What is Controlling? Types, Characteristics, Importance, Process, Techniques

What is Controlling?

Controlling is a systematic exercise which is called a process of checking actual performance against the standards or plans to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs.

Controlling is one of the important functions of management that enables an organisation to measure and rectify the irregularities in the organisational performance. Controlling helps management to limit errors in work. It also ensures standardised work with minimum or no wastage of resources and individual efforts.

According to Henry Fayol, In an undertaking, control consists of verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established.

Controlling comes after the processes of planning, organising, staffing, and directing. It is performed at every level of management (top, middle and lower levels). Managers and supervisors use controlling to monitor the activities and tasks of subordinates to ensure that the work is being done according to the plan.

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Definitions of Controlling

According to George R Terry – “Controlling is determining what is being accomplished i.e., evaluating the performance and if necessary, applying corrective measures so that the performance takes place according to plans.”

According to Billy E Goetz – “Management control seeks to compel events to conform plans”.

According to Robert N Anthony – “Management control is the process by which managers assure that resources are obtained and used effectively and efficiently.”

In the words of Koontz and O’Donnell – “Managerial control implies measurement of accomplishment against the standard and the correction of deviations to assure attainment of objectives according to plans.”

In the words of Haynes and Massie – “Fundamentally, control is any process that guides activity towards some predetermined goal. The essence of the concept is in determining whether the activity is achieving the desired results”.

In the words of J. L. Massie – “Control is the process that measures current performance and guides it towards some predetermined goals.”

In the words of Henry Fayol – “Control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and the principles established. Its object is to find out the weakness and errors in order to rectify them and prevent recurrence. It operates on everything, i.e., things, people and actions”.

From the above definitions it is clear that the managerial function of control consists in a comparison of the actual performance with the planned performance with the object of discovering whether all is going on well according to plans and if not why. Remedial action arising from a study of deviations of the actual performance with the standard or planned performance will serve to correct the plans and make suitable changes.

Controlling is the nature of follow-up to the other three fundamental functions of management. There can, in fact, be not controlling without previous planning, organising and directing. Controlling cannot take place in a vacuum.

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Nature of Controlling

Control is an influential process to structure and condition the behaviour of people and events, to place restraints and curbs on undesirable trends, to induce people to conform to certain norms and standards, to gain command over the force of uncertainty and turbulence and to shape the pace and pattern of future events.

Control is closely related with other functions of management. It can be described as below:

• Planning as the basis: Control function is based on planning. In fact these two terms are often used interchangeably. Plan directs the behaviour and activities in organization, control suggest measures to remove deviation. Planning process provides goals; control uses goals to create standards. Thus planning offers and affects control and much information provided by control are used in planning. Thus reciprocal relationship exits.
  
  
• Action as the essence: Control basically emphasizes what action can be taken to correct the deviation that may be found between standards and actual results. It ensures desirability of a particular action.
  
  
• Delegation as the key: A manager in the organization gets authority through delegation. In the absence of adequate authority , a manager is unlikely to take effective steps for correcting the deviations in the process of analysis. Some factors are controllable and some are uncontrollable. A managers action is likely to more effective if more factors are controllable by him.
  
  
• Information as the guide: Control action is guided by the information. MIS and management control system helps in controlling. Every manager in the organization must have adequate information about his performance and also how he is contributing to the achievement of the objectives. Effective control system ensures both, type of information a manger needs and, timeliness of information. Accurate information definitely acts as a guide to control.

Scope of Controlling

The scope of control is very wide. A well designed plan of control (or control system) covers almost all management activities. According to Holden, Fish and Smith, the main areas of control are as follows:

• Control over policies: The success of any business organisation to a large extent, depends upon, how far its policies are implemented. Hence the need of control over policies is self- evident. In many enterprises, policies are controlled through policy manuals.
  
  
• Control over organisation: Control over organisation is accomplished through the development of organisation chart and organisation manual. Organisation manual attempts at solving organisational problems and conflicts making long-range organisation planning possible, enabling rationalisation of organisation structure, helping in proper designing of organisation and department.
  
  
• Control over personnel: The statement that ‘Management is getting the work done through people’ underlines sufficiently the importance of control of personnel. All employees working at different levels must perform their assigned duties well and direct their efforts in controlling their behaviour. Personal Director or Personnel Manager prepares control plan for having control over personnel.
  
  
• Control over wages and salaries: Such type of control is done by having programme of job evaluation and wage and salary analysis. This work is done either by personnel department or industrial engineering department. Often a wage and salary committee is constituted to help these departments in the task of controlling wages and salaries.
  
