then compares actual
performance to budgetary performance. Does. At a strategic level, total
sales and indicators of profitability will be relevant strategic controls.

TYPES OF PERFORMANCE MANAGEMENT TOOLS.

1. Planning and budgeting

This is probably the most widely used BPM approach in businesses by which
plan ahead and set budgets for the following year. This is traditionally done
annually where organisation set goals for the next 12 months and negotiate a
budget to achieve the goals.
Once agreed, companies then monitor spending and performance versus
budget and goals. A major drawback is that this process can often be quite
bureaucratic, rigid and inflexible.

Doing planning and budgeting well means not spending months doing it and
creating a process by which the plans and budgets are revised more regularly
(e.g. qu arterly). The process should be used to ensure the most important
opportunities or activities are funded at any given point in time and not used to
monitor spending against out-dated targets and forecasts.

2. Key performance indicators (KPIs)

KPIs are the navigation instruments that companies use to understand

whether they are on track or veering off the prosperous path.

They serve to reduce the complex nature of organisational performance to a

small number of key indicators in order to make performance more
understandable and digestible for us.

It is similar to what a doctor would to assess your health where she might
measure blood pressure, cholesterol levels, heart rate and your body mass index
as key indicators of your health. With KPIs we are trying to do the same in our
organisations.

In practice, the word KPI is overused and often describes any metric in
business, rather than the vital few. Good KPIs are clearly liked to the business
strategy where they provide answers to key business performance questions.

3. Balanced scorecard (BSC)

The BSC is another popular management tool that has been designed to
articulate the strategic objectives of a business and then align performance
measures and action plans to these strategic objectives to ensure the strategy
gets executed.

The BSC proposes that companies develop objectives in the following

interrelated perspectives:

• Financial
• Customer
• Internal processes
• Learning and growth (people, culture, IT)

In practice, many BSC are less strategic management tools, and more metrics
dashboards. In order to create an effective BSC, companies should start with
creating a strategy map that depicts the strategic objectives and value drivers
on a single-page cause and effect diagram.

Once this has been achieved, meaningful measures should be developed to

monitor the strategy execution and action plans need to be designed for each
objective to ensure the strategy is being implemented.

4. Benchmarking
Companies use benchmarking to compare their own performance with those of
others. Benchmarking is traditionally seen as comparing your own performance
with external best-practice performance (where best practice performance
can come from outside the sector or industry a company operates in).

For example, banks might learn about customer service from hotels and hotels
might lean from insurance companies about optimizing back office processes.

Many organisations see benchmarking a bit like a target setting process by

which they identify performance levels elsewhere and then use those as
internal stretch targets. This can be dangerous without a proper
understanding of why and where the underlying processes differ.
Done properly however, benchmarking entails analysing performance in detail
to understand the context e.g. processes, cultures, skills, etc., to ensure
companies don’t end up comparing apples with pears.

5. Business excellence model

THE EUROPEAN FOUNDATION QUALITY MODEL

The business excellence models come from the quality movement and have
been developed by national bodies to assess quality standards in companies.
There are various national standards that are often used as the basis for
quality awards.

These concepts are:

1. Achieving balanced results

2. Adding value for customers
3. Leading with vision, inspiration and integrity
4. Managing by processes
5. Succeeding through people
6. Nurturing creativity and innovation
7. Building partnerships
8. Taking responsibility for a sustainable future
While they were originally more focused on production quality they have now
embraced most perspectives of business performance.

Using a self-assessment model, organizations can assess their performance

against these different perspectives. If the excellence model is purely used
to gain an award then this is a bit of a wasted opportunity. Companies can
actually use these tools (similarly to a BSC) to identify goals, measure
performance and manage action plans.
6. Enterprise risk management (ERM)

ERM represents a set of tools and approaches to identify, assess and manage
corporate risks. While risk management started its life very much as an
internal control back-room functions, today it has moved up onto the
boardroom agendas of most businesses.

