CONTROLLING

 'Controlling' or 'control' is an important function of

management. In the managerial context, the controlling function
refers to the process of measuring the actual performance
against the established standards and then correcting
significant deviations, if any.

 The controlling function is used to ensure that the

performance should be in line with the established
standards.
 It also ensures that the organisational objectives are
achieved by implementing the plans devised to attain
them. Control is used to check that everything is being
carried out in accordance with the plan which has been
adopted, the orders which have been given and the
principles which have been laid down.

 CONTROL vs. SUPERVISION:

Control is often confused with supervision. Supervision is only

a part of control. Supervision involves regular monitoring of
the performance to identify deviations, if any, from the
established standards for performance. But, control starts much
before supervision and continues even after supervision. In
addition to supervision, control also includes the efforts to
 establish standards, and plan and execute actions to ensure
that the performance is in accordance with the standards.

SUPERVISION = Maintaining Checks & Balances on

the activities and identify deviations, if any.

CONTROLLING = Establishing Standards + Planning

Course of Action + Executing the Course of Action +
Maintaining Checks & Balances on the activities and
identify deviations, if any.

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEMS:

The implementation of effective control systems is extremely vital for

all forms of organisations to ensure delivery of plans in an optimum
manner. The control systems must be designed properly so that they
are effective in ensuring that the controls are applied by the right level
and at the right time.

FACTORS TO BE CONSIDERED WHILE SETTING

STANDARDS

While setting standards, following factors/points should be kept in

mind:

1. Standards should be attainable

2. Standards should be fixed for all key areas of business
3. Standards should be in accordance with goals and policies
of the organisation
 4. Standards should be expressed in quantitative terms, as far
as possible, or they should be easy to measure.
5. Standards should be precise and tangible so that they can
be easily understandable.
6. Standards should be focused on achievement of results not
on procedures and policies.
7. Standards should be flexible and can be changed according
to changing situations.
8. Standards should be objective and based on facts.
9. Standards should be reviewed and revised periodically.
10. Standards should be set in consultation with employees
11. A deviation tolerance limit should be prescribed. It
means to what extent deviation of actual from standard
performance can be tolerated and there will be no need to
take unnecessary action.
12. Standards should be capable of achieving with
reasonable cost, time and effort

The characteristics of effective control systems are described

below.

(a) Establishing right standards:

Managers need to translate organisational goals in terms of specific

and operational objectives. Consequently, some quantitative standards
have to be established for different objectives so as to guide and set a
target. E.g. General Electric regularly monitors the performance of its
managers against three criteria: profits, market share and cash
generated. Then it generates a list of the best six and the worst six
managers measured by variance against profits. This information is
shared among managers so that the entire team has a fair idea how
managers in different parts of the global system are doing.

(b) Guide for measurement:

Most organisations would like to know what they have accomplished

to review their performance regularly. Standards act as a guide for
determining what needs to be measured and reported to. For example,
if an organisation has an objective to increase its market share by 10
per cent, it should have a mechanism to measure the market share for
that product category.

(c)Realistic and Flexible:

When control standards are inflexible or unrealistic, employees get

de-motivated sometimes and may not focus on the organisation's
goals. Controls need to have some in-built flexibility so that the
implementing manager can use some form of discretion on the basis
of the need of the situation.

(d) Must be Preventive in self-nature:

The control systems should be ideally such that they prevent the
problems that they were designed to detect and not to cause new
problems because of their rigidity and complexity.
 (e)Cost Effective:

The cost of implementation of a control should be reasonable. It

should not exceed the benefit that the control is likely to deliver. It is
for this reason that organisations prefer to undertake sampling at
regular intervals to determine whether the process is in control or not.
A cost benefit analysis must be done before implementing any
controlling measure in the organisation.

(f) Timeliness:

An effective control system is the one that provides timely

information on a regular basis so that corrective actions if necessary
can be initiated and implemented in a timely manner. If the
information is delayed beyond a certain point, it can have disastrous
or very damaging con-sequences.

(g) Ease of Understanding:

Guidelines, standards and information systems must be simple to

comprehend so that they are easily understood by one and all. This
ease of understanding helps the concerned employees to follow
guidelines and standards without difficulty and ambiguity.

(h) Forward Looking:

The control system should be examined regularly so that it is not only

appropriate in the present context but would also he relevant in t-he
future.
 (i) Based on Facts:

The controlling actions should be based on accurate information about

performance The controlling actions that are initiated on assumptions
and hunches may not be appropriate.

(j) Motivating:

The design of a control system should be such that it should not de-
motivate the individuals involved while ensuring the effective
implementation of plans.