  
• Control over costs: Cost control is exercised by the cost accountant, by setting cost standards for material, labour and overheads and making comparison of actual cost data with standard cost. Cost control is supplemented by budgetary control systems.
  
  
• Control over methods: Control over methods is accomplished by conducting periodic analysis of activities of each department. The functions performed, methods adopted and time devoted by every employee is studied with a view to eliminate non-essential motions, functions and methods.
  
  
• Control over capital expenditures: It is exercised through a system of evaluation of projects, ranking of projects in terms of their rank power and appropriate capital to various projects. A capital budget is prepared for the whole firm. A capital budgeting committee reviews the project proposes and approves the projects of advantages to the firm. Capital budgeting, project analysis, break-even analysis, study of cost of capital, etc. are some popular techniques of control over capital expenditure.
  
  
• Control over research and development: Such activities are highly technical in nature so no direct control is possible over them. By improving the ability and judgment of research staff through training programmes and other devices, an indirect control is exercised on them. Control is also exercised by having a research on the business.
  
  
• Control over external relations: Public relations department is responsible for controlling the external relations of the enterprise. It may prescribe certain measures for other operating departments which are instrumental in improving external relations.
  
  
• Overall control: It is effected through budgetary control. Master plan is prepared for overall control and all the departments are made involved in this procedure. For effective control through the master plan, active support of the top management is essential.

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Types of Control in Management

Let us understand the types of control in detail:

• Feed-forward control
• Concurrent control
• Feedback control

Feed-forward control

It is the type of control exercised before the work is done. This control is implemented by managers while creating organisational policies, rules and procedures. The aim behind implementing the feed-forward control is to avoid rigid behaviour of employees towards the organisation’s policies and rules.

For instance, when a sales manager, who receives the monthly sales figures showing the actual sales results, compares the actual results with the expected results and tries to discover the cause of deviation, then the sales manager is said to be virtually working with a feed-forward control.

Concurrent control

It is the type of control exercised when the work is in progress or when the employees are doing some activity. This control is also called real-time control or steering control. Concurrent control is used to monitor the employees directly involved with customers or the manufacturing process. For in- stance, the framing of job descriptions and job specifications in an organisation shows concurrent control.

Job description refers to identifying the job to be done, framing and classifying working relationships, areas of responsibilities and authority relationships. It acts as a control mechanism that assists in the prevention of unnecessary work duplication and prevents the occurrence of potential conflicts in the organisation.

In the same way, job specification helps in identifying the education, abilities, characteristics and training required by an employee to complete the assigned task. It is also a control mechanism that prevents placing individuals unfit for a specific job role.

Feedback control

It is the type of control exercised when the work is completed. Managers use the feedback control for taking corrective actions by measuring performance and comparing it to the set standards. For instance, the accounting manager at the end of an accounting year needs to carefully review the analysis of the budget control report.

The report will suggest clear-cut answers to the questions such as What accounts were overdrawn and Why? Were there any accounts with surplus? Could unutilised funds have been allocated to other accounts? Were all priorities met by budget?

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Characteristics of Controlling

Controlling is a universal function that is required in almost every field as it helps in better utilisation of resources of an organisation. It is needed in educational institutions, the hospitality sector, defence forces, business organisations, etc. The figure shows the characteristics of controlling:

Let us understand the characteristics of controlling in detail:

• It is a managerial function
• It is continuously performed
• It is a pervasive function
• It is goal-oriented
• It is a flexible process
• It is forward-looking

It is a managerial function

The top-level executives are not the only ones who exercise control; but managers, supervisors, departmental heads or leaders also control their subordinates. It is the duty of managers to control subordinates and team members for accomplishing goals. Managers should take necessary actions when they see deviations from the planned objectives.

It is continuously performed

Controlling is a regular process. The executives and managers have to keep the track of the processes and the work done on a continuous basis. It an ongoing process that consists of constant revision and evaluation of standards according to the change in a business environment.

It is a pervasive function

Managers at every level within the organisational structure exercise different controlling methods. The nature of control may differ at the top, middle, and bottom levels. People at the top-level require controlling for making policies and setting organisational objectives.

Managers at the middle and bottom levels exercise control for implementing those policies and plans at the lower level. Operational control is exercised at a lower level. It is the control exercised on workers to ensure that work is performed on a regular basis.

It is goal-oriented

The main motive behind controlling every action and process is to achieve the desried objective. The main motive behind controlling at every level of management is to achieve goals. Therefore, controlling is a goal-oriented process. Controlling is needed to keep all the functions moving on the right track. Controlling helps organisations to take timely corrective actions in case of any exigencies.

