CONTROLLING

BUSINESS STUDIES
Chp - 8

By
~ Group
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Breif information about the chapter
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C•O•N•T•E•N•T•S
C•O•N•T•E•N•T•S Meaning of Controlling
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Importance of Controlling
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Limitations of Controlling
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Techniques of Managerial Control
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Relationship between Planning and Controlling
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Controlling Process
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 1. Controlling means ensuring that activities in an
organisation are performed as per the plans.
2. Controlling also ensures that an organisations
resources are being used effectively and efficiently
for the achievement of desired goals
3. Controlling is, thus a goal oriented function
4. Controlling is a very important managerial
MEANING function. Because of controlling manager is able to
compare actual performance with the planned
OF performance.

CONTROL 5. In order to control the activities at all levels

manager needs to perform controlling function.
LING
 IMPORTANCE OF
CONTROLLING
1. Accomplishing organisational goals: The controlling function measures
the performance against the predetermined standards and corrects
deviations. This helps in ensuring that organisation is moving on right
track to achieve the organisational goals. In other words, by controlling,
the manager ensures that resources are obtained and used economically
and efficiently for the achievement of organisational objectives.
2. judging accuracy of standards :A sound controlling system helps the
management to verify whether the standards set are accurate and
objective. It keeps a careful check on the changes, which are taking place
in the organisation and helps in revising standards as and when required.
3. 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 pre-determ ined standards and norms. This
ensures that resources are used in the most effective and efficient manner.
4. It improves employees’ morale: The implementation of controlling
makes all the employees to work with complete dedication because they are
aware that their performance wiil be evaluated and they will have a chance to
build their reputation in the organisation. The employees who show good
performance are rewarded by giving them promotions, cash prizes, etc.
6. It helps in better performance: Planning and controlling are closely
interrelated as the real test of planning is controlling. Control reveals
deficiencies and deviations, suggests corrective actions for prevention of
deviations and deficiencies through modified planning.
7. Facilitates coordination: Control keeps all activities and efforts
within their fixed boundaries and makes them move towards the set goals.
Thus, control facilities coordination, it provides unity of direction.
LIMITATIONS OF
CONTROLLING
1. Difficulty in Setting Quantitative Standards : Control system loses
some of its effectiveness when standards cannot be defined in
quantitative terms. This makes measurement of performance and their
comparison with standards a difficult task. Employee morale, job
satisfaction and human behaviour are such areas where this problem
might arise.
2. Little Control on External Factors: Generally an enterprise cannot
control external factors such as government policies, technological
changes competition etc.
3. Resistance from Employees: Control is offer resisted by employees.
They see it as a restriction on their freedom. For instance, employees might
object when they are kept under a strict watch with the help of Closed Circuit
Televisions (CCTVs).

4. Costly Affair: Control is a costly affair as it involves a lot of

expenditure, time and effort. A small enterprise cannot afford to install an
expensive control system. It cannot justify the expenses involved. Managers
must ensure that the costs of installing and operating a control system should
not exceed the benefits derived from it.
TECHNIQUES OF
MANAGERIAL CONTROL
There are various managerial control that can be classified into two broad
categories : traditional techniques and modern techniques.

Traditional techniques :
Are those which have been used by the companies for a long time now.
However, these techniques have not become obsolete and are still being used
by companies. These include:
(a) Personal observation
(b) Statistical reports
(c) Breakeven analysis
(d) Budgetary controlhjio0 m
Modern Techniques :
Modern techniques of controlling are those which are of recent origin and are
comparatively new in management literature. These techniques provide a
refreshingly new thinking on the ways in which various aspects of an
organisation can be controlled.
These include:
(a) Return on investment
(b) Ratio analysis
(c) Responsibility accounting
(d) Management audit
(e) PERT and CPM
(f) Management information system
Traditional techniques

1. Personal observation
Personal observation is one of those techniques which provide first-hand
information. This creates creates psychological pressure on employees to
perform in a predetermined manner to achieve individual as well as
organizational goals of the enterprises. This is a very time consuming exercise
which is not always effective for all kind of jobs.

