UNIT-V_Principles & Practice of Management, BBA I Sem Dr.A.

Subrahmanyam

HRMG (1001) Principles & Practice of Management

BBA I Semester, GIM
Course Instructor: Dr. Subrahmanyam A

Supporting Study Material

UNIT 5- Introduction, Concept of Controlling, Purpose of Controlling; Types of Control; Steps
in Controlling; Techniques inControlling.
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CONTROLLING
Meaning of Controlling
 Controlling is one of the important functions of a manager. In order to seek planned results
from the subordinates, a manager needs to exercise effective control over the activities of the
subordinates.
 In other words, controlling means ensuring that activities in an organization are performed as
per the plans. Controlling also ensures that an organization’s resources are being used
effectively and efficiently for the achievement of predetermined goals. Controlling is, thus, a
goal-oriented function.
 Control process tries to find out deviations between planned performance and actual
performance and to suggest corrective actions wherever these are needed.
 Controlling function of a manager is a pervasive function. It is a 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.
 Controlling should not be misunderstood as the last function of management. It is a function
that brings back the management cycle back to the planning function. 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. 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.
 According to Terry, “Controlling is determining what is being accomplished, that is evaluating
the performance and, if necessary, applying corrected measures so that the performance takes
place according to plan.”
Purpose/Importance/Significance of Controlling
Control is an crucial function of management. Without control the best of plans can go awry. A
good control system helps an organization in the following ways:
 Accomplishing organizational goals: Controlling function measures progress towards the
organizational goals and brings to light the deviations, if any, and indicates corrective action.
It, thus, guides the organization and keeps it on the right track so that organizational goals
might be achieved.

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 Judging accuracy of standards: A good 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 organization and in the environment and helps
to review and revise the standards in light of such changes.
 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.
 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.
 Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in
the organization. It helps to minimize dishonest behavior on the part of the employees by
keeping a close check on their activities. The box explains how an import export company was
able to track dishonest employees by using computer monitoring as a part of their control
system.
 Facilitating coordination in action: Controlling provides direction to all activities and efforts
for achieving organizational goals. Each department and employee is governed by
predetermined standards which are well coordinated with one another. This ensures that overall
organizational objectives are accomplished.

Features or Characteristics of Control:

Following characteristics of control can be identified:
1. Control is a Managerial Process: Management process comprises of five functions, viz.,
planning, organizing, staffing, directing and controlling. Thus, control is part of the process of
management.
2. Control is forward looking: Whatever has happened has happened, and the manager can take
corrective action only of the future operations. Past is relevant to suggest what has gone wrong
and how to correct the future.
3. Control exists at each level of Organization: Anyone who is a manager, has to involve into
control – may be Chairman, Managing Director, CEO, Departmental head, or first line manager.
However, at every level the control will differ – top management would be involved in strategic
control, middle management into tactical control and lower level into operational control.
4. Control is a Continuous Process: Controlling is not the last function of management but it is
a continuous process. Control is not a one-time activity, but a continuous process. The process
of setting the standards needs constant analysis and revision depending upon external forces,
plans, and internal performance.
5. Control is closely linked with Planning: Planning and controlling are closely linked. The two
are rightly called as ‘Siamese twins’ of management. “Every objective, every goal, every policy,
every procedure and every budget become standard against which actual performance is

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compared. Planning sets the ship’s course and controlling keeps it on course. When the ship
begins to veer off the course, the navigator notices it and recommends a new heading designed
to return the ship to its proper course. Once control process is over its findings are integrated
into planning to prescribe new standards for control.
6. Purpose of Controlling is Goal Oriented and hence Positive: Control is there because
without it the business may go off the track. The controlling has positive purpose both for the
organization (to make things happen) and individuals (to give up a part of their independence
for the attainment of organizational goals).

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. Analyzing deviations
5. Taking corrective action
Step 1: Setting Performance Standards:
 The first 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 organization strives to work.
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.

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.

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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, the
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: Analyzing Deviations:

 Once deviation have been brought on surface by making comparison between standards
and actual results, the manager becomes quite conscious of these situations specially in
which deviations are major and of serious nature.
 He identifies and investigates these deviations as to get into the possible causes responsible
for such situation.
 Deviations may have multiple causes for their origin such as deficiency and inadequacy of
resources, defective process, structural drawbacks, lack of proper monitoring, and
measurement and organizational constrains and other environmental factors beyond the
control of the employees. Therefore it is necessary to identify and separate out appropriate
and exact cause or causes of deviation.

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, 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 be
met. Similarly, if an important project is running behind schedule, corrective action might
involve assigning of additional workers and equipment to the project and permission for
overtime work. In case the deviation cannot be corrected through managerial action, the
standards may have to be revised.

