Business Studies NCERT Notes, Solutions and Extra Q & A (Class 11th & 12th)
11th										12th

Class 12th Chapters
1. Nature And Significance Of Management	2. Principles Of Management	3. Business Environment
4. Planning	5. Organising	6. Staffing
7. Directing	8. Controlling	9. Financial Management
10. Financial Markets	11. Marketing	12. Consumer Protection

Content On This Page
Meaning of Controlling	Importance of Controlling	Relationship between Planning and Controlling
Controlling Process	Techniques of Managerial Control
NCERT Questions Solution

Chapter 8 Controlling Notes, Solutions and Extra Q & A

Controlling is the managerial function of monitoring organisational performance to ensure that all activities conform to the established plans. It is a systematic process that involves four key steps: setting performance standards, measuring the actual performance, comparing the actual performance against the standards, and taking corrective action for any significant deviations. Controlling is crucial for accomplishing organisational goals, ensuring the efficient use of resources, and facilitating coordination.

Planning and controlling are deeply interrelated and are considered the "inseparable twins of management." Planning sets the standards for control, while controlling provides valuable feedback that helps in the formulation of better future plans. The chapter highlights key principles for analysing deviations, such as 'Management by Exception' and 'Critical Point Control'. It also details various traditional control techniques like budgetary control and modern techniques like Ratio Analysis, Return on Investment (ROI), and PERT/CPM for effective managerial control.

Meaning of Controlling

Controlling is one of the most important and fundamental functions of a manager. It is the process of ensuring that the activities in an organisation are performed as per the established plans. The primary purpose of controlling is to ensure that the organisation's resources are being used effectively and efficiently for the achievement of its pre-determined goals. In order to achieve the planned results from subordinates, a manager needs to exercise effective control over their activities.

Controlling is a goal-oriented function. The process involves comparing the actual performance with the pre-determined standards, identifying any deviations between the two, and taking corrective action to ensure that all activities conform to the plans. For example, the Departure Control Systems (DCS) used by airlines are a sophisticated form of control system. They automate and manage airport operations by continuously keeping track of passengers (whether they are checked-in, boarded, or have flown), baggage, and the aircraft's load control. This ensures that everything conforms to the planned flight schedule and stringent safety standards.

Key Aspects of Controlling

Pervasive Function: Controlling is a primary and pervasive function of management. This means that it is performed by every manager, regardless of their level in the organisation. Managers at the top, middle, and lower levels of management all need to perform controlling functions to keep a check on the activities in their respective areas. Moreover, controlling is as much required in a non-business organisation like an educational institution, a military unit, or a hospital as it is in any business organisation.

Forward-looking and Backward-looking: Controlling is often misunderstood as simply the last function of management. However, it is a dynamic function that brings the management cycle back to the planning function, making it a continuous loop. It has two key perspectives:

Backward-looking: In one sense, controlling is backward-looking because it is like a postmortem of past activities. It involves measuring actual performance that has already occurred and comparing it with the standards to find out any deviations.
Forward-looking: In another, more important sense, controlling is forward-looking. The controlling function finds out how far the actual performance deviates from the standards, analyses the causes of such deviations, and attempts to take corrective actions to prevent the recurrence of such problems in the future. This process of analysis and correction helps in the formulation of better and more realistic future plans in light of the problems that were identified.

Thus, controlling completes one cycle of the management process and directly contributes to improving the planning in the next cycle.

Importance of Controlling

Control is an indispensable function of management. Without an effective system of control, even the best of plans can go awry and lead to failure. A good control system helps an organisation in the following ways:

(i) Accomplishing Organisational Goals

The controlling function acts as a navigational tool for the organisation. It measures the progress being made towards the organisational goals. By bringing to light any deviations from the plan, it helps in identifying the problems and indicates the necessary corrective action that needs to be taken. By doing so, it guides the organisation and keeps it on the right track, ensuring that the organisational goals are ultimately achieved in the desired manner and within the stipulated time.

(ii) Judging Accuracy of Standards

A good control system enables management to verify whether the standards that were set during the planning stage were accurate, objective, and realistic. An efficient control system keeps a careful check on the changes taking place both within the organisation and in the external environment. This helps the management to review and revise the standards in light of such changes, making them more relevant and achievable.

