Controlling

Introduction

Controlling is one of the key functions of management that involves monitoring and
regulating the performance of an organization to ensure that it is moving towards its goals
and objectives. It helps identify any deviations from the planned activities and takes
corrective actions to align actual performance with the desired outcomes. Controlling not
only ensures that the company’s goals are achieved efficiently but also facilitates continuous
improvement in processes and productivity.

Concept of Controlling

Controlling is the management function that ensures that an organization’s activities are
aligned with its plans and objectives. It involves measuring performance, comparing it with
set standards, identifying deviations, and taking corrective actions as needed to achieve
organizational goals.

According to Koontz & O'Donnell, "Controlling is the function of management that ensures
that the organization’s plans are being carried out, and if not, corrective action is taken."

The primary objective of controlling is to ensure that the organization operates as intended by
adhering to its plans, budgets, schedules, and quality standards. Through effective
controlling, organizations can minimize errors, reduce wastage, and improve the overall
performance.

Process of Controlling

The controlling process is a dynamic, systematic, and ongoing cycle that consists of four
main steps:

Step 1: Setting Standards

Setting clear, measurable, and achievable standards is the first step in the controlling process.
These standards serve as benchmarks against which actual performance can be compared.

Types of Standards:

o Quantitative: Financial targets, sales quotas, production levels.

o Qualitative: Customer satisfaction, employee morale, quality of work.

Step 2: Measuring Actual Performance

In this step, actual performance is measured and collected. It involves using various methods
such as reports, surveys, observations, and performance metrics to gather data about how well
the organization is performing.
Step 3: Comparing Actual Performance with Standards

Once actual performance is measured, it must be compared with the set standards. This
comparison highlights any deviations or discrepancies between the planned performance and
the actual outcomes.

Deviations can be classified as:

o Positive deviations (performance exceeds expectations).

o Negative deviations (performance falls short of expectations).

Step 4: Taking Corrective Actions

When negative deviations are detected, corrective actions are required to bring performance
back in line with the standards. Corrective actions may involve revising the standards, re-
allocating resources, modifying plans, or enhancing team training.

Feedback Loop: The corrective actions taken should be continuously monitored and
assessed for their effectiveness, creating a feedback loop to ensure that the organization
moves towards its goals.

Circumstances Helping in the Process of Control

The process of control in management is influenced by several factors or circumstances

within an organization. These factors create a conducive environment for implementing an
effective control system. Below are the key circumstances that significantly help in the
control process, along with relevant examples:

1. A Good Organizational Structure

A well-defined organizational structure provides clarity regarding roles, responsibilities,

authority, and reporting relationships. It is essential in ensuring that control mechanisms are
effectively implemented throughout the organization.

How It Helps in the Process of Control:

 Clarity of Roles and Responsibilities: When there is a clear delineation of roles,

managers can easily monitor and control specific tasks within their scope of
responsibility. This clarity helps in setting standards, measuring performance, and
taking corrective actions.
 Delegation of Authority: A good structure defines who has the authority to make
decisions and who is accountable for various activities, making it easier to control
performance at different levels.

Example:
In Infosys, a well-established hierarchical structure allows for clear reporting lines between
departments like HR, finance, and operations. Each department has specific performance
metrics, and control is exercised at various levels to ensure alignment with corporate
objectives. Clear roles within the IT services division allow managers to monitor work
quality, output, and ensure adherence to industry standards.
2. Clear-Cut Objectives and Policies

The organization should have clearly defined and communicated objectives and policies.
Objectives guide performance, while policies provide the guidelines for decision-making and
actions.

How It Helps in the Process of Control:

 Direction and Alignment: Clear objectives ensure that every employee and
department knows what they are working toward, and policies guide behavior to
ensure that the actions are aligned with the overall goals.
 Measuring Success: Well-defined objectives and policies serve as benchmarks for
evaluating performance, allowing managers to detect deviations early and take
corrective measures.

Example:
HDFC Bank has clear-cut objectives and policies related to customer service, risk
management, and financial performance. For instance, the objective of achieving a high
customer satisfaction score directly drives employee behaviour and the use of control
measures like customer feedback surveys. Policies related to loan approvals, risk assessment,
and fraud prevention ensure adherence to the bank's objectives, reducing risks and improving
operational efficiency.