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Types of Control Techniques in Management

In management, Controlling is one of the most important functions in an organization which is goal-
oriented. Types of Control techniques in management are Modern and Traditional control techniques.
Controlling helps the managers in eliminating the gap between organizations actual performance
and goals. Controlling is the process in which actual performance is compared with the company
standards. Comparing it gives the visibility that activities are performed according to strategy or
not. If it is not performed then necessary corrective action should be taken.
Management theorists and experts have devised several techniques over the years. They often
divide these techniques into two categories: traditional and modern. Traditional types of
techniques generally focus on non-scientific methods. On the other hand, modern techniques find
their sources in scientific methods which can be more accurate.
Traditional Types of Control Techniques in Management
1. Budgetary Control
2. Standard Costing
3. Financial Ratio Analysis
4. Internal Audit
5. Break-Even Analysis
6. Statistical Control
7. Zero-Base Budgeting

1. Budgetary Control
 Budgeting simply means showcasing plans and expected results using numerical
information. As a corollary to this, budgetary control means controlling regular operations
of an organization for executing budgets.
 The main aim of budgetary control is to regulate the activity of an organization using
budgeting. This process firstly requires managers to determine what objectives they wish
to achieve from a particular activity. After that, they have to lay down the exact course of
action that they will follow for weeks and months.
 A budget basically helps in understanding and expressing expected results of projects and
tasks in numerical form. For example, the amounts of sales, production output, machine
hours, etc. can be seen in budgets.
 There can be several types of budgets depending on the kind of data they aim to project.
For example, a sale budget explains selling and distribution targets. Similarly, there can
also be budgets for purchase, production, capital expenditure, cash, etc.
 Next, they will translate these expected results into monetary and numerical terms, i.e.
under a budget. Finally, managers will compare actual performances with their budgets and
take corrective measures if necessary. This is exactly how the process of budgetary control
works.

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2. Standard Costing
Standard costing is similar to budgeting in the way that it relies on numerical figures. The
difference between the two, however, is that standard costing relies on standard and
regular/recurring costs.
Under this technique, managers record their costs and expenses for every activity and compare
them with standard costs. This controlling technique basically helps in realizing which activity is
profitable and which one is not.
3. Financial Ratio Analysis
Every business organization has to depict its financial performances using reports like balance
sheets and profit & loss statements. Financial ratio analysis basically compares these financial
reports to show the financial performance of a business in numerical terms.
Comparative studies of financial statements showcase standards like changes in assets, liabilities,
capital, profits, etc. Financial ratio analysis also helps in understanding the liquidity and solvency
status of a business.
4. Internal Audit
Another popular traditional type of control technique is internal auditing. This process requires
internal auditors to appraise themselves of the operations of an organization.
Generally, the scope of an internal audit is narrow and it relates to financial and accounting
activities. In modern times, however, managers use it to regulate several other tasks.
For example, it can also cover policies, procedures, methods, and management of an organization.
Results of such audits can, consequently, help managers take corrective action for controlling.
5. Break-Even Analysis
Break-even analysis shows the point at which a business neither earns profits nor incurs losses.
This can be in the form of sale output, production volume, the price of products, etc.
Managers often use break-even analysis to determine the minimum level of results they must
achieve for an activity. Any number that goes below the break-even point triggers corrective
measures for control.
6. Statistical Control
The use of statistical tools is a great way to understand an organization’s tasks effectively and
efficiently. They help in showing averages, percentages, and ratios using comprehensible graphs
and charts.
Managers often use pie charts and graphs to depict their sales, production, profits, productivity,
etc. Such tools have always been popular traditional control techniques.
7. Zero-Base Budgeting
American business executive and management expert Peter Phyrr first introduced zero-base
budgeting in the 1970s. This process requires a manager to prepare and justify his budget from

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scratch (hence the name zero-base). The burden of proving the importance of each facet of
budgeting lies on managers here.
Under this process, managers first have to define the objectives of each activity they propose to
supervise. Next, they should prepare alternative spending plans relating to smaller facets of each
activity. These plans relate to minimum expenditure levels, the requirement of resources, targets
achievable with additional expenditure, etc.
After preparing these alternative plans, managers have to rank them in priorities. Furthermore,
they need to keep evaluating these plans routinely after implementing them. This technique of
controlling allows effective budgeting as well as sound planning.

Types of Control
The organizations, like other man-made systems, do not have automatic controls. Instead, they
require constant monitoring and adjustment to control the deviations. On the basis of timings
when corrective actions are being taken there could be three types of control, post, current, and
pre-control.

1. Feedback control:
ᴥ Most of the organizations do have this type of control. It is also known as ‘Post control’
or ‘after the event control’.
ᴥ Feedback control refers to gather information about completed activity to evaluate
information and to take corrective actions to improve similar activity in future.
ᴥ In other words, it permits the manager to use information on past performance to bring
future performance in line with planned objectives and standards.
2. Concurrent Control:
ᴥ This type of control might well be called ‘real time control’ because it is concerned with
the present rather than the future or past. In a current control to keep a system or process
in track attempts are made to evaluate and analyze performance quickly and instant
corrective actions are initiated.
ᴥ Concurrent Control is monitoring and adjusting ongoing activities and process as to ensure
conformity of actual results with predetermined standards.

