CONTROLLING

A QUICK RECAP:
Controlling is the process of comparing the actual
performance with the standard performance
and, if any deviations, taking the corrective
actions.

According to Philip Kotler, “controlling is the

process of taking steps to bring actual results
and desired result closed together.”
 Nature of Controlling

• Controlling is a goal oriented function.

• Controlling is an all pervasive function.
• Controlling is a forward looking function.
• Controlling is a continuous function.
• Controlling is both negative and positive.
1. Controlling is a goal oriented function.

Controlling function makes sure everyone

follows the plan or work is accomplished as per
the plans and plan always aim at achieving
organizational goal.

2. Controlling is an all pervasive function.

Controlling is not the task of top level
managers only but managers working at all
levels i.e., top, middle, and operational
level perform controlling function.
3. Forward looking function.
Controlling is related with future. It is not related to the
past because the past can not be controlled or managed in
this present time. So, controlling especially focuses on
future performance with that of making the planned
performance.
4. Controlling is a continuous function.
Controlling is the continuous or never ending process
throughout the entire lifetime of an organization. It studies
about plan and procedure of an organization, establishes
standards, checks recurrence of deviations and also take
necessary steps if needed. So, controlling is a continuous
process which runs till the organization exists.
5. Controlling is both negative and positive.
The controlling process should be such that
deviation are reported at the earliest .The deviation
can be known only when actual performance is
known. The manager cannot the past but should try
to improve the work in future. Controlling encourage
accepted programs and policies and discourage the
non plan actions.
 IMPORTANCE OF CONTROLLING

• Helps in achieving organizational goals.

• Making efficient use of resources.
• Improving employee motivation.
• Ensures order and discipline.
• Facilitates coordination in action.
• Judging accuracy of standards.
• Controlling helps in improving
performance of the employees.
1. Helps in achieving organizational goals.
Controlling function ensures that all activities in
the organization take place according to plan and
if there is any deviation, timely action is taken to
bring back the activities in the path of planning.
When all activities are going according to plan then
automatically these will direct towards.
achievement of organizational goal.
2. Making efficient use of resources.
Each activity is performed according to pre-
determined standards. As a result there is most and
effective use of resources.
3. Improving employee motivation.
An effective controlling system communicates the
goals and standards of appraisal for employees to
subordinates well in advance.
A good control system also guides employees to come
out from their problems. This free communication
and care motivates the employees to give better
performance.

4. Ensures order and discipline.

Control creates an atmosphere of order and
discipline in the organizations. Effective
controlling system keeps the subordinates under
check over dishonesty and fraud of employees.
5. Facilitates coordination in action.
Control helps to maintain equilibrium between
means and ends. All the departments are
controlled according to pre-determined standards
which are well coordinated with one another.
Control provides unity of direction.

6. Judging accuracy of the standards.

Through strategic controlling we can easily judge
whether the standard or target set are accurate or
not. An accurate control systems revises standards
from time to time to match them with the
environmental changes.
7. Controlling helps in improving
performance of the employees.

Controlling insists on continues check on the

employees and control helps in creating an
atmosphere of order and discipline.
There are two measures which can be exercised on
employees’ performance:
a) Self appraisal reports
b) Performance appraisal report by supervisors.
 LIMITATIONS OF
CONTROLLING
 Difficulty in setting quantitative
standards.
 Little control on external factors.
 Resistance from employees.
 Cost affairs.
CONTROLLING PROCESS
1. SETTING PERFORMANCE AND STANDARD

 Standards are the criteria against which the

actual performance would be measured. It
serves as a benchmark and norms.
 Standard can be set in both quantitative and
qualitative terms.
 Standard should be in precise and in
quantitative terms.
Example: Reduction of defects from 10 in every
1000 pieces produced to 5 in every 1000
pieces produced by the end of the quarter.
 Standards should be flexible enough to
modified.
2. MEASUREMENT OF ACTUAL PERFORMANCE.

 Performance should be measured in objective

and reliable manner.
 Performance should be measured in which
standards are set.
 Measurement of actual performance should be
done during the performance being done.

Example:
1. Measurement of employee performance.
2. Measurement of Company’s performance and
growth.
3. Efficiency of production
3.COMPARING ACTUAL PERFORMANCE WITH
STANDARD.

 Comparison reveals deviation between the actual

and desired result.
Example:
Performance of a worker in terms of unit
produced in a week can be easily measured
against the standard output for the week.
4. ANALYZING DEVIATION.

