Business Studies: Class 12 (Part 1) — Chapter 8: Controlling

Controlling is an indispensable function of management that ensures activities within an organisation are performed as per the plans. It also ensures that resources are used effectively and efficiently to achieve predetermined goals.

• It is a goal-oriented function.
• It is a pervasive function, required at all levels of management (top, middle, and lower) and in all types of organisations (business, educational, military, hospitals).
• It is a continuous process that brings the management cycle back to the planning function by analysing deviations and taking corrective actions.

A good control system helps an organisation in the following ways:

• Accomplishing organisational goals: Measures progress towards goals, highlights deviations, and guides corrective action.
• Judging accuracy of standards: Enables management to verify if the standards set are accurate, objective, and realistic in the face of environmental changes.
• Making efficient use of resources: Reduces wastage and spoilage of resources by ensuring every activity conforms to predetermined standards.
• Improving employee motivation: Ensures employees know in advance what is expected of them and the standards against which they will be appraised.
• Ensuring order and discipline: Minimises dishonest behaviour by keeping a close check on employee activities.
• Facilitating coordination in action: Provides direction to all departments and employees, ensuring their efforts are well-coordinated to achieve overall objectives.

Although critical, controlling suffers from several limitations:

• Difficulty in setting quantitative standards: It is difficult to establish quantitative standards for areas like employee morale, job satisfaction, and human behaviour, making comparison challenging.
• Little control on external factors: An enterprise cannot control external environmental variables such as government policies, technological changes, and competitor actions.
• Resistance from employees: Employees often resist control systems, perceiving them as a restriction on their freedom (e.g., objection to CCTV monitoring).
• Costly affair: Implementing and operating a control system involves significant expenditure, time, and effort, which small enterprises may find difficult to justify.

Planning and controlling are inseparable twins of management:

• Planning provides the standards for controlling. Without planning, controlling is blind as there are no benchmarks to measure performance against.
• Controlling monitors progress, detects deviations, and initiates corrective actions. Without controlling, planning is meaningless.
• Planning is a prescriptive function (looking ahead), whereas controlling is an evaluative function (looking back).
• However, both functions are forward-looking (planning guides future action; controlling provides feedback to improve future plans) and backward-looking (planning is guided by past experiences; controlling analyses past performance).

Controlling is a systematic process involving the following sequential steps:

1. Setting performance standards: Establishing benchmarks (both quantitative, like cost and revenue, and qualitative, like goodwill and motivation) against which actual performance is measured. Standards must be flexible enough to adapt to environmental changes.
2. Measurement of actual performance: Measuring performance in an objective and reliable manner, preferably in the same units as the standards, using techniques like personal observation, sample checking, and performance reports.
3. Comparing actual performance with standards: Comparing actual results with desired standards to reveal deviations.
4. Analysing deviations: Determining the acceptable range of deviations and focusing on critical areas using:
   • Critical Point Control (CPC): Focusing control on key result areas (KRAs) that are critical to the success of the organisation.
   • Management by Exception (MBE): An important principle holding that an attempt to control everything results in controlling nothing; only significant deviations going beyond the permissible limit should be brought to the attention of top management.
5. Taking corrective action: Initiating corrective measures (such as training employees, assigning additional resources, or revising standards) when deviations exceed acceptable limits, ensuring standards are met and deviations do not recur.

The following table outlines typical standards used across different functional departments: