Class 12 Business Studies Notes Chapter 8 (Controlling) – Business Studies-I Book

Detailed Notes with MCQs of Chapter 8: Controlling. This is a crucial function of management, often considered the concluding step, but it's deeply intertwined with planning. For your government exam preparation, understanding the concepts, process, and significance is vital. Pay close attention.

Chapter 8: Controlling - Detailed Notes

1. Meaning of Controlling

• Controlling is a primary managerial function involving comparing actual performance with planned performance (standards), identifying deviations (if any), analysing the causes of such deviations, and taking corrective action to ensure that activities conform to plans.
• It's a goal-oriented function aimed at ensuring resources are used effectively and efficiently for the achievement of predetermined goals.
• It essentially involves checking whether everything is proceeding according to the plans adopted, instructions issued, and principles established.

2. Nature/Features of Controlling

• Goal-Oriented: Directly focused on accomplishing organisational objectives.
• Pervasive Function: Required at all levels of management (top, middle, lower) and in all types of organisations (business, non-business).
• Continuous Function: It's not a one-time activity but an ongoing process. Managers continuously monitor performance and take corrective actions.
• Both Backward-Looking and Forward-Looking:
  • Backward-Looking: Compares past performance (actual) with past plans (standards). It's like a post-mortem.
  • Forward-Looking: Aims to improve future performance based on past experience and deviations identified. It helps in revising future plans and standards.
• Based on Planning: Controlling presupposes the existence of standards, which are set during the planning stage. Without planning, there's no basis for control.

3. Importance/Significance of Controlling

• Accomplishing Organisational Goals: Helps keep activities on the right track to achieve goals by comparing actual performance with standards and taking corrective action.
• Judging Accuracy of Standards: An effective control system helps verify whether the standards set were accurate and realistic. If deviations are frequent, standards may need revision.
• Making Efficient Use of Resources: By guiding activities towards predetermined goals, controlling helps minimise wastage and ensure resources (human, material, financial) are used effectively and efficiently.
• Improving Employee Motivation: A good control system communicates performance standards and appraisal results clearly to employees. Knowing what is expected and how they will be evaluated can motivate them to perform better. (Note: Over-control or poorly designed systems can demotivate).
• Ensuring Order and Discipline: Controlling creates an atmosphere of order and discipline by keeping a check on employee activities and minimising dishonest behaviour.
• Facilitating Coordination in Action: Control helps integrate diverse activities and resources towards common organisational goals, ensuring that different departments and individuals work in harmony.

4. Limitations of Controlling

• Difficulty in Setting Quantitative Standards: It's challenging to set measurable standards for activities involving human behaviour, job satisfaction, employee morale, etc. Qualitative aspects are hard to quantify.
• Little Control on External Factors: Management has limited control over external factors like government policies, technological changes, competition, changes in consumer tastes, etc., which can affect performance despite internal controls.
• Resistance from Employees: Employees often perceive control as a restriction on their freedom. They may resist surveillance or checks, especially if they feel the standards are unrealistic or the evaluation is unfair.
• Costly Affair: Implementing a control system involves significant time, effort, and expenditure (e.g., setting standards, monitoring performance, installing monitoring devices). Small organisations may find it difficult to afford elaborate control systems. The benefits derived must justify the costs incurred.

5. Relationship between Planning and Controlling

• Interdependence: Planning and controlling are inseparable twins of management. They are mutually dependent and reinforce each other.
• Planning provides the basis for Controlling: Planning sets the objectives and standards against which actual performance is measured. Without plans (standards), there is nothing to control. "Controlling is blind without planning."
• Controlling provides feedback for Planning: The controlling function identifies deviations and their causes, providing valuable information for revising existing plans or formulating new ones. It helps make planning more realistic and effective. "Planning without controlling is meaningless."
• Planning is Prescriptive, Controlling is Evaluative: Planning prescribes the course of action (what, how, when), while controlling evaluates whether performance conforms to that course.
• Planning is Looking Ahead, Controlling is Looking Back (and Forward): While planning is primarily forward-looking, controlling is often seen as backward-looking (evaluating past performance). However, as controlling also aims to improve future performance, it is forward-looking too.

6. Controlling Process

The controlling process involves the following sequential steps:

• Step 1: Setting Performance Standards:

  • Standards are the criteria against which actual performance will be measured.
  • They act as benchmarks.
  • Standards should be specific, measurable, achievable, relevant, and time-bound (SMART).
  • They can be quantitative (e.g., units produced, sales volume, cost per unit) or qualitative (e.g., improving goodwill, employee morale), though qualitative standards are harder to measure objectively.

