Controlling

Controlling is the process of comparing actual performance with the standards, finding out deviations, and taking corrective action to ensure that organizational goals are achieved.

Principle: Management by Exception (Control by Exception). It states that a manager should focus only on significant deviations that go beyond a permissible limit, rather than trying to control everything.

Situation: Control loses effectiveness when external factors (like government policy changes, technological shifts, or natural calamities) cause deviations that the management cannot control.

A control system loses its effectiveness when the standards set are qualitative rather than quantitative (e.g., employee morale, customer satisfaction), making measurement and comparison difficult.

1. Capital Expenditure (CAPEX) flow.
2. Inventory Turnover Ratio / Liquidity Ratios.
3. Flow of Capital / Cost of Capital.

Deviation.

This statement is partially true but incomplete.

• Planning is looking ahead: It involves setting goals and predicting future events.
• Controlling is looking back: It involves a post-mortem of past activities to see if standards were met.

However:

• Planning is also looking back: It uses past data to set future standards.
• Controlling is also looking ahead: Corrective actions taken during control aim to improve future performance and prevent recurrence of errors.

Thus, both are forward-looking and backward-looking.

This highlights the principle of Management by Exception.
If a manager tries to check every single activity and every minor deviation, they will waste valuable time and energy on insignificant issues. Instead, they should focus only on significant deviations (Key Result Areas) that exceed a critical limit. This ensures critical problems get attention while routine matters are handled by subordinates.

Management Audit is a systematic evaluation of the overall performance of the management of an organization. It helps in controlling by:

• Checking the efficiency and effectiveness of management functions.
• Identifying deficiencies in management policies and practices.
• Improving the coordination between various departments.
• Ensuring the organization remains responsive to environmental changes.

Principle to Consider: Management by Exception (or Critical Point Control).

Explanation: A deviation of just 10 units is likely a minor deviation and falls within the permissible range of error. Ms. Vasundhara should explain that managers should only intervene or take drastic action (like termination) for significant deviations. Firing an employee for a minor shortfall violates the principle of fairness and wastes resources on insignificant issues.

The controlling process involves the following five steps:

1. Setting Performance Standards: Establishing targets (quantitative or qualitative) against which actual performance will be measured.
2. Measurement of Actual Performance: Evaluating the actual work done using techniques like personal observation, sample checking, or performance reports.
3. Comparing Actual Performance with Standards: Finding out the deviation (difference) between the target and the actual result.
4. Analysing Deviations: Determining whether the deviation is acceptable. Using Critical Point Control (focusing on Key Result Areas) and Management by Exception.
5. Taking Corrective Action: If deviations go beyond limits, taking steps to remove defects (e.g., repairing machinery, training workers) or revising standards if they were unrealistic.

Techniques are classified into two categories:

A. Traditional Techniques:

• Personal Observation: First-hand information gathered by managers (creates psychological pressure on employees).
• Statistical Reports: Averages, percentages, ratios used to analyze trends.
• Breakeven Analysis: Determining the point where Cost = Revenue (No profit, no loss).
• Budgetary Control: Preparing budgets (sales, cash, production) and comparing actuals against them.

B. Modern Techniques:

• ROI (Return on Investment): Measures basic earnings power of capital employed.
• Ratio Analysis: Liquidity, Solvency, Turnover ratios.
• PERT/CPM: Network techniques for planning and controlling complex projects.
• Management Audit: Systematic appraisal of management efficiency.

Importance of Controlling:

• Accomplishing Goals: Guides the organization towards its targets by correcting errors.
• Judging Accuracy of Standards: Checks if standards set are realistic or need revision.
• Efficient Use of Resources: Reduces wastage and spoilage.
• Improving Employee Motivation: Employees know exactly what is expected of them.
• Ensuring Order and Discipline: Checks dishonest behavior.

Problems (Limitations):

• Difficulty in setting quantitative standards: (e.g., job satisfaction, public relations).
• Little control on external factors: (e.g., govt policies, technological changes).
• Resistance from employees: They may feel their freedom is restricted (e.g., CCTV cameras).
• Costly affair: Requires time, effort, and expensive systems.

Planning and Controlling are inseparable twins of management.

• Planning implies Controlling: Planning is meaningless without controlling because without control, there is no way to ensure plans are implemented.
• Controlling implies Planning: Controlling is blind without planning. Control requires standards to compare against, and these standards are provided by planning.
• Interdependence: Planning sets the course; Controlling ensures the ship stays on course.
• Forward/Backward Looking: Both look forward (to future goals/corrections) and backward (at past data/performance).

a. Benefits of a good control system:

• Accomplishing Goals: It will help bring sales and satisfaction back on track.
• Making Efficient Use of Resources: It will reduce wastage and costs, helping price competitiveness.

b. Relationship between Planning and Control: For Company ‘M’, “Planning is prescriptive, Controlling is evaluative.” Planning set the targets for sales and satisfaction. Controlling is now evaluating why those targets weren’t met (due to better tech/pricing of competitors). The corrective action from controlling will lead to revised plans (revamp). This shows they reinforce each other.

c. Steps in Control Process to remove problems:

1. Set Standards: Define clear targets for sales volume and customer satisfaction scores.
2. Measure Performance: Track actual sales and collect customer feedback.
3. Compare: Compare actuals with targets.
4. Analyze Deviations: Identify why customers are leaving (Price? Tech?). Use Critical Point Control.
5. Take Corrective Action: Adopt new technology, adjust pricing, or launch marketing campaigns.

a. Features of Controlling highlighted:

1. Goal Oriented: “so that targets are achieved effectively and efficiently.” Control focuses on results.
2. Continuous Process: “keep a constant and continuous check.” Control is not a one-time activity but a dynamic process.

b. Points of Importance of Controlling:

1. Accomplishing Organisational Goals: Keeps activities on the right track.
2. Improving Employee Motivation: Tracking performance helps employees know their standing and improves motivation.
3. Ensuring Order and Discipline: Continuous checks reduce dishonest behavior and chaos.
4. Facilitating Coordination in Action: Ensures all activities and departments work towards the common plan.