It is a flexible process

The process of controlling involves change in plans or standards as per the changes in the business environment. It is not a rigid process and it helps in coordinating other functions of management. It is a dynamic process that involves a change in plans or standards because of uncertainties in the business environment.

It is forward-looking

Control is always forward-looking. Controlling helps managers to look for alternatives by learning from previous mistakes or experiences. Work done in the past is already gone and thus, cannot be controlled. Measures can be taken to control future activities only.

Past performance can provide the base for controlling future results. Managers must learn from past performance in order to find out the reasons behind a particular outcome. Corrective actions must be taken to ensure that present and future work are not adversely affected.

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Importance of Controlling

Control is an essential management function that requires the implementation of plans and regular follow up.

Let us understand the importance of controlling:

• It helps to measure and monitor the progress of the tasks and indicates deviations.
  
  
• It enables managers to find the reasons behind deviations and look for a solution which helps in accomplishing the desired objectives.
  
  
• It enhances the efficiency and quality of work by keeping costs under control.
  
  
• It enables an organisation to efficiently use its human and non-human resources.
  
  
• It helps the top-level executives and managers to monitor the performance of workers.
  
  
• It facilitates an organisation to maintain discipline and orders.
  
  
• It helps an organisation to judge the accuracy of standards and plans and make changes if necessary.
  
  
• It enables an organisation to adapt to the changing environment.
  
  
• It motivates employees to improve their performance in return of rewards in the form of cash or kind.
  
  
• It also helps in reducing errors and unnecessary interruptions by providing proper guidance and instructions from superiors to subordinates.
  
  
• It reduces the need for supervision.
  
  
• It improves coordination between workers, units and departments.
  
  
• It initiates effective planning by ensuring that the activities are being carried out according to the set plans.
  
  
• It helps an organisation to effectively identify the areas that require improvement.

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Process of Controlling

Control takes planning as its base for measuring the work performed. In an organisation, both planning and controlling work simultaneously. An organisation after acquiring the required resources (material, money, machines, man and methods) plans to use these resources optimally by establishing standards.

The process of controlling starts by establishing standards or plans, matching established standards with the actual work done and taking corrective actions in case any deviation is found.

Let us understand the steps in the process of controlling in detail:

• Establishing standards
• Measuring performance
• Comparing the actual performance against the set standards
• Taking corrective action

Establishing standards

Standards refer to the plans or targets that are established by an organisation to work in the right direction. These standards are also considered as the criteria for judging employees’ performance. Standards can be established in the form of profitability standards, market position standards, product leadership standards, social responsibility standards, etc.

Standards are of two types:

• Measurable or tangible standards: These standards are measurable and can be expressed in the form of cost, output, expenditure, time, profit, etc.
  
  
• Non-measurable or intangible standards: These standards are non-measurable like manager’s performance, changes of workers, employees’ attitudes, etc.

Measuring performance

The next stage in the process of controlling is to measure the actual performance of men and machines. Controlling helps managers to analyse and judge the performance with the help of tools like statistical data, audits, special reports and analysis.

It is important for managers to regularly monitor, evaluate, and keep a track of the work and activities performed by their subordinates for taking corrective measures, if required.

Comparing the actual performance against the set standards

Managers have the responsibility of comparing the actual performance of workers with the pre-determined targets that help to identify irregularities. The deviation identified is the gap between the actual performance and set standards.

It is the responsibility of the manager to find the extent and reason for the deviations. Managers need to judge if the actual performance is according to the preset plans. If the deviations in the performance are critical and major, then necessary measures must be taken to find out the cause of the deviation. If the deviations are minor hen organisations can ignore them.

The reasons for deviations could be as follows:

• Incorrect planning
  
  
• Bad coordination
  
  
• Ineffective communication
  
  
• Wrong implementation of plans

Taking corrective action

Once the discrepancies between actual performances and pre-determined goals have been identified, then it is necessary to take corrective measures. Managers need to implement corrective actions by changing or modifying ways or plans.

The corrective action done on time can prevent loss, mistakes and reduction in quality. Corrective measures should also follow the procedure for establishing new standards.

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Techniques of Controlling

Controlling techniques are methods that help managers to regulate the activities and functions of an organisation. It provides managers with the information for comparing the actual performance against the set standards expected from the different operations of units or departments. Organisations make use of regular standard methods of financial, budgetary and project reports for getting regular and consistent information.

Every domain within the organisation has its own techniques of controlling, which help superiors to regulate the functions of units. The controlling technique enables managers to collect the information, which will be used to check the performance.