3. Standard Operating Procedures (SOPs)

Standard Operating Procedures (SOPs) are documented guidelines or instructions that

standardize processes and activities within an organization.

How It Helps in the Process of Control:

 Consistency and Uniformity: SOPs ensure that tasks are carried out in a consistent
manner, which makes it easier to monitor and control performance.
 Benchmarking: SOPs provide predefined standards against which actual
performance can be measured. If activities deviate from these standards, corrective
actions can be promptly implemented.

Example:
Maruti Suzuki uses SOPs for quality control and production processes in its manufacturing
plants. These SOPs detail the steps for assembly, quality inspection, and testing of vehicles,
ensuring that all production activities align with the company's quality standards. If a
deviation from the SOP is observed, such as defects in assembled parts, corrective actions
such as reworking or part replacement are taken immediately.
4. Up and Down Communication

Effective communication is essential for control. "Upward communication" refers to

information flowing from subordinates to superiors, and "downward communication" refers
to information flowing from superiors to subordinates.

How It Helps in the Process of Control:

 Timely Feedback: Upward communication helps managers understand ground

realities and any challenges faced by employees, while downward communication
ensures that employees are aware of performance expectations and company goals.
 Problem Detection and Resolution: Continuous communication allows managers to
spot problems early and take corrective action. It also ensures that employees are clear
about the policies, procedures, and targets, leading to better control over operations.

Example:
At Tata Motors, regular feedback mechanisms like daily huddles and performance reports
help supervisors understand the challenges employees face on the shop floor. Managers use
this upward communication to make timely adjustments. On the other hand, clear instructions
and performance expectations are communicated to workers through daily briefings and
meetings, ensuring everyone is on the same page.

5. Budgetary System

A budgetary system involves setting financial and operational targets for different
departments or activities and then comparing actual performance against these budgets.

How It Helps in the Process of Control:

 Financial Oversight: Budgets act as financial control tools by providing a framework

for monitoring expenses, revenues, and overall financial performance.
 Performance Measurement: When actual performance exceeds or falls short of the
budgeted targets, it serves as a signal to take corrective action. Budget variances
highlight areas requiring attention.

Example:
Reliance Industries uses a comprehensive budgetary control system to track expenditures,
investments, and profits across its diverse business segments (petrochemicals, telecom,
retail). Variance analysis is done monthly to compare actual figures with budgeted figures,
enabling quick corrective actions in cases of overspending or underperformance in certain
divisions.

6. Manager Orientation

Manager orientation refers to the mindset and approach that managers adopt when making
decisions and exercising control. Managers who are well-oriented toward control focus on
setting appropriate performance targets, monitoring progress, and addressing issues promptly.
How It Helps in the Process of Control:

 Proactive Management: Managers with a control-oriented mindset are more likely to

take a proactive approach in identifying and addressing issues before they escalate.
 Decentralized Decision Making: When managers at various levels are oriented
toward control, it allows for decentralized decision-making, where they can act
independently within the framework of established standards and policies.

Example:
Wipro, a leading IT company, emphasizes manager orientation as part of its management
development programs. Managers are trained not only in technical skills but also in
monitoring and controlling project delivery, quality assurance, and client satisfaction. This
approach allows managers to make timely interventions in projects when there are risks of
delays or quality issues, ensuring control over project outcomes.

Types of Control in Management

Control in management ensures that actual performance aligns with the desired performance
as per the organization’s objectives. Different types of control are applied to address various
aspects of operations, ranging from physical resources to financial planning and
organizational processes. Below is a detailed elaboration of various types of control that are
integral to organizational management:

1. Physical Control

Physical controls refer to the management and regulation of tangible resources, assets, and
activities that are part of the organization’s operations. This includes monitoring and
controlling machinery, inventory, facilities, and equipment.

Purpose: Physical control ensures the efficient utilization of resources, preventing theft,
damage, or misuse. It also helps in minimizing downtime, improving the lifespan of
equipment, and ensuring operational effectiveness.