• Step 2: Measurement of Actual Performance:

  • Performance should be measured objectively and reliably.
  • Measurement should ideally be done in the same units as the standards.
  • Methods include: Personal observation, sample checking, performance reports, accounting ratios.
  • Measurement should be frequent enough to allow timely corrective action.

• Step 3: Comparing Actual Performance with Standards:

  • This step involves comparing the measured actual performance with the established standards.
  • The comparison reveals deviations (differences) between planned and actual results.
  • Deviations can be positive (better than standard) or negative (worse than standard).

• Step 4: Analysing Deviations:

  • Not all deviations require managerial attention. Minor deviations within an acceptable range can be ignored.
  • Focus should be on significant deviations that exceed the acceptable range. Two important principles guide this analysis:
    • (a) Critical Point Control (CPC): Focus on Key Result Areas (KRAs) which are critical to the success of the organisation. Deviations in these key areas need more urgent attention than deviations in less significant areas. (e.g., a 5% increase in labour cost might be more critical than a 15% increase in postage costs).
    • (b) Management by Exception (MBE): Focuses on significant deviations only. If performance is within acceptable limits, managers need not intervene. This saves managerial time and effort, allowing them to concentrate on major issues. "If you try to control everything, you may end up controlling nothing."

• Step 5: Taking Corrective Action:

  • The final step involves taking action to correct significant negative deviations and prevent their recurrence.
  • Possible actions include:
    • No action: If deviation is insignificant or within the acceptable range.
    • Correcting the deviation: Identifying the exact cause (e.g., defective machinery, inefficient workers, poor materials) and taking steps to rectify it (e.g., repair/replace machinery, retrain workers, change supplier).
    • Revising the standards: If standards are found to be unrealistic (too high or too low) after analysis, they may need to be revised.

Multiple Choice Questions (MCQs)

1. Controlling function brings the management cycle back to which function?
   (a) Organising
   (b) Staffing
   (c) Planning
   (d) Directing

2. Which of the following is NOT a limitation of controlling?
   (a) Difficulty in setting quantitative standards
   (b) Little control on external factors
   (c) Ensuring order and discipline
   (d) Resistance from employees

3. Comparing actual performance with laid standards is a step in the controlling process. What is this step called?
   (a) Setting Performance Standards
   (b) Measurement of Actual Performance
   (c) Comparing Actual Performance with Standards
   (d) Analysing Deviations

4. The statement "Planning without controlling is meaningless, and controlling without planning is blind" highlights:
   (a) The independence of planning and controlling
   (b) The interdependence and complementary nature of planning and controlling
   (c) The superiority of planning over controlling
   (d) The sequential nature of management functions

5. Management should focus on Key Result Areas (KRAs) when analysing deviations. This principle is known as:
   (a) Management by Objectives (MBO)
   (b) Management by Exception (MBE)
   (c) Critical Point Control (CPC)
   (d) Key Performance Indicators (KPI)

6. Controlling is considered a backward-looking function because:
   (a) It sets targets for the future
   (b) It involves motivating employees
   (c) It compares actual performance with past standards
   (d) It is performed by top management only

7. Which step in the controlling process ensures that deviations do not occur again in the future?
   (a) Setting Performance Standards
   (b) Measurement of Actual Performance
   (c) Analysing Deviations
   (d) Taking Corrective Action

8. A company finds that its marketing expenses have increased by 12%, while the standard allowed for a 10% increase. This difference is known as:
   (a) A Standard
   (b) A Deviation
   (c) A Corrective Action
   (d) A Performance Measurement

9. Which principle of analysing deviations suggests that only significant deviations from the standard require management's attention?
   (a) Critical Point Control (CPC)
   (b) Management by Exception (MBE)
   (c) Setting Performance Standards
   (d) Taking Corrective Action

10. Qualitative standards are often difficult to establish for controlling purposes. Which of the following represents a qualitative standard?
    (a) Reducing defects to less than 1%
    (b) Increasing sales by 15%
    (c) Improving employee morale
    (d) Reducing production cost by 5% per unit

Answer Key for MCQs:

1. (c) Planning
2. (c) Ensuring order and discipline (This is an importance/benefit, not a limitation)
3. (c) Comparing Actual Performance with Standards
4. (b) The interdependence and complementary nature of planning and controlling
5. (c) Critical Point Control (CPC)
6. (c) It compares actual performance with past standards
7. (d) Taking Corrective Action
8. (b) A Deviation
9. (b) Management by Exception (MBE)
10. (c) Improving employee morale (Morale is a qualitative aspect)

Study these notes thoroughly. Understand the process steps and the relationship between planning and controlling, as these are frequently tested areas. Good luck with your preparation!