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CONTROLLING
Contents covered
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UNIT 5: CONTROLLING

 Types and Strategies for Control

 Steps in Control Process
 Methods of Budgetary and Non- Budgetary Controls
 Characteristics of Effective Controls
 Establishing control systems
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The pervasive
function
 DEFINTION
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CONTROLLING
 "Controlling is determining what is being accomplished, that
is evaluating the performance and if necessary, applying
corrective measures so that the performance takes place
according to the plans."                              - George .R.Terry

 "Control is checking performance against predetermined

standards contained in the plans with a view to ensure
adequate progress and satisfactory performance."

                                                                         - G.F.L.Breach
 Features
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CONTROLLING  Is a positive force

 Is a continuous process

 Is Universal

 Is Dynamic

 Is Goal oriented

 Is based on Planning

 Delegation is key to Control

 Is Forward looking
 Basis Planning Controlling
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Focus
CONTROLLING Is Impersonal, Long Is personal, Immediate
Range Problems Issues
Relies on
Estimates Specific Data

Time
Top Management's top Operating and Lower-Level
Priority item People spend more time

Structure 
Less Structures More Structured

Evaluation
Difficult, Takes time to Results Visible, especially
Visualize the impact when situations are stable
and not so complex.
 Importance
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CONTROLLING

 Achievement of Goals

 Execution and revision of Plans

 Brings Order and Discipline

 Facilitates Decentralization of Authority

 Promotes Coordination

 Cope with Uncertainty and Change

 Limitations 8
CONTROLLING
 Influence of External Factors

 Expensive

 Lack of Satisfactory Standards

 Opposition from Subordinates

 Principles
 Principle of efficiency of controls
Principles 9
 Principle of affirmation of the objectives
of CONTROLLING  Principle of control responsibility
 Principle of direct control
 Principle of standards
 Principle of critical-point control
 The exception Principle
 Principle of flexible controls
 Principle of Action
 Principle of reflection of plans
 Principle of organizational aptness
 Principle of individuality of controls
 Characteristics of Effective Control System
 Suitable
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CONTROLLING  Simple
 Selective
 Sound and Economical
 Flexible
 Forward Looking
 Reasonable
 Objective
 Responsibility for Failures
 Acceptable
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CONTROL PROCESS
 Establishment of Standards
 Standards serve as Benchmarks 12
CONTROLLING  Control Standards
v Quantitative Standards
v Time Standards
v Cost Standards
v Productivity Standards
v Revenue Standards
v Qualitative Standards
v Goodwill
v Employee Morale
v Industrial Relations
 Setting Standards
 Study characteristics of the Work
 Should consider ordinarily flexible and Generally acceptable levels of
performance with respect to work characteristics
 Set different standards for different works as each work is unique
 Measurement of Actual  Performance
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CONTROLLING
 Actual performance is measured against Standards fixed for the job
 Measurement should be done in Objective Manner
 Standards may be Quantitative or Non- Quantitative
 Key three aspects of Measurement
 Completeness
 Objectivity
 Responsiveness
 When to Measure
 Comparision of Actual
performance with standards 14
CONTROLLING  Determines the Degree of Variation
between Actual Performance and
Standard

 Only major or Exceptional

Deviations are communicated to top
level management 

 The Management by Exception

Principle is followed(MBE)
 Taking Corrective Action

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Are initiated by managers to rectify the actual performance
CONTROLLING  Corrective action may include 
v Methods
v Rules
v Procedures
v Change in Strategy
v Change in Structure
v Compensation Practices
v Training Programmes
v Redesign of Jobs
v Replacement of Personnel
v Re- establishment of Budgets or Standards
 Types of Control
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CONTROLLING
 Feedforward Control

 Concurrent Control

 Feedback Control
 Basis Strategic Control Operational Control

is the process of continually is the process of evaluating and

evaluating the strategy as it is correcting the 17performance
CONTROLLING Definition being implemented of various organizational units to
and take necessary assess their contribution to
corrective actions it required. the achievement
of organizational objectives.