(iii) Making Efficient Use of Resources

By exercising control, a manager seeks to reduce the wastage and spoilage of all valuable resources. Each activity in the organisation is performed in accordance with pre-determined standards and norms. This ensures that all resources—be they physical, financial, or human—are used in the most effective and efficient manner possible, which helps in reducing costs and increasing profitability.

(iv) Improving Employee Motivation

A good and transparent control system ensures that employees know well in advance what they are expected to do and what the standards of performance are on the basis of which they will be appraised. This clarity about their roles, responsibilities, and performance expectations motivates them and helps them to give a better performance. It creates a sense of accountability and fairness, which can be a powerful motivator.

(v) Ensuring Order and Discipline

Controlling creates an atmosphere of order and discipline in the organisation. The existence of a robust control system helps to minimise dishonest or unethical behaviour on the part of the employees by keeping a close and continuous check on their activities. For example, modern control systems like computer monitoring and the use of Closed Circuit Televisions (CCTVs) can be used to track the activities of employees and detect any fraudulent or undesirable behaviour.

(vi) Facilitating Coordination in Action

Controlling provides a unified direction to all activities and efforts for achieving the organisational goals. In a well-designed control system, each department and each employee is governed by pre-determined standards which are well-coordinated with one another. This ensures that all the different parts of the organisation work together in a cohesive and unified manner to accomplish the overall organisational objectives. Thus, control acts as a binding force that facilitates coordination.

Relationship between Planning and Controlling

Planning and controlling are deeply interrelated and interdependent functions of management. They are often described as the inseparable twins of management because one cannot exist without the other. They are two sides of the same coin and mutually reinforce each other in a continuous cycle.

A diagram showing a cyclical relationship between the functions of Planning and Controlling. An arrow points from Planning to Controlling, labelled 'Plans provide the standards for control'. Another arrow points back from Controlling to Planning, labelled 'Control provides feedback for future planning', indicating their strong interdependence.

Planning without Controlling is Meaningless

A system of control always presupposes the existence of certain standards, and these standards of performance are provided by the planning function. Planning sets the goals and objectives, and controlling measures the performance against these goals. Once a plan becomes operational, controlling is absolutely necessary to monitor the progress, measure the performance, discover any deviations from the plan, and initiate corrective measures to ensure that events conform to the plans. Without the function of controlling, plans are just paper exercises with no guarantee of their implementation or achievement.

Controlling without Planning is Blind

Similarly, the function of controlling is completely blind without a plan. If the standards are not set in advance by the planning function, managers have nothing to control. When there is no plan, there is no pre-determined understanding of the desired performance, and therefore, there is no basis for measuring the actual performance or for taking any corrective action. It is utterly foolish to think that controlling could be accomplished without a clear plan to guide it.

Planning is Prescriptive, Controlling is Evaluative

Planning is basically an intellectual process that involves thinking, analysis, and the prescription of an appropriate course of action for achieving the organisation's objectives. In this sense, planning is a prescriptive function—it prescribes what is to be done. Controlling, on the other hand, checks whether the decisions made in the plan have been translated into the desired action and whether the desired results have been achieved. In this sense, controlling is an evaluative function—it evaluates the performance.

Planning is Looking Ahead, Controlling is Looking Back: A Partial Truth

This statement is only partially correct. It is often said that planning is a forward-looking function and controlling is a backward-looking function.

Planning is forward-looking because plans are always prepared for the future and are based on forecasts and assumptions about future conditions.
Controlling is backward-looking because it is like a postmortem of past activities; it involves looking back at the work that has been done to find out any deviations from the established standards.

However, this is a simplistic view. The relationship is more nuanced. Planning is also guided by past experiences and the feedback from the control process, which is a backward-looking aspect. Similarly, the corrective action that is initiated by the control function is not just about correcting past mistakes; its primary aim is to improve the future performance of the organisation, which is a forward-looking aspect. Thus, it can be concluded that planning and controlling are both backward-looking as well as forward-looking functions.

Controlling Process

Controlling is a systematic and disciplined process involving a series of logical and sequential steps. For control to be effective, managers must follow these steps carefully. These steps are as follows:

Step 1: Setting Performance Standards

The first and most fundamental step in the controlling process is the setting up of performance standards. Standards are the criteria or benchmarks against which the actual performance would be measured. Thus, standards serve as the yardstick for performance. Standards should be clear, specific, and achievable. They can be set in both quantitative as well as qualitative terms.

