CHAPTER 8 - CONTROLLING

PART – A

1. What is meant by Controlling?

Controlling is a function of management which ensures that activities in an organization are performed as
per the plans.
2. What is ‘Standard’ in Controlling process?
Standards are the criteria against which actual performance would be measured. They serve as bench
marks towards which an organization strives to work.
3. Expand - PERT/CPM/MIS.
PERT – Programme Evaluation and Review Technique
CPM – Critical Path Method
MIS – Management Information System
4. What is Ratio Analysis?
Ratio Analysis refers to analysis of financial statements through computation of ratios.
5. Controlling function of an organization is
a. Forward looking b. Backward looking
c. Forward as well as backward looking d. None of the above
Ans. c. Forward as well as backward looking
6. Management audit is a technique to keep a check on the performance of
a. Company b. Management of the company
c. Shareholders d. Customers
Ans. b. Management of the company
7. Budgetary control requires the preparation of
a. Training schedule b. Budgets
c. Network diagram d. Responsibility centres
Ans. b. Budgets
8. Which of the following is not applicable to responsibility accounting?
a. Investment centre b. Accounting centre
c. Profit centre d. Cost centre
Ans. b. Accounting centre.
PART – B
9. Define Managerial Control.
According to Koontz and O’Donnel, “Controlling is Measuring and correcting of activities of subordinates to
ensure that events confirm to plans.”
10. State any two traditional techniques of managerial control.
(i) Personal observation (ii) Break even analysis.
11. State any two modern techniques of managerial control.
Ans. (i) Return on Investment (ii) Ratio Analysis.
12. Give the meaning of Break - even Analysis.
Break-even analysis is a technique used by managers to study the relationship between costs, volume and
profits. It determines the probable profit and losses at different levels of activity.
13. What do you understand by Budgetary Control?
Budgetary control is a technique of managerial control in which all operations are planned in advance in
the form of budgets and actual results are compared with budgetary standards.
14. What is Responsibility Accounting?
Responsibility accounting is a system of accounting in which different sections, divisions and departments
of an organization are set up as “Responsibility Centres”. The head of the centre is responsible for
achieving the target set for his centre.
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 PART – C

15. ‘A good control system helps an organization in many ways’ - Justify this statement
with any four points.
A good control system helps an organization in the following ways:
a. Accomplishing organizational goals: The controlling function measures progress towards the
organizational goals and brings to light the deviations, if any, and indicates corrective action. Thus, it
guides the organization and keeps it on the right track so that organizational goals might be achieved.
b. 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 organization and in the environment and helps to review and revise the standards in
light of such changes.
c. 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.
d. 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.
e. Ensuring order and discipline: Controlling creates an atmosphere of order discipline in the organization.
It helps to minimize dishonest behaviour on the part of the employees by keeping a close check on their
activities.
f. Facilitating co-ordination in action: Controlling provides direction to all activities and efforts for achieving
organizational goals.

16. Explain the limitations of Controlling.

Controlling suffers from the following limitations:
i. Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards
cannot be defined in quantitative terms. This makes measurement of performance and their comparison
with standards a difficult task. Employee morale, job satisfaction and human behavior are such areas
where this problem might arise.
ii. Little control on external factors: Generally an enterprise cannot control external factors such as
government policies, technological changes, competition etc.
iii. Resistance from employees: Control is often resisted by employees. They see it as a restriction on their
freedom.
iv. Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort. A small
enterprise cannot afford to install an expensive control system.

17. Explain briefly the relationship between planning and controlling.

Planning is a prerequisite for controlling. A system of control can work only when there are certain
standards. These standards of performance which serve as the basis of controlling are provided by
planning. Once a plan becomes operational, Controlling is necessary to monitor the progress, measure it,
discover deviations and initiate corrective measures to ensure that events confirm to plans. Thus, planning
without controlling is meaningless. Similarly, controlling is blind without planning. Thus, planning and
controlling are inseparable twins of management.

18. Explain briefly the steps involved in controlling process.

Controlling is a systematic process involving the following steps:
i. 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.
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ii. Measurement of Actual Performance: Once performance standards are set, the next step is
measurement of actual performance. It is generally believed that measurement should be done after the
task is completed.
iii. 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.
iv. Analysing deviations: Some deviation in performance can be expected in all activities. After identifying
the deviations that demand managerial attention, these deviations need to be analysed for their causes.
These causes may be unrealistic standards, defective process, inadequacy of resources, structural
drawbacks etc. It is necessary to identify the exact cause of deviation, failing which an appropriate
corrective action might not be possible.
v. 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. When the deviations go
beyond the acceptable range, it demands immediate managerial attention. Corrective action might involve
training of employees if the production target could not be met.

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