Examples:

1. Inventory Management: Use of barcodes, RFID, and other technologies to track

stock levels and ensure proper inventory control.
2. Security: Surveillance systems and access controls to prevent unauthorized access to
facilities and assets.
3. Maintenance: Regular checks and preventive maintenance to ensure that machinery
and equipment operate efficiently.

2. Control Over Activity and Areas of Activity

This type of control focuses on monitoring and regulating the activities performed within
different areas of the organization to ensure that they are carried out as per the plans.

Purpose: To ensure that activities are performed efficiently and effectively, following
standard operating procedures, and to detect any deviations from the prescribed methods and
goals.
Examples:

1. Production Process: Monitoring the steps in the production process to ensure

adherence to timelines, quality standards, and cost targets.
2. Sales Activities: Monitoring sales activities to track if sales teams meet their quotas,
follow ethical sales practices, and engage customers appropriately.
3. Human Resources: Monitoring employee performance, attendance, and adherence to
company policies.

3. Financial Control

Financial control involves managing the financial resources of the organization to ensure that
it operates within budgetary constraints and achieves its financial goals.

Purpose: It helps managers keep track of cash flow, minimize financial risks, optimize
profits, and ensure that financial resources are used efficiently.

Examples:

1. Cash Flow Management: Regularly tracking cash inflows and outflows to ensure
liquidity and avoid cash shortages.
2. Cost Control: Managing costs through techniques like cost-cutting, cost-benefit
analysis, and overhead reduction.
3. Return on Investment (ROI) Analysis: Evaluating the effectiveness of investments
and capital expenditures.

4. Budgetary Control

Budgetary control refers to comparing actual performance against the budget to identify
deviations and take corrective actions. It is one of the most common forms of financial
control.

Purpose: To ensure that the organization’s resources are allocated and utilized according to
the financial plan, and any variances are promptly addressed to stay within budgetary limits.

Examples:

1. Setting Budgets: Establishing departmental or project-specific budgets to allocate

resources.
2. Variance Analysis: Analyzing differences between budgeted and actual financial
outcomes (positive and negative variances).
3. Forecasting: Adjusting future budgets based on previous performance trends.

5. Departmental Control

Departmental control involves monitoring and regulating the performance of different

departments within an organization, ensuring that each department achieves its objectives in
line with the overall organizational goals.
Purpose: To ensure that each department contributes to the overall success of the
organization and to prevent conflicts or inefficiencies between departments.

Examples:

1. Performance Reviews: Conducting regular performance reviews for each department

to measure productivity, efficiency, and alignment with organizational goals.
2. Resource Allocation: Ensuring that departments receive adequate resources (human,
financial, and physical) to carry out their tasks effectively.

6. Improvement Control

Improvement control focuses on continuously improving processes, systems, and operations

through performance evaluations and feedback mechanisms.

Purpose: To foster innovation and continuous improvement in the organization by

identifying areas for improvement and implementing corrective actions.

Examples:

1. Process Reengineering: Continuously assessing and redesigning business processes

for efficiency improvements.
2. Employee Training and Development: Identifying skill gaps and providing training
to improve overall performance.
3. Quality Improvement Programs: Implementing methodologies like Six Sigma or
Kaizen to enhance quality and reduce defects.

7. Preventive Control

Preventive control is a proactive approach to controlling by taking steps to prevent problems

or deviations before they occur. It aims to minimize risks and avoid any negative impacts on
organizational performance.

Purpose: To ensure that issues are prevented at the outset, rather than being addressed after
they cause significant damage.

Examples:

1. Safety Protocols: Implementing safety measures to prevent workplace accidents

before they happen.
2. Risk Management: Conducting regular risk assessments and implementing
preventative measures to reduce the likelihood of financial loss or operational failure.
3. Quality Control in Production: Establishing quality checks during the early stages
of production to prevent defects from entering the supply chain.

8. Feed-Forward Control

Feed-forward control is a proactive form of control where measures are taken to anticipate
and prevent problems before they occur. It is focused on inputs to influence future outcomes.
Purpose: To make adjustments and correct deviations before they affect the overall output,
ensuring the processes are adjusted in real-time.

Examples:

1. Forecasting and Planning: Accurate market research and forecasting to predict

demand, ensuring adequate resource allocation in advance.
2. Supplier Selection: Choosing high-quality suppliers and establishing stringent
contract terms to avoid future supply chain disruptions.

