01 · Explore
Meaning and Nature of Controlling
Controlling is a fundamental management function that ensures organizational activities align with established plans and resources are utilized effectively.
Controlling involves monitoring the progress of activities, comparing actual performance against predetermined standards, and taking corrective actions when necessary. It is not merely a post-mortem exercise but a proactive tool to ensure that goals are achieved. By identifying deviations early, managers can prevent damage to the business and keep the organization on its intended path.
The nature of controlling is pervasive, meaning it is required at all levels of management—top, middle, and lower. Whether in a business firm, a hospital, or an educational institution, every manager must exercise control over their specific area of responsibility. It is also a goal-oriented function, as its primary purpose is to facilitate the achievement of organizational objectives.
Contrary to common belief, controlling is not the final step of management. Instead, it brings the management cycle back to the planning stage. By analyzing the causes of deviations, managers can formulate better plans for the future, making controlling both a backward-looking and forward-looking activity.
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Why is controlling described as a 'pervasive' function?
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Does the controlling function only look at past performance?
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02 · Explore
Importance of Controlling
A robust control system is indispensable for any organization, acting as a guide to keep activities on the right track.
The primary importance of controlling lies in accomplishing organizational goals. It measures progress and highlights deviations, allowing for corrective measures. Furthermore, it helps in judging the accuracy of standards. As the business environment changes, a good control system allows management to review and revise standards to ensure they remain realistic and objective.
Controlling also ensures the efficient use of resources by reducing wastage and spoilage. When every activity is performed according to set norms, resource utilization is maximized. Additionally, it improves employee motivation. When employees know the standards against which they will be appraised in advance, they are better prepared and motivated to perform.
Finally, controlling ensures order and discipline within the organization by minimizing dishonest behavior. It also facilitates coordination in action. By providing direction to all activities and efforts, it ensures that each department and employee is governed by coordinated standards that work toward a common overall objective.
| Benefit | Description |
|---|---|
| Goal Accomplishment | Guides the organization by indicating corrective actions for deviations. |
| Standard Accuracy | Verifies if the set standards are objective and realistic in changing environments. |
| Resource Efficiency | Reduces wastage by ensuring activities follow predetermined norms. |
| Employee Motivation | Provides clear performance benchmarks for appraisal. |
| Order and Discipline | Minimizes dishonest behavior through constant monitoring. |
| Coordination in Action | Ensures all departments and employees work toward common objectives through coordinated standards. |
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03 · Explore
Limitations of Controlling
While essential, the controlling function faces several practical constraints that can limit its effectiveness.
One major limitation is the difficulty in setting quantitative standards. In areas like employee morale, job satisfaction, and human behavior, it is hard to define precise numerical benchmarks. This makes measuring performance and comparing it with standards a subjective and difficult task.
Organizations also have little control over external factors. Changes in government policies, technological advancements, or moves by competitors can disrupt plans regardless of how efficient the internal control system is. Furthermore, control systems often face resistance from employees who may view strict monitoring, such as CCTV surveillance, as a restriction on their freedom.
Lastly, implementing a comprehensive control system is a costly affair. It requires significant expenditure, time, and effort. Small enterprises often find it difficult to justify the high costs of installing and operating sophisticated control mechanisms, as the benefits derived may not always exceed the expenses involved.
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04 · Explore
Relationship between Planning and Controlling
Planning and controlling are often described as the 'inseparable twins' of management because they are deeply interrelated and mutually reinforcing.
Planning provides the standards that serve as the basis for controlling. Without plans, a manager has no benchmarks to measure against, making controlling 'blind.' Conversely, planning without controlling is 'meaningless' because there is no mechanism to ensure that the plans are actually being followed or to monitor progress toward the objectives.
While planning is prescriptive (deciding what should be done) and controlling is evaluative (checking what has been done), both functions are both forward-looking and backward-looking. Planning uses past experiences (backward) to set future goals (forward). Controlling analyzes past deviations (backward) to suggest corrective actions for future performance (forward).
The relationship is cyclical: planning initiates the management process by setting goals, and controlling completes the cycle by ensuring results match those goals. The information gathered during the control process then feeds back into the next planning cycle to make it more realistic and effective.
