Business Studies Chapter 8 Controlling Class 12 NCERT

What Controlling Really Means

Controlling is the process of ensuring that actual performance conforms to planned performance. A manager first decides what results are expected, then measures what has actually happened, compares both and takes corrective action if required. For example, if a company planned to sell 10,000 units but sold only 8,000, controlling identifies the 2,000-unit deviation and asks why it occurred. The cause may be weak advertising, poor quality, high price or shortage of sales staff. Good controlling is forward-looking because the purpose is to prevent repeated errors, not merely to record past mistakes.

Key Terms for Chapter 8 Controlling

Controlling

A managerial function that measures actual performance, compares it with standards and takes corrective action to achieve organisational objectives.

Standards

Benchmarks or criteria such as cost, time, quality, quantity or revenue against which actual performance is measured.

Deviation

The difference between planned performance and actual performance. It may be favourable or unfavourable.

Critical Point Control

The principle that managers should focus control on key result areas that strongly affect organisational success.

Management by Exception

A control principle in which only significant deviations are brought to the attention of top management, saving time and effort.

Controlling Process Step by Step

1. Step 1: Setting performance standards — Standards are set in clear and measurable terms wherever possible. They may be quantitative, such as production of 500 units per day, or qualitative, such as improving customer satisfaction.
2. Step 2: Measuring actual performance — Actual results are measured through reports, personal observation, accounting records, sample checks or digital dashboards. Measurement should be timely because delayed information reduces the value of control.
3. Step 3: Comparing actual performance with standards — The manager calculates the deviation between standard and actual performance. A small deviation may be ignored if it falls within an acceptable range, but a major deviation needs attention.
4. Step 4: Analysing deviations — The manager identifies the causes of deviation. This is where management by exception and critical point control are useful, because managers cannot spend equal time on every small difference.
5. Step 5: Taking corrective action — Corrective action may include training employees, revising budgets, changing suppliers, improving supervision or modifying standards if they were unrealistic. Without this step, controlling remains incomplete.

Worked Examples for Board-Style Understanding

• Example 1: A factory sets a standard output of 1,000 units per week, but actual output is 850 units.
  Step 1: Identify the standard: 1,000 units.
  Step 2: Identify actual performance: 850 units.
  Step 3: Calculate deviation: 1,000 - 850 = 150 units short.
  Step 4: Analyse the cause: machine breakdown, absenteeism, poor raw material or weak supervision may be responsible.
  Step 5: Corrective action: repair machines, improve maintenance schedule, arrange substitute labour or change supplier.
  Final learning: Controlling does not stop at finding the gap; it requires action to remove the cause.

• Example 2: A sales manager planned monthly sales of Rs 20 lakh. Actual sales are Rs 19.6 lakh.
  Step 1: Standard sales = Rs 20 lakh.
  Step 2: Actual sales = Rs 19.6 lakh.
  Step 3: Deviation = Rs 0.4 lakh, or Rs 40,000 short.
  Step 4: Decide whether it is significant. If the acceptable deviation is 5 percent, allowed deviation is Rs 1 lakh. Here Rs 40,000 is within the limit.
  Step 5: Apply management by exception: top management need not intervene unless the deviation becomes significant.
  Final learning: Not every deviation needs senior-level action.

Exam Tips and Common Traps

Do not write that controlling comes only at the end of management. In exams, explain that controlling is both backward-looking and forward-looking: it reviews past performance but improves future action. Another common trap is confusing planning with controlling. Planning decides objectives and standards; controlling checks whether those standards are achieved. In long answers, always present the controlling process in sequence and add one line explaining each step. For application-based questions, name the concept first, then justify it using words from the case.

High-Value Points to Remember

• Planning and controlling are interdependent: planning is meaningless without controlling, and controlling is blind without planning.
• Controlling helps in achieving organisational goals, judging accuracy of standards, making efficient use of resources and improving employee motivation.
• Standards should be realistic, flexible and clearly communicated to employees.
• Management by exception saves managerial time by focusing attention on major deviations only.
• Critical point control recognises that all activities are not equally important; key areas such as cost, quality, sales and safety deserve priority.
• Limitations include difficulty in setting quantitative standards, little control over external factors, employee resistance and costly control systems.

Practice Questions with Solutions

• Q: Define controlling and state any two features of controlling.
  A: Step 1: Controlling means measuring actual performance, comparing it with planned standards and taking corrective action when needed.
  Step 2: Feature 1: It is a goal-oriented function because it ensures that organisational objectives are achieved.
  Step 3: Feature 2: It is a continuous function because managers monitor performance at every level and at different stages.
  Final answer: Controlling is a continuous, goal-oriented managerial function that compares actual performance with standards and corrects deviations.

• Q: Explain the relationship between planning and controlling.
  A: Step 1: Planning sets objectives, targets and standards for future action.
  Step 2: Controlling measures actual performance against those planned standards.
  Step 3: If there is a deviation, controlling provides feedback for future planning.
  Step 4: Therefore, planning and controlling support each other; planning without control has no check, and control without planning has no basis for comparison.
  Final answer: Planning and controlling are inseparable and interdependent functions of management.

• Q: A company planned to reduce production cost to Rs 80 per unit, but the actual cost became Rs 92 per unit. Which step of controlling is shown when the manager investigates reasons for the difference?
  A: Step 1: The planned standard is Rs 80 per unit and actual cost is Rs 92 per unit.
  Step 2: The deviation is Rs 12 per unit, which is unfavourable because actual cost is higher than standard.
  Step 3: When the manager investigates why the deviation occurred, the step is analysing deviations.
  Step 4: Possible causes may be costly raw material, wastage, inefficient labour or machine breakdown.
  Final answer: The step shown is analysing deviations in the controlling process.

• Q: Distinguish between critical point control and management by exception.
  A: Step 1: Critical point control focuses on key result areas that have maximum impact on organisational success.
  Step 2: Management by exception focuses on significant deviations and ignores minor variations within acceptable limits.
  Step 3: Example of critical point control: a hotel closely monitors hygiene and customer complaints.
  Step 4: Example of management by exception: senior managers act only when sales fall beyond an approved tolerance limit.
  Final answer: Critical point control selects important areas for control, while management by exception selects important deviations for managerial attention.

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