Quantitative Standards: These are standards that are expressed in numerical terms. Examples include setting a standard cost to be incurred, a specific revenue to be earned, a target of product units to be produced and sold, or a standard time to be spent in performing a task.
Qualitative Standards: These relate to intangible aspects of performance. Examples include improving the goodwill of the company, increasing the motivation level of employees, or enhancing customer satisfaction. While these are harder to measure, an effort must be made to define them in a way that makes their measurement easier (e.g., measuring customer satisfaction through customer feedback surveys).

It is important that standards should be flexible enough to be modified whenever required due to changes in the internal or external business environment.

Step 2: Measurement of Actual Performance

Once the performance standards are set, the next step is the measurement of the actual performance. The performance of individuals, groups, or the organisation as a whole should be measured in an objective and reliable manner. There are several techniques for the measurement of performance, including personal observation, sample checking, and the preparation of performance reports. As far as possible, the performance should be measured in the same units in which the standards are set, as this would make their comparison in the next step much easier.

Step 3: Comparing Actual Performance with Standards

This is a critical step in the control process. It involves the comparison of the actual performance with the established standard. Such a comparison will reveal the deviation, if any, between the actual and the desired results. The comparison becomes easier and more meaningful when the standards are set in precise quantitative terms. For instance, the performance of a worker in terms of the number of units produced in a week can be easily measured against the standard output set for the week.

Step 4: Analysing Deviations

Some deviation in performance can be expected in all activities. It is, therefore, important for a manager to determine the acceptable range of deviations. Deviations in key areas of business need to be attended to more urgently than deviations in insignificant areas. For this, a manager should use two important principles: Critical Point Control and Management by Exception.

Critical Point Control: It is neither economical nor easy to keep a check on each and every activity in an organisation. Therefore, the control system should focus on Key Result Areas (KRAs), which are the critical points for the success of the organisation. If anything goes wrong at these critical points, the entire organisation suffers. For instance, in a manufacturing organisation, a 5% increase in the labour cost may be more troublesome than a 15% increase in postal charges.
Management by Exception (or Control by Exception): This is an important principle based on the belief that an attempt to control everything results in controlling nothing. Thus, only the significant deviations which go beyond the permissible or acceptable limit should be brought to the notice of the management. This saves the time and effort of managers and allows them to focus on the most important issues.

After identifying the significant deviations, they need to be analysed to find their root causes. The deviations and their causes are then reported, and a corrective action plan is prepared.

Step 5: Taking Corrective Action

The final and most crucial step in the controlling process is taking corrective action. No corrective action is required when the deviations are within the acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important KRA's, it demands immediate managerial attention so that the deviations do not occur again and the standards are accomplished. The corrective action might involve:

Examples of Corrective Action

Cause 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 a technological upgradation of the machinery.
4. Defective Process	Modify the existing production process.
5. Poor Physical Conditions of Work	Improve the physical conditions of work (e.g., lighting, ventilation).
6. Inadequate Employee Skills	Provide training to the employees.
7. Unrealistic Standards	Revise the standards to make them more realistic.

Techniques of Managerial Control

The various techniques of managerial control that can be used by an organisation to ensure its activities are on track can be classified into two broad categories: traditional techniques and modern techniques.

Traditional Techniques

Traditional techniques are those which have been used by companies for a long time. These techniques have stood the test of time and are still being widely used by companies. These include:

(a) Personal Observation

This is the most traditional and direct method of control. Personal observation involves the manager personally observing the employees' performance. This enables the manager to collect first-hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job. However, it is a very time-consuming exercise and cannot be effectively used in all kinds of jobs or in large organisations.

(b) Statistical Reports

Statistical analysis in the form of averages, percentages, ratios, and correlation presents useful information to managers regarding the performance of the organisation in various areas. When this information is presented in the form of charts, graphs, or tables, it enables managers to read them more easily and allows for a quick comparison to be made with performance in previous periods and with the established benchmarks.

(c) Breakeven Analysis

Breakeven analysis is a valuable technique used by managers to study the relationship between costs, volume, and profits. It determines the probable profit and losses at different levels of activity. The sales volume at which there is no profit and no loss is known as the breakeven point (BEP).

The formula to calculate the breakeven point in units is:

$BEP \ (in \ units) = \frac{Fixed \ Costs}{Selling \ price \ per \ unit – Variable \ cost \ per \ unit}$

This technique helps a firm in keeping a close check over its variable costs and in determining the level of activity at which the firm can earn its target profit. It is a useful tool for profit planning.