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Explain the statement: 'Planning is prescriptive whereas controlling is evaluative.'
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05 · Explore
The Controlling Process: Setting Standards and Measurement
The first two steps of the systematic controlling process involve establishing the benchmarks and gathering data on actual performance.
Step 1 is Setting Performance Standards. Standards are the criteria against which actual performance is measured. They should ideally be quantitative (e.g., producing 100 units per day) to make comparison easier, but they can also be qualitative (e.g., improving customer service). Standards must be flexible enough to be revised if the business environment changes.
Step 2 is the Measurement of Actual Performance. This should be done in an objective and reliable manner using techniques like personal observation, sample checking, or performance reports. For accuracy, performance should be measured in the same units as the standards (e.g., if the standard is in 'kilograms,' the measurement must also be in 'kilograms').
Ideally, measurement should happen during the performance of a task (like monitoring gas levels in a plant for safety) rather than just at the end, allowing for immediate intervention if something goes wrong.
| Functional Area | Example Standard |
|---|---|
| Production | Quantity, Quality, and Cost per unit. |
| Marketing | Sales volume and Advertising expenditures. |
| Human Resources | Labour turnover and Absenteeism rates. |
| Finance | Capital expenditures and Liquidity ratios. |
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What is 'sample checking' in the measurement of performance?
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06 · Explore
The Controlling Process: Comparison, Analysis, and Action
The final stages of the control process involve identifying gaps and taking the necessary steps to bridge them.
Step 3 is Comparing Actual Performance with Standards. This reveals the 'deviation'—the difference between what was planned and what was achieved. Step 4 is Analysing Deviations. Since some deviation is expected in every activity, managers must determine an 'acceptable range.' They should focus on 'Critical Point Control' (focusing on Key Result Areas) and 'Management by Exception' (only addressing significant deviations).
During the analysis of deviations, it is necessary to identify the exact cause(s). These deviations and their causes are then reported to the appropriate level of management so that an appropriate corrective action can be taken. Without identifying and reporting the exact cause, effective intervention might not be possible.
Step 5 is Taking Corrective Action. If deviations are within the acceptable range, no action is needed. However, if they exceed the limits, immediate action is required. This might involve training employees, assigning more resources, or, if the deviation cannot be corrected, revising the standards themselves to be more realistic.
The Controlling Process Flow
- 1
Set Standards
Establish benchmarks in quantitative or qualitative terms.
- 2
Measure Performance
Collect data on actual work done objectively.
- 3
Compare
Identify deviations between actual results and standards.
- 4
Analyze & Report
Identify causes of significant gaps and report them to the appropriate level.
- 5
Corrective Action
Take steps to fix deviations or revise standards if necessary.
The five-step systematic process used by managers to ensure organizational activities remain on track.
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What is 'Management by Exception'?
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Why is it important to report deviations and their causes?
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07 · Explore
Critical Point Control and Management by Exception
To be efficient, a control system must prioritize significant issues over minor details.
Critical Point Control focuses on Key Result Areas (KRAs). These are areas that are vital to the success of the organization. For example, a 5% increase in labor costs is much more critical to a manufacturing firm than a 15% increase in postal charges. By focusing on these critical points, managers ensure that the most impactful issues are addressed first.
Management by Exception (or Control by Exception) is based on the belief that managers should not be bogged down by routine problems. If a plan allows for a 2% deviation in costs, the manager only intervenes if the cost increase hits 3% or more. This saves time and effort, allowing managers to focus their talent on important strategic areas.
These techniques facilitate the delegation of authority. By leaving routine deviations to subordinates and only handling the 'exceptions,' managers increase employee morale and ensure the organization stays on track without micromanagement.
Example of Critical Point Control
Labor Cost Increase = 5% vs. Postal Charge Increase = 15%
In a large factory, the total expenditure on labor is massive compared to postage. Even though 15% sounds higher than 5%, the 5% increase in labor costs will have a much larger impact on the company's total budget and profit. Therefore, labor cost is a 'Critical Point' or KRA.
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What is a 'Key Result Area' (KRA)?
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