2. Statistical report
This is defined as an analysis of reports and data that is used in the form of
averages, percentages, ratios, co-relations etc. Statistical reports presents
useful information to the managers about the performance of the company in
various areas.
3. Break-even-analysis
This is a technique used by the managers to study the relationship between the
costs, value and profits which determines the overall picture of the profit and losses
at different levels of activities.
This is a no profit and no loss zone of the sales volume, and this is known as break-
even point.

Break-even point= Fixed cost/Selling price per unit-Variable costs per unit

4. Budgetary control
Budgetary control can be defined as the technique of
managerial control where all operations that are
necessary to be performed are executed as per the need to
be performed and planned in advance with budgets and actual
budgets that are compared with the pre-established budgetary
standards.
Some of the types of budgets prepared by an organisation are as follows

· Sales budget: A statement of what an organization expects to sell in terms of quantity

as well as value

· Production budget: A statement of what an organization plans to produce in the

budgeted period

· Material budget: A statement of estimated quantity & cost of materials required for
production

· Cash budget: Anticipated cash inflows & outflows for the budgeted period

· Capital budget: Estimated spending on major long-term assets like a new factory or
major equipment.

· Research & development budget: Estimated spending for the development or

refinement of products & processes
Modern Techniques of Managerial Control

1. Return on Investment

Return on investment (ROI) can be defined as one of the important and useful
techniques. It provides the basics and guides for measuring whether or not invested
capital has been used effectively for generating a reasonable amount of return. ROI
can be used to measure the overall performance of an organization or of its individual
departments or divisions. It can be calculated as under-

Net income before or after tax may be used for making comparisons. Total investment
includes both working as well as fixed capital invested in the business.
Ratio Analysis

Ratio Analysis refers to analysis of financial statements through computation of ratios. The
most commonly used ratios used by organisations can be classified into the following
categories:

1. Liquidity Ratios:

Liquidity ratios are calculated to determine short-term solvency of business. Analysis of

current position of liquid funds determines the ability of the business to pay the amount due
to its stakeholders.

2. Solvency Ratios:

Ratios which are calculated to determine the long-term solvency of business are known as
solvency ratios. Thus, these ratios determine the ability of a business to service its
indebtedness.
3. Profitability Ratios:

These ratios are calculated to analyse the profitability position of a business. Such ratios
involve analysis of profits in relation to sales or funds or capital employed.

4. Turnover Ratios:

Turnover ratios are calculated to determine the efficiency of operations based on effective
utilisation of resources. Higher turnover means better utilisation of resources. The table
given below gives examples of some ratios commonly used by managers.
 Relationship between Planning
and Controlling

Relationship between planning and controlling Planning

involves selecting enterprise objectives and deciding ways
to achieve them. Controlling is the process of assuring that
actions are in line with the plans. Without planning, there
is no basis for controlling activities
 Planning

Controlling
Controlling RELATIONSHIP
Better

BETWEEN&
PLANNING
CONTROLLING

Better Planning
 Aspects of Relationship between
Planning and Controlling

● Controlling is blind without planning.

● Planning without controlling is meaningless
● Planning is perspective and controlling is evaluate
● Both are backward looking as well as forward looking
functions.
 Controlling takes place on the basis of standards developed by planning.If no standards are
set in advance, managers have nothing to control. So when there is no plan, there is no basis
of controlling.
Relationship between

Once a plan becomes operational controlling is necessary to monitor the progress, measure
Planning and
Controlling

it, discover deviations and initiate corrective measures to ensure that events conform to
plans. Thus, planning without controlling is meaningless.

Planning is a prescriptive process as it prescribes the most appropriate course of action to

achieve the objectives.
Controlling is an evaluative process as it evaluates whether planned decisions have been
translated into desired action

Planning is viewed as a forward-looking approach as plans are prepared for future and
are based on forecasts about future conditions.
Controlling is considered a backward-looking function as it measures and compares
actual performance with standards fixed in the past.
 CONTROLLING PROCESS
1. Setting performance standards- The first step in the controlling process is the
establishment of standards of performance. Standards are the criteria against which actual
performance is measured.Standards can be set in both Quantitative as well as Qualitative
terms.

● Quantitative standards: They are the standards which can be shown in figures. In
quantitative terms, standards are expressed in terms of cost to be incurred, revenue to be
earned, units to be produced and sold, time to be spent in performing a task and so on.

