CHAPTER 8

INTRODUCTION
LEARNING OBJECTIVE
➢ Introduction Every organisation aims to achieve certain objectives
➢ Meaning of Controlling
➢ Features of Controlling or goals. Controlling function aims to ensure whether
➢ Importance of Controlling
➢ Limitations of Controlling
everything is being done according to predetermined
➢ Relationship between Planning goals.
&Controlling
➢ Controlling Process

MEANING OF CONTROLLING
Controlling refers to comparison of actual performance with the planned performance and taking
corrective actions, in case of deviations between actual and planned performance.
Controlling cannot prevent deviations. But, it can minimise them by taking actions and
decisions that reduce their recurrence.

Control is the process of bringing about conformity of performance with planned action.
~~~ Dale Henning

Nature or Features or Characteristics of Controlling

• Controlling is a goal-oriented function as it aims to ensure that resources are used

effectively and efficiently to achieve predetermined goals.
• Controlling is a pervasive function as control is exercised at all levels of management.
The nature and extent of control may differ from level to level. Moreover, controlling is
required in both business and non-business organisations.
• Controlling is both a backward looking as well as forward looking function.
• It is a backward-looking function as it measures and compares actual pertormance with
standards fixed in the past.
• It is also a forward-looking function as it aims to improve future performance, based on
experience gained in the past.
• Controlling is a continuous function as it involves continuous review of performance
and revision of standards.
 IMPORTANCE OF CONTROLLING

[Link] Organisational Goals: Controlling function measures progress towards the

organisational goals and involves taking corrective actions in case of any deviation. Through
controlling, every attempt is made to keep the activities on the right track, so that organisational
goals could be achieved efficiently and effectively.
[Link] Accuracy of Standards: An effective control system helps the organisation to verify
whether the standards set are accurate and objective. A good control system keeps a careful check
on the changes taking place in the business environment and helps in revising standards as and
when required
[Link] Efficient Use of Resources: Controlling helps to reduce wastage and spoilage of
resources. It aims to ensure that each activity is performed according to predetermined standards. As
a result, there is effective and efficient use of resources. Controlling helps to make optimum use of
human and physical resources.
[Link] Employee Motivation: Controlling communicates the role of employees well in
advance. Employees also know the standards against which their performance will be appraised. It
motivates them to give better performance.
[Link] Order and Discipline: An efficient control system creates an atmosphere of order and
discipline in the organisation. Controlling keeps a continuous check on employees to minimise
undesirable activities like theft, fraud, dishonesty, corruption, etc.
[Link] Coordination in Action: Controlling provides direction to all activities and efforts
for achieving organisational goals. Each department and individual employee is governed by
predetermined standards which are well coordinated with one another. This ensures that overall
organisational objectives are accomplished.
 LIMITATIONS OF CONTROLLING
[Link] in setting quantitative standards

[Link] Control on External Factors

[Link] from Employees

[Link] Affair

[Link] in setting quantitative standards: Control system becomes less effective when
standards of performance cannot be defined in quantitative terms. For example: it is very
difficult to measure human behaviour and employees' morale. In such cases, measurement of
performance and its comparison becomes a difficult task.
[Link] Control on External Factors: Controlling function can effectively deal with internal
factors. However, it is very difficult to control the external factors. For example: changes in
government policies, technological changes, changes in fashion, etc., cannot be checked by the
control system.
[Link] from Employees: Employees often resist control as it interferes with their actions
and thinking and creates a restriction on their freedom. For example: employees might object
when they are kept under a strict watch through closed circuit televisions (CCTVs).
[Link] Affair: Controlling is an expensive process as it involves lot of time, cost and efforts.
Due to this reason, small firms are unable to afford an expensive control system. Control system
is effective only when costs of installing and operating a control system do not exceed the
benefits derived from it.
Relationship between Planning and Controlling
[Link] is Blind without Planning: Controlling takes place on the basis of standards
developed by planning. If the standards are not set in advance, managers have nothing to
control. So, when there is no plan, there is no basis of controlling
[Link] without Controlling is Meaningless: Once a plan becomes operational, controlling
is necessary to monitor the progress, measure it, discover deviations & initiate corrective
measures to ensure that events conform to plans. Thus, planning without controlling is
meaningless.
[Link] is Prescriptive and Controlling is Evaluative: Planning is a prescriptive process as
it prescribes the most appropriate course of action to achieve the objectives. Controlling is an
evaluative process as it evaluates whether planned decisions have been translated into desired
action.

[Link] are Backward-Looking as well as Forward-Looking functions: It is often said that

planning is looking ahead and controlling is looking back. However, the statement is only
partially correct. Planning is viewed as a forward-looking approach as plans are prepared for
