Y VENKATA RAO

Controlling
1. Introduction
Controlling refers to the process of evaluation and assessment of the work done. Under the
process of controlling, standards are set for various tasks and activities. Accordingly, the
various tasks and activities are evaluated against the set standards. Deviations from the set
targets are identified, and corrective actions to be taken are decided. Thus, controlling refers to
the process of ensuring that the various activities and tasks in the organisation are carried out
according to the pre-defined goals and objectives. It ensures that deviations if any are identified
and appropriate corrective action is taken.

2. Meaning & Definition

Controlling involves comparison of actual performance with the planned performance. If there
is any difference or deviation, then finding the reasons for such difference and taking corrective
measures or action to stop those reasons so that they don‘t re-occur in future and that
organizational objectives are fulfilled efficiently.

3. Nature of Controlling
1) Goal-oriented function: It ensures that everyone follows the plan or the work is
accomplished as per the plan and tries to achieve the goals of the organisation.
2) Pervasive function: It is an activity performed not only by top level managers but also
by managers working at all levels, i.e. top, middle and operational levels.
3) Both backward and forward looking function: The work which is done is assessed and
deviations from the pre-determined standards are evaluated. Based on the deviations,
the controlling function seeks to take the required corrective action. In this way,
controlling evaluates the actual performance (by comparing it with) and guides future
actions.
4) Continuous function: Controlling is an ongoing process. This function is carried out till
the time an organisation survives.

4. Importance of Controlling
1. Controlling helps in achieving organizational goals: The controlling function
measures progress towards the organizational goals and brings to light/indicates
corrective action.
2. For Evaluating/Judging accuracy of standards: A good control system enables
management to verify whether the standards set are accurate or not by careful check on
the changes taking place in the organizational environment.
3. Making efficient use of resources: By the process of control, a manager seeks to
reduce wastage of resources.
4. Improves employees motivation: A good control system ensures that employees know
well in advance what they are expected to do & also the standard of performance. It
thus motivates & helps them to give better performance.
5. Facilitating Coordination in action: In controlling each department and employee is
governed by predetermined standards which are well coordinated with one another.
Control provides unity of direction.
6. Ensuring order and discipline: Controlling creates an atmosphere of order and
discipline in the organization by keeping a close check on the activities of its
employees.
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5. Features of Controlling
1. Goal oriented: Controlling is directed towards accomplishment of organizational goals
in the best possible manner.
2. Pervasive: Controlling is an essential function of every manager and exercised at all
levels of management.
3. Continuous: It is not an activity to be pursued in the end only; it has to be done on a
continous basis.
4. Controlling is looking back: Controlling involves measurement of actual performance
and its comparison with the desired performance. It is the process of checking and
verification.
5. Controlling is forward looking: It is related to future because it seeks to improve future
results on the basis of experience gained in the past.
6. Depends on planning: It pre supposes existence of planning because without planning
no control is possible.
7. Action oriented: Control has no meaning if no corrective action is taken; So timely
action should be taken to prevent deviations.
8. Primary Function of Management – controlling is performed at all levels and in all
types of organizations.
9. Brings back management cycle back to planning: Control should not be viewed as the
last function. In fact it links back to planning.

Controlling involves:
• Comparing actual performance with standards
• Finding out deviations
• Taking corrective action so that they don‘t repeat in future These are the
guidelines when future planning is done.

Thus controlling not only completes one cycle of management process and also
helps to improve planning in the next cycle.

6. Relationship between Planning and Controlling

Planning and controlling are interrelated and in fact reinforce each other in the sense that-
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1. Planning is pre-requisite for controlling. Plans provide the standard for

controlling. Thus, without planning, controlling is blind. If the standards are not
set in advance managers have nothing to control.
2. Planning is meaningless without controlling. It is fruitful when control is
exercised. It discovers deviations and initiates corrective measures.
3. Effectiveness of planning can be measured with the help of controlling.
4. Planning is looking ahead and controlling is looking back: Planning is a future
oriented function as it involves looking in advance and making policies for the
maximum utilization of resources in future that is why it is considered as
forward looking function.

In controlling we look back to the performance which is already achieved by

the employees and compare it with plans. If there are deviations in actual and
standard performance or output then controlling functions makes sure that in
future actual performance matches with the planned performances. Therefore,
controlling is also a forward looking function. Thus, planning & controlling
cannot be separated. The two are supplementary function which support each
other for successful execution of both the function. Planning makes controlling
effective whereas controlling improves future planning.