Basic Are we moving in the

How are we performing?
question right direction?
Main Steering the organization’s future Action control.
concern direction.
Focus External environment. Internal organization.
Time
Long-term. Short-term.
horizon
Exclusively by top management.
Mainly by mid-level management
An exercise They may take the lower-level
on the direction of the top
of control support.
management.

Environmental scanning,
Main Budgets, schedules and MBO.
information gathering,
techniques
questioning, and review.
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 CONTROLLING
v Feedforward Control 19
v Is also known as Proactivity Control
v can be defined as the monitoring of problems in a way that provides their timely prevention, rather than after the fact reaction. 
v addresses what can we do ahead of time to help our plan succeed. The essence of feedforward control is to see the problems coming in
time to do something about them. 
v include preventive maintenance on machinery and equipment and due diligence on investments.
v Concurrent Control
v Is the process of monitoring and adjusting ongoing activities and processes 
v Such controls are not necessarily proactive, but they can prevent problems from becoming worse. 
v Is described as real-time control because it deals with the present.
v adjusting the water temperature of the water while taking a shower
v Feedback Control
v involves gathering information about a completed activity, evaluating that information, and taking steps to improve the similar
activities in the future.
v  is the least proactive of controls and is generally a basis for reactions.
v  Permits managers to use information on past performance to bring future performance in line with planned objectives.
 Dimensions of Control
 Strategic Point Control 20
CONTROLLING  Control, to be ef­fective, should be focused on key result areas which are
critical to the success of an enterprise.
 Management while reviewing standards must pick some strategic points that
reflect the entire organization. 
 Important Features of Strategic Points:
i. A central point is established for every key operation or event. 
ii. Central points must be comprehensive and economical. They are com­
prehensive in the sense they include all sub-operations in the operation.
Economy is also sought because each and every item produced need not be
checked or verified. Checking at strategic points brings economy also.
iii. Strategic points are generally balanced in the sense equal importance is given
to both qualitative and quantitative factors. 
iv. Managers as a rule, should focus attention on deviations at strategic points
only. 
 Types  of strategic control
  Premise Control
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 Every organization creates a strategy based on certain assumptions, or
CONTROLLING premises.
 Premise control is designed to continually and systematically verify whether
those assumptions, which are foundational to your strategy, are still true. 
 Implementation Control
 This type of control is a step-by-step assessment of implementation activities.
  It focuses on the incremental actions and phases of strategic implementation,
and monitors events and results as they unfold. 
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 Special Alert Control
 This is a reactive process, designed to execute a fast and thorough strategy
assessment in the wake of an extreme event that impacts an organization. 
 In some cases, a special alert control calls for the formation of a crisis team
 Strategic Surveillance Control
 Strategic surveillance is a broader information scan.
  Its purpose is to identify overlooked factors both inside and outside the
company that might impact your strategy. 
 This process ideally covers any “ground” that might be missed by the more
focused tactics of premise and implementation control.
 Surveillance could encompass industry publications, online or social
mentions, industry trends, conference activities, etc.
 Dimentions of Controlling
 Management by Exception (MBE) 23
 More  attention is given to unusual or exceptional items.

 Only important deviations from established standards should be brought to the notice of management.

 In case of a major deviation from the standard, the matter has to receive the immediate attention of management on a priority basis. 

 Top level is expected to  focus on key deviations and leave the minor ones to be taken care of at lower levels.

 Benefits of MBE:

i. It saves time (it is a time-saving technique.)

ii. It identifies critical problem areas.

iii. It stimulates communication.

iv. It reduces the frequency of decision-making.

v. It leads to concentration of effort on important things.

vi. It makes use of more knowledge and data.

vii. It is necessary in big organizations.

  Resistance to control
 Over Control 24
CONTROLLING  Inappropriate Controls
 Unachievable Standards
 Rewards for Inefficiency
 Uncontrollable Variables

 Overcoming Resistance to Control

 Employee Participation
 Justifiable Controls
 Precise and Understandable Standards
 Realistic Standards
 Timely Communication of Findings
 Accurate Findings
 Assuring Support
 Positive Reinforcement
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Budgetary Techniques 27

 Zero Based Budgeting: It is a method of budgeting in which all expenses

are evaluated each time a Budget is made and expenses must be justified
for each new period. Zero budgeting starts from the zero base and every
function of the government is analysed for its needs and cost.