IMPORTANCE OF CONTROL:

 Planning. In the chapter on planning, we described goals, which

provide specific direction to employees and managers, as the
foundation of planning. However, just stating goals or having
employees accept them doesn’t guarantee that the necessary
actions to accomplish those goals have been taken. As the old
saying goes, ‘The best-laid plans often go awry.’ The effective
manager follows up to ensure that what employees are supposed
to do is, in fact, being done and goals are being achieved. As the
final step in the management process, controlling provides the
critical link back to planning. If managers didn’t control, they’d
have no way of knowing whether their goals and plans were
being achieved and what future actions to take.
 Empowering employees. The second reason controlling is
important is because of employee empowerment. Many
 managers are reluctant to empower their employees because
they fear something will go wrong for which they would be held
responsible. But an effective control system can provide
information and feedback on employee performance and
minimise the chance of potential problems.
 Protecting the workplace. The final reason that managers
control is to protect the organisation and its assets.
Organisations face threats from natural disasters, financial
pressures and scandals, workplace violence, supply chain
disruptions and security breaches. Managers must protect
organisational assets in the event that any of these should
happen. Comprehensive controls and backup plans will help
minimise work disruptions.

The other main importance of the control function is reflected in the

following managerial tasks.

(a) Bringing Focus:

 After the plans have been developed, the top management
must determine the key areas that need to be monitored
and controlled on regular intervals to analyse the
successful implementation of the plans.
 The control parameters also enable employees know their
performance targets. Employees understand the language
of measurement. Whatever is measured is considered
 important by them, and whatever is not measured is not
considered of much significance.
(b) Ensuring consistency in organisational activities:
Uniformity and discipline with respect processes and
output in accordance with the needs of the internal or
external customers is highly critical for the success of an
organisation.
(c)Enabling organisational effectiveness and efficiency:
The real test of a manager's ability is the results he/she
delivers. Therefore, the manager has to remain alert to
identify factors that might affect the implementation of his
plans for achieving objectives. The application of
controlling techniques helps in checking errors and taking
necessary actions to eliminate them in a timely manner to
improve the employees' performance.
(d) Aid in decision-making:
Control techniques make managers aware of the problems
in a particular area and give them the required information
for making decisions so that the recurrence of problems
and their effect on productivity are reduced significantly.
(e)Maintaining discipline:
Control techniques help the manager in maintaining
discipline among the employees and ensuring that they
perform in accordance with the plans. Through the
controlling process, the manager takes necessary action to
 regulate the activities and the overall working of the
subordinates and ensures optimum implementation of
organisational plans.

CONTROLLING PROCESS:

STEP 1: ESTABLISHMENT OF STANDARDS

STEP 2: MEASUREMENT OF PERFORMANCE

STEP 3: COMPARING PERFORMANCE WITH STANDARDS

STEP 4: TAKING CORRECTIVE ACTION

Step 1: Establishment of Standards

 “Standards” represent criteria for performance.

 A standard acts as a reference line or a basis of appraisal of
actual performance. Standards should be set precisely and
preferable in quantitative terms. (scientific/mathematical
equations) and sometimes in qualitative terms as well.
(behaviour/non-mathematical situations)
 It should be noted that setting standard is also closely linked
with and is an integral part of the planning process.
 Standards are used as the criteria or benchmarks by which
performance is measured in-the control process.
 Standards should be flexible, i.e., capable of being changed
when the circumstances require so.
Step 2: Measurement of Performance

 After establishing the standards, the second step is to measure

actual performance of various individuals, groups or units.
Management should not depend upon the guess that standards
are being met.
 It should measure the performance and compare it with the
standards. The quantitative measurement should be done in
cases where standards have been set in numerical terms. This
will make evaluation easy and simple. In all other cases, the
performance should be measured in terms of qualitative factors
as in case of performance and industrial relations.(attitude of
workers, frequency of strikes, morale of workers etc.)

Step 3: Comparing Performance with Standards:

 Comparison of actual performance with predetermined

standards is an important step in control process. Comparison is
easy where standards have been set in quantitative terms as in
production and marketing. In other cases; where results are
intangible and cannot be measured quantitatively, direct
personal observation, inspection and reports are a few methods
which can be used for evaluation.
 The evaluation will reveal some deviations from the set
standards. The evaluator should point out the defects or
deficiencies in performance and investigate the causes
responsible for these. All deviations need not be brought to the
 notice of top management, unless too serious. A range of
deviations should be established beyond which the attention of
top management is warranted. This is what is known as
'management by exception'.

Step 4: Taking Corrective Actions:

 The final step in the control process is taking corrective action

so that deviations may not occur again and the objectives of the
organisation are achieved. This will involve taking certain
decisions by the management like re-planning or redrawing of
goals or standards, reassignment or clarification of duties or may
also include the necessity of reforming the process of selection
and training of workers. Thus, control function may require
change in all other managerial functions. If the standards are
found to be defective, they will be set up again in the light of
observations.
  HOW DO MANAGERS MEASURE?

