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Controlling is a continuous activity because it involves a constant review of actual performance for taking corrective actions, if any.

Importance of controlling:

• A controlled organization steers to the right direction. An organization without proper implementation of control is like a chariot without charioteer.
• Controlling is necessary for the achievement of managerial objectives. The main objective of controlling is to check the errors or short comings of the past and stop their recurrence.

Following points bring out the importance of controlling:

1. Helps in achieving objectives: Controlling helps to identify errors in the enterprise and take corrective measures. As a result it becomes easy to achieve objectives of the enterprise.

2. Control on activities: Controlling controls functional areas and activities like organization, production, sales, employees, financial and quality aspects, etc.

3. Makes planning effective:

• It is said that planning lays the path and controlling helps to find the deviations and improve them.
• In this regard, it is said that controlling helps in achieving objectives and making the plan successful as well as effective.

4. Co-ordination between various activities: Controlling helps in coordinating various activities of the business enterprise.

5. Evaluation of activities: Under coordination, the activities are compared with pre-determined standards and then evaluated.

6. Removes deviations: Controlling aims at correcting deviations. It examines the causes of deviation and then takes corrective measures so that deviations can be reduced.

7. Necessary for delegation of authority:

• Controlling is important for delegating authority.
• Once the authority is delegated, the supervisor or authorized personnel supervises and controls the activity.

8. Find out errors:

• Controlling supervises and evaluates the activities of subordinates.
• Controlling also helps to find out errors, difficulties, defects and deviations and remove them so that they are not repeated in future.

9. Long term planning:

• Controlling helps to make long term plans.
• Control can be used to make long term assumptions and forecasts for the business on the basis of the information gathered during controlling activities.

10. Helps in directing: Controlling simplifies directing. It supervises the personnel, gives guidance and direction in their difficulties so that activities are performed as planned.

11. Barometer of efficiency: In business enterprises if control is exercised efficiently, management becomes more efficient. So controlling is called the barometer of efficiency of management.

Correct option is (D) Last

Measuring performance:

• After gathering information about the performance of business performance, the set parameters are measured.
• The objective of measuring is to obtain data from the various processes of the organization so that it can be later compared with the set standards.
• Measurement can be either qualitative or quantitative or both.

Planning is the father of controlling:

• Controlling exists because of planning. Controlling keeps a check on activities decided in planning.
• In short, controlling does not exist without planning.
• Hence, it can be said that planning is the father of controlling.

Importance:

• Helpful in achievement of objectives
• Controlling on activities
• Makes planning effective
• Co-ordination between various activities
• Evaluation of activities
• Removes deviations
• Necessary for delegation of authority
• Finds out errors
• Long term planning
• Helpful in directing
• Barometer of efficiency

• Planning and controlling are two sides of the same coin
• Protection against changes
• Planning is the pre-condition for control
• Planning is the father of controlling

Correct option is (D) Planning

By measuring performance we can know whether the processes are performing as per the set standards and control limit or not.

All the functions of management must be functions of management be performed before controlling.

At all level of management function does controlling take place.

Correct option is (C) Corrective action

Setting standards for parameters to control.

Standards can be set for cost price, income, capital, profit targets, production targets, cost targets, etc.

Correct option is (B) Improve and set higher standards

Ensuring order and discipline.

Controlling Process :

Controlling is a systematic process involving the following steps.

1. Setting performance standards

2. Measurement of actual performance

3. Comparison of actual performance with standards

4. Analysing deviations

5. Taking corrective action

1. Setting Performance Standards : 

Standards are the criteria against which actual performance would be measured. Standards can be set in both quantitative as well as qualitative terms.

2. Measurement of Actual Performance:

After establishing standards, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner.

3. Comparing Actual Performance with Standards :

This step involves comparison of actual performance with the standard. Such comparison will reveal the deviation between actual and desired results.

4. Analysing Deviations: 

The deviations from the standards are assessed and analysed to identify the causes of deviations.

5. Taking Corrective Action: 

The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within the acceptable limits.

Relationship between Planning and Controlling 

(1) Planning and control are interdependent and inseparable functions of management.

(2) Planning is a prerequisite for controlling.

(3) Planning initiates the process of management and controlling complete the process.

(4) Planning is prescriptive where as controlling is evaluative.

(5) Planning and controlling are both backward looking as well as forward looking functions.

(6) Planning based on facts makes controlling easier and effective

Techniques of Managerial Control: 

1. Traditional Techniques:

a. Personal Observation: It creates psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job.

b. Statistical Reports: Statistical analysis in the form of averages, percentages, ratios, correlation, etc. present useful information to the managers regarding performance of the organisation.

c. Break Even Analysis: Break even analysis is a technique used by managers to study the relationship between costs, volume and profits. The sales volume at which there is no profit, no loss is known as break even point. It helps in estimating profits at different levels of activities.