A breakeven chart with the X-axis representing Sales Volume in units and the Y-axis representing Cost and Revenue in Rupees. The Total Revenue line starts from the origin (0,0) and slopes upwards. The Total Cost line starts from the Fixed Cost level on the Y-axis and also slopes upwards. The point where the Total Revenue and Total Cost lines intersect is labelled as the Breakeven Point. The area between the two lines to the left of this point is the Loss area, and the area between the two lines to the right of the point is the Profit area.

(d) Budgetary Control

Budgetary control is a widely used technique of managerial control in which all operations are planned in advance in the form of budgets, and the actual results are then compared with the budgetary standards to find out the deviations. A budget is a quantitative statement prepared for a definite future period of time for the purpose of obtaining a given objective. Some common types of budgets include the sales budget, production budget, material budget, capital budget, and cash budget. This technique helps in achieving organisational objectives, motivating employees by setting clear targets, and ensuring the optimum utilisation of resources.

Modern Techniques

Modern techniques of controlling are those which are of a more recent origin and are comparatively new in management literature. These techniques provide a refreshingly new perspective on how various aspects of an organisation can be controlled. These include:

(a) Return on Investment (ROI)

Return on Investment (ROI) is a useful technique that provides a basic yardstick for measuring whether or not the invested capital has been used effectively for generating a reasonable amount of return. It is a powerful tool for measuring the overall performance of an organisation or of its individual departments or divisions. It can be calculated as:

$ROI = \frac{Net \ Income \ before \ Interest \ and \ Tax}{Total \ Investment (Capital \ Employed)} \times 100$

(b) Ratio Analysis

Ratio analysis refers to the analysis of the financial statements of a company through the computation of various accounting ratios. The most commonly used ratios are classified into the following categories:

Liquidity Ratios: These ratios are calculated to determine the short-term solvency of the business (e.g., Current Ratio, Quick Ratio).
Solvency Ratios: These ratios are calculated to determine the long-term solvency of the business (e.g., Debt-Equity Ratio, Proprietary Ratio).
Profitability Ratios: These ratios are calculated to analyse the profitability of the business (e.g., Gross Profit Ratio, Net Profit Ratio, Return on Capital Employed).
Turnover Ratios: These ratios are calculated to determine the efficiency of operations based on the effective utilisation of resources (e.g., Inventory Turnover Ratio, Debtors Turnover Ratio).

(c) Responsibility Accounting

Responsibility accounting is a system of accounting in which different sections, divisions, and departments of an organisation are set up as ‘Responsibility Centres’. The head of each centre is held responsible for achieving the targets set for their centre. These centres can be of the following types:

Cost Centre: A segment where the manager is responsible only for the costs incurred.
Revenue Centre: A segment where the manager is responsible primarily for generating revenue.
Profit Centre: A segment where the manager is responsible for both revenues and costs.
Investment Centre: A segment where the manager is responsible not only for profits but also for the investments made in the centre.

(d) Management Audit

Management audit refers to the systematic and critical appraisal of the overall performance of the management of an organisation. Its purpose is to review the efficiency and effectiveness of the management and to improve its performance in future periods. It is helpful in identifying the deficiencies in the performance of the various management functions.

(e) PERT and CPM

PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques that are very useful in the planning and controlling of large and complex projects. They are used for scheduling and implementing time-bound projects that involve a variety of complex, diverse, and interrelated activities. These techniques help in the effective execution of projects within a given time schedule and cost structure by identifying the critical path of the project.

(f) Management Information System (MIS)

A Management Information System (MIS) is a computer-based information system that provides accurate, timely, and relevant information and support for effective managerial decision-making. MIS is an important communication tool for managers. It also serves as an important control technique by providing data and information to managers at the right time so that appropriate corrective action can be taken in case of any deviations from the standards.

NCERT Questions Solution

Very Short Answer Type

Question 1. State the meaning of controlling.

Answer:

Controlling is a managerial function that involves comparing the actual performance with the planned standards, finding out the deviations, if any, and taking corrective action to ensure that the organisational goals are achieved.

Question 2. Name the principle that a manager should consider while dealing with deviations effectively. State any one situation in which an organisation’s control system loses its effectiveness.

Answer:

The principle is Management by Exception (or Control by Exception).

A control system loses its effectiveness when it is not able to anticipate and adapt to changes in the external environment, such as a sudden change in technology or competitor strategy.

