Meaning UNIT-8 CONTROLLING Controlling means ensuring that activities in an organisation are performed as per the plans. Controlling also ensures that an organisation's resources are being used effectively and efficiently for the achievement of predetermined goals. The controlling function finds out how far actual performance deviates from standards, analyses the causes of such deviations and attempts to take corrective actions based on the same. Features + Controlling is, thus, a goal-oriented function. * Controlling function of a manager is a pervasive function. + Itisa primary function of every manager. Managers at all levels of management- top, middle and lower-need to perform controlling functions to keep a control over activities in their areas. Other important points: . Controlling should not be misunderstood as the last function of management. It is a function that brings the management cycle back to the planning function. * This process helps in formulation of future plans in the light of the problems that were identified and, thus, helps in better planning in the future periods. Thus, controlling only completes one cycle of management process and improves planning in the next cycle. Importance Control is an indispensable function of management. Without control the best of plans can go awry. Agood control system helps an organisation in the following ways (i) Accomplishing organisational goals: The Controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action. It, thus, guides the organisation and keeps it on the right track so that organisational goals might be achieved. — ea tgitbe achieved. Business Studies(ii) Judging accuracy of standards: Agood control system enables management to verify whether the standards set are accurate and objective. An efficient Control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to a and revise the standards in light of such changes. (iii), Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with predetermined standards and norms. This ensures that resources are used in the most effective and efficient manner. (iv) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus, motivates them and helps them to give better performance. (v) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities. (vi) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organisational goals. Each department and employee is governed by predetermined standards which are well coordinated with one another. This ensures that overall organisational objectives are accomplished. Relationship between Planning and Controlling” Planning without controlling is meaningless” Planning and controlling are inseparable twins of management. Asystem of control presupposes the existence of certain standards. These standards of performance which serve as the basis of controlling are provided by planning. Once a plan becomes operational, controlling is necessary to monitor the progress, measure it, discover deviations and initiate corrective measures to ensure that events conform to plans. Thus, planning without controlling is meaningless. : “Controlling is blind without planning” + Similarly, controlling is blind without planning. If the standards are not set in advance, managers have nothing to control. When there is no plan, there is no basis of controlling. Planning is clearly a prerequisite for controlling. Itis utterly foolish to think that controlling could be accomplished without planning. Without planning there is no predetermined understanding of the desired 37? Business Studiesperformance. Planning seeks consistent, integrated and articulateg programmes while controlling seeks to compel events to conform to plans, "Planning is prescriptive whereas, controlling is evaluative” Planning is basically an intellectual process involving thinking, articulation and analysis to discover and prescribe an appropriate course of action for achieving objectives. Controlling, on the other hand, checks whether decisions have been translated into desired action. Planning is thus, prescriptive whereas, controlling is evaluative. "Planning is looking ahead while controlling is looking back” + — Itis often said that planning is looking ahead while controlling is looking back. However, the statements only partially correct. Plans are prepared for future and are based on forecasts about future conditions. Therefore, planning involves looking ahead and is called a forward-looking function. + Onthe contrary, controlling is like a postmortem of past activities to find out deviations from the standards. In that sense, controlling is a backward-looking function. ‘However, it should be understood that planning is guided by past experiences and the corrective action initiated by control function aims to improve future performance. Thus, planning and controlling are both backward- looking as well as a forward-looking function. Conclusion Thus, planning and controlling are interrelated and, in fact, reinforce each other in the sense that 1. Planning based on facts makes controlling easier and effective; and 2. Controlling improves future planning by providing information derived from past experience. Steps in process of control Controlling is a systematic process involving the following steps: Step 1: Setting Performance Standards : The frst step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Thus, standards serve as benchmarks towards which an organisation strives to work.Other important points to bear in mind: Business Studies 38 AA dyStandards can be set in both quantitative as well as qualitative terms. For instance, standards set in terms of cost to be incurred, revenue to be earned, product units to be