7. Controlling Process
1. Setting Performance Standards: Standards are the criteria against which actual
performance would be measured. Thus standards become basis for comparison and the
manager insists on following of standards.
2. Measurement of Actual Performance: Performance should be measured in an
objective and reliable manner which includes personal observation, sample checking.
Performance should be measured in same terms in which standards have been
established, this will facilitate comparison.
3. Comparing Actual Performance with Standard: This step involves comparison of
actual performance with the standard. Such comparison will reveal the deviation
between actual and desired performance. If the performance matches the standards it
may be assumed that everything is under control.
4. Analysing Deviations: The deviations from the standards are assessed and analysed to
identify the causes of deviations.
5. Taking Corrective Action: The final step in the controlling process is taking corrective
action. No corrective action is required when the deviation are within the acceptable
limits. But where significant deviations occur corrective action is taken.

8. Limitations of Controlling
1. Difficulty in setting quantitative standards: Control system loses its effectiveness when
standards of performance cannot be defined in quantitative terms. This makes
comparison with standards a difficult task. e.g areas like human behaviour, employee
morale, job satisfaction cannot be measured quantitatively.
2. Little control on external factors: An enterprise cannot control external factors like
government policies, technological changes, competition. etc.
3. Resistance from employees: Control is resisted by the employees as they feel that their
freedom is restricted. E.g employees may resist and go against the use of cameras to
observe them minutely.
4. Costly: Control involves a lot of expenditure, time and effort. A small enterprise cannot
afford to install an expensive control system.
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Managers must ensure that the cost of installing and operating a control system should not
exceed the benefits derived from it.

9. Techniques of Managerial Control

The techniques of managerial control can be classified in two categories as Traditional
Techniques and Modern Techniques.
A. Traditional techniques have been in use by managers since long ago. The following are
traditional techniques of managerial control:
1) Personal observation: Under this technique, managers directly oversee the work done.
It ensures that managers get the right information, and prompts workers to perform up
to the mark. However, this technique proves to be very time consuming and cannot be
used in cases where a large number of tasks or activities are to be performed.
2) Statistical reports: A statistical analysis of the performance is done in the form of
averages, ratios and percentages. Such statistical analysis helps in easy comparison of
actual performance with set standards and also with past performance.
3) Breakeven analysis: It comprises a study of relationship between costs, volume and
profits. Under this technique, the costs and profits at various levels of quantity are
studied. Accordingly, the level of output where the profit is maximised is identified.
Breakeven is said to occur when there is neither profit nor loss. That is the total
revenue earned by the organisation equals the total cost incurred.
4) Budgetary control: Under the technique of budgetary control, budgets are prepared
for each activity and operation in the organisation. Here, the term budget refers to
defining the goals and objectives which are to be achieved in quantitative terms. Then
the actual results of the activities are compared with the budgetary standards.
Accordingly, the work done is assessed and evaluated. Deviations from the set
standards are identified and corrective actions are decided.

B. Modern techniques refer to techniques which are recent in origin. The following are modern
techniques of controlling:
1) Return on investment: Return on investment refers to the benefits from investment. In
other words, it is an assessment of whether the investment is beneficial. In an
organisation, managers use this technique for comparing the performance of various
departments or for comparing present actions and past performance.
2) Ratio analysis: Various ratios are calculated to analyse financial statements. The most
commonly used ratios are as follows:
• Liquidity Ratio: Analyses the short-term solvency of a business
• Solvency Ratio: Evaluates the long-term solvency of a business
• Profitability Ratio: Determines the position of the business with regard to
profitability
• Turnover Ratio: Analyses whether the activities are carried out efficiently
3) Responsibility accounting: Under the system of responsibility accounting, various
divisions in the organisation are set up as responsibility centres. Each division is given
a target and it is the responsibility of the head of the division to achieve the set target.
Different types of responsibility centres in an organisation can be cost centre,
investment centre, profit centre and revenue centre.
4) Management audit: Under this technique, a systematic assessment is made of the
overall work and activities of the management of the company. The basic objective of
this technique is to evaluate efficiency and effectiveness in the tasks of the
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management. Accordingly, it helps in identifying the areas which require corrective

actions.
5) PERT and CPM: Programme Evaluation and Review Technique (PERT) and Critical
Path Method (CPM) are based on network analysis. Under these techniques, the entire
task is divided into various smaller activities. Each activity is then accorded a timeline
and a cost estimate. In this way, it helps in effective execution of the tasks and activities.
6) Management and information system: Management Information System (MIS) is a
computer based controlling technique wherein managers are provided with timely data
and information so as to help in the decision-making process. MIS proves to be cost
effective in terms of information management.

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