9. Feedback Control

Feedback control refers to monitoring the output or results after a process or activity is
completed and making corrective actions based on the results.

Purpose: To adjust actions and operations after the fact, ensuring that future activities align
with organizational goals.

Examples:

1. Post-Project Reviews: After a project is completed, managers assess if the project

met its goals (e.g., budget, timeline, quality) and determine what corrective measures
should be taken for future projects.
2. Customer Satisfaction Surveys: Using customer feedback to improve services or
products after launch.
3. Sales Performance Reviews: After a sales campaign, analyzing actual sales numbers
to adjust strategies for future campaigns.

10. Management by Exception

Management by exception is a control system where management focuses their attention

only on significant deviations or discrepancies from the plan, rather than on routine tasks that
are going as expected.

Purpose: To allow managers to focus on more critical issues, saving time and resources by
not micromanaging activities that are within the acceptable limits.

Examples:

1. Exception Reporting: Creating reports that highlight variances (e.g., financial

variances, performance variances) beyond a set threshold, prompting management
intervention.
2. Focus on Critical Areas: Managers may spend more time dealing with departments
or projects that are underperforming or overachieving, rather than closely monitoring
areas that are meeting their goals.
3. Performance Thresholds: Setting performance thresholds, and only intervening
when actual performance deviates from those thresholds significantly.
Techniques of Controlling
1. Financial Control: Financial control is a technique to monitor and manage an
organization’s financial resources effectively. It involves analyzing financial statements,
ratios, and performance metrics to ensure financial goals are being met.
Purpose: To ensure that the organization remains financially healthy by controlling costs,
revenues, and profits.
Key Tools: Balance Sheet, Profit & Loss Statement, Cash Flow Analysis, Financial Ratios
(liquidity, profitability, solvency).
Advantages: Ensures financial stability, helps in detecting fraud, and aids in decision-making.
Example: A company reviews its financial ratios quarterly to ensure liquidity and solvency
are within target ranges.
2. Budgetary Control: Budgetary control involves preparing budgets and comparing actual
performance against these budgets to find variances and take corrective action.
Purpose: To keep expenditures in line with the planned budget, monitor costs, and improve
profitability.
Procedure: Set budgets → Compare actual vs. budgeted performance → Analyze variances
→ Take corrective action.
Advantages: Helps in resource allocation, promotes accountability, and provides financial
discipline.
Example: A university department uses budgetary control to monitor spending on academic
and extracurricular activities.
3. Control through Costing: This technique involves analyzing costs associated with
producing goods or services to control production expenses.
Purpose: To identify unnecessary costs and ensure cost-efficiency.
Types: Standard Costing, Marginal Costing, Activity-Based Costing.
Advantages: Cost reduction, increased profitability, and enhanced decision-making.
Example: A manufacturing firm uses standard costing to compare actual production costs
with standard costs to identify inefficiencies.
4. Break-even Analysis: A method to determine the point at which total revenues equal total
costs, meaning no profit or loss is incurred.
Formula: Break-even Point (units) = Fixed Costs / (Selling Price per Unit - Variable Cost per
Unit).
Purpose: To find the minimum output required to avoid losses.
Advantages: Simple visualization of cost behavior, helps in pricing decisions, and profit
planning.
Example: A startup calculates the break-even point to determine how many units of their
product need to be sold to cover initial investment.
5. Responsibility Accounting: A system of accounting where different segments of the
organization (departments, divisions) are given responsibility for financial outcomes and
performance is measured.
Purpose: To ensure accountability by dividing the organization into responsibility centers
(cost, profit, investment centers).
Advantages: Promotes accountability, encourages efficiency, and enhances decentralized
decision-making.
Example: An FMCG company evaluates the performance of each regional sales manager
based on sales targets assigned to their region.
6. Internal Audit: An independent review of operations and records within an organization
to ensure accuracy and adherence to policies.
Purpose: To provide an unbiased assessment of internal controls and operational efficiency.
Advantages: Detects fraud, improves processes, and strengthens internal controls.