Question 3. State any one situation in which an organisation’s control system loses is effectiveness.

Answer:

An organisation's control system loses its effectiveness when it cannot control the external factors of the business environment, such as a change in government policy or a natural calamity.

Question 4. Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Answer:

Two standards that can be used are:

1. Capital Expenditure: The actual capital expenditure can be compared against the budgeted capital expenditure.

2. Liquidity Ratios: Standards can be set for key liquidity ratios, such as the Current Ratio (e.g., maintain a current ratio of 2:1), and the actual ratio can be compared against this standard.

Question 5. Which term is used to indicate the difference between standard performance and actual performance?

Answer:

The term used to indicate the difference between standard performance and actual performance is Deviation.

Short Answer Type

Question 1. ‘Planning is looking ahead and controlling is looking back.’ Comment.

Answer:

The statement 'Planning is looking ahead and controlling is looking back' is only partially correct. It is an oversimplification of the relationship between the two functions.

Why the statement is partially true:

Planning is looking ahead because it involves setting objectives and deciding in advance the future course of action. It is a forward-looking function.
Controlling is looking back because it involves a post-mortem of past activities. Managers compare the actual performance with the standards to find out what has been accomplished.

Why the statement is incomplete:

Planning is also guided by the past. Plans are formulated based on past experiences and the feedback from the controlling function.
Controlling is also forward-looking. The purpose of controlling is not just to analyze past performance but to take corrective action to improve future performance and ensure that future plans are achieved.

Therefore, both planning and controlling are forward-looking as well as backward-looking.

Question 2. ‘An effort to control everything may end up in controlling nothing.’ Explain.

Answer:

This statement refers to the principle of Management by Exception, also known as Control by Exception.

This principle states that managers should not try to control every single activity in the organisation. If a manager tries to control every minor detail, they will be so overburdened with information that they will be unable to focus on the significant issues that truly require their attention. This overload can lead to a situation where nothing is controlled effectively.

Instead, the principle suggests that managers should focus their attention only on those activities where the performance deviates significantly from the set standards. Minor or insignificant deviations should be ignored. By concentrating on these critical deviations, managers can use their time and energy more effectively and exercise better control over the key areas of the business.

Question 3. Write a short note on budgetary control as a technique of managerial control.

Answer:

Budgetary control is a traditional technique of managerial control in which all operations are planned in advance in the form of budgets, and then the actual results are compared with the budgetary standards.

A budget is a quantitative statement of expected results for a definite future period. For example, a sales budget sets the sales target in terms of value and volume, and a cash budget estimates the cash inflows and outflows.

As a control technique, budgetary control involves:

Preparing budgets for various operations.
Measuring the actual performance.
Comparing the actual figures with the budgeted figures.
Analysing the deviations to find the reasons.
Taking corrective action to ensure that the operations proceed as per the budget.

It is a very effective tool for controlling costs and ensuring that performance is aligned with the pre-determined objectives.

Question 4. Explain how management audit serves as an effective technique of controlling.

Answer:

A Management Audit is a systematic appraisal of the overall performance of the management of an organisation. Its purpose is to review the efficiency and effectiveness of management and to suggest improvements.

Management audit serves as an effective technique of controlling in the following ways:

Identifies Deficiencies: It helps in identifying the deficiencies in the performance of various management functions (planning, organising, directing, etc.).
Improves Performance: By highlighting weaknesses, it suggests corrective measures to improve the overall managerial performance in the future.
Adaptability to Environment: It reviews the organisation's plans and policies to ensure they are adapted to the changing business environment.
Enhances Efficiency: It ensures that the organisational controls are effective and helps in improving the coordination of activities, which enhances efficiency.

Question 5. Mr.Arfaaz had been heading the production department of Writewell Products Ltd., a firm manufacturing stationary items. The firm secured an export order that had to be completed on a priority basis and production targets were defined for all the employees. One of the workers, Mr.Bhanu Prasad, fell short of his daily production target by 10 units for two days consecutively. Mr.Arfaaz approached MsVasundhara, the CEO of the Company, to file a complaint against MrBhanu Prasad and requested her to terminate his services. Explain the principle of management control that MsVasundhara should consider while taking her decision. (Hint: Management by exception).

Answer:

The principle of management control that Ms. Vasundhara should consider is Management by Exception (or Control by Exception).