● Qualitative standards: They are the standards which cannot be shown in figures. Improving
goodwill and motivation level of employees are examples of qualitative standards. •
Whenever qualitative standards are set, efforts should be made to define standards in a
manner that make their measurement easy.
 Once the standards have been established, the second
step is to measure the actual performance.
2. Measurement ● Performance should be measured in an
of actual objective and reliable manner. It can be done
using several techniques like personal
performance observation, sample checking,etc.
● To make the comparison easier, performance
should be measured in the same units in which
standards are set.
● Generally performance is measured after the
task. But if possible it should be done during
performance.
● Measurement of performance of an employee
may require preparation of performance
report by his superior.
● The performance can also be measured
through calculation of certain ratios like Gross
profit Ratio, etc. at periodic intervals.
3. Comparison of actual performance with standards-
The third step in controlling process is to compare the actual
performance with the standards.
● Such comparison will reveal the deviation between the planned
and actual performance.
● Comparison is easy when standards are set in quantitative terms.
● If actual performance matches the standards, then everything is
within control and process of controlling ends.
● However, if there is mismatch or deviation, i.e. actual
performance falls short of standards, then the extent of deviation
is determined.
1. If the deviation is minor, it should be ignored
2. But if the deviation is major, then it needs immediate action.
4. Analysing deviations- Some deviation in performance is
expected in all activities. So, the next step in controlling
process is to analyse the deviations.
● For this, an acceptable range of deviation must be fixed as
significant deviations need more attention as compared to
minor deviations.
● Moreover, deviations in key areas of business need to be
attended more urgently as compared to deviations in certain
insignificant areas.

In this regard, managers use 'Critical Point Control' and '

Management by Exception'.

● Critical point control: According to this, control system

should focus on Key Result Areas (KRAS), which are critical
to the overall performance of an organisation. If anything
goes wrong at the critical points, the entire organisation
suffers. So, attention must be paid on such critical points as it
is neither economical nor easy to keep a check on each and
every activity.
● Management by exception or control by exception-
According to this principle of management control,
manager should give attention to significant deviations,
which go beyond the permissible limit. This is based on a
fact: "if you try to control everything, you may end up
controlling nothing". So, a range of deviations should be
established and attention must be paid beyond such range.
5. Take corrective action-The final step in the controlling
process is taking corrective action. There is no need for
corrective action, when the deviations are within acceptable
limits.

● However, if deviations go beyond the acceptable range,

especially in important areas, it demands immediate
managerial attention so that deviations do not occur
again and standards are accomplished.

● In case the deviation cannot be corrected through

managerial action, the standards may have to be revised.
Questions
Controlling function finds out how far __________ deviates from standards.
(a) Actual performance
(b) Improvement
(c) Corrective actions
(d) Cost

Planning is theoretical whereas controlling is practical”

(a) True
(b) False
(c) Cannot say
Which of the following is not a limitation of controlling?
(a) Little control on external factors
(b) Costly affair
(c) Ensuring order & discipline
(d) Difficulty in setting quantitative standards

Which of the following is not a process of controlling?

(a) Analyzing deviations
(b) Integrates employees efforts
(c) Taking corrective measures
(d) Setting performance standards
The controlling function is performed by
(a) Top level management
(b) Lower level management
(c) Middle level management
(d) All of the above

Controlling function brings the management cycle back to the

(a) Organising function
(b) Directing function
(c) Planning function
(d) None of the above
Yash runs a logistic company. The Tour Incharges of each trip in the company are expected
to submit a report to the Event Manager on the completion of every trip. Identify the step in
the controlling process being described in the above lines.
(a) Setting of standards
(b) Measurement of actual performance
(c) Taking corrective action
(d) Analysing the deviations

Hina Sweets is a renowned name for quality sweets since 1935. Harsh the owner of Hina
Sweets was worried as the sales had declined during the last three months. When he
enquired from the Sales Manager, the Sales Manager reported that there were some
complaints about the quality of sweets. Therefore Harsh ordered for sample checking of
sweets.
Identify the step taken by Harsh that is related to one of the functions of management.
Om Prakash has set up a small business unit for the manufacturing of detergent. In
order to market the detergent in the local residential areas, he has appointed a team of
ten salesmen. Each salesman is expected to sell at least 200 units of the detergent
within a week’s time. Identify the point of importance of controlling being highlighted
in the above case.
(a) Controlling helps in judging accuracy of standards.
(b) It ensures efficient use of resources.
(c) It helps in improving employee motivation.
(d) It facilitates co-ordination in action.
 THANK YOU!!!

