Controlling

Definition: Control is a primary goal-oriented function of management in an

organisation. It is a process of comparing the actual performance with the
set standards of the company to ensure that activities are performed according
to the plans and if not then taking corrective action.

Every manager needs to monitor and evaluate the activities of his subordinates.
It helps in taking corrective actions by the manager in the given timeline to avoid
contingency or company’s loss.

Controlling is performed at the lower, middle and upper levels of the

management.

Features of Controlling
• An effective control system has the following features:
• It helps in achieving organizational goals.
• Facilitates optimum utilization of resources.
• It evaluates the accuracy of the standard.
• It also sets discipline and order.
• Motivates the employees and boosts employee morale.
• Ensures future planning by revising standards.
• Improves overall performance of an organization.
• It also minimises errors.
Controlling and planning are interrelated for controlling gives an important input
into the next planning cycle. Controlling is a backwards-looking function which
brings the management cycle back to the planning function. Planning is a
forward-looking process as it deals with the forecasts about the future conditions.

Importance of Controlling
After the meaning of control, let us see its importance. Control is an
indispensable function of management without which the controlling function
in an organization cannot be accomplished and the best of plans which can be
executed can go away. A good control system helps an organization in the
following ways:
1. Accomplishing Organizational Goals

The controlling function is an accomplishment of measures that further makes

progress towards the organizational goals & brings to light the deviations, &
indicates corrective action. Therefore it helps in guiding
the organizational goals which can be achieved by performing a controlling
function.

2. Judging Accuracy of Standards

A good control system enables management to verify whether the standards set
are accurate & objective. The efficient control system also helps in keeping
careful and progress check on the changes which help in taking the major place
in the organization & in the environment and also helps to review & revise the
standards in light of such changes.

3. Making Efficient use of Resources

Another important function of controlling is that in this, each activity is

performed in such manner so an in accordance with predetermined standards &
norms so as to ensure that the resources are used in the most effective &
efficient manner for the further availability of resources.

4. Improving Employee Motivation

Another important function is that controlling help in accommodating a good

control system which ensures that each employee knows well in advance what
they expect & what are the standards of performance on the basis of which they
will be appraised. Therefore it helps in motivating and increasing their potential
so to make them & helps them to give better performance.

5. Ensuring Order & Discipline

Controlling creates an atmosphere of order & discipline in the organization

which helps to minimize dishonest behavior on the part of the employees. It
keeps a close check on the activities of employees and the company can be able
to track and find out the dishonest employees by using computer monitoring as
a part of their control system.
 6. Facilitating Coordination in Action

The last important function of controlling is that each department & employee
is governed by such pre-determined standards and goals which are well versed
and coordinated with one another. This ensures that overall organizational
objectives are accomplished in an overall manner.

Process of Controlling
Control process involves the following steps as shown in the figure:

• Establishing standards: This means setting up of the target which needs to be

achieved to meet organisational goals eventually. Standards indicate the criteria
of performance.
Control standards are categorized as quantitative and qualitative
standards. Quantitative standards are expressed in terms of
money. Qualitative standards, on the other hand, includes intangible items.

• Measurement of actual performance: The actual performance of the employee

is measured against the target. With the increasing levels of management, the
measurement of performance becomes difficult.
• Comparison of actual performance with the standard: This compares the
degree of difference between the actual performance and the standard.
• Taking corrective actions: It is initiated by the manager who corrects any
defects in actual performance.
Controlling process thus regulates companies’ activities so that actual
performance conforms to the standard plan. An effective control system enables
managers to avoid circumstances which cause the company’s loss.
 Types of control
There are three types of control viz.,

1. Feedback Control: This process involves collecting information about a finished

task, assessing that information and improvising the same type of tasks in the
future.
2. Concurrent control: It is also called real-time control. It checks any problem and
examines it to take action before any loss is incurred. Example: control chart.
3. Predictive/ feedforward control: This type of control helps to foresee problem
ahead of occurrence. Therefore action can be taken before such a circumstance
arises.
In an ever-changing and complex environment, controlling forms an integral part
of the organization.

Advantages of controlling
• Saves time and energy
• Allows managers to concentrate on important tasks. This allows better utilization
of the managerial resource.
• Helps in timely corrective action to be taken by the manager.
• Managers can delegate tasks so routinely chores can be completed by
subordinates.
On the contrary, controlling suffers from the constraint that the organization has
no control over external factors. It can turn out to be a costly affair, especially for
small companies.

Techniques of Managerial Control

Traditional Techniques of Managerial Control
Traditional techniques are those which have been used by the companies for a
long time now. These include:

• Personal observation
• Statistical reports
• Break-even analysis
• Budgetary control
1. Personal Observation

This is the most traditional method of control. Personal observation is one of

those techniques which enables the manager to collect the information as first-
hand information.

It also creates a phenomenon of psychological pressure on the employees to

perform in such a manner so as to achieve well their objectives as they are
aware that they are being observed personally on their job. However, it is a
very time-consuming exercise & cannot effectively be used for all kinds of
jobs.

2. Statistical Reports

Statistical reports can be defined as an overall analysis of reports and data

which is used in the form of averages, percentage, ratios, correlation, etc.,
present useful information to the managers regarding the performance of
the organization in various areas.

