CONTROL

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.
 Process of Controlling

 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.
 Process of Controlling

 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.,
 Feedback Control: This process involves collecting information about a finished task,
assessing that information and improvising the same type of tasks in the future.
 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.
 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
 Limitations of Controlling:
 1. Difficulty in setting quantitative standards:
 Control system loses its effectiveness when standard of performance cannot be defined in quantitative
terms and it is very difficult to set quantitative standard for human behaviour, efficiency level, job
satisfaction, employee’s morale, etc. In such cases judgment depends upon the discretion of manager.
 2. No control on external factors:
 An enterprise cannot control the external factors such as government policy, technological changes,
change in fashion, change in competitor’s policy, etc.
 3. Resistance from employees:
 Employees often resist control and as a result effectiveness of control reduces. Employees feel control
reduces or curtails their freedom. Employees may resist and go against the use of cameras, to observe
them minutely.
 4. Costly affair:
 Control is an expensive process it involves lot of time and effort as sufficient attention has to be paid to
observe the performance of the employees. To install an expensive control system organisations have to
spend large amount. Management must compare the benefits of controlling system with the cost
involved in installing them. The benefits must be more than the cost involved then only controlling will be
effective otherwise it will lead to inefficiency.
Techniques of Controlling

 Control is a fundamental managerial function. Managerial control

regulates the organizational activities. It compares the
actual performance and expected organizational standards and goals. For
deviation in performance between the actual and expected
performance, it ensures that necessary corrective action is taken.
 There are various techniques of managerial control which can be classified
into two broad categories namely-
 Traditional techniques
 Modern techniques
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.