CBSE Class 12 Business Studies Revision Notes Chapter 8 - Controlling

Summary Controlling: Concept, Importance and Limitations Relationship between Planning and Controlling Steps in Controlling process

Controlling is the process of comparing actual performance with the standard and taking corrective action if needed.

Process of Controlling:

The process of controlling involves following steps:

1. Setting performance standards: The first step in controlling process is to set performance standards. Standards are the criteria against which performance would be measured. Standards can be set in quantitative or qualitative terms. 

2. Measurement of actual performance: The next step in controlling process is to measure actual performance. Measurement of actual performance should be done in an objective and reliable manner.

3. Comparison of actual performance with the standard: The next step is to compare actual performance with the standards. Actual performance is compared with the standard in order to find out the deviations between actual and desired results. The comparison is easier if standards are set in quantitative terms. 

4. Analysis of deviations: In this step, deviations are studied in order to find out the reasons for the same.

• Critical point control - Management should focus on key result areas (KRAs). Key result areas are those areas which are critical to the success of the organisation.

• Management by exception / control by exception - As per this concept, management should ignore minor deviations and focus on significant deviations. This concept is based on the belief that if a person tries to control everything he ends up controlling nothing. 

5. Taking corrective action: Corrective action should be taken if the deviations go beyond the acceptable range.

Nature of controlling

The features of controlling are as follows: 

1. Goal oriented: Controlling is aimed at the achievement of predetermined organisational goals.

2. Pervasive: It is required in all types of organisations and at all levels of management.

3. Continuous: Controlling is required on an ongoing basis.

4. Both backward looking and forward looking  

Importance of Controlling:

1. Achievement of organisational goals: Controlling helps in achieving organisational goals. By checking the actual performance against the standard performance and taking corrective actions, controlling ensures that organisational goals are achieved.

2. Efficient use of resources: Each activity is performed according to the standards. As a result, there is a better use of resources and wastages are reduced.

3. Order and discipline: Controlling involves continuous check on the activities of employees and thus creates an environment of order and discipline.

4. Employee motivation: The existence of standards helps in improving employee motivation. 

5. Judging accuracy of standards: Controlling helps in judging accuracy of standards and revising them from time to time as per the environment changes. 

Limitations of Controlling:

1. Difficulty in setting standard and quantitative terms: There are certain activities where it is difficult to set standards in quantitative terms. Eg. motivation level of employees, behaviour etc.

2. Lack of control on external factors: There are certain factors such as government policies, changes in demand, technological changes etc. which are beyond the control of organisation.

3. Costly: Installing and maintaining control system involves lot of cost, time and effort.

4. Resistance from employees: Employees often resist control because it interferes with their activities and creates a restriction on their freedom.

Relationship between planning and controlling: 

1. Planning and controlling are inseparable twins of management.

• Controlling is meaningless without planning because planning provides standards which are the basis for controlling.

• Planning is blind without controlling because controlling is necessary to monitor the progress of the plan.

2. Planning is prescriptive while controlling is evaluative.

• Planning determines the goals and list down the ways of achieving them. Thus, it is prescriptive in nature.

• Controlling involves evaluation of performance and taking corrective action. Thus, it is evaluative in nature.

3. Both planning and controlling are backward looking as well as forward looking.

•  Planning is forward looking because it is done for the future.

• Planning is backward looking because it is guided by past experiences.

• Controlling is forward looking because corrective actions taken in controlling are aimed at improving future performance of the organisation.

• Controlling is backward looking because it involves comparing actual performance with the standards fixed in the past.