future and are based on forecasts about future conditions. Planning is also a backward-looking
function as plans are guided by the past experiences.
Controlling is considered a backward-looking function as it measures and compares actual
performance with standards fixed in the past. Controlling is also a forward-looking function as it
aims to improve future performance, based on experience gained in the past. So, planning and
controlling are both backward-looking as well as forward-looking functions.
 CONTROLLING PROCESS

Step I: Setting Performance Standards

The first step in the controlling process is the establishment of standards of performance. Standards
yardsticks towards which an organisation strives to work.
Standards can be set in both Quantitative as well as Qualitative terms.
Quantitative Standards: They are the standards which can be shown in figures. In quantitative
terms, standards are expressed in terms of cost to be incurred, revenue to be earned, units to be
produced and sold, time to be spent in performing a task and so on.
At the time of setting standards, a manager should try to set standards in precise quantitative
terms as this would make their comparison with actual performance much easier.
Qualitative Standards: They are the standards which cannot be shown in figures. Improving
goodwill and motivation level of employees are examples of qualitative standards. Whenever
qualitative standards are set, efforts should be made to define standards in a manner that make their
measurement easy.
For instance, some fast food chains like Pizza Hut, fix standards in terms of time taken to serve a
customer in order to enhance customers' satisfaction.
Standards should be flexible so that they may be modified as per changes taking place in the
business environment.
Step II: Measurement of Actual Performance

Once the standards have been established, the second step is to measure the actual performance.
Performance should be measured in an objective and reliable manner. It can be done using
several techniques like personal observation, sample checking, performance reports, etc. To
make the comparison easier, performance should be measured in the same units in which
standards are set.
Generally, performance is measured after the task. But, if possible, it should be done during
the performance. For example, Maruti Udyog thoroughly checks each part before assembling
them into the car. Measurement of performance of an employee may require preparation of
'Performance Report' by his superior.

Step III: Comparison of Actual Performance with Standards

The third step in controlling process is to compare the actual performance with the standards.
Such comparison will reveal the deviation between the planned and actual performance.
Comparison is easy when standards are set in quantitative terms. If actual performance matches
the standards, then everything is within control and process of controlling ends.
However, if there is mismatch or deviation, i.e. actual performance falls short of standards,
then the extent of deviation is determined. If the deviation is minor, then it should be ignored.
But if the deviation is major, then it needs immediate action.
Step IV: Analysing Deviations

Some deviation in performance is expected in all activities. So, the next step in controlling
process is to analyse the deviations. For this, an acceptable range of deviation must be fixed as
significant deviations need more attention as compared to minor deviations. Moreover,
deviations in key areas of business need to be attended more urgently as compared to deviations
in certain insignificant areas.
In this regard, managers use 'Critical Point Control' and 'Management by Exception'
Critical Point Control: According to this, control system should focus on Key Result Areas
(KRAs), which are critical to the overall performance of an organisation. If anything goes
wrong at the critical points, the entire organisation suffers. So, attention must be paid on such
critical points as it is neither economical nor easy to keep a check on each and every activity.
For example: in a manufacturing organisation, an increase of 10% in the labour cost may be
more troublesome than a 25% increase in postal charges.
Management by Exception or Control by Exception: According to this principle of
management control, manager should give attention to significant deviations, which go
beyond the permissible limit. This is based on a fact: "if you try to control everything, you may
end up controlling nothing". So, a range of deviations should be established and attention must
be paid beyond such range.
For example: if actual labour cost is within an acceptable range of deviation (say, 4%), then it
can be ignored. However, if it deviates by 18%, then it needs immediate attention of
management.
After identifying the major deviations, their causes need to be analysed. The causes may be
unrealistic standards, defective process, lack of resources, structural drawbacks, organisational
constraints and external environmental factors (like changes in prices or changes in government
policies) beyond the control of the organisation. It is necessary to identify the exact causes, so
that an appropriate corrective action can be taken.
Step V: Taking Corrective Action

The final step in the controlling process is taking corrective action. There is no need for
corrective action, when the deviations are within acceptable limits. However, if deviations go
beyond the acceptable range, especially in important areas, it demands immediate managerial
attention so that deviations do not occur again and standards are accomplished.
For example: if target production could not be met due to lack of skills, then corrective action
might involve training of employees. If project is running behind schedule, corrective action
might involve assigning of additional workers and equipment to the project. In case the
deviation cannot be corrected through managerial action, the standards may have to be revised.