Chapter 8 Controlling class 12th Commerce

1

Goal-oriented function

2

Pervasive function

3

Primary function

4

Systematic Continuous function

1

Goal-oriented function

Controlling is,a goal-oriented function

2

Pervasive function

Controlling is a pervasive function because it is performed:
(i) In all the organisations whether profit making or non-profit making.
(ii) At all levels of management whether top, middle and lower level to ensure that work at every stage is performed as planned.

3

Primary function

It is a primary function of every manager to exploitation.

4

Systematic Continuous function

Continuous function:

Controlling is a continuous activity as the progress has to be assessed continuously as per the pre-determined standards.

1

Improving employee motivation

2

Accomplishing organizational goals

3

Making efficient use of resources

4

judging accuracy of standards

5

Ensuring order and discipline

6

Facilitating  coordination in action

1

Accomplishing organizational goals:

The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action.

2

judging accuracy of standards:

An efficient control system keeps a careful check on the changes taking place in the organization and in the environment and helps to review and revise the standards in light of such changes.

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 predetermined standards and norms.

This ensures that resources are used in the most manner.

4

Improving employee motivation:

A good control system effective and efficient ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised.

5

Ensuring order and discipline:

It helps to minimise dishonest behavior on the part of the employees by keeping a close check on their activities.

6

Facilitating coordination in action:

Each department and employee is governed by predetermined standards which are well coordinated with one another.

This ensures that overall organizational objectives are accomplished.

1

Planning without control meaning less

Thus, planning without controlling is meaningless. Similarly, controlling is blind without planning.

2

Controlling is necessary after plan is in operation

Once a plan becomes operational, controlling is necessary to monitor the progress, measure it, discover deviations and initiate corrective measures to ensure that events conform to plans.

3

Standard of performance

A system of control presupposes the existence of certain standards. These standards of performance which serve as the basis of controlling are provided by planning.

4

Inseparable

Planning and controlling are inseparable twins of management.

5

No plan no basis to control

If the standards are not set in advance, managers have nothing to control. When there is no plan, there is no basis of controlling.

1

Both ahead and Backward

Planning involves looking ahead and is called a forward-looking function.

On the contrary, controlling is like a postmortem of past activities to find out deviations from the standards.

In that sense, controlling is a backward-looking function.

Thus, planning and controlling are both backward-looking as well as a forward-looking function

2

planning and controlling are interre lated

However, it should be understood that planning is guided by past experiences and the corrective action initiated by control function aims to improve future performance.

 planning and controlling are interrelated and, in fact, reinforce each other in the sense that:

Planning based on facts makes controlling easier and effective; and

Controlling improves future planning by providing information derived from past experience.

Step 1:

Setting Performance Standards:

a

The first step in the controlling process is setting up of performance standards.

b

Standards are the criteria against which actual performance would be measured.

c

Standards can be set in both quantitative as well as qualitative terms.

d

For instance, standards set in terms of cost to be incurred, revenue to be earned, product units to be produced and sold, time to be spent in performing a task, all represents quantitative standards.

e

standards may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards.

f

At the time of setting standards, a manager should try to set standards in precise quantitative terms as this would make their comparison with actual performance much easier.

g

For instance, reduction of defects from 10 in every 1,000 pieces produced to 5 in every 1,000 pieces produced by the end of the quarter.

h

qualitative standards are set, an effort must be made to define them in a manner that would make their measurement easier.

i

For instance, for improving customer satisfaction in a fast food chain having self-service, standards can be set in terms of time taken by a customer to wait for a table, time taken by him to place the order and time taken to collect the order.

j

It is important that standards should be flexible enough to be modified whenever required.

Step 2:

Measurement of Actual Performance:

a

Performance should be measured in an objective and reliable manner.

b

There are several techniques for measurement of performance.

c

These include personal observation, sample checking, performance reports, etc. As far as possible, performance should be measured in the same units in which standards are set as this would make their comparison easier.

d

It is generally believed that measurement should be done after the task is completed.

e

However, wherever possible, measurement of work should be done during the performance.

f

For instance, in case of assembling task, each part produced should be checked before assembling.

g

Measurement of performance of an employee may require preparation of performance report by his superior.

h

Measurement of a company’s performance may involve calculation of certain ratios like gross profit ratio, net profit ratio, return on investment, etc., at periodic intervals.

i

Progress of work in certain operating areas like marketing may be measured by considering the number of units sold, increase in market share, etc.

j

whereas, efficiency of production may be measured by counting the number of pieces produced and number of defective pieces in a batch.

Step 3:

Comparing Actual Performance with Standards:

a

This step involves comparison of actual performance with the standard.

b

Such comparison will reveal the deviation between actual and desired results.

c

Comparison becomes easier when standards are set in quantitative terms.

d

For instance, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week.

Step 4:

Analysing Deviations:

i

Some deviation in performance can be expected in all activities. It is, therefore, important to determine the acceptable range of deviations.

ii

Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas.

Critical Point Control:

Advantages of Critical Point Control and

3.Control  by Exception Or Management by Exception

1.

Critical Point Control: Critical point control and management by exception should be used by a manager in this regard

a

It is neither economical nor easy to keep a check on each and every activity in an organisation. Control should, therefore, focus on key result areas (KRAs) which are critical to the success of an organisation.

b

These KRAs are set as the critical points. If anything goes wrong at the critical points, the entire organisation suffers.

c

For instance, in a manufacturing organisation, an increase of 5 per cent in the labour cost may be more troublesome than a 15 per cent increase in postal charges.

2

Advantages of Critical Point Control and Management by Exception

a

 It saves the time and efforts of managers as they deal with only significant deviations

b

It focuses managerial attention on important areas. Thus, there is better utilisation of managerial talent.

c

 The routine problems are left to the subordinates. Management by exception, thus, facilitates delegation of authority and increases morale of the employees

d

It identifies critical problems which need timely action to keep the organisation in right track.

3

Management by Exception:

a

often referred to as control by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing.

b

Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management.

c

Thus, if the plans lay down 2 per cent increase in labour cost as an acceptable range of deviation in a manufacturing organisation, only increase in labour cost beyond 2 per cent should be brought to the notice of the management.

d

However, in case of major deviation from the standard (say, 5 per cent), the matter has to receive immediate action of management on a priority basis.

e

Deviations may have multiple causes for their origin. These include unrealistic standards, defective process, inadequacy of resources, structural drawbacks, organisational constraints and environmental factors

f

It is necessary to identify the exact cause(s) of deviations, failing which, an appropriate corrective action might not be possible.

Step 5:

Taking Corrective Action:

a

The final step in the controlling process is taking corrective action.

b

No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished.

c

Corrective action might involve training of employees if the production target could not be met.

d

Similarly, if an important project is running behind schedule, corrective action might involve assigning of additional workers and equipment to the project and permission for overtime work.

e

In case the deviation cannot be corrected through managerial action, the standards may have to be revised.

f

The table below cites some of the causes of deviations and the respective corrective action that might be taken by a manager.

Causes of deviation

Corrective action to be taken

1.  Defective material

Change  the  quality  specification  for  the  material used

2. Defective machinery

Repair the existing machine or replace the machine if it cannot be repaired

3. Obsolete machinery

Undertake technological upgradation of machinery

4. Defective process

Modify the existing process

5. Defective physical conditions of work

Improve the physical conditions of work