According to Donnell, “Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on the right course.”

The manager of the organisation should be aware of the different controlling techniques and the situation for which they must be used. The main reason for using the method of controlling is to ascertain if the activities are being carried out according to the plans.

Hence, the manager must determine the required standards for taking corrective actions. There are many methods of controlling that can be put under two categories.

Let us understand the traditional and modern techniques of controlling in detail.

• Traditional Techniques
• Modern Techniques

Traditional Techniques

Traditional techniques include personal observation, statistical reports, break-even analysis and budgetary control. Let us understand these traditional techniques of controlling in detail:

• Personal observation
• Statistical reports
• Break Even analysis
• Budgetary control

Personal observation

The method of personal observation and guidance is one of the oldest techniques of controlling. It is a traditional technique in which supervisors review the work of employees. In this way, supervisors are in direct contact with employees and have first-hand knowledge of the ways of working. For in- stance, Ritvik is being monitored by his supervisor while he works on ‘Aluminium Foil Container Making Machine’ so as to prevent wastage and guide him immediately if he commits any mistake.

In case of any problems, supervisors or managers are in a position to solve them and find solutions. Employees also remain cautious of their performance as they are being monitored and observed by the supervisor or manager. This type of control is more common in smaller business organisations.

Statistical reports

The statistical method is used to make a total analysis of the data and reports that are measured using averages, ratio, percentages, mean, median, and more. For instance, sales managers collect data of previous five years sales and analyse it to know the sales trend and accordingly put efforts to control if a downward trend is seen.

It helps in providing useful and quantifiable information for the managers regarding the performance of the organisation. Managers collect all the data and analyse it before finding the results. The data and information mentioned in statistical reports help managers to understand the problems and find out the appropriate solutions to handle them.

Break Even analysis

The break-even analysis acts as a controlling method used for measuring the performance of an organisation. It is a situation of no profit no loss. The break-even analysis is in the form of sale output, production volume, the price of products, and it is also used to define the profit and loss according to the selling price, the volume of goods, and different ratios. It also measures the performance and the impact on the revenues.

In other words, the break-even analysis establishes a relationship between the volume and cost of producing and selling goods. For instance, an automobile organisation entered into the manufacturing of electric vehicles.

In order to fix the minimum number of vehicles to sell every year to be profitable, the break-even analysis is done to know the no profit and no loss situation as this acts as a guide in fixing the vehicles to be sold every year. In case of sales less than the expected numbers, corrective measures would be taken as per the control mechanism.

Budgetary control

Budgetary control is an important technique used by managers for controlling the different functions and operations that are performed according to the set budget for a particular plan. It is an important method of controlling that helps an organisation to decide the level of spending and evaluating revenues.

For instance, material budget made by the production department is also helpful in keeping a track of misuse or wastage of materials during production process. The manager needs to plan the budget to avoid unnecessary spending. If the expenditure is more than the sanctioned budget, then employees as well as managers are answerable to the management and this helps in controlling the expenditure of different departments.

Budget injects a sense of clarity, direction, and purpose in the activities of various operating units within the organisation. Budget control is used by the supervisor to keep a check and control expenditure. It is the technique of controlling the finances for keeping the costs under control.

Modern Techniques

Modern techniques are the advanced techniques used by organisations to control. Some modern techniques of controlling are as follows:

• Return on Investment (ROI)
• Ratio analysis
• Responsibility accounting
• Management audit
• PERT & CPM

Return on Investment (ROI)

ROI is an important technique used for controlling. This technique enables an organisation to evaluate the benefit received from the investment, and measure the total profits made against the capital that is invested. If there is a high ROI, then the financial performance of an organisation is considered to be good.

ROI is an effective way to measure the performance and the financial position of an organisation. It is a method of comparing the performance of the present year with that of the past years. For instance, departmental ROIs are also calculated to measure and compare the performance of different departments and accordingly take the control measures.

Ratio analysis

The technique of ratio analysis gives a total understanding of the organisation’s performance, efficiency, liquidity, and profits. It is the most common form of controlling technique used by enterprises.

For instance, the various turnover ratios like debtors turnover ratio, inventory turnover ratio, fixed assets turnover ratio etc. are helpful in knowing whether the resources are effectively used in operations of a business or not. A higher turnover indicates better utilisation of resources. In case of low turnover ratio proper control measure are taken to have better utilisation of available resources.

Responsibility accounting

Responsibility accounting is a system of accounting in which the different units of an organisation are converted into responsibility centers. For instance, the production department of an organisation may be classified as the cost centre to keep control on the cost incurred during production process.

