Concept

Controlling in management refers to the process of measuring actual performance, comparing it with established standards, and taking corrective actions to ensure the achievement of organizational goals.

Characteristics:

• Goal-Oriented: Focuses on achieving the organization’s objectives.
• Pervasive: Applicable at all levels of management—strategic, tactical, and operational.
• Continuous Process: Ongoing throughout the lifecycle of an organization or project.
• Dynamic: Adapts to changing organizational and environmental conditions.
• Feedback-Oriented: Involves using performance feedback for improvement.

Principles of Controlling

Principle of Alignment with Goals:
The control process should align with organizational goals and objectives, ensuring all activities contribute to their achievement.

Principle of Responsibility:
Every manager is responsible for controlling activities within their area of authority. Responsibility for deviations should be clearly defined.

• Principle of Standards:
  Control is effective only when it is based on clear, measurable, and achievable performance standards.

• Principle of Exception:
  Managers should focus on significant deviations from the norm, addressing critical issues rather than minor variances.

• Principle of Flexibility:
  The control system should adapt to changes in the internal and external environment, ensuring relevance and responsiveness.

• Principle of Timeliness:
  Controls should provide feedback in a timely manner, allowing prompt corrective action to prevent further deviations.

• Principle of Accuracy:
  The control system must provide accurate and reliable information to avoid incorrect decisions or actions.

• Principle of Simplicity:
  Controls should be simple, easy to understand, and user-friendly to ensure effective implementation across all levels.

• Principle of Cost-Effectiveness:
  The cost of implementing a control system should not exceed the benefits derived from it.

• Principle of Integration:
  Controls should be integrated with other management functions (planning, organizing, staffing, and directing) to ensure consistency and synergy.

Process of Controlling

(i) Setting performance standards: The first step in the controlling process is to set the performance standards.

Standards are those criteria, on which the actual performances are measured. These standards serve as a benchmark towards which an organisation strives to work.

(ii) Measurement of actual performance: After the establishment of standards, the next step is measuring the actual performance with the set standards. This can be done by opting several methods like personal observation, sample checking, performance reports, etc.

(iii) Comparison of actual performance with standards: In this step, the actual performances are compared with the established standards. Such comparisons reveal the deviation between planned and actual results.

(iv) Analysing deviations: At this stage, acceptable and non-acceptable deviations are analysed.

Two methods are generally used:

(a) Critical point control: It means keeping the focus on key result areas where deviations are not acceptable and they should be attended on a priority basis.

(b) Management by exception: It means that if a manager tries to control everything, he may end up in controlling nothing. Thus, he should first handle the significant deviations, which require his priority.

(v) Taking corrective action: The most important step in the controlling process is taking corrective actions. After the deviations and their causes are analysed, the task is to remove the hurdles from the actual work plan. The purpose of this step is to bring the actual performance up to the level of expectations by taking corrective measures.

Techniques of Controlling

Traditional Techniques:

These are older methods of control that rely on manual processes, observations, and standard tools.

1. Personal Observation:
   • Involves direct supervision and monitoring of employees by managers.
   • Helps in obtaining firsthand information about work performance and behavior.
   • Effective for small organizations but time-consuming and less feasible for larger setups.
2. Break-even Analysis:
   • A financial tool used to determine the point at which total revenues equal total costs (break-even point).
   • Helps managers analyze the relationship between cost, volume, and profit.
   • Useful for decision-making in pricing, production levels, and cost control.
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3. Statistical Reports:
   • The use of charts, graphs, and numerical data to present performance metrics.
   • Examples include sales reports, production reports, and profit analysis.
   • Provides quantitative data to identify trends and deviations.
4. Budgetary Control:
   • A technique where budgets are prepared for various departments, and actual performance is compared with budgeted targets.
   • Helps in identifying variances and taking corrective actions.
   • Useful for cost control and financial planning.

Modern Techniques:

These are advanced techniques that leverage technology and sophisticated methodologies.

1. Return on Investment (ROI):
   • A profitability measure that calculates the return generated on investments.
   • Helps in evaluating the efficiency of investments and guiding resource allocation decisions.
2. Ratio Analysis:
   • The analysis of financial ratios derived from a company’s financial statements.
   • Examples include liquidity ratios, profitability ratios, and debt-to-equity ratios.
   • Assists in assessing financial health and identifying areas for improvement.
3. Responsibility Accounting:
   • A system where managers are held accountable for revenues and costs under their control.
   • Helps in assigning responsibility and evaluating performance at various levels.
4. Management Audit:
   • A systematic evaluation of management processes and practices to ensure efficiency and effectiveness.
   • Focuses on identifying weaknesses and recommending improvements.
5. PERT (Program Evaluation and Review Technique) & CPM (Critical Path Method):
   • Tools used for project management to plan, schedule, and control complex projects.
   • PERT focuses on time estimation for uncertain activities.
   • CPM identifies the critical path of tasks that determines the project completion time.
6. Management Information System (MIS):
   • A computerized system that provides timely and relevant information to managers for decision-making.
   • Includes tools like dashboards, performance reports, and data analytics.
   • Enhances the efficiency and accuracy of the control process.

Relationship between Planning & Controlling

Planning and controlling are inter-related to each other. Planning sets the goals for the organization and controlling ensures their accomplishment. Planning decides the control process and controlling provides sound basis for planning. In reality planning and controlling are both dependent on each other. In the words of M.C. Niles, “Control is an aspect and projection of planning, where as planning sets the course, control observes deviations from the course, and initiates action to return to the chosen course or to an appropriately changed one.”

The relationship between planning and control can be explained as follows:

1. 1. Planning Originates Controlling:

In planning the objectives or targets are set in order to achieve these targets control process is needed. So planning precedes control.

2. Controlling Sustains Planning:

Controlling directs the course of planning. Controlling spots the areas where planning is required.

3. Controlling Provides Information for Planning:

In controlling the actual performance is compared to the standards set and records the deviations, if any. The information collected for exercising control is used for planning also.

4. Planning and Controlling are Interrelated:

Planning is the first function of management. The other functions like organizing, staffing, directing etc. are organized for implementing plans. Control records the actual performance and compares it with standards set. In case the performance is less than that of standards set then deviations are ascertained. Proper corrective measures are taken to improve the performance in future. Planning is the first function and control is the last one. Both are dependent upon each other.

5. Planning and Control are Forward Looking:

Planning and control are concerned with the future activities of the business. Planning is always for future and control is also forward looking. No one can control the past, it is the future which can be controlled. Planning and controlling are concerned with the achievement of business goals. Their combined efforts are to reach maximum output with minimum of cost. Both systematic planning and organized controls are essential to achieve the organizational goals.