Controlling

Introduction
The process of measuring performance and taking action to ensure desired results.
Controlling Process
Controlling is a systematic process involving the following steps.
1. Setting performance standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. nalysing deviations
!. Taking corrective action
Step 1: Setting Performance Standards: The "rst step in the controlling process
is setting up of performance standards. Standards are the criteria against which
actual performance would #e measured. Thus$ standards serve as #enchmarks
towards which an organisation strives to work.
Standards can #e set in #oth %uantitative as well as %ualitative terms. &or
instance$ standards set in terms of cost to #e incurred$ revenue to #e earned$
product units to #e produced and sold$ time to #e spent in performing a task$ all
represents %uantitative standards. Sometimes standards may also #e set in
%ualitative terms. 'mproving goodwill and motivation level of employees are
e(amples of %ualitative standards. The ta#le in the ne(t page gives a glimpse of
standards used in di)erent functional areas of #usiness to gauge performance.
t the time of setting standards$ a manager should try to set standards in precise
%uantitative terms as this would make their comparison with actual performance
much easier. &or instance$ reduction of defects from 1* in every 1$*** pieces
produced to ! in every 1$*** pieces produced #y the end of the %uarter. +owever$
whenever %ualitative standards are set$ an e)ort must #e made to de"ne them in a
manner that would make their measurement easier. &or instance$ for improving
customer satisfaction in a fast food chain having self,service$ standards can #e set
in terms of time taken #y a customer to wait for a ta#le$ time taken #y him to place
the order and time taken to collect the order.
't is important that standards should #e -e(i#le enough to #e modi"ed whenever
re%uired. .ue to changes taking place in the internal and e(ternal #usiness
environment$ standards may need some modi"cation to #e realistic in the changed
#usiness environment.
Step 2: Measurement of Actual Performance: /nce performance standards are
set$ the ne(t step is measurement of actual performance. 0erformance should #e
measured in an o#1ective and relia#le manner. There are several techni%ues for
measurement of performance. These include personal o#servation$ sample
checking$ performance reports$ etc. s far as possi#le$ performance should #e
measured in the same units in which standards are set as this would make their
comparison easier.
't is generally #elieved that measurement should #e done after the task is
completed. +owever$ wherever possi#le$ measurement of work should #e done
during the performance. &or instance$ in case of assem#ling task$ each part
produced should #e checked #efore assem#ling. Similarly$ in a manufacturing plant$
levels of gas particles in the air could #e continuously monitored for safety.
Measurement of performance of an employee may re%uire preparation of
performance report #y his superior. Measurement of a company2s performance may
involve calculation of certain ratios like gross pro"t ratio$ net pro"t ratio$ return on
investment$ etc.$ at periodic intervals. 0rogress of work in certain operating areas
like marketing may #e measured #y considering the num#er of units sold$ increase
in market share etc.$ whereas$ e3ciency of production may #e measured #y
counting the num#er of pieces produced and num#er of defective pieces in a #atch.
'n small organisations$ each piece produced may #e checked to ensure that it
conforms to %uality speci"cations laid down for the product. +owever$ this might
not #e possi#le in a large organisation. Thus$ in large organisations$ certain pieces
are checked at random for %uality. This is known as sample checking.
Step 3: Comparing Actual Performance with Standards: This step involves
comparison of actual performance with the standard. Such comparison will reveal
the deviation #etween actual and desired results. Comparison #ecomes easier when
standards are set in %uantitative terms. &or instance$ performance of a worker in
terms of units produced in a week can #e easily measured against the standard
output for the week.
Step 4: Analysing Deviations: Some deviation in performance can #e e(pected
in all activities. 't is$ therefore$ important to determine the accepta#le range of
deviations. lso$ deviations in key areas of #usiness need to #e attended more
urgently as compared to deviations in certain insigni"cant areas. Critical point
control and management #y e(ception should #e used #y a manager in this regard.
1. Critical Point Control: 't is neither economical nor easy to keep a check on
each and every activity in an organisation. Control should$ therefore$ focus on
key result areas 456s7 which are critical to the success of an organisation.
These 56s are set as the critical points. 'f anything goes wrong at the critical
points$ the entire organisation su)ers. &or instance$ in a manufacturing
organisation$ an increase of ! per cent in the la#our cost may #e more
trou#lesome than a 1! per cent increase in postal charges.
2. Management by Exception: Management #y e(ception$ which is often
referred to as control #y e(ception$ is an important principle of management
control #ased on the #elief that an attempt to control everything results in
controlling nothing. Thus$ only signi"cant deviations which go #eyond the
permissi#le limit should #e #rought to the notice of management. Thus$ if the
plans lay down 2 per cent increase in la#our cost as an accepta#le range of
deviation in a manufacturing organisation$ only increase in la#our cost
#eyond 2 per cent should #e #rought to the notice of the management.
+owever$ in case of ma1or deviation from the standard 4say$ ! per cent7$ the
matter has to receive immediate action of management on a priority #asis.
Step 5: Taking Corrective Action: The "nal step in the controlling process is
taking corrective action. 8o corrective action is re%uired when the deviations are
within accepta#le limits. +owever$ when the deviations go #eyond the accepta#le
range$ especially in the important areas$ it demands immediate managerial
attention so that deviations do not occur again and standards are accomplished.
Corrective action might involve training of employees if the production target could
not #e met. Similarly$ if an important pro1ect is running #ehind schedule$ corrective
action might involve assigning of additional workers and e%uipment to the pro1ect
and permission for overtime work. 'n case the deviation cannot #e corrected
through managerial action$ the standards may have to #e revised. The ta#le #elow
cites some of the causes of deviations and the respective corrective action that
might #e taken #y a manager
Controlling Techniques
9udgetary Control
0ersonal /#servation
0:6T;C0M
9reak :ven nalysis
'nventory Control
Social udit
T<M 4Total <uality Management7
Budgetary Control
9udgetary control is a techni%ue of managerial control in which all operations
are planned in advance in the form of #udgets and actual results are
compared with #udgetary standards. This comparison reveals the necessary
actions to #e taken so that organisational o#1ectives are accomplished.
Master Budgets also known as 9udget Summaries $ give the summary of all
the 9udgets and show how they a)ect the 9usiness as a whole. 't provides
detailed information a#out the production and sales.
d!antages o" #udgetary Control
1. 9udgeting focuses on speci"c and time,#ound targets.
2. 9udgeting is a source of motivation to the employees.
3. 9udgeting helps in optimum utili=ation of resources.
4. 9udgeting is also used for achieving coordination among di)erent departments
of an organi=ation.
#rea$%E!en nalysis
9reakeven analysis is a techni%ue used #y managers to study the relationship
#etween costs$ volume and pro"ts.
The sales volume at which there is no pro"t$ no loss is known as #reakeven
point. 't is a useful techni%ue for the managers as it helps in estimating
pro"ts at di)erent levels of activities.
Total &uality Management 'T&M(
process for managing %uality> it must #e a continuous way of life> a philosophy of
perpetual improvement in everything we do.
Personal )bser!ation
This is the most traditional method of control. 0ersonal o#servation ena#les the
manager to collect "rst hand information.
PE*T
CPM
Types o" Control
Strategic and /perational Control
&eed &orward $ &eed 9ackward and Concurrent Control