Organisations realise that they are facing many business risks and if these are
not managed and mitigated then we could see of corporate failures we have
witnessed in recent years.

Done well, ERM should start with identifying the most important strategic risks
the organisation is facing. Once mapped, the risks can then be prioritised and
checked against the risk tolerance.
Finally, the action plans need to be put in place to manage or mitigate they key
business risks. This is then usually followed by the creation of key risk indicators
that function as early warning indicators and enable businesses to monitor the
risk levels on an on-going basis.

7. Six sigma
The six sigma is a tool that was pioneered by Motorola in the late 1980s and
later adopted very successfully by global giants such as General Electric and
Honeywell as well as many other companies of various sizes.

Six sigma informs managers as to the stability and predictability of process

results. The goal is that process defect or error rates will be no more 3.4 per
one million opportunities.

As a methodology six sigma is based on the DMAIC principles.

• Define customer requirements (internal or external); that is their

expectation of the process
• Measure the current performance; what is the frequency of defects?
• Analyse the data collected and map to determine cause and effect and
opportunities for improvement; why, when and where the defects
occur?
• Improve the target process by designing solutions to improve, fix or
prevent problems
 • Control the improvements to keep the process on the new course; how
can we ensure that the process stays fixed?

In essence, the promise is that by reaching six sigma performance levels,

customer dissatisfaction will decrease significantly and that, ultimately, superior
and sustainable financial results will be achieved.

Six sigma are now also used in service organizations. It basically uses statistics
to understand variations in performance levels. This then allows organizations
to set much more precise quality targets, and understand:

• (a) what levels are acceptable, and

• (b) normal fluctuations in quality.

Tools such as statistical process control, six sigma, and other quality analytics
are not just used to monitor an organisation’s own performance, but also to
design and measure performance contracts with suppliers using, for example,
service level agreements.

8. Performance dashboards
Most organisations today are bursting with data, metrics, reports and analyses.
Dashboards provide single-page at-a-glance overviews of areas of performance
(e.g. corporate overview, sales, finance, HR, business units, etc.).

They are designed to effectively communicate performance information using

elements such as visuals, graphs, traffic lights and text.

Good dashboards make it easy for the reader to understand the key messages
so they can concentrate on using the insights to make better-informed
business decisions. Dashboards should be as effective as good newspaper front
pages in communicating a story.

Some best-practice design principles are:

• Customise the dashboard for your audience

• Dashboards should be designed to answer specific business
performance questions
• Dashboards (like newspaper front pages) should contain headlines
• Dashboards should contain meaningful graphs that make it easy to
understand current performance levels
• Dashboards (again like newspaper front pages) should have short
descriptive narrative and comments to provide context.
• Dashboards should not contain any distracting information,
 unnecessary graphics or decorations, or excessive detail.

9. Customer relationship management (CRM)

Most companies want to make sure they not only have satisfied customers but
that they turn their customers into profitable and loyal customers.

CRM systems are used to manage a company’s interactions and relationships with
their existing or potential customers. It usually involves using technology and
software applications to track and monitor any interactions with customers –
from sales activities to customer service or customer support.

The most simple form of CRM is just tacking the various levels of interactions.
More sophisticate approaches involve using CRM technology to measure
conversion rates, identify opportunities to cross sell or up sell, creating early
warning systems to identify customer that might want to leave, etc.

Mobile phone providers are among the most sophisticated users of CRM
solutions, where they would use CRM technology to monitor customer
interaction and use the insights to create models to measure customer
lifetime value, propensity to call, and propensity to cancel contracts, etc.

10. Performance appraisals

Another popular performance management tools is the performance

appraisal. It is basically a tool to assess job performance of individuals in a
company.

Traditionally, performance appraisals are done annually by a line manager who

discusses performance with their subordinate employees. The problem is that
this type of appraisal can often be bureaucratic and has probably become one of
the most-dreaded performance management practices of all leading to little
actual improvements.