Contributions:~
Sakshi
•
Kumar
•
Disha
•
Sakshi
 RESPONSIBILITY
ACCOUNTING

Responsibility Accounting is a system of accounting in

which different sections, divisions and departments of an
organisation are set up as ‘Responsibility Centers’.
The head of the center is responsible for achieving the
target set for his center.
Responsibility centres may be of the following
types:-COST
CENTRE
● It ia a segment of an organisation in which the
managers are help responsible for the cost incurred in
the centre but not those for revenues.
● Example- The production department in a
manufacturing organization is classified as the cost
centre.

REVENUE CENTRE
● It is a segment of an organisation which is primarily
responsible for generating revenue.
● Example- The marketting department of an
organisation can be classified as a revenue center.
CENTRE

● It is a segment of an organisation whose manager is

responsible for both revenues and costs.
● Example- Repair and maintenance department of an
organisation is treated as a profit center.
INVESTMENT
CENTRE

● It is responsible not only for profits but also for investments made
in the centre in the form of assets.
● The investment made in each centre is separately ascertained and
return on investments is used as a basis for judging the performance
of the centre.
● Example- Financing arm of automobile company.
● Meaning- Management Audit is a
systematic approval of the overall MANAGE
performance of the management of MANAGE
an organisation. MENT
MENT
AUDIT
AUDIT
● Purpose- To review the efficiency and effectiveness of
management and to improve it's performance in future
periods.

● Useful- In identifying the deficiencies in the

performance of management functions.
 Helps to locate present and potential

ES
AG 01 deficiencies in the performance of
management functions.
NT
VA

Helps to improve the control system of an

organisation by continuously monitoring the
02
AD

performance of management.

Ensures updating of existing managerial

03 policies and strategies in the light of

environmental changes.

04
Helps to improve coordination in the
functioning of various departments so that they
work together effectively towards the
achievement of organisational objectives.
PERT
(Programme Evaluation and Review Technique)

These are the most important network techniques useful in

planning and controlling. These techniques are especially
useful for planning, scheduling and implementing time
bound projects involving performance of a variety of
complex, diverse and irrelated activities. These techniques
deals with time scheduling and resource allocation for these
activities and aims at effective execution of projects within
given time schedule and structure of costs.

CPM
(Critical Path Method)
STEPS INVOLVED IN USING
PERT/CPM
Project is divided into a number of clearly
identifiable activities which are then arranged in a
logical sequence.

A network diagram is prepared to show the sequence of

activities, the staring point and the termination point of
the project.

Time estimates are prepared for each activity. PERT requires the
preperation of three times estimates- optimistic, pessimistic and most
likely time. In CPM only one time estimate is prepared. In addition, CPM
also requires making cost estimates for completion of project.
The longest path in the network is identified as the critical
path. It represents the sequence of those activities which
are important for timely completion of the project and
where no delays can be allowed without delaying the entire
project.

If required, the plan is modified so that

execution and timely completion of project is
under control.

PERT and CPM are used extensively in the areas like

ship-building, construction projects, aircraft
manufacture, etc.
 MANAGEMENT INFORMATION
SYSTEM

● Management Information System (MIS) is a computer based

information system that provides information and support for
effective managerial decision-making. A decision-maker
requires up-to-date, accurate and timely information. MIS
provides the required information to the managers by
systematically processing a massive data generated in an
organisation. Thus, MIS is an important communication tool
for managers.
● It also serves as an important control technique. It provides
data and information to the managers at the right time so that
appropriate corrective action may be taken in case of
deviations from standards.
 It reduces information overload on the
managers as only relevant information is

A GE
provided to them.

D S
A
VA
N
T
Has facilities connection, Improves the quality of
management and dissemination information with which a
of information at different
manager works.
levels of different management
and across different
departments of the
organisation.

Ensures cost effectiveness in

managing information.

Supports planning, decision-

making and controlling at all
levels
 THANK YOU!!!

Contributions:~
Sakshi
•
Kumar
•
Disha
•
Sakshi