PRINCIPLES AND PRACTICE OF

MANAGEMENT

UNIT – V

CONTROLLING
 UNIT-V
CONTROLLING
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“Managerial controlling means ensuring that actual performance is in line with intended
performance and taking corrective action if necessary.” — Edwin C. Leonard
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5.0 INTRODUCTION
Controlling is one of the managerial functions, and it is an essential element of the
management process. After the planning, organizing, staffing and directing have been
carried out, the final managerial function of controlling assures that the activities
planned are being accomplished or not. So the process of controlling helps to achieve
the desired goals by planning. Management must, therefore, compare actual results
with pre-determined standards and take corrective action if necessary. Control can be
viewed as the process through which managers regulate the activities of individuals
and units, so they are consistent with the goals and standards of the organization. A
goal is a desired future state that an organization attempts to realize. A standard is a
performance requirement the organization is meant to attain on an ongoing basis. As
we will see, there are several different ways in which managers can regulate the
activities of individuals and units, so they remain consistent with organization goals
and standards. It is an essential feature of scientific and successful management.

5.1 CONCEPT OF CONTROLLING

As an important managerial function, control aims at increasing the chances of
achieving the organizational goals. Managers, at every level of the organization,
develop and apply controlling techniques to regulate the organizational activities and
to achieve desired results.
Controlling involves checking to decide whether organizational activities adhere to an
established plan. It involves taking necessary actions, if there are any deviations from
the plans. Controlling also enables managers to modify or redefine the goals and plans
to suit new developments and circumstances. Controlling checks mistakes and tells
us how new challenges can be met or faced. The success of the organization thus
hinges on the effective controlling.

Definitions
 “Managerial controlling means ensuring that actual performance is in line with
intended performance and taking corrective action if necessary.” — Edwin C.
Leonard

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  “Management control is the process of ensuring that actual activities conform
to planned activities.” — James Stoner

 “Controlling is the process of monitoring, comparing and correcting work

performance.” — Stephen P. Robbins

We may define managerial controlling as the process of influencing the behaviour of

members with the aim of increasing the chances of their achieving the organizational
goal.

5.2 CHARACTERISTICS OF CONTROLLING

Controlling has the following characteristic features.

 Managerial Function: Control is one of the managerial functions. It is not only
the function of the chief executive but is the duty of every manager. A manager
is responsible for whatever work is assigned to him, he will control the
performance of his subordinates for ensuring the accomplishment of goals.
 Related to Planning: Planning is the first function of management, while
Control is the last. Control cannot be exercised without planning. First, the
objectives are set, and then efforts are made to see whether these are
accomplished or not. Whenever there is a laxity in performance, or things are
not happening as per the plans, then corrective measures are taken
immediately. So planning provides a base for controlling.
 Dynamic Process: Control is dynamic in a sense, not static. It involves a
review of standards as well as corrective actions which may lead to changes in
other managerial functions. A properly designed control system can help
managers anticipate, monitor and respond to changing circumstances.
 Continuous Process: Controlling is a continuous process having no definable
end. It involves constant and regular monitoring of activities to improve the
performance. The manager has to perform this function continuously along with
other parts of management.
 Measuring the Performance: The control function involves measuring the
performance against pre-established standards, analysing and correcting
deviations as necessary.
 Action-Oriented: Control is action and result oriented. Its main aim is to take
corrective action whenever performance is not as per the standards. A good
system of control facilitates timely action that there is minimum waste of time
and energy.

5.3 PURPOSE OF CONTROLLING

The control function helps management in various ways. It guides the 'management
in achieving pre-determined goals. The control process also ensures the efficiency of
multiple parts. Controlling consists of verifying whether everything occurs in

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conformities with the plans adopted, instructions issued, and principles established.
Control ensures that there is effective and efficient utilization of organizational
resources to achieve the planned goals. Controlling measures the deviation of actual
performance from the standard version discovers the causes of such variations and
helps in taking corrective actions.

The purpose of a sound control system is understood from the following:

 To find out the progress of the work — the work already completed and the
work in progress.
 To compare the actual performance of the work at different stages with the
particulars indicated in the plans and policies.
 To know the delays or interruptions, if any, in the performance of work and trace
the cause of such delay or breakdown.
 To see that causes of delay are eradicated and operations are suitably re-
scheduled.
 To verify quantity and testing quality of the products.
 To assess the cost of materials and labour used and ensure that direct costs
and indirect costs do not exceed the budget provisions.
 To pinpoint the responsibility on individuals at different levels for slackness,
indifference, or negligence, if any in the expected levels of performance.
 To evaluate the value of the work performed and recognize the contributions of
the staff towards realisation of the goals of the enterprise.
 To maintain discipline and morale in the organization.

