Controlling

● Controlling is an important managerial function it refers to taking necessary measures for preventing the actions to ensure the achievement of the organisation towards its organizational goals.

● It is a comparison of the actual performance with the plant performance.

● If there is a gap between the two performances then corrective measures must be taken to ensure that there is a match between the actual performance and the planned performance in the future.

● The manager must exercise effective control over the activities of the subordinates to see the planned results.

● Controlling also means ensuring that the resources are being used effectively and efficiently for the achievement of the goals. It is a goal-achieving measure.

● It is a pervasive function that exists at all the levels- top, middle and lower.

● It is not the last function of management. It brings back the management cycle to the planning function.

The principle of management that a manager should consider while dealing with deviations effectively is management by exception. It means that any attempt to control everything results in controlling nothing. Only those deviations must be brought to notice which are beyond the permissible limit.

For example, A management has planned to earn a 5% profit on its annual sales. At the end of the year, the actual performance is compared with the planned performance. The profit is estimated to be a total of 4.5%. This is only a small deviation and should not be brought to the consideration of the management. However, if the deviation is of two percent, the management must resort to taking corrective actions, as this is a huge deviation from the planned performance.

An organization's control system loses its effectiveness when the standards cannot be defined in terms of quantity. It would be difficult to measure the performance and compare it with the planned performance. This problem can arise in a situation of job satisfaction and employee morale.

The two standards that can be used by a company to evaluate the performance of its finance and accounting department is the flow of capital and liquidity

The term that is used to indicate the difference between the standard performance and the actual performance is the deviation.

Planning is looking ahead and controlling is looking back. This is a partially correct statement. It can be analyzed in the following points:

a. Planning is considered to be a psychological process which is considered of thinking what is to be done in advance and the method of doing it.

b. It involves setting up of goals and the actions by which the goals can be achieved.

c. This is a mental task which is involved with deciding about the future actions of the organisation. So it is rightly said that planning is looking ahead.

d. Controlling is a process of assessing past performance and evaluating it against the set standards.

e. So controlling is said to be a function of looking back.

f. However, planning is a futuristic concept but it is based on past experiences. It cannot take place without taking a look at past performances.

g. Controlling is the process of assessing the past performance but it AIMS at improving future performance. If the performance of the organisation is not according to the set standards then required corrective actions must also be taken.

h. In conclusion both planning and controlling are backward-looking and forward-looking functions.

● An attempt to control everything results in the control of nothing. This is with regard to the principle-Management by exception.

● According to this principle, everything cannot be controlled effectively. It is not possible to control all the activities in an organisation at the same time.

● Controlling focuses only on the key result areas. It means only those areas are controlled which are the the the critical points are dependent on the organisation.

● Instead of controlling each and every deviation in the performance, a permissible limit must be set.

● Only those deviations which go beyond this limit must be brought to the notice of the management.

● For example, A management has planned to earn a 5% profit on its annual sales.

● At the end of the year, the actual performance is compared with the planned performance.

● The profit is estimated to be a total of 4.5%. This is only a small deviation and should not be brought to the consideration of the management.

● However, if the deviation is of two percent, the management must resort to taking corrective actions, as this is a huge deviation from the planned performance.

Budgetary control is a method of controlling that involves the preparation of plants in the form of a budget. Budget is the financial statement that defines the targets to be achieved and the policies to be followed during a specific duration of time. The actual performance is compared with a budgetary standard. If there is any deviation, measures are taken for the same. Budgetary control acts as a technique of controlling in the following manner:

● Budget is made for different divisions of the organizations at such as sales budget, purchase budget and production budget.

● It is a source of motivation for the employees to measure the performance against the budgetary standard.

● It also helps to bring about coordination in the organisation.

● It also helps to ensure that the resources are allocated to different divisions as per the requirement. It helps to use the resources in the most optimum way.

● It focuses on time and specific bound targets.

The management audit is the extensive and constructive appraisal of the overall performance of the management of the organisation. It is an effective method of controlling as it offers the following advantages:

a. It helps to recognize the current and the probable deficiency in the performance. So it can be said that it helps to take the necessary corrective measures.

b. It helps to monitor the various activities of the management. This, in turn, helps to improve the overall efficiency of the management.

c. It increases the level of adaptability to the at environmental changes. This is done by ensuring that the managerial policies are up to date.

d. It helps to improve the coordination between the employees as well as among the different functions of the organisation.

e. It helps to improve the control system of the organisation.

The principle of management control that MS Vasundhara must consider while making her decision is management by exception. It means that any attempt to control everything results in controlling nothing. Only those deviations must be brought to notice which are beyond the permissible limit. In this case, Mr. Bhanu hairstyle has fallen short of his daily production target only by 10 units. This is only a small deviation and it is not right to terminate him on the basis of this.

Controlling is an important managerial function it refers to taking necessary measures for preventing the actions to ensure the achievement of the organisation towards its organizational goals.

