CONTROLLING

INTRODUCTION
All organizations, business or non-business, face the
necessity of coping with, problems of control. Like
other managerial functions, the need for control arises
to maximize the use of scarce resources and to achieve
purposeful behaviour organization members. In the
planning stage, managers decide how, the resources
would be utilized to achieve organizational objectives;
at the controlling stage; managers try to visualize
hither resources are utilized in the same way as lined.
Thus control completes the whole sequence of
management process.
 DEFINITION
“Controlling is determining what is being accomplished,
that is evaluating the performance and, if necessary,
applying corrected measures so that the performance
takes place according to plan.”
 Features Controlling
 Control is forward looking because one can control future

happenings and not the past.

 Control is both an executive process and, from the point of

view of the organizations of the system, a result.

 Control is a continuous process.

 A control system is a coordinated-integrated system

CONTROLLING AND PLANNING
Planning is the basis for control in the sense that it provides the entire

spectrum on which control function is based.

In fact, these two terms are often used interchangeably in the designation of

the department, which carries production planning, scheduling, and routing.

It emphasizes that there is a plan, which directs the behaviour and activities

in the organization.

Control measures these behaviour and activities and suggests measures to

remove deviation, if any.

Control further implies the existence of certain goals and
standards.
The planning process provides these goals. Control is the
result of particular plans, goals, or policies.
 Thus, planning offers and affects control.
Thus, there is a reciprocal relationship between planning
and control.
STEPS IN CONTROLLING
( PROCESS)
1 Establishment of Control Standards
●

2 ●
Measurement of Performance

9 Comparing Actual, and Standard Performance

●

4 ●
Correction of Deviations
 ESSENTIALS OF EFFECTIVE
CONTROL SYSTEM

Reflecting Organizational Needs

Forward Looking

Promptness in Reporting Deviation

Pointing out Exceptions at Critical Points

Flexible

Economical

Simple

Motivating

Reflecting Organizational Pattern

Tecchniques of Managerial Control
 Modern Techniques
a. Return on investment
b. Ratio analysis
c. Responsibility accounting
d. Management audit
e. Management information system
 Traditional Techniques

(a) Personal observation

(b) Statistical reports
(c) Breakeven analysis
(d) Budgetary control
 Ratio Analysis
1. Liquidity Ratios: Liquidity ratios are 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: Ratios which are 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: These ratios are 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: Turnover ratios are calculated to
determine the efficiency of operations based on
effective utilisation of resources. Higher turnover
means better utilisation of resources
 Responsibility Accccounting
1. Cost Centre: A cost or expense centre is a segment of
an organisation in which managers are held
responsible for the cost incurred in the centre but
not for the revenues. For example, in a
manufacturing organisation, production department
is classified as cost centre.
2. Revenue Centre: A revenue centre is a segment of an
organisation which is primarily responsible for
generating revenue. For example, marketing
department of an organisation may be classified as a
revenue center
3. Profit Centre: A profit centre is a segment of an
organisation whose manager is responsible for both
revenues and costs. For example, repair and
maintenance department of an organisation may be
treated as a profit center if it is allowed to bill other
production departments for the services provided to
them.
4. Investment Centre: An investment centre is
responsible not only for profits but also for
investments made in the centre in the form of assets.
The investment made in each centre is separately
ascertained and return on investment is used as a basis
for judging the performance of the centre.
 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.

 Management audit may be defined as evaluation of the

functioning, performance and effectiveness of management of
an organisation.