5.4 LIMITATIONS OF CONTROLLING

A control system may be faced with the following limitations:

 An organization cannot control the external factors such as government policy,
technological changes, fashion changes etc.
 Control is an expensive process because sufficient attention has to be paid to
observe the performance of the subordinates in the organization. This requires
an expenditure of a lot of time and effort to be made.
 Control system loses its effectiveness in the organization when standards of
performance cannot be defined in quantitative terms. For example, it isn't easy
to measure human behaviour and employee morale in the organization.
 The effectiveness of Control mainly depends on the acceptance of subordinates
in the organization. They may resist Control because they may feel that it will
reduce or curtail their freedom while in duty. It also loses its significance when
it is not possible to fix the accountability of the subordinates.
 It is difficult to establish standards for intangible activities.

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5.3 TYPES OF CONTROL
The control function of management involves measuring performance and then taking
corrective action if goals are not being achieved. The purposes and importance of an
effective system of Control are: Improving Efficiency, Facilitates Decision-making,
Execution of Plans and efficient use of resources. Control may be different types, and
these can be classified based on elements to be controlled and the stage at which
control can be exercised in managing the work outcome. The time, at which corrective
action is taken, controls are three types: Feedforward control, Concurrent Control and
Feedback control. Based on levels of management, again controls are three types
which are Strategic Control, Operational Control and Tactical Control.

TYPES OF CONTROLS BASED ON TIME MANAGEMENT

Feedforward control

Sometimes called preliminary or preventive controls, attempt to identify and prevent

deviations in the standards before they occur. Feed forward control involves evaluation
of inputs and taking corrective action before a particular sequence of operation is
completed. Feed forward control monitors inputs in to a process to determine whether
the inputs are planned. If inputs are not as planned, corrective action is taken to adjust
the inputs according to the plan so that the desired results are achieved with in the
planned inputs. Feedforward controls focus on human, material, and financial
resources within the organization. These controls are evident in the selection and
hiring of new employees. For example, organizations attempt to improve the likelihood
that employees will perform up to standards by identifying the necessary job skills and
by using tests and other screening devices to hire people with those skills.

Concurrent control

Concurrent control is exercised during the operation of a programme. It provides

measures for taking corrective action or making adjustments while the programme is
still in operation and before any major damage is done. These controls rely on
performance standards, rules, and regulations for guiding employee tasks and
behaviours. Their purpose is to ensure that work activities produce the desired results.
As an example, many manufacturing operations include devices that measure whether
the items being delivered meet quality standards. Employees monitor the
measurements; if they see that criteria are not being met in some area, they correct
themselves or let a manager know that a problem is occurring.

Feedback control

Involve reviewing information to determine whether performance meets established

standards. Feedback control is based on the measurement of the results of an action.
Based on this measurement, if any deviation is found between performance standards
and actual performance, the corrective action is under taken based on organizational
requirements. The control aims at future action of the similar nature so that there is
conformity between standards and actuals. For example, suppose that an organization

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sets a goal of increasing its profit by 20 per cent next year. To ensure that this goal is
reached, the organization must monitor its profit every month. After three months, if
profit has increased by 5 per cent, management might assume that plans are going
according to schedule.

TYPES OF CONTROLS BASED ON LEVELS OF MANAGEMENT

Strategic Control

Strategic Control involves monitoring a strategy as it is being implemented, evaluating

deviations, and making necessary adjustments. In this type control strategy
formulation is very important task. Since there is a time lag between strategy
formulation and its implementation, Some of these assumptions may not hold good ,
either fully or partially. To that extent, the strategy may not work as effectively as the
strategies might have taught. Strategic Control may include the reassessment of a
system due to an immediate, unforeseen event. For example, if a company’s main
product is becoming obsolete, the company must immediately reassess its strategy.
Implementing a strategy often involves a series of activities that occur over a period.
Managers can effectively monitor the progress of a strategy at various milestones, or
intervals, during the period. During this time, managers may be provided with
information that helps them determine whether the overall strategy is unfolding as
planned. Strategic Control also involves monitoring internal and external events.
Multiple sources of information are needed to monitor events.

Operational Control

Operational control involves control over intermediate-term operations and processes

but not business strategies. Operational control systems ensure that activities are
consistent with established plans. It is concerned with action or performance and is
aimed at evaluating the performance of the organization as a whole or its different
components – strategic business units ,divisions, and departments. Mid-level
management uses operational controls for intermediate-term decisions, typically over
one to two years. When performance does not meet standards, managers enforce
corrective actions, which may include training, discipline, motivation, or termination.
Unlike strategic control, operational control focuses more on internal sources of
information and affects smaller units or aspects of the organization, such as production
levels or the choice of equipment. Errors in operational control might mean failing to
complete projects on time.

