What is controlling in business?

Controlling involves measuring and correcting the actions of subordinates to assure that events conform to plans. Thus it measures performance against goals and plans, shows where negative deviations exist, and, by putting in remedial action to correct deviations, helps assure accomplishment of plans.
The basic control process involves three steps:
(1) establishing standards,
(2) measuring performance against these standards, and
(3) correcting deviations from standards and plans.
Let us discuss these steps one by one:

(1) Establishment of Standards: 

Because plans are the yardsticks against which controls must be devised, it follows logically that the first step in the control process would be to establish plans. However, since plans vary in detail and complexity and since managers cannot usually watch everything, special  standards are established. Standards are by definition simply criteria of performance. These standards may be stated in physical terms, such as qualities of products, units of service, man hours, or speed, or they may be expressed in monetary terms, such as volume of sales, cost, capital expenditure, or profit. They may also be expressed in qualitative terms or in any other way that can give a clear indication of  performance. No matter how these standards are expressed, these are the selected points against which actual performance is compared so as to give managers signals as to how things are going without their having to watch every step in the execution of plans.

(2) Measurement of performance: 

The second step in the control process is the measurement of the performance of the subordinates. The measurement of performance may be quite simple if it is to be compared against man-hour standards for the production of a mass production item. But it may be very difficult task if the item is made according to the likes and dislikes of individual customers. Similarly, appraisal of performance may be very difficult in the less technical kinds of work. Thus, we can say that appraisal depends upon standards—if  they are definite, performance will be easy to measure; if they are vague, performance will be difficult to measure.

(3) Correction of deviations: 

This is the third step in the control process. Correction of deviations clearly brings out the relation between control and other functions of management. Managers may correct deviations by redrawing their plans or by modifying their goals. Or they may correct deviations by exercising their organising function through reassignment or classification of duties. They may correct it by additional staffing, by better selection and training of subordinates. Or again, they may correct it through better or fuller explanation of the job or  by more effective leadership techniques.

Requirements For Adequate Controls

All alert managers want to have an adequate and effective system of controls to assist them in making sure that events conform to plans. The following requirements should be kept in mind for designing an effective control system:

(1) Control should Reflect Plans and Positions:


All control techniques and systems should reflect the plans these are designed to follow. Every plan has unique features. Managers require information on how well the various plans are working. The information required to evaluate the progress of different plans varies from one plan to another. The controls should be so designed that they provide different types of information for evaluating different plans.

In the same way, control should be tailored to positions. Different controls are required for different persons incharge of different departments. What may be suitable for one incharge may not be suitable for another incharge. Therefore, effective controls are those which best serve the specific requirements of different heads of departments or sub-departments.

(2) Controls must be Tailored to Individual Managers and their Personalities: 

Controls must be tailored to the personalities of individual managers. If they are not of a type that a manager can or will understand, they will not be useful. Some people, such as statisticians and accountants, like their information in forms of complex tables of data or bulky computer print-outs. In such cases, let them have it that way. The important thing is that various controls should provide the mangers with the information they need in a manner that they will understand and use.

(3) Control should Point out Exceptions at Critical Points: 

Controls should point out exceptions so that managers may concentrate on them for remedial measures. They should also indicate which deviations are more important and which are less. A manager, for example, might be concerned if the cost of labour deviated from budget by 5 per cent, but he is unworried if the cost of postage stamps deviated from budget by 20 per cent. Therefore, controls should point out exceptions only at critical points. It is true that more the managers concentrate their control efforts on exceptions, the more efficient their control mechanism will be. But this principle is best understood in the light of the fact that effective control requires managers to pay primary attention to those things which are most important.

(4) Controls should be Objective: 

Effective control requires objective standards. Whether a subordinate is doing a good job should ideally not be a mater of subjective determination because in that case judgements of performance will be inaccurate. But if the standards are objective and measurements are kept upto-date through periodic review, controls would be more effective.

(5) Controls Should be Flexible: 

Controls should remain workable in the face of changed plans, unforeseen circumstances, or outright failures. If controls are to remain effective, despite failure or unexpected change of plans, they must be flexible. The need for flexible control can readily be illustrated. A budget system may project a certain level of expenses and grant authority to managers to hire labour and purchase materials and services at this level. If this budget is based on a forecast of a certain level of sales, it may become meaningless as a system of control if the actual sales volume is considerably above or below the forecast. The inflexibility of such a budget would disqualify it from being an effective control technique. What is needed, therefore, is a budget that will reflect sales variations as well as other deviations from plans. This requirement is provided by the flexible budget.

(6) Controls should be Economical: 

Controls must be worth their cost. Although this requirement is simple, it if often difficult to accomplish in practice. It is difficult to undertake a cost-benefit analysis of a control system. However, controls should ideally bring to light the causes of actual or potential deviations form plans with the minimum of costs.

(7) Controls should Lead to Corrective Action: 

An adequate system will disclose where failures are occurring and who is responsible for them, and it will ensure that some corrective action is taken. Control is justified only if deviation from plans are corrected through appropriate planning, organizing, staffing and leading.

(8) Controls should be forward-looking: 

There is usually a time lag between the measurement of performance and correction of deviations. This time lag is undersirable. What managers really need for effective control is a system of control that will tell them in advance that problems will occur if they do not do something about now. Effective controls are those which are directed towards the future.

Significance of Control

Controlling is a basic function of management. It ensures that actions proceed according to plans. A well-designed system of control permits top management to delegate authority, free itself of unnecessary detail, and ensure achievement of plans. Management control serves as a yardstick for allocating resources and evaluating performance. It provides a guide to future action. It provides order and discipline in the organisation. Realistic control simplifies supervision by pointing out only significant deviations. Realistic control helps the management in achieving the enterprise objectives in the most efficient manner.

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