Controlling Class 12 Notes | CBSE Chapter 8 Business Studies

Concept and Importance of Controlling

Controlling is the process of taking steps to bring actual results and desired results closer together. It involves measuring actual performance, comparing it with pre-established standards, finding out the deviations, and taking corrective actions to prevent recurrence of such deviations.

Controlling is a pervasive and goal-oriented function. It is often described as both a backward-looking and forward-looking activity. It is backward-looking because it evaluates past performance against set standards. It is forward-looking because the corrective actions planned and the feedback received guide future planning and execution. Without a robust control mechanism, even the best-laid plans can fall apart, leading to wastage of resources and missed targets.

Core Definitions & Glossary

Controlling

The managerial function of comparing actual performance with planned performance to ensure that organizational goals are achieved efficiently.

Standards

The criteria or benchmarks against which actual performance is measured and evaluated. They can be quantitative (units, costs) or qualitative (customer satisfaction, goodwill).

Deviations

The difference or gap between the actual performance and the pre-planned standards of performance.

Critical Point Control (CPC)

A technique of analyzing deviations that focuses control efforts only on key result areas (KRAs) which are critical to the success of an organization.

Management by Exception (MBE)

A control philosophy which suggests that an attempt to control everything results in controlling nothing. Only significant deviations that go beyond the permissible limit should be brought to management's attention.

Feedback

The information about the deviation and corrective action sent back to the planning stage to improve future performance.

The Controlling Process Steps

1. Step 1: Setting Performance Standards — Establish the benchmarks against which actual work will be measured. Standards should be clear, realistic, and ideally quantifiable (e.g., producing 500 units per day, reducing waste by 2%).
2. Step 2: Measurement of Actual Performance — Measure work completed in an objective and reliable manner. Measurement should be done in the same units as the standards to make comparison straightforward (e.g., using personal observation, sample checking, or performance reports).
3. Step 3: Comparing Actual Performance with Standards — Compare measured results with set standards to identify if there are any gaps. This helps in identifying the magnitude of deviations.
4. Step 4: Analysing Deviations — Not all deviations require action. Managers analyze deviations using two main principles: Critical Point Control (focusing on Key Result Areas) and Management by Exception (focusing on major exceptions beyond acceptable limits).
5. Step 5: Taking Corrective Action — The final step where corrective measures are initiated if deviations exceed acceptable limits. If the deviation cannot be corrected, standards may be revised downward (or upward if targets were easily surpassed).

Planning vs. Controlling

Must-Remember Key Points

• {"title":"Goals Achievement","description":"Controlling measures progress towards organizational goals and uncovers deviations early to allow prompt corrective actions."}
• {"title":"Judging Accuracy of Standards","description":"An efficient control system helps managers verify whether the set standards are accurate and objective under changing environments."}
• {"title":"Making Efficient Use of Resources","description":"Controlling minimizes wastage, spoilage, and theft of organizational resources through systematic monitoring."}
• {"title":"Improving Employee Motivation","description":"Employees know in advance what is expected of them and how their performance will be evaluated, which motivates them to perform better."}
• {"title":"Ensuring Order and Discipline","description":"It creates an atmosphere of order and discipline by reducing dishonest behavior and tracking employee activities closely."}
• {"title":"Limitations of Controlling","description":"Difficulty in setting quantitative standards (e.g., for employee morale), little control over external factors (like government policies), resistance from employees, and high installation costs."}

Board Exam Trap: Critical Point Control vs. Management by Exception

CRITICAL BOARD EXAM CUE: Students often confuse Critical Point Control (CPC) and Management by Exception (MBE) in case studies.

• Look for CPC keywords: If the case study mentions focusing on Key Result Areas (KRAs), critical points, or specific factors that have a massive impact on the whole organization (e.g., a 10% increase in postal charges vs. a 15% increase in labor cost), it refers to Critical Point Control.
• Look for MBE keywords: If the case study describes setting acceptable ranges of deviation (e.g., 2% deviation in production is acceptable, but 5% requires immediate attention), or states "an attempt to control everything results in controlling nothing", it refers to Management by Exception.

Quick Revision Check

• Why is controlling called a forward-looking function? Controlling is forward-looking because the corrective actions and feedback collected during the controlling process are used to improve future plans and prevent the repetition of past mistakes.
• State the relationship between planning and controlling in one sentence. Planning and controlling are inseparable and interdependent; planning prescribes the standards while controlling evaluates actual performance against those standards to ensure execution.
• What is meant by 'Management by Exception'? It is an administrative technique which asserts that managers should only focus on and resolve deviations that exceed the defined tolerance limit, as trying to control every minor detail is wasteful.
• Mention two major limitations of a controlling system. 1. Difficulty in setting precise quantitative standards for qualitative variables (such as employee job satisfaction). 2. Lack of control over external factors like macroeconomic policies, competitor strategies, or technological changes.

Frequently Asked Questions