 It is important to determine the acceptable ranges

of deviation.
 Management by exception should be used in this
regard.
 Management by exception is based on the belief
that “an attempt to control everything results in
controlling nothing”.
 Deviation need to be analyzed for their causes.
 It is necessary to identify the exact cause.
5. TAKING CORRECTIVE ACTION
 No correction is required when deviation is within
acceptable ranges.
 Deviation go beyond permissible limits need
necessary action.
 In case the deviation cannot be corrected the
standards have to be revised.
CAUSES OF DEVIATION CORRECTIVE ACTION TO BE TAKEN
1. Defective material Change the quality specification for
the material used
2. Defective machinery Repair the existing machine or
replace the machine if it cannot be
repaired
3. Obsolete machinery Undertake technological up gradation
of machinery
4. Defective process Modify the existing process
5. Defective physical conditions of Improve the physical conditions of
work work
TECHNIQUES OF MANAGERIAL CONTROL

Traditional Modern
Techniques Techniques
Personal
Observation Return on
Investment
Statistical
Reports
Ratio Analysis
Breakeven
Analysis
Budgetary Management
Control Audit
 TRADITIONAL TECHNIQUES:

Traditional techniques are those which have been

used by the companies for a long time now.
However, these techniques have not become
obsolete and are still being used by companies.
These include:

(a) Personal observation

(b) Statistical reports
(c) Breakeven analysis
(d) Budgetary control
PERSONAL OBSERVATION:
Personal observation enables the manager to collect first
hand information. It also creates a psychological pressure on
the employees to perform well as they are aware that they
are being observed personally on their job.

STATISTICAL REPORTS:
Statistical analysis in the form of averages, percentages,
ratios, correlation, etc., present useful information to the
managers regarding performance of the organisation in
various areas. Such information when presented in the form
of charts, graphs, tables, etc., enables the managers to read
them more easily and allow a comparison to be made with
performance in previous periods and also with the
benchmarks.
BREAKEVEN ANALYSIS:
It 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.
Breakeven Point = (Fixed Costs)/(Selling price per unit –
Variable cost per unit)
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. This comparison reveals the
necessary actions to be taken so that organisational
objectives are accomplished.

BUDGET:
A budget is a quantitative statement for a definite
future period of time for the purpose of obtaining a
given objective. It is also a statement which reflects the
policy of that particular period. It will contain figures of
forecasts both in terms of time and quantities.
 MODERN TECHNIQUES

Modern techniques of controlling are those

which are of recent origin and are comparatively
new in management literature. These techniques
provide a refreshingly new thinking on the ways
in which various aspects of an organisation can
be controlled. These include:
 Return on investment
 Ratio analysis
 Management audit
RETURN ON INVESTMENT:
It is a useful technique which provides the basic
yardstick for measuring whether or not invested
capital has been used effectively for generating
reasonable amount of return. ROI can be used to
measure overall performance of an organisation
or of its individual departments or divisions. It
can be calculated as under.
RATIO ANALYSIS:
Ratio Analysis refers to analysis of financial statements through computation
of ratios. The most commonly used ratios used by organisations can be
classified into the following categories:

1. Liquidity Ratios: Calculated to determine short-term solvency of

business. Analysis of current position of liquid funds determines the
ability of the business to pay the amount due to its stakeholders.
2. Solvency Ratios: Calculated to determine the long-term solvency of
business are known as solvency ratios. Thus, these ratios determine
the ability of a business to service its indebtedness.
3. Profitability Ratios: Calculated to analyse the profitability position
of a business. Such ratios involve analysis of profits in relation to
sales or funds or capital employed.
4. Turnover Ratios: Calculated to determine the efficiency of
operations based on effective utilisation of resources. Higher
turnover means better utilisation of resources.
MANAGEMENT AUDIT:
It refers to systematic appraisal of the overall performance of the
management of an organisation. The purpose is to review the
efficiency and effectiveness of management and to improve its
performance in future periods. It is helpful in identifying the
deficiencies in the performance of management functions.

The main advantages of management audit are as follows.

 It helps to locate present and potential deficiencies in the

performance of management functions.
 It helps to improve the control system of an organisation by
continuously monitoring the performance of management.
 It improves coordination in the functioning of various
departments so that they work together effectively towards
the achievement of organisational objectives.
 It ensures updating of existing managerial policies and
strategies in the light of environmental changes.