A production budget acts as a guide in knowing whether the costs are under control or not. Each unit is responsible for controlling the areas assigned to it. A responsibility centre can be a division, department, or section headed by a manager who is accountable for achieving specified targets.

The idea of creating different units is to increase the level of profits in terms of ROI and reduce the cost involved in production. There are separate budgets made for each unit. If the expenditure of each unit is less than the budgeted cost, then the unit is doing well.

The procedure of responsibility accounting involves:

• Setting responsibility units or centres keeping in mind the overall objective of the organisation
• Measuring actual performance by using systematic accounting
• Comparing, calculating, and analysing inconsistencies 
• Reporting inconsistencies to the higher level of management

Management audit

Management audit refers to the technique in which a comprehensive and constructive review of the overall all performance of the organisation is done. Under management audit, managers undertake a systematic checking of the effectiveness and efficiency of the management.

Auditors investigate the in-depth performance of management concerning the day-to-day working of systems and functions. In management audit, the auditor systematically evaluates the operational procedures and various management functions. Auditors do thorough checking of the entire management system.

For instance, an organisation carries an internal audit of the purchase department at the end of every month to keep a check on timely availability of material for production process and proper utilisation of the materials purchased.

PERT & CPM

Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are significant techniques used for controlling. CPM and PERT methods are used to mini- mise the cost and time for particular activities. It helps in taking necessary actions for completing the activities within the specified time.

For instance, construction projects, aircraft manufacturing, and shipbuilding. etc., use PERT & CPM techniques to compute the total expected time needed to complete a project and to identify the bottleneck activities also that may have a perilous effect on the project completion date.

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Essentials of Effective Control Systems

Suitable

The control system should be appropriate to the nature and, needs of the activity. A large firm calls for controls different from those needed for a small firm. In other words, control should be tailored to fit the needs of the organisation. The flow of information concerning current performance should correspond with the organizational structure employed.

If a superior is to be able to control overall operations, he must find a pattern that will provide control for individual parts. Budgets, quotas and other techniques may be useful in controlling separate departments.

Timely and Forward Looking

The control system should be such as to enable the subordinates to inform their superiors expeditiously about the threatened deviations and failures. The feedback system should be as short and quick as possible. If the control reports are not directed at future, they are of no use as they will not be able to suggest the types of measures to be taken to rectify the past deviations. A proper system of control should enable the manager concerned to think of and plan for future also.

Objective and Comprehensive

The control system should be both, objective and understandable. Objective controls specify the expected results in clear and definite terms and leave little room for argument by the employees. This is necessary both for the smooth working and the effectiveness of the system.

Flexible

The control system should be flexible so that it can be adjusted to suit the needs of any change in the environment. A sound control system will remain workable even when the plans change or fail outright. It must be responsive to changing conditions. It should be adaptable to new developments including the failure of the control system itself. Plans may call for an automatic system to be backed up by a human system that would operate in an emergency.

Economical

Economy is another requirement of every control. The benefit derived from a control system should be more than the cost involved in implementing it. A small company cannot afford the elaborate control system used by a large company. A control system is justifiable if the savings anticipated from it exceed the expected costs in its working.

Acceptable to Organisation Members

The system should be acceptable to organisation members. When standards are set unilaterally by upper level managers, there is a danger that employees will regard those standards as unreasonable or unrealistic.

Motivate People to High Performance

A control system is most effective when it motivates people to high performance, Since most people respond to a challenge, successfully meeting to tough standard may well provide a greater sense of accomplishment than meeting an easy standard. However, if a target is so tough that it seems impossible to meet, it will be more likely to discourage than to motivate effort.

Corrective Action

Merely pointing of deviations is not sufficient in a good control system. It must lead to corrective action to be taken to check deviations from standard through appropriate planning, organizing and directing.

In the words of Koontz and O’Donnell, “An adequate control system should disclose where failure is occurring, who is responsible for them and what should be done about them.” A control system will be of little use unless it can generate the solution to the problem responsible for deviation from standards.

Reflection of Organisation Pattern

Organization is not merely a structure of duties and function, it is also an important vehicle of control. In enforcing control the efficiency and the effectiveness of the organisation must be clearly brought out.

Human Factor

A good system of control should find the persons accountable for results, whenever large deviations take place. They must be guided and directed if necessary.

Direct Control

Any control system should be designed to maintain direct contact between the controller and controlled. Even when there are a number of control systems provided by staff specialists, the foreman at the first level is still important because he has direct knowledge of performance.

Focus on Strategic Points

A good system of control not only points out the deviations or exceptions but also pinpoints them where they are important or strategic to his operations.

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