produced and sold, time to be spent in performing a task, all represents quantitative standards. Sometimes Standards: ‘may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards. At me time of setting standards, a manager should try to set standards in precise quantitative terms as this would make their comparison with actual performance much easier. For instance, reduction of defects from 10 in every 1,000 pieces produced to 5 in every 1,000 pieces produced by the end of the quarter. However, whenever qualitative standards are set, an effort must be made fo define them in a manner that would make their measurement easier. For instance, for improving customer satisfaction in a fast food chain having self-service, standards can be set in terms of time taken by acustomer to wait for a table, time taken by him to place the order and time taken to collect the order. + It is important that standards should be flexible enough to be modified whenever required. Due to changes taking place in the internal and external business environment, standards may need some modification to be realistic in the changed business environment. Step 2: Measurement of Actual Performance : Once performance standards are set, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner. There are several techniques for measurement of performance. These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier. Other important points to bear in mind: + Measurement of performance of an employee may require preparation of performance report by his superior. Measurement of a company’s performance may involve calculation of certain ratios like gross profit ratio, net profit ratio, return on investment, etc., at periodic intervals. Progress of work in certain operating areas like marketing may be measured by Business Studies. ———————_ 39 llconsidering the number of units sold, increase in market share etc. + Whereas, efficiency of production may be measured by counting the number of pieces produced and number of defective pieces in a batch. In small organisations, each piece produced may be checked to ensure that it conforms to quality specifications laid down for the product. However, this might not be possible in a large organisation. Thus, in large organisations, certain pieces are checked at random for quality. 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 between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week. Step 4: Analysing Deviations : Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by amanager in this regard. After identifying the deviations that demand managerial attention, these deviations need to be analysed for their causes. Deviations may have multiple causes for their origin. These include unrealistic standards, defective process, inadequacy of resources, structural drawbacks, organisational constraints and environmental factors beyond the control of the organisation. Itis necessary to identify the exact Cause(s) of deviations, failing which, an appropriate corrective action might not be Possible. The deviations and their causes are then reported and corrective action taken at appropriate level. Other Important Points to bear in mind: 1. Critical Point Control : itis neither economical nor easy to keep a check on each and every activity in an organisation, Control should, therefore. focus on key result areas (KRAS) which are criti organisation. These KRAs are set as the critical points. if anything goes wrong at the critical points, the entire organisation suffers. For instance, in a manufacturing organisation, an increase of 5 er cent in the labour cost may be more troublesome than a 15 percent inci ical to the success of an rease in postal charges. Business Studies ——————____ 0penaee vs hides Ption : Management by exception, which is often by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only Significant deviations which go beyond the permissible limit should be brought to the notice of management. Thus, if the plans lay down 2 Per cent increase in labour cost as an acceptable range of deviation in a manufacturing organisation, only increase in labour cost beyond 2 percent should be brought to the notice of the management. However, in case of major deviation from the standard (say, 5 percent), the matter has to receive immediate action of management on a priority basis. Advantages of critical point control and management by exception. When a manager sets critical points and focuses attention on significant deviations which cross the permissible limit, the following advantages accrue 1. Itsaves the time and efforts of managers as they deal with only significant deviations. 2. It focuses managerial attention on important areas. Thus, there is better utilisation of managerial talent. 3. The routine problems are left to the subordinates. Management by exception, thus, facilitates delegation of authority and increases morale of the employees. 4. Itidentifies critical problems which need timely action to keep the organisation in right track. Step 5: Taking Corrective Action : The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, itdemands immediate managerial attention s0 that deviations do not occur again and standards are accomplished. Other Important Points to bear in mind: + Corrective action might involve training of employees if the production target could not be met. Similarly, ifan important project is running behind schedule, corrective action might involve assigning of additional workers and equipment to the project and permission for overtime work. | + Incase the deviation cannot be corrected through managerial action, the standards may have to be revised. / a MD | Pisiness Stutes ——— 4