The various steps involved in the process of controlling are explained below:

1. Setting up of performance standards: It means setting up at target against which the actual performance will be measured. It is a basis of comparison and the manager will use it as a guideline for the future activities of the organisation. These standards must be kept within the ability of the organisation to achieve. They should be neither very low nor very high. They must be set keeping in mind the skills of the employees and the resources available with the organisation. For example and Organisation decide to have a standard profit of rupees 5 lakh quarterly. They must also have a time limit during which they have to be achieved. They can be both quantitative and qualitative. The quantitative standard includes the increasing profit or increasing sales. Qualitative standards include motivation and Goodwill factors.

2. Measurement of actual performance: The manager must evaluate the actual performance. Although the standards can be set in both quantitative and qualitative forms, measurement of performance in terms of quantitative factors is much easier. However, it must be understood that at times the employees focus more on achieving the quantitative standard at the cost of the qualitative standard. The performance should be measured in an objective manner. There are many methods for the measurement such as sample checking and personal observation.

3. Comparison of the actual performance with the planned performance: The manager must evaluate the actual performance with the standard performance. If there is a mismatch between the two, the manager must evaluate the degree of deviation. Minor deviations are advised to be ignored. If the deviations are major, immediately.

4. Analyzing the deviations: The deviations must be analyzed carefully by the manager. The deviations in key areas of the business must be attended immediately as compared to the deviations in other in significant areas. The manager can use critical point control and management by exception principle in this regard. Critical point control means focusing only on the key result area that affects the entire organisation. Management by exception means only the significant deviations that are beyond the permissible limit should be controlled. Deviations can be caused by many factors such as underutilization in of resources, deficiency in process, and change in the business environment

5. Taking corrective actions: If the deviations are beyond the permissible limit, the manager must take corrective actions. The aim is to correct the deficiency to that they do not occur again.

The techniques of managerial control can be divided into two- traditional techniques and modern techniques.

Traditional techniques: The techniques which are being used by the manager since a very long time are called traditional techniques. They have not absolute and are still being used by the companies. The different kinds of traditional techniques are explained below:

a. Personal observation: Personal information includes the manager being able to oversee the work being done. This allows the manager to gather the right first and information. It also creates pressure on the workers to perform well because they are being continuously observed. However, it is a time-consuming process and it is not possible for one single manager to oversee all the activities in your organisation.

b. Break-even analysis: It is an analysis of the relation between cost, volume, and profit. Break-even point is the point where the quantity of sales leads to neither profit nor loss. It is the point where the total cost is equal to the total revenue. It helps the manager to estimate the cost and the profit earned by the organisation and accordingly take measures to increase the profit earning.

c. Statistical report: Statistical report includes statistical analysis in the form of average, ratio and percentage. This information can be easily represented in the form of a graph, charts, and table. It makes the comparison extremely easy for the manager.

d. Budgetary control: Budgetary control is a method of controlling that involves the preparation of plants in the form of a budget. Budget is the financial statement that defines the targets to be achieved and the policies to be followed during a specific duration of time. The actual performance is compared with a budgetary standard. If there is any deviation, measures are taken for the same. Budget is made for different divisions of the organizations at such as sales budget, purchase budget and production budget. It is a source of motivation for the employees to measure the performance against the budgetary standard.

Modern techniques: Modern techniques are the techniques which are relatively new in the management literature. It is based on a new idea of thinking and providing better managerial control. The Different techniques used under this category explained below:

a. Return on investment: It refers to the benefits earned in comparison to the investment of the organisation. It provides a useful yardstick to measure whether the invested capital is being able to generate a reasonable amount of Return. This technique can be used to compare the performance of different departments or while comparing the present performance with past performance. It is calculated by the following formula:

Rate of return on investment= net income / sales X sales/ total investment

b. Ratio analysis: Ratio analysis is a technique of calculating different ratios to analyze the financial statement. The different types of ratios are:

1. Liquidity ratio to determine the short-term solvency of the business.

2. Solvency ratio to determine the long term solvency of the business.

3. Profitability ratio to analyze the profitability position of a business

4. Turnover ratio to determine the efficiency of the activities on the basis of utilisation of resources.

c. Responsibility accounting: It involves the setting up of different divisions in an organisation at the responsibility Centre. Head of each Centre is responsible for achieving the targets and fulfilling the duties regarding his own Centre. For example, the cost Centre is responsible for the cost incurred by the organisation, the revenue centuries responsible for the revenues earned by the organisation and the investment center is responsible for the investment made in the form of assets.

d. Management audit: The management audit is the extensive and constructive appraisal of the overall performance of the management of the organisation. It helps to recognize the current and the probable deficiency in the performance. So it can be said that it helps to take the necessary corrective measures. It increases the level of adaptability to the at environmental changes. This is done by ensuring that the managerial policies are up to date.

e. Program evaluation and review technique PERT and critical path method CPM: These techniques are based on network analysis. The entire project is divided into different activities. The time limit and the cost to be incurred in estimated for each activity as well as the entire project. It helps in the successful execution of the project. These techniques are usually used in construction projects.

f. Management information system MIS: It is a computer-based information system that provides the information for effective managerial decision. It is the process which analyses the huge amount of data and gives Useful information to the manager. It facilitates the collection and dissemination of information at various levels.