Four common sources of information frequently used to measure

actual performance include –

 PERSONAL OBSERVATION: provides first-hand, intimate

knowledge of the actual activity – information that isn’t filtered
through others - MANAGEMENT BY WALKING AROUND
(MBWA) is a phrase used to describe when a manager is out in
the work area, interacting directly with employees and
exchanging information about what’s going on. Management by
walking around can pick up factual omissions, facial
expressions and tones of voice that may be missed by other
sources. Unfortunately, in a time when quantitative information
suggests objectivity, personal observation is often considered an
inferior information source. It is subject to perceptual biases;
what one manager sees, another might not. Personal observation
also consumes a good deal of time. Finally, this method suffers
from obtrusiveness. Employees might interpret a manager’s
overt observation as a lack of confidence or a sign of mistrust.
 STATISTICAL REPORTS - The widespread use of
computers has led managers to rely increasingly on statistical
reports for measuring actual performance. This measuring
device, however, isn’t limited to computer outputs. It also
includes graphs, bar charts and numerical displays of any form
that managers can use for assessing performance.
  ORAL REPORTS - Information can also be acquired through
oral reports – that is, through conferences, meetings, one-to-one
conversations or telephone calls. In employee-oriented
organisations where employees work closely together, this
approach may be the best way to keep tabs on work
performance.
 WRITTEN REPORTS - Actual performance may also be
measured by written reports. Like statistical reports, they are
slower yet more formal than first-hand or second-hand oral
measures. This formality also often gives them greater
comprehensiveness and conciseness than found in oral reports.
In addition, written reports are usually easy to catalogue and
reference.

What managerial action can be taken if things have gone out of

control?

Managers can choose among three possible courses of action:

 Do nothing (self-explanatory).
 Correct actual performance.
 Revise the standards.

How do you correct actual performance?

Depending on what the problem is, a manager could take different

corrective actions. For example, if unsatisfactory work is the reason
for performance variations, the manager could correct it using training
programs, disciplinary action, changes in compensation practices and
so on. One decision that a manager must make is whether to take:

Immediate corrective action, which corrects problems at once

to get performance back on track, or to use,

Basic corrective action, which looks at how and why

performance deviated before correcting the source of deviation.

Effective managers analyse deviations and, if the benefits justify it,

take the time to pinpoint and correct the causes of variance.

WHEN DOES CONTROL TAKE PLACE? (TYPES OF

CONTROLLING)

&

TOOLS OF CONTROLLING (IMPORTANT)

Management can implement controls before an activity commences,

during the activity or after the activity has been completed. The first
type is called feedforward control, the second is concurrent control
and the last is feedback control.
What is FEEDFORWARD CONTROL?

The most desirable type of control – feedforward control – prevents

problems because it takes place before the actual activity. For
example, when McDonald’s began doing business in Moscow, it sent
company quality control experts to help Russian farmers learn
techniques for growing high-quality potatoes and to help bakers learn
processes for baking high-quality breads. Why? McDonald’s demands
consistent product quality no matter the geographical location. They
want French fries in Moscow to taste like those in Perth.

When is CONCURRENT CONTROL used?

Concurrent control, as its name implies, takes place while a work

activity is in progress. Technical equipment (such as computers and
computerised machine controls) can be designed to include concurrent
controls. The best-known form of concurrent control, however, is
direct supervision. All managers can benefit from using concurrent
control because they can correct problems before they become too
costly. (Management by Walking Around) MBWA, which we
described earlier in this chapter, is a great way for managers to do
this.

Why is FEEDBACK CONTROL so popular?

The most popular type of control relies on feedback. In feedback

control , the control takes place after the activity is done. The main
problem with this kind of control is that by the time a manager has the
information, the problems have already occurred, leading to waste or
damage.

TOOLS OF CONTROLLING:

Major Techniques of Controlling:

(1) Management Information System: In order to exercise

control function effectively, managers need timely and accurate
information. Information is needed for internal working of the
organisation as well as for external environment. Information is
collected continuously to identify problems and work out
alternative solutions. MIS generates data, processes such data
into information and provides the information to managers. MIS
may be manual or computerised. Computerised MIS is desirable
in large organisations because of its capacity, speed and
accuracy.
(2) Budgetary Control: A budget is a planning and
controlling device. Budgetary control is a technique of
managerial control through budgets... It is the very essence of
 financial control. Budgetary control is concerned with all
aspects of a business such as income, expenditure, production,
capital and revenue. The administration of budgetary control is
generally the responsibility of the budget committee. Zero-Base
budgeting is the latest technique. ZBB does not prepare budget
on the basis of past year budget. It is constructed from a zero-
base. All the activities are evaluated and ranked on the basis of
benefits of the organisation.
(3) Balanced Scorecard Approach: The BALANCED
SCORECARD APPROACH is a way to evaluate
organisational performance from more than just the financial
perspective. Traditionally, a balanced scorecard looked at four
areas that contribute to a company’s performance: financial,
customer, internal processes and people/innovation/growth
assets.