Example: An internal audit team in a bank regularly inspects loan processes to ensure
compliance with guidelines.
7. Operating Control: Operating control monitors and evaluates the ongoing operations of a
business to ensure efficiency and effectiveness in achieving objectives.
Purpose: To control day-to-day activities and align them with strategic goals.
Advantages: Enhances operational efficiency and ensures alignment with short-term goals.
Example: A logistics company uses operating control to monitor delivery schedules and
reduce transportation costs.
8. Quality Control: Quality control is a technique to ensure that the products or services
produced meet a defined set of quality criteria.
Purpose: To identify defects, improve processes, and ensure customer satisfaction.
Techniques: Inspection, Statistical Quality Control (SQC), Six Sigma.
Advantages: Reduces defects, enhances product quality, and customer satisfaction.
Example: An automobile manufacturer inspects finished vehicles to ensure they meet safety
and quality standards.
9. Total Quality Management (TQM): TQM is a comprehensive management approach
that focuses on continuous improvement in all aspects of the business, with an emphasis on
customer satisfaction.
Purpose: To create a culture of quality in every department and process.
Principles: Customer Focus, Continuous Improvement, Employee Involvement.
Advantages: Enhances organizational culture, improves customer satisfaction, and reduces
waste.
Example: Infosys implemented TQM to enhance software development quality and customer
satisfaction.
10. Inventory Control: Inventory control involves managing inventory levels to avoid
excess or shortage of goods.
Purpose: To optimize inventory levels, minimize holding costs, and ensure smooth
production.
Techniques: Just-In-Time (JIT), ABC Analysis, Economic Order Quantity (EOQ).
Advantages: Reduces carrying costs, prevents stockouts, and improves cash flow.
Example: An electronics retailer tracks inventory to ensure fast-selling products are always
available while minimizing overstock.
11. ABC Analysis: ABC Analysis is a technique of inventory categorization where items are
classified into three categories (A, B, and C) based on their value.
Purpose: To prioritize control efforts on high-value items.
Categories:
A: High-value, low quantity.
B: Moderate value and quantity.
C: Low value, high quantity.
Advantages: Improves inventory management and focus on critical items.
Example: A pharmaceutical company categorizes medicines into A, B, and C categories to
prioritize stock management.
12. Economic Order Quantity (EOQ): EOQ is a formula used to determine the optimal
order quantity that minimizes total inventory costs (ordering and holding costs).
Formula: EOQ = √(2DS / H) where D = Demand, S = Ordering cost, H = Holding cost.
Purpose: To reduce inventory costs and maintain adequate stock levels.
Advantages: Minimizes costs, prevents stockouts, and improves inventory turnover.
Example: A stationery supplier calculates EOQ to determine the ideal order size for different
items.
13. Time Event Network Analysis: A technique used to plan, schedule, and monitor large
projects by visualizing the sequence of tasks.
Tools: Gantt Charts, Network Diagrams.
Purpose: To identify critical tasks and ensure timely project completion.
Advantages: Effective time management, helps in resource allocation, and identifies critical
paths.
Example: A construction company uses a Gantt chart to monitor project progress and adhere
to deadlines.
14. PERT (Program Evaluation and Review Technique) / CPM (Critical Path Method):
PERT is used for planning and controlling time-sensitive projects using probabilistic time
estimates. CPM is a project management technique that uses deterministic time estimates.
Purpose: To identify the critical path, allocate resources, and reduce project completion time.
Advantages: Efficient resource management, accurate scheduling, and timely project
completion.
Example: A software development firm uses PERT/CPM to schedule and manage a product
launch.
15. Activity-Based Costing (ABC): Activity-Based Costing (ABC) is a costing technique
that assigns overhead and indirect costs to specific activities or processes. This method
ensures that costs are attributed based on actual consumption by each product, service, or
process.
Purpose: To provide more accurate product costing, eliminate waste, and identify profitable
activities.
Procedure:
1. Identify activities involved in the production process.
2. Assign costs to each activity.
3. Allocate these costs to products or services based on actual consumption of each
activity.
Advantages: Improved cost accuracy, better decision-making, and identification of non-
value-adding activities.
Example: A manufacturing company uses ABC to allocate machinery costs based on machine
hours used by each product, leading to more precise product pricing.