Tactical Control

A tactic is a method that meets a specific objective of an overall plan. Tactical Control
emphasizes the current operations of an organization. Managers determine what the
various parts of the organization must do for the organization to be successful soon.
Tactical control may involve regularly meeting with the marketing team to review
results and would include creating the steps needed to complete agreed-upon
processes

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5.4 STEPS IN CONTROLLING
Controlling is one of the essential functions of management. Its main objective is to
ensure that an organisation’s activities are advancing as planned. The control
process that all managers have to implement consists of several steps. Each one of
these is equally important and plays a significant role in ineffective management. By
using it effectively, they can decide whether to change their plans or continue with
them as they are.

Steps involved in the process of controlling

Controlling process consists of five steps determination of standards, measuring

actual performance, Comparison of actual performance against standards, Analysing
the causes of deviations and taking a corrective course of action.

Step1: Determination of Standards of Performance

The process of controlling commences with the determination of standards of

performance, for all phases of the organisational activity. Standards of performance
might be described as rational targets of performance, which are and must be
reasonably capable of attainment; and which subsequently, become the yardsticks
(i.e. standards of comparison), for judging actual performance against these.
Standards could be broadly classified as being tangible and intangible. Tangible
standards are those who are capable of being expressed in specific numerical terms.
Such as units of production, units of sales, profits, costs, expenses, incomes or
revenues, machine hours, return on investment etc., Intangible standards are those
who deal with qualitative aspects of the functioning of the enterprise; and are not
capable of being expressed directly and specifically in numerical terms like morale of
employees, the reputation of the enterprise, public relations etc., how much intangible
standards could be roughly expressed in numerical terms, would depend on a
consideration of factors likely to result from the attainment of these.

Qualitative standards also play an essential role in the control process. However,
managers and subordinates are not always aware of these. However, challenging to
achieve control over qualitative standards.

Step2: Measurement of Actual Performance

The second step in the controlling process relates to the measurement of the actual
performance. Performance levels are sometimes easy to measure and sometimes
very difficult. If the standards prescribed are tangible, it is easy to measure the
performance in similar units. If the criteria are intangible, it isn't easy to measure the
performance. Statistical data, reports, opinions, accounting information, etc. will help
to measure the actual performance. The measurement of performance is a constant,
on-going activity for most organisations and for control to be effective, relevant
performance measures must be valid. In marketing a manager is concerned with

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controlling sales, daily, weekly or monthly sales figures represent actual performance.
In production a manager, performance may be expressed in terms of unit cost, quality
or volume. For employees, performance may be measured in terms of quality or
quantity of output. Valid performance measurement, however challenging to obtain, is
necessary to maintain effective control. The performance itself is measured once the
frequency and form of the monitoring system are determined.

Step3: Comparison of Actual Performance against Standards

Comparison of actual performance with the standards is essential. The deviation can
be defined as the gap between actual and standard performances. The manager has
to find out two things here- the extent of variation and cause of deviation. The extent
of deviation means that the manager has to find out whether the deviation is positive
or negative or whether the actual performance is in conformity with the standard
performance. The managers have to exercise control by exception. He has to find out
those deviations which are critical and essential for business.

Step4: Analysing the Causes of Deviations

When the standards are achieved, no further managerial action is necessary, and the
control process is complete. When the deviations between standard and actual
performance is beyond the prescribed limit, an analysis is made of such deviation.
Over-achievement may mean under-utilisation of the workforce and such
inappropriate use can result in lost opportunities for the organisation. So it is first of all
necessary to determine the cause of the deviation and take corrective action after that.
It is essential to analyse deviations to assess why the standard is not being met when
performance falls short of the standard. It is a significant decision making to identify
the real causes of performance problems rather than just the symptoms.

Step5: Taking a corrective course of action

The final step in the controlling process is undertaking suitable remedial or corrective
action based on the analyses of causes of deviations, to bring performance back on
the planned track. While undertaking remedial action, the management must have a
strategy to introduce changes in the internal environment; as it cannot do much about
external environmental factors. The primary management philosophy in this regard
being that only the controllable factors or situations can be and must be controlled; the
uncontrollable things better left to their natural course. The corrective action may be
to alter the planning and control system in any of the ways of change in organisation
structure, review the plans and goals, change the original standard, change the
performance measurements and change how deviations are analysed and interpreted.

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5.5 TECHNIQUES IN CONTROLLING
Several techniques help a manager in effective controlling. A manager needs to know
the areas of control techniques and tools of management. Proper use of controlling
techniques helps an organization to survive in the positively changing economic world.
Controlling techniques can be classified into two categories – (i) Traditional Control
techniques and (ii) Modern Control techniques.