Other Forms of TOOLS of CONTROLLING – Remember the

name of all

(1) Cost Control: Exercising control on all the cost of an

enterprise to bring economy is cost control. Expenses are
recorded and classified in different methods in different
organisations and then compared with the standard or budgeted,
costs. The concerned manager takes corrective action if they
find any deviations. This technique helps in finding out which
activities are profitable and which are not.
(2) Break Even Analysis: Break-even point is the point of no
profit, no loss. e.g., when an organisation is able to sell 50,000
pieces of motor tyres, it would be breaking even. It means that
any sale below this point will cause losses and any sale above
this point will fetch profits. Break-even analysis acts as a control
device. It helps to assess company performance and provides a
basis for collective action to improve performance in future.
Break-even analysis is a simple control tool.
(3) Statistical Control: Statistical reports are important tools
of control. In order to find out the causes of deviations
comparison of various ratios, averages, percentages etc Qf
different years is undertaken. This is useful in controlling
production, quality and inventory. Standards are made out of
these statistical reports; then through comparison variations are
found and corrective actions are taken. These reports are
prepared in the form of tables and graphs.
(4) Financial Statements: All business organisations prepare
Profit and Loss Account which provides summary of the
revenue and expenses during a specified time period. Similarly
they prepare Balance Sheet which indicates the financial
position of the enterprise at the end of the specified period.
When a comparative study is made of these financial statements
for varying period, it shows trends of changes in the profits,
assets and liabilities of the business. Based on such a study it is
possible to prepare and project financial transactions in future.
(5) Ratio analysis: can be used to compute and analyse the
financial statements. Ratio analysis is the relationship expressed
in mathematical terms between two figures connected with each
other. Ratio analysis helps to understand the profitability,
liquidity and solvency position of the business. This technique is
also used for inter-firm comparison.
(6) Direct Supervision and Observation: This is the oldest
technique of controlling. The supervisor himself observes and
employees and their work. This brings him in direct contact with
the workers and many problems are solved during the time of
supervision. The supervisor does not depend on the information
provided by the management. This enables the supervisor to •
obtain first band information and establish better understanding
with the workers. This technique is most suitable in case of a
small sized business.
(7) CPM and PERT: Critical Path Method (CPM) and
Programme Evaluation and Review Technique (PERT) are
commonly used tools to exercise control. These are network
planning and diagramming techniques. The network indicates
the sequence governing different activities. A new activity
cannot start until the scheduled preceding event is completed. A
network shows a number of parallel paths, longest of which is
critical path. It is critical because project cannot be completed in
a lesser time. In case any activity on the critical path requires
more time than was originally assigned, then the completion
 time for the entire project increases. Until each activity time is
fixed and entered into network diagram, critical path remains
unknown. While completing the project management one can
compare actual time taken, activity by activity, with pre-fixed
time. It becomes possible to suggest remedies to cut down time
consumption.
(8) Return on Investment (ROI): Investment consists of
fixed assets and working capital used in business. Profit on the
investment is a reward for risk taking. ROI is a measure of the
financial performance of a business. The excess of revenue over
costs' is profits. ROI was developed by Du Pont Corporation of
USA in 1919. ROI highlights efficient performance in relation
to capital employed. It is a tool to improve financial
performance. It helps to compare the performance of a business
or its departments over a period of time. It also helps to conduct
inter-firm comparisons. It also indicates the areas where
remedial actions are required.
(9) Management Audit: Management audit is an evaluation
of management as a whole. It critically examines the entire
management process consisting of planning, organising,
directing, staffing and controlling. In order to find out the
achievement of management, evaluation and measurement is
done of company's plans, objectives, policies, procedures,
personnel relations and systems of control. Management audit
goes beyond statutory audit and internal audit. It is conducted at
 the initiative of the management. A team of experts conduct
audit work periodically. The audit team collects data from past
records, members of management, clients and employees
feedback. The data is processed and conclusions are drawn
about managerial performance and effectiveness.
(10) Management by Objectives: MBO facilitates planning
and control. MBO must fulfill the following three requirements:
(a) Objectives for individuals are jointly set by the superior and
the subordinate.
(b) Periodic evaluation and regular feedback to evaluate
individual performance.
(c) Achievement of objectives brings rewards to individuals.
(11) Self-Control: Most commonly used control technique is
called self-control. Under this technique, an individual is given
freedom to, determine his own standards of performance, self-
evaluate and take corrective actions, if necessary. Some amount
of external control is compulsory so that an individual does not
become negligent and defiant. Self-control and, imposed control
are relative terms and they go hand in hand.