Explanation: This principle states that managers should focus their attention on significant deviations only. Not all deviations from the standard require managerial attention. A permissible range of deviation should be established for all activities, and only if a deviation exceeds this range should it be brought to the notice of top management.

In this case, while Mr. Bhanu Prasad's performance is below target, terminating his services after just two days of shortfall seems like a drastic step. Ms. Vasundhara, following the principle of Management by Exception, should first:

Determine if a shortfall of 10 units is a 'significant' deviation.
Investigate the reasons for the shortfall. It could be due to factors beyond the worker's control, such as a faulty machine, poor quality raw materials, or personal health issues.

Instead of taking immediate harsh action, she should advise Mr. Arfaaz to analyse the cause of the deviation and take corrective action, such as providing training or counselling to the worker. This approach is more constructive and focuses managerial attention on solving the root cause of the problem.

Long Answer Type

Question 1. Explain the various steps involved in the process of control.

Answer:

Controlling is a systematic process that involves a series of steps to ensure that organisational activities conform to the plans. The steps in the controlling process are as follows:

1. Setting Performance Standards:
The first step is to establish the standards of performance against which the actual performance will be measured. Standards are the criteria or benchmarks. They should be set in clear, specific, and measurable terms. For example, 'to produce 100 units per day' or 'to reduce defects by 5%'. Standards can be both quantitative (in terms of cost, time, quantity) and qualitative (in terms of improving goodwill or employee morale).

2. Measurement of Actual Performance:
Once the standards are set, the next step is to measure the actual performance of the employees or departments. This should be done in an objective and reliable manner. The measurement should be in the same units as the standards to facilitate comparison. For example, if the standard is in terms of units produced, the performance should also be measured in units produced. This can be done through personal observation, sample checking, or performance reports.

3. Comparing Actual Performance with Standards:
In this step, the actual performance is compared with the pre-determined standards. This comparison will reveal the deviation between the actual and the desired results. If the performance matches the standards, the control process ends here. However, if there is a mismatch, the deviation needs to be identified.

4. Analysing Deviations:
All deviations need to be analysed to find their causes. This analysis is crucial. Managers should use the principles of Critical Point Control (focusing on key result areas that are critical to the success of the organisation) and Management by Exception (focusing only on significant deviations that are beyond the permissible limit). The causes of the deviation could be unrealistic standards, faulty processes, or problems with employee performance.

5. Taking Corrective Action:
This is the final and most important step in the control process. If the deviations are significant and beyond the acceptable limits, corrective action is required. The corrective action might involve:

Redesigning the process if it is faulty.
Providing training to employees if their performance is the issue.
Revising the standards if they were found to be unrealistic.

The purpose of this step is to bring the actual performance back in line with the standards and ensure that the deviations do not recur in the future.

Question 2. Explain the techniques of managerial control.

Answer:

Managerial control techniques are the tools and methods used by managers to ensure that performance conforms to the standards. These techniques can be broadly classified into traditional and modern techniques.

A. Traditional Techniques

These are the techniques that have been used by companies for a long time.

1. Personal Observation: This is the most traditional method, where the manager personally observes the employees' performance. It creates a psychological pressure on the employees to perform well but is very time-consuming.

2. Statistical Reports: Information regarding performance in various areas is collected and presented in the form of statistical reports with charts, graphs, and tables. This allows for easy comparison and analysis of performance.

3. Break-Even Analysis: This technique is used to study the relationship between costs, volume, and profits. The break-even point is the level of sales at which there is no profit and no loss. This analysis helps in estimating profits at different levels of activity and controlling costs.

4. Budgetary Control: This involves preparing budgets for different operations (sales budget, production budget, etc.) and then comparing the actual performance with the budgeted figures to find deviations and take corrective action.

B. Modern Techniques

These are the newer techniques that have emerged with the changing business environment.

1. Return on Investment (ROI): ROI is a very useful technique for measuring the overall profitability of an investment. It is calculated as $\text{ROI} = \frac{\text{Net Income}}{\text{Total Investment}} \times 100$. Different departments or projects can be compared on the basis of their ROI to judge their performance.

2. Ratio Analysis: This involves calculating various financial ratios (like liquidity ratios, profitability ratios, and solvency ratios) from the company's financial statements and comparing them with past ratios or industry standards to analyse the financial health of the business.

3. Responsibility Accounting: In this system, the organisation is divided into different 'responsibility centres' (like cost centres, profit centres, and investment centres). The head of each centre is held responsible for its performance.