 Master budget: It is a comprehensive financial planning document that

includes all of the lower-level budgets, cash flow forecasts, budgeted
financial statements, and financial plans of an organization. It's usually
developed by a firm's budget committee and guided by the budget director.
 The major components of a master budget include income and
expenses, overhead and production costs, and the monthly, annual, average
and projection totals.
Budgetary Techniques 28
 Functional Budget/Operating Budget:
Functional budget is the budget which relates to a specific function of the business, e.g.,
sales budget, production budget. These budgets are prepared for each function and they
contribute to the master budget. The number of functional budget depends upon the size
and nature of the business.
 Capital Expenditure Budget::
In this budget, estimates are made for the purchase of capital assets or fixed assets during
the period of budget, e.g., land and building, plant and equipments etc.
 Cash Budget:
Cash budget is prepared by analyzing cash inflow and outflow of an organization. It is
prepared to ensure the sound liquid position of an organization so that the organization
can pay its short-term liabilities. It also helps the organization in avoiding situations in
which there is idle cash or shortage of cash.
Budgetary Techniques 29

 Long-Term Budget:
 Long-term budgets are prepared for a period exceeding one year. They are only
forward looking plans. They act as a guidelines for preparing short term budgets.
Long-term budgets are not meant for immediate implementation.
 Short-Term Budget:
 A budget prepared for a period less than a year is called short-term budget. Short
term budgets are prepared for actual implementation and it has a practical value.
Budgetary Techniques 30

 Fixed Budgets:
 Fixed budget is prepared for a specific level of activity forecasted. It is prepared on
the assumption that actual activity will not vary from budgeted activity level. If the
actual activity is different from the budgeted activity, the fixed budget becomes
useless. In the fixed budget no provision is made for its modification to suit the
actual level of activity. Fixed budget becomes impracticable when future conditions
change. It does not help the management in exercising control over the firm’s
activities.
 Flexible Budget:
 Flexible budget is also called variable budget. In a flexible budget provisions are
made to modify the budgeted cost and revenue for any level of activity of the firm’s
operations. So a flexible budget prepared for one level of activity can be altered for
any level of activity. For the purpose of preparing flexible budget the costs are
classified as variable, semi- variable and fixed costs.
Non budgetary techniques 31

Standard Costing

v Is defined as the preparation and use of standard costs, their comparison with actual costs and the measurement
and analysis of variances to their causes and points of incidence. 

v Standard costs should be obtained under efficient operations.

v Starts with an estimate of what a product should cost during a future period given reasonable efficiency.

v Standard costs are established by bringing together information collected from various sources within the
company.
Non budgetary techniques 32

  External Audit

 Is known as financial audit.

 Refers to verification of financial statements.

 Control facilitated through verification of accounts against the standard principles. 

 Is conducted at the end of the financial year when accounts have already been prepared, it serves as a method to control future actions. 

  Operational Audit

 Is also known as Internal Audit

 Is the regular and independent appraisal of the accounting, financial and other operations of an enterprise.

 Includes appraisal of operations in general, weighing actual results against planned results.

 Confirm whether the accounts properly reflect the facts, appraise policies, procedures and use of authority, quality of management,
effectiveness of methods, special problems, and other phases of operations.
   Marketing Control
Non budgetary  33 of the firm
Is the tool for ensuring that the marketing programmes and activities

always get directed towards the marketing objectives of the firm. 

techniques
 Provides the means of testing whether the desired goals and results are actually

being achieved or not.

 Is an ongoing monitoring of the marketing activity in all its aspects. 