This type of useful information when presented in the various forms like charts,
graphs, tables, etc., enables the managers to read them more easily & allow a
comparison to be made with performance in previous periods & also with the
benchmarks.

3. Break-even Analysis

Breakeven analysis is a technique used by managers to study the relationship

between costs, volume & profits. It determines the overall picture of probable
profit & losses at different levels of activity while analyzing the overall
position.

The sales volume at which there is no profit, no loss is known as the breakeven
point. There is no profit or no loss. Breakeven point can be calculated with the
help of the following formula:

Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit

4. Budgetary Control

Budgetary control can be defined as such technique of managerial control in

which all operations which are necessary to be performed are executed in such
a manner so as to perform and plan in advance in the form of budgets & actual
results are compared with budgetary standards.

Therefore, the budget can be defined as a quantitative statement prepared 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. The
common types of budgets used by an organization.

Some of the types of budgets prepared by an organisation are as follows,

• Sales budget: A statement of what an organization expects to sell in terms

of quantity as well as value
• Production budget: A statement of what an organization plans to produce
in the budgeted period
• Material budget: A statement of estimated quantity & cost of materials
required for production
• Cash budget: Anticipated cash inflows & outflows for the budgeted period
• Capital budget: Estimated spending on major long-term assets like a new
factory or major equipment
• Research & development budget: Estimated spending for the development
or refinement of products & processes

Modern Techniques of Managerial Control

Modern techniques of controlling are those which are of recent origin & are
comparatively new in management literature. These techniques provide a
refreshingly new thinking on the ways in which various aspects of an
organization can be controlled. These include:
• Return on investment
• Ratio analysis
• Responsibility accounting
• Management audit
• PERT & CPM
1. Return on Investment
Return on investment (ROI) can be defined as one of the important and useful
techniques. It provides the basics and guides for measuring whether or not
invested capital has been used effectively for generating a reasonable amount
of return. ROI can be used to measure the overall performance of an
organization or of its individual departments or divisions. It can be calculated
as under-
Net income before or after tax may be used for making comparisons. Total
investment includes both working as well as fixed capital invested in the
business.
2. Ratio Analysis
The most commonly used ratios used by organizations can be classified into the
following categories:
• Liquidity ratios
• Solvency ratios
• Profitability ratios
• Turnover ratios
3. Responsibility Accounting
Responsibility accounting can be defined as a system of accounting in which
overall involvement of different sections, divisions & departments of an
organization are set up as ‘Responsibility centers’. The head of the center is
responsible for achieving the target set for his center. Responsibility centers
may be of the following types:
• Cost center
• Revenue center
• Profit center
• Investment center
4. Management Audit
Management audit refers to a systematic appraisal of the overall performance
of the management of an organization. The purpose is to review the efficiency
&n effectiveness of management & to improve its performance in future
periods.
5. PERT & CPM
PERT (programmed evaluation & review technique) & CPM (critical path
method) are important network techniques useful in planning & controlling.
These techniques, therefore, help in performing various functions of
management like planning; scheduling & implementing time-bound projects
involving the performance of a variety of complex, diverse & interrelated
activities.
Therefore, these techniques are so interrelated and deal with such factors as
time scheduling & resources allocation for these activities.

Relationship between Planning and Control

Planning and control are the two sides of the same coin. They are in fact parts
of one integral function and it can be quite difficult to separate the two.
This means that we cannot tell when the planning function ends and the control
functions begin.
Planning sets the philosophy and the guidelines on which the company
operates. And controlling ensures that the activities of the firm conform to these
plans, goals, objectives etc.
So while planning sets the course of the firm, control will observe the
deviations from such a course and try and take remedial actions to correct the
course. In practicality, planning and control are interdependent.

Let us take a look at some points that better explain the relationship between
planning and control.
1] Planning originates Control

Planning is the most basic function of a firm. It decides what is to be done, who
will do it when it will be done etc. The aim of planning is to bridge the gap
between where the firm is and where it wishes to be.Control on the other hand
only starts after planning. It is basically controlling that all activities are going
according to the plan. So without planning there is no need for control.

2] Controlling sustains Planning

Another important point of the relationship between planning and control is

that it is a two-way street. While planning originates control, control will help
sustain the planning function. It directs the course of planning and points out
the areas where further planning is necessary.

3] They are Interdependent and Interlinked

Planning and control are actually part of one integral function. So they always
co-exist as one larger function.Controlling actually involves comparing actual
performance with the plans, and without any plans, it will be unable to do so.
Without a yardstick for comparison, there is no point of the control function.

Similarly, planning is also dependent on the control function. Planning is only

done on paper, it has to be translated into actions.And it is controlling by
managers that ensure that these plans are implemented correctly and produce
the desired results.

Hence the relationship between planning and control is that of interdependence.

For example, the workers made 800 units in one day.Is this a good statistic?
The only way we can compare is if a plan and standards are in place. Say if the
standard is 900 units, then the managers step in to correct this deviation from
the standard. This is the control function.

4] Both are Forward-Looking Functions

Both planning and control are concerned with the future activities of the firm.
Planning is always done for the future. And control too is a forward-looking
activity.The past cannot be changed or controlled, we can only focus on
controlling the future. It is the objective of both these functions to combine and
achieve the business objectives and goals of the firm.