4. Management Audit: This involves a systematic appraisal of the overall performance and effectiveness of the management of an organisation. It helps in identifying deficiencies in management functions and suggests improvements.

5. PERT and CPM: Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are network analysis techniques used for planning, scheduling, and controlling complex projects involving a series of interrelated activities. They help in ensuring that projects are completed on time and within budget.

6. Management Information System (MIS): This is a computer-based information system that provides managers with the right information at the right time to facilitate effective decision-making and control.

Question 3. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Answer:

Controlling is a fundamental and indispensable function of management. Its importance stems from its role in ensuring that the organisation moves towards its goals effectively and efficiently.

Importance of Controlling:

1. Accomplishing Organisational Goals: Controlling measures progress towards the goals, reveals deviations, and indicates corrective action. It acts as a guide to keep the organisation on the right track so that it can achieve its objectives.

2. Judging Accuracy of Standards: A good control system helps management in verifying the accuracy of the standards set during planning. It helps in reviewing and revising the standards in light of the changes in the business environment.

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 pre-determined standards, which ensures that resources are used in the most efficient manner.

4. Improving Employee Motivation: A good control system informs employees about what they are expected to do and the standards of performance. This clarity and the appraisal of their performance can motivate them to perform better.

5. Ensuring Order and Discipline: Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities.

6. Facilitating Coordination in Action: Control helps to provide a common direction to all the diverse activities and efforts within the organisation, ensuring that all departments are working in a coordinated manner towards the organisational goals.

Problems in Implementing an Effective Control System:

Despite its importance, organisations face several problems in implementing an effective control system:

1. Difficulty in Setting Quantitative Standards: Control is most effective when standards are set in quantitative terms. However, it is very difficult to set quantitative standards for intangible aspects of performance like employee morale, job satisfaction, and customer satisfaction.

2. Little Control on External Factors: An organisation cannot control external factors such as changes in government policy, technological advancements, or competitors' strategies. These external changes can limit the effectiveness of the internal control system.

3. Resistance from Employees: Employees often resist control systems, especially if they are very strict. They may see control as a restriction on their freedom, and this can lead to demotivation and resistance.

4. Costly Affair: Implementing a control system can be a very expensive exercise. It requires a lot of time, money, and effort. A small organisation may not be able to afford a sophisticated control system. Management must ensure that the benefits derived from the control system are greater than its costs.

Question 4. Discuss the relationship between planning and controlling.

Answer:

Planning and controlling are two of the most important functions of management, and they are deeply interrelated and interdependent. They are often described as the 'Siamese twins' of management because one cannot exist without the other.

1. Planning is a Prerequisite for Controlling (Planning precedes Controlling):

The controlling function involves comparing actual performance with pre-determined standards. These standards are set during the planning process. If there are no plans or goals, there is no basis for control. Therefore, planning is the starting point, and controlling is the follow-up action. Planning without controlling is meaningless.

2. Controlling is Blind without Planning:

This is the other side of the same coin. If the standards of performance are not set in advance, a manager has nothing to control. It is the plan that provides the yardstick for measuring performance. Without a plan, the controlling function would be like a rudderless ship, directionless and blind.

3. Planning is Prescriptive, Controlling is Evaluative:

Planning is a prescriptive function because it prescribes the desired course of action. Controlling is an evaluative function because it evaluates whether the performance is in line with the prescribed course of action and takes corrective measures if there are deviations.

4. Planning and Controlling are both Backward-looking and Forward-looking:

It is often said that planning is looking ahead while controlling is looking back. This is only partially true.

Controlling looks back as it involves a post-mortem of past activities to find deviations.
Planning looks ahead as it decides the future course of action.

However:

Planning is also backward-looking. Plans are formulated based on past experiences and feedback from the controlling function.
Controlling is also forward-looking. The purpose of finding deviations is to take corrective action to improve future performance and to provide a basis for revising future plans.

In conclusion, planning and controlling are inextricably linked. They are part of a continuous cycle of management, where planning sets the course and controlling ensures that the organisation stays on that course.