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3. Feed Forward or Pre Control:

ᴥ This is also known as ‘pro-active’ preventive control because in this type of control main
emphasis is placed on preventing performance of the system to be deviated from the
standards.
ᴥ The functioning of the system is watched closely with constant alertness as to discover
likely problem or disturbance and advance action is taken to avert the problem or
disturbance and thereby maintaining smooth functioning of the system.

Requirements of Effective Control System:

A control system is not an automatic phenomenon but deliberately created. Though different
organisations may design their control systems according to their unique and special characteristics
or conditions, yet in designing a good and effective control system the following basic
requirements must be kept in view:
1. Focus on Objectives and Needs:
The effective control system should emphasise on attainment of organizational objectives. It
should function in harmony with the needs of the enterprise. For example, the personnel
department may use feed forward control for recruiting a new employee, and concurrent
control for training.
2. Immediate Warning and Timely Action:
Rapid reporting of variations is at the core of control. An ideal control system could detect,
not create bottlenecks and report significant deviation as promptly as possible so that
necessary corrective action may be taken well in time. This needs an efficient system of
appraisal and timely flow of information.
3. Indicative, Suggestive as well as corrective:
Controls should not only be able to point to the deviations, but they should also suggest
corrective action that is supposed to check the recurrence of variations or problems in future.
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4. Understandable, Objective, and Economical:

Controls should be simple and easy to understand, standards of performance are quantified to
appear unbiased, and specific tools and techniques should be comprehensive, understandable,
and economical for the managers.
5. Focus on Functions and Factors:
Control should emphasise the functions, such as production, marketing, finance, human
resources, etc and focus on four factors – quality, quantity, timely use and costs. Not one, but
multiple controls should be adopted.
6. Flexibility:
Control must not become ends in themselves. It must be environment friendly and be able to
make modifications or revisions necessitated by the rapidly changing and complex business
environment. Flexibility in control system is generally achieved by the use of alternative plans
or flexible budgets.
7. Suitability:
Controls have to be consistent with the organization structure, where the responsibility for
action lies, position, competence, and needs of the individuals who have to interpret the
control measures and exercise control. The higher the quality of managers and their
subordinates, the less will be the need for indirect controls.
8. Use of Informational Technology (IT):
Management information system (MIS) is a system that provides information needed to
manage organizations efficiently and effectively. It helps in making decisions and controlling
activities. Electronic Data Processing (EDP), Computer Based Informationa Systems (CBIS),
Decision Support Systems (DSS), these information systems goes beyond the mere
standardization of data to add in the planning process and facilitate effective controlling
process.
9. Strategic Points Control:
Control should be selective and concentrate on key result areas of the company. Every detail
or thing cannot and is not to be controlled in order to save time, cost and effort.
Certain strategic, critical or vital points must be identified along with the expectations at those
points where failures cannot be tolerated and appropriate control devices should be designed
and imposed at those stages.
Controls are applied where failure cannot be tolerated or where costs cannot exceed a certain
amount. The critical points include all the areas of an organization’s operations that directly
affect the success of its key operations.
10. Management by exception: It stresses on the fact that everything cannot be effectively
controlled. According to this principle, rather than controlling each and every deviation in
performance, an acceptable limit of deviations in various activities should be set and only
those deviations that go beyond the acceptable range should be brought to the notice of the
managers for control. In other words, only the major deviations which are beyond permissible
limit should be acknowledged.

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For instance, suppose the acceptable range of increase in the input cost is set at 3 percent. In
this case, only a more than 3% increase in the input cost (say 7%) should be brought to the
notice of the managers. On the other hand, a less than 3% increase (say 1%) should be
neglected. Hence, an effort should be there to control only the major things instead of trying
to control everything.
This process involves setting tolerances and benchmarks for normal operation. Management
action only becomes a priority when pre-set limits are breached. The below figure shows a
simple tolerance control chart. This is based on planned sales revenue plus or minus a
tolerance of 5 per cent. If the levels are broken, or in a proactive system appear as if they may
be breached, management will begin to take an interest in the process.

Tolerance control chart

Problems commonly associated with control systems
 Costly: Here the benefits of control and subsequent improvements are outweighed by the
cost of the control mechanism. This often relates to large bureaucratic systems – layer upon
layer of administration is built upon each other. This is self-serving rather than customer
focused, often absorbing resources that would be more effectively deployed in core
activities.
 Stifle effort and creativity : Such systems promote uniformity and conformance to pre-
set targets. They become barriers to innovation.
 Inspection as opposed to development: Systems often deal with the symptom rather
than the root of the problem. Here, we tend to be constantly ‘fire fighting’ and looking for
the quick fix as opposed to developing a better overall method of operation. The effect is
to filter and/or suppress information from those with the power to radically overhaul a
poor system.
 Excess control causes corruption: It should not arouse negative reactions but positive
feelings among people through focus on work, not on people. The aim of control should be
to create self-control and creativity among members through enmeshing it in the
organisational culture. Employee involvement in the design of controls can increase
acceptance.
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