TRADITIONAL CONTROL TECHNIQUES

1. Personal Observation

Personal observation is the actual performance of the subordinates at the workplace;

it is the oldest method of control technique. The managers need to discuss with the
persons whose work is being controlled, and they should watch the actual operations.
There are certain kinds of information and impression which can be conveyed only
through personal observation and conversation. The personal observer exactly knows
what is wrong and can take necessary actions. Personal observation also has a
psychological impact on employees, and they try to achieve better performance when
they see that they will be observed personally by their superior.

2. Budgetary Control

Budgetary Control is an effective and widely used control technique. 'Budgetary

Control' is the process of utilizing budgets for comparing the actual performance with
the corresponding budget performance to find out the deviations, and to remove the
variations by either adjusting the budget estimates or correcting the causes of
deviations. A budget is a highly useful tool for controlling the day-to-day operations of
the enterprise. It provides a standard by which actual performance can be evaluated
to find out the deviations from the planned results. This information enables the
managers to take corrective action for bringing the actual results in conformity with the
plans.

3. 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. Various
statistical reports are helpful information when presented in the various forms like
charts, graphs, tables, etc., enables the managers to read them more quickly and allow
a comparison to be made with performance in previous periods and also with the
benchmarks. These reports are useful for future references.

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4. Break-even Analysis

'Break-even Analysis' is an essential technique of cost control. It is an analysis of the

inter-relationships among the cost of production, volume of production and the amount
of profits. It is also known as 'Cost-Volume-Profit Analysis'. Break-even analysis can
be applied to estimate earnings at different levels of activity or to estimate the turnover
for desired profits. Through this analysis separating fixed costs and variable costs, it
enables the managers to exercise control over variable expenses.

5. Cost Control

'Cost Control' is an essential technique for financial controlling process. The technique
of cost control involves the determination of the standard in respect of each item of
cost. Control overcharges can be effectively exercised not in total but in the various
components or elements of the total cost of any job. Therefore, it is necessary to
control each element of the total cost. The actual costs have also to be recorded as
and when they are incurred. These records are analysed, and the prices are charged
to different cost centres so that they may be compared with the corresponding
standards fixed in advance.

MODERN CONTROL TECHNIQUES

1. Management Information System

'Management Information System' (MIS) is the method of providing the relevant and
required information each manager of an organization at the proper time and in the
right form which aids his understanding and stimulates his action. In other words, it is
the system of giving the past, present and projection information regarding internal
operations and external intelligence. It supports the planning, control and operational
functions of an organization by providing uniform information in the right time and
correct form to assist the decision-making process. MIS can be evaluated by the
quality and quantity of information supplied to the various points in the organization.
The system helps the managers of the organization to collect relevant data and precise
data more quickly. MIS is a refined form of traditional information collection and supply
to different organizational points.

2. Return on Investment

'Return on Investment' (ROI) is a useful tool for controlling the overall performance of
an enterprise. The fundamental aspect of this technique is that profit is taken not as
an absolute figure but is considered about the invested capital. Rate of return is
calculated by dividing the net earnings by the total amount of Investment. It can be
computed in respect of historical data to reveal the rate of return realized, or it may be
applied to budgeted data to give a projected rate of return. Various ratios may be
calculated for further analysis of ROI like EBIT, EBT, Net profit etc. In this technique,
a company may set expected return in advance against which actual return on

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Investment compared to find out deviation if any. If required, necessary steps are
directed to ensure adequate profits.

3. Management Audit

Management Audit is an overall and scientific evaluation of the quality of management.

It is an independent and critical examination of the entire management process. It is a
systematic search and appraisal of the efficiency and effectiveness of the managers
of an enterprise. It locates the deficiencies in the performance of management
functions. Therefore, a management audit is a comprehensive and constructive review
of the performance of the management team of an organization.

4. Network Techniques (PERT and CPM)

'Network Techniques' are being widely utilized as control systems. In such a

technique, a project or programme is broken down into small activities which are
arranged in a technological sequence. Various activities should be accomplished
according to the sequence. The time limit for each activity is determined. A network
diagram is then drawn to present the inter-dependence and inter-relationships among
all the operations involved in the project.

There are two popular network techniques are there (i) 'Programme Evaluation and
Review Technique' (PERT), and (ii) 'Critical Path Method' (CPM). These techniques
are concerned with minimising overall time and cost for completion of work/product by
selecting the most suitable route and sequence of various activities.

5. Balanced Scorecard

A Balanced Scorecard is a management tool that helps ensure the alignment between
a company's strategic objectives and its operational activities. The Balanced
Scorecard approach is complementary to strategic planning tools that focus on
developing high-level goals. Specifically, the Balanced Scorecard helps organizations
develop a comprehensive view of their business and operational measures of success
that, if attained, will help the achieve its strategic goals and desired financial
performance. These measures and opinions are both qualitative and quantitative.
They are from an internal and external perspective that provides a balance of the firm's
performance and management measurements.

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