Question 5. A company ‘M’ limited is manufacturing mobile phones both for domestic Indian market as well as for export. It had enjoyed a substantial market share and also had a loyal customer following. But lately it has been experiencing problems because its targets have not been met with regard to sales and customer satisfaction. Also mobile market in India has grown tremendously and new players have come with better technology and pricing. This is causing problems for the company. It is planning to revamp its controlling system and take other steps necessary to rectify the problems it is facing.

a. Identify the benefits the company will derive from a good control system.

b. How can the company relate its planning with control in this line of business to ensure that its plans are actually implemented and targets attained.

c. Give the steps in the control process that the company should follow to remove the problems it is facing

Answer:

a. Benefits the company will derive from a good control system:

By revamping its controlling system, M Limited will derive the following benefits:

Accomplishing Organisational Goals: A good control system will help the company to track its progress against its sales targets and take timely corrective action to ensure the goals are met.
Judging Accuracy of Standards: It will help the company to check if its sales and customer satisfaction targets are realistic in the new competitive environment and revise them if necessary.
Making Efficient Use of Resources: It will help in identifying wastage and inefficiencies in its operations, allowing the company to become more cost-effective.
Improving Employee Motivation: Clear standards and regular performance feedback will motivate the sales and service teams to perform better.

b. Relating Planning with Control:

In the highly dynamic mobile phone business, planning and controlling must be tightly integrated. The company should:

Set Clear and Quantifiable Plans: The plans must have clear, quantifiable standards. For example, instead of just "improving customer satisfaction," the plan should be "to reduce customer complaints by 20% in the next quarter."
Use Control as a Basis for Future Planning: The controlling process will provide valuable feedback. If sales targets are not being met because a competitor's price is lower, this information from the control system must be used to revise the company's future pricing strategy (planning).
Regular Monitoring: The company should not wait until the end of the year to check performance. It should implement a system of monthly or even weekly monitoring of sales figures and customer feedback to take quick corrective actions.

c. Steps in the Control Process to be followed:

To remove the problems it is facing, M Limited should follow the complete controlling process:

Setting Performance Standards: The company needs to set new, realistic standards for both sales (e.g., number of units to be sold per month) and customer satisfaction (e.g., target customer feedback score).
Measurement of Actual Performance: It should continuously measure its actual sales figures and systematically collect customer satisfaction data through surveys.
Comparing Actual Performance with Standards: The actual sales and customer satisfaction scores should be compared with the standards on a regular basis.
Analysing Deviations: The company must analyse why the targets are not being met. Is it due to the new players, better technology, lower pricing by competitors, or internal issues?
Taking Corrective Action: Based on the analysis, the company must take corrective actions. This could involve:
- Introducing new models with better technology.
- Revising its pricing strategy.
- Improving its after-sales service to increase customer satisfaction.
- Providing better training to its sales team.

Question 6. Mr Shantanu is a chief manager of a reputed company that manufactures garments. He called the production manager and instructed him to keep a constant and continuous check on all the activities related to his department so that everything goes as per the set plan. He also suggested him to keep a track of the performance of all the employees in the organisation so that targets are achieved effectively and efficiently.

a. Describe any two features of Controlling highlighted in the above situation.(Goal Oriented, continuous and pervasive – any 2).

b. Explain any four points of importance of Controlling.

Answer:

a. Features of Controlling Highlighted:

The situation highlights the following features of controlling:

Controlling is a Goal-Oriented Function: Mr. Shantanu instructs the manager to ensure "everything goes as per the set plan" and "targets are achieved effectively and efficiently." This shows that the primary purpose of the control function is to ensure that the organisation achieves its pre-determined goals.
Controlling is a Continuous Process: The instruction to "keep a constant and continuous check on all the activities" emphasizes that controlling is not a one-time activity. It is an ongoing process that needs to be performed continuously to monitor performance and take corrective action.

b. Four Points of Importance of Controlling:

Accomplishing Organisational Goals: Controlling is crucial for achieving organisational goals. It measures progress, identifies any deviations from the plan, and provides a basis for taking corrective action to get back on track.
Making Efficient Use of Resources: An effective control system ensures that resources are used in the most efficient way possible. By keeping a check on activities, it helps to minimize wastage, reduce spoilage, and prevent the inefficient use of physical and human resources.
Improving Employee Motivation: A good control system sets clear standards of performance for employees. When employees know what is expected of them and their performance is appraised fairly, it motivates them to perform better.
Ensuring Order and Discipline: Controlling creates an environment of order and discipline in the organisation. By keeping a check on the activities of employees, it helps to curb dishonest or undesirable behaviour and ensures that everyone adheres to the rules and policies of the organisation.