If performance appraisals are done right they can very well facilitate
meaningful communication, ensure individual goals are aligned with the
objectives of the business, motivate and engage employees, determine relevant
development and training needs.

Many organizations now expand performance appraisal to 360-degree review

where line-managers, colleagues and subordinates review an individual’s
performance.
Organisations that report the most positive results from performance
appraisals tend to:

• Focus on more regular and less formal dialogue

• Ensure that performance is reviewed in light of the company strategy
• Highlight positives and constructively discuss development needs
• Use automated systems to create an on-going track record of progress
• Use them in an open, engaging and constructive manner to create
regular dialogue and to focus a high-performance culture.

Companies can use a number of these tools (or pick and choose the best
elements of each of them) to create an integrated approach to managing and
improving business performance.

ESSENTIALS OF EFFECTIVE CONTROL SYSTEMS

1. Suitable: The control system should be appropriate to the nature and needs
of the activity. A large firm calls for controls different from those needed for
a small firm.

In other words, control should be tailored to fit the needs of the organisation.
The flow of information concerning current performance should correspond with
the organizational structure employed. If a superior is to be able to control
overall operations, he must find a pattern that will provide control for individual
parts. Budgets, quotas and other techniques may be useful in controlling
separate departments.

2. Timely and Forward Looking: The control system should be such as to enable
the subordinates to inform their superiors expeditiously about the deviations
and failures. The feedback system should be as short and quick as possible. If
the control reports are not directed at future, they are of no use as they will
not be able to suggest the types of measures to be taken to rectify the past
deviations. A proper system of control should enable the manager concerned to
think of and plan for future also.
3. Objective and Comprehensive: The control system should be both, objective
and understandable. Objective controls specify the expected results in clear
and definite terms and leave little room for argument by the employees. This is
necessary both for the smooth working and the effectiveness of the system.
4. Flexible: The control system should be flexible so that it can be adjusted to
suit the needs of any change in the environment. A sound control system will
remain workable even when the plans change or fail outright. It must be
responsive to changing conditions. It should be adaptable to new developments
including the failure of the control system itself. Plans may call for an
automatic system to be backed up by a human system that would operate in an
emergency.
5. Economical: Economy is another requirement of every control. The benefit
derived from a control system should be more than the cost involved in
implementing it. A small company cannot afford the elaborate control system
used by a large company. A control system is justifiable if the savings
anticipated from it exceed the expected costs in its working.
6. Acceptable to Organisation Members: The system should be acceptable to
organisation members. When standards are set unilaterally by upper level
managers, there is a danger that employees will regard those standards as
unreasonable or unrealistic.
7. Motivate People to High Performance: A control system is most effective
when it motivates people to high performance. Since most people respond to a
challenge, successfully meeting to tough standard may well provide a greater
sense of accomplishment than meeting an easy standard. However, if a target
is so tough that it seems impossible to meet, it will be more likely to discourage
than to motivate effort.
8. Corrective Action: Merely pointing of deviations is not sufficient in a good
control system. It must lead to corrective action to be taken to check
deviations from standard through appropriate planning, organizing and
directing. In the words of Koontz and O'Donnell, "An adequate control system
should disclose where failures occurring, who is responsible for them and what
should be done about them." A control system will be of little use unless it can
generate the solution to the problem responsible for deviation from standards.
9. Reflection of Organisation Pattern: Organization is not merely a structure
of duties and function, it is also an important vehicle of control. In enforcing
control the efficiency and the effectiveness of the organisation must be
clearly brought out.
10. Human Factor: A good system of control should find the persons
accountable for results, whenever large deviations take place. They must be
guided and directed if necessary.
11. Direct Control: Any control system should be designed to maintain
direct contact between the controllers and controlled. Even when there are a
number of control systems provided by staff specialists, the foreman at the
first level is still important because he has direct knowledge of performance.
12. Focus on Strategic Points: A good system of control not only points
out the deviations or exceptions but also pinpoints them where they are
important or strategic to his operations.