Chapter 8 — Controlling

Chapter 8 covers Controlling as a management function. It explains the meaning and importance of controlling, the relationship between planning and controlling, the five-step controlling process, and concepts such as Critical Point Control and Management by Exception.

Controlling means ensuring that activities in an organisation are performed as per the plans. It also ensures that an organisation's resources are being used effectively and efficiently for the achievement of predetermined goals, making it a goal-oriented function.

Controlling is called a pervasive function because it is a primary function of every manager at all levels of management — top, middle, and lower. It is required not only in business organisations but also in educational institutions, hospitals, military, and clubs.

A good control system helps an organisation in six ways: accomplishing organisational goals by measuring progress and indicating corrective action; judging accuracy of standards; making efficient use of resources by reducing wastage; improving employee motivation; ensuring order and discipline; and facilitating coordination in action so that all departments work toward common objectives.

Controlling has four main limitations: it is difficult to set quantitative standards for areas like employee morale and job satisfaction; an organisation has little or no control over external factors such as government policies, technological changes, and competition; employees often resist controls as a restriction on their freedom; and installing and operating a control system can be a costly affair, particularly for small enterprises.

The controlling process involves five steps: (1) setting performance standards — the criteria against which actual performance will be measured; (2) measurement of actual performance using methods such as personal observation, sample checking, and performance reports; (3) comparing actual performance with standards to identify deviations; (4) analysing deviations to determine their causes; and (5) taking corrective action to ensure deviations do not recur and standards are accomplished.

Planning and controlling are described as inseparable twins of management. Planning provides the performance standards that serve as the basis for controlling, while controlling ensures events conform to plans and feeds information back to improve future planning. Planning is a forward-looking function based on forecasts, whereas controlling is a backward-looking function reviewing past performance — yet both reinforce each other.

The statement is only partially correct. Plans are prepared for the future, so planning is a forward-looking function. Controlling reviews past performance against standards, making it backward-looking. However, planning is also guided by past experience, and the corrective action initiated through controlling aims to improve future performance, so both functions are backward-looking as well as forward-looking.

Critical Point Control is the principle that control should focus on key result areas (KRAs) which are critical to the success of an organisation, rather than checking every activity. If anything goes wrong at these critical points, the entire organisation suffers — for example, a 5 per cent increase in labour cost in a manufacturing organisation may be more troublesome than a 15 per cent increase in postal charges.

Management by Exception, also called control by exception, is a principle based on the belief that an attempt to control everything results in controlling nothing. Only significant deviations that go beyond the permissible limit are brought to the notice of management. It saves managerial time, focuses attention on important areas, facilitates delegation of authority, and identifies critical problems needing timely action.

After identifying deviations, managers determine an acceptable range of deviations and apply Critical Point Control and Management by Exception to prioritise attention on significant ones. The causes of deviations are then examined — these may include unrealistic standards, defective processes, inadequacy of resources, structural drawbacks, organisational constraints, or environmental factors — before appropriate corrective action is taken.

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