B.E.P = \(\frac{F}{s-v}\)

F = Fixed cost

S = Selling price per unit 

V = Variable cost per unit 

d. Budgetary Control:

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

2. Modem Techniques:

a. Return on Investment: Return on Investment (ROI) can be used to measure overall performance of an organisation. It helps to know the invested capital has been used effectively for generating reasonable amount of return.

Return on investment = \(\frac{Net\,Income}{Total\,Investment}\)

b. Ratio Analysis:

Ratio Analysis refers to analysis of financial statements through computation of ratios.

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 the centre is responsible for achieving the target set for his centre.

E.g. Cost centre, Revenue centre, Profit centre, Investment centre, etc.

d. Management Audit:

Management audit may be defined as evaluation of the functioning, performance, and effectiveness of management of an organisation.

e. PERT and CPM:

PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques useful in planning and controlling.

(b) MIS (Management Information System)

(a) Yes

(b) 1) Planning and control are interdependent and inseparable functions of management.

(2) Planning is a prerequisite for controlling.

(3) Planning initiates the process of management and controlling complete the process.

(4) Planning is prescriptive where as controlling is evaluative.

(i) It helps to accomplish organisational goals.

(ii) Controlling helps to judge accuracy of standards.

(iii) Controlling creates an atmosphere of order and discipline in the organisation.

(a) Yes. Planning and control, both are complementary. 

(b) Relationship between Planning and Controlling 

(1) Planning and control are interdependent and inseparable functions of management. 

(2) Planning is a prerequisite for controlling.

(3) Planning initiates the process of management and controlling complete the process. 

(4) Planning is prescriptive where as controlling is evaluative.

(5) Planning and controlling are both backward looking as well as forward looking functions.

(6) Planning based on facts makes controlling easier and effective

(a) yes. 

(b)(1) Planning and control are interdependent and inseparable functions of management. 

(2) Planning is a prerequisite for controlling.

(3) Planning initiates the process of management and controlling complete the process.

(4) Planning is prescriptive where as controlling is evaluative.

1. I agree with this statement.

2. Relationship between Planning and Controlling:

• Planning and control are interdependent and inseparable functions of management. 
• Planning is a prerequisite for controlling. 
• Planning initiates the process of management and controlling complete the process.
• Planning is prescriptive where as controlling is evaluative.
• Planning and controlling are both backward looking as well as forward looking functions. 
• Planning based on facts makes controlling easier and effective.

Budgetary control is a technique of managerial control in which all operations are planned and this will help us in knowing how much we have to spend in order to achieve the future result. It compared the actual result with budgetary standards. This comparison reveals the necessary actions to be taken so that the organisational objectives are accomplished. Budgeting offers the following advantages 

(i) Budgeting focuses on specific and time bound targets. 

(ii) Budgeting is a source of motivation to the employees they set the standards against which their performance will be appraised and thus, enables them to perform better. 

(iii) Budgeting helps in optimum utilisation of resources by allocating them according to the requirements of different departments. 

(iv) It helps the management in setting standards.

Management Information System (MIS)

Budgetary Control

Management by exception / Control by exception.

1. I agree with this statement.

2. Relationship between Planning and Controlling:

1. Planning and control are interdependent and inseparable functions of management.

2. Planning is a prerequisite for controlling.

3. Planning initiates the process of management and controlling complete the process.

4. Planning is prescriptive where as controlling is evaluative.

5. Planning and controlling are both backward looking as well as forward looking functions.

6. Planning based on facts makes controlling easier and effective.

Budgetary Control:

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

(b) The purpose of management audit is to review the efficiency and effectiveness of management of the company.

External factors such as government policy, competition, changes in market scenario, inflation, shortage of raw material, preference of people, change in fashion, etc.

The two concepts are critical point control and management by exception.

Critical Point Control: For controlling effectively, control should be exercised only on critical points which are identified on the basis of organisation's key result areas. These are the areas in which satisfactory performance is critical to achieve organisational objectives. Some common key result areas are productivity, Profitability, market share, cost structure, product quality, etc.

Management by Exception: Management by exception involves reporting of exceptional deviations between standards and actuals to higher management levels to take corrective actions. Generally, deviations beyond the acceptable level in key result areas are reported to higher management.

The use of concepts of critical point control and management by exception in controlling saves a lot of time of managers and their attention remains focused on key issues in controlling.

The statement refers to use of ‘Critical Point Control’, while analysing deviations.

▪ Meaning of Critical Point Control: It refers to that concept of management which holds that instead of all activities, the management should focus its attention on only important activities.

▪ Example: In a manufacturing organisation, an increase of 5% in the labour cost may be more troublesome than 15% increase in postal charges.