The importance of controlling is highlighted in the following points:

a. Controlling helps to acheive the desired objectives. and measure the progress towards them. If there is any deviation, the manager may take corrective actions. It keeps the management on the right track.

b. It helps to identify whether or not the standards set are accurate. It keeps a check on the changes taking place in the organisation. It helps to revise the standards set in the context of these changes.

c. The usage of the resources can be controlled and its wastage and spoliage can be reduced. It helps for the optimum utilisation of resources.

d. It ensures that employees know what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It motivates them and helps to contribute positively to the organization.

e. It provdies a direction to all the activities in the organization. Each department and employee is governed by predetermined standards. This ensures that overall organisational objectives are accomplished.

f. It creates order and discipline in the organisation. It also helps to eliminate the dishonest behaviour of the employees by keeping a close check on their activities.

The problems faced by the organisation in implementing an effective control system are:

a. The controlling system loses efficiency in determining quantitative standards. Some of them cannot be measured in terms of quantity. It makes the measurement of performance a difficult task. It is also not easy to compare it with standard performance. For example, job satisfaction and employee morale.

b. It is not possible to control the external factors such as a change in the government policies and technological changes.

c. Employees may see it as a restriction on their freedom.

d. It is costly in terms of cost, price and effort.It is not possible for a small enterprise.Managers must ensure that the costs of installing and operating a control system should not exceed the benefits derived from it.

● Planning and controlling are two separate, yet closely related functions of the management.

● Without planning, controlling is baseless. Without controlling, planning is baseless.

● Planning precedes controlling and controlling succeed planning.

● Controlling requires a set of predetermined standards which is provided by planning.

● Once a plan becomes operational controlling is important to monitor its progress, analyze the actual performance, compare it with the standard performance and correct the deviations using corrective measures.

● Both planning and controlling a required for the smooth functioning of the organisation.

● They drive each other in the organisation.

● The business environment is dynamic in nature which for the enhances the relationship between the two.

● A plan may fail at any point in time. Controlling is used in such situations to overcome the loss incurred.

a. The company will have the following benefits from a better control system:

a. It would help in achieving the goals of the organisation.

b. The resources of the organisation can be used effectively and efficiently.

c. The employees would be self-motivated and boats work harder to achieve the goals.

d. The manager would be able to assess the past performance and analyze it with the planned performance. If there is a gap between the two, corrective measures can be taken to analyze it.

e. It would lead to a proper flow of communication in the organisation.

f. It will increase the level of discipline and cooperation in the organisation.

b. The company can relate its planning with control in this line of business in the following manner:

1. Setting up of performance standards: It means setting up at target against which the actual performance will be measured. It is a basis of comparison and the manager will use it as a guideline for the future activities of the organisation. These standards must be kept within the ability of the organisation to achieve. They should be neither very low nor very high. They must be set keeping in mind the skills of the employees and the resources available with the organisation. For example and Organisation decide to have a standard profit of rupees 5 lakh quarterly. They must also have a time limit during which they have to be achieved. They can be both quantitative and qualitative. The quantitative standard includes the increasing profit or increasing sales. Qualitative standards include motivation and Goodwill factors.

2. Measurement of actual performance: The manager must evaluate the actual performance. Although the standards can be set in both quantitative and qualitative forms, measurement of performance in terms of quantitative factors is much easier. However, it must be understood that at times the employees focus more on achieving the quantitative standard at the cost of the qualitative standard. The performance should be measured in an objective manner. There are many methods for the measurement such as sample checking and personal observation.

3. Comparison of the actual performance with the planned performance: The manager must evaluate the actual performance with the standard performance. If there is a mismatch between the two, the manager must evaluate the degree of deviation. Minor deviations are advised to be ignored. If the deviations are major, immediately.

4. Analyzing the deviations: The deviations must be analyzed carefully by the manager. The deviations in key areas of the business must be attended immediately as compared to the deviations in other in significant areas. The manager can use critical point control and management by exception principle in this regard. Critical point control means focusing only on the key result area that affects the entire organisation. Management by exception means only the significant deviations that are beyond the permissible limit should be controlled. Deviations can be caused by many factors such as underutilization in of resources, deficiency in process, and change in the business environment

5. Taking corrective actions: If the deviations are beyond the permissible limit, the manager must take corrective actions. The aim is to correct the deficiency to that they do not occur again.

c. The company should follow the following steps in a systematic manner to remove the problems it is facing:

1. Setting up of performance standards.

2. Measurement of actual performance.

3. Comparison of the actual performance with the planned performance.

4. Analyzing the deviations

5. Taking corrective actions

The importance of controlling is highlighted in the following points:

a.Controlling helps to acheive the desired objectives. and measure the progress towards them. If there is any deviation, the manager may take corrective actions. It keeps the management on the right track.

b. It helps to identify whether or not the standards set are accurate. It keeps a check on the changes taking place in the organisation. It helps to revise the standards set in the context of these changes.

c. The usage of the resources can be controlled and its wastage and spoliage can be reduced. It helps for the optimum utilisation of resources.

d. It ensures that employees know what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It motivates them and helps to contribute positively to the organization.