  Break Even Point

  Is also known as ‘Cost-Volume Profit Analysis’

 Is an analysis of the inter-relationships among the cost of production, volume of

production and the amount of profits.
 Assistance in Decision Making
  Determination of Profit
  Cost Control
 Comparison
 Fixation of Selling Price
Non budgetary techniques 34

  Financial Statement Analysis

  The figures of the current year can be compared with the previous year's
figures. 
 They can also be compared with the figures of other similar organisations.
 Trend analysis
 Common-size financial analysis
 Financial ratio analysis
 Cost volume profit analysis
 Benchmarking (industry) analysis
 Non budgetary techniques
  Return on Investment
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 Can be defined as one of the important and useful techniques. 

 Provides the basics and guides for measuring whether or not invested capital has been

used effectively for generating a reasonable amount of return. 

 Can be used to measure the overall performance of an organization or of its individual departments or divisions

 PERT & CPM

PERT (programmed evaluation & review technique) 

  CPM (critical path method) 

 Helps  in performing various functions of management like planning; scheduling &

implementing time-bound projects involving the performance of a variety of

complex, diverse & interrelated activities.

 Are  used to compute the total expected time needed to complete a project 

  Can identify the bottleneck activities that have a critical effect on the project completion date. 

 Are mainly used in areas like construction projects, aircraft manufacture, ship building etc.
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 Non budgetary techniques 

 Management Information System(MIS)

 Is a computer-based information system which provides accurate, timely and up-to-date information to the managers for taking various

managerial decisions. 

 Provides timely information to the managers so that they can take appropriate corrective measures in case of deviations from standards.

 Management Audit 

 Is a  systematic appraisal of the overall performance of the management of an organization. 

 The purpose is to review the efficiency & effectiveness of management and thereby  improve the performance in future periods.  

 It considers both financial and non-financial factors including economic environment,

 Is  essentially a procedure or a form of appraisal of the total performance of the management by means of an objective and comprehensive
examination of the organisation structure, its components such as a department, its plans and policies, methods of process or operation and
controls, and its use of physical facilities and human resources.
 The thrust of this audit is on evaluation, with appropriate analysis for improvement on contribution towards industrial development.
 v Responsibility Accounting

NON BUDGETARY  Is as a system of accounting in which overall involvement 37 of different

sections, divisions & departments of an organization are set up 

TECHNIQUES  The head of the center is responsible for achieving the target set for his
center. 
 Types of Responsibility centers 
    Cost center
• Revenue center
• Profit center
• Investment center
 v Human Resource Accounting (HRA) 
NON BUDGETARY v 38
Is primarily involved in measuring the various aspects related to human assets.

TECHNIQUES v Its basic purpose is to facilitate the effective management of human resources by

providing information to acquiring, develop, retain, utilize, and evaluate human
resources.

v Methods of  Valuation of Human Assets

• Historical Cost Method

• Replacement Cost

• Opportunity Cost Method

• Economic Value Method

• Standard Cost

• Present value of future earnings Method

• Acquisition Cost Method

• Expected realizable value

• Competitive Bidding Method

 Total Quality Management Techniques(TQM)
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1.Benchmarking is the process of comparing the cost, cycle time, productivity, or quality of a specific
process or method to another that is widely considered to be an industry standard or best practice.
2.Quality Circles:A quality circle is a participatory management technique that enlists the help of
employees in solving problems related to their own jobs. Circles are formed of employees working
together in an operation who meet at intervals to discuss problems of quality and to devise solutions for
improvements.
3.Empowerment : giving people authority to make decisions based on what they feel is right, have
control over their work, take risks and learn from mistakes, and promote
change. Empowering employees is giving employees 'ownership of their jobs'.
4.Outsourcing: is the hiring of an individual or company to perform specialized tasks or services or
develop products for another company. You might think that outsourcing and quality management are
simple terms and therefore easy to implement.
5.Reduced cycle Time: Is to reduce the total time required to perform all the activities that occur
during order processing, design, supply management, production and distribution of a product or
service.
6. Balanced scorecard (BSC) is a strategic planning and management system. Organizations use BSCs
to: ... Align the day-to-day work that everyone is doing with strategy. Prioritize projects, products, and
services. Measure and monitor progress towards strategic targets.
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