Controlling Process

• Controlling is a systematic process with five steps.
• Steps: setting performance standards, measuring actual performance, comparing with standards, analysing deviations, taking corrective action.

• Standards are criteria and benchmarks to measure actual performance.
• Quantitative standards: cost, revenue, units produced and sold, time taken.
• Qualitative standards: goodwill, motivation level of employees.

Functional area standards:

• Production – quantity, quality, cost, individual job performance.
• Marketing – sales volume, sales expense, advertising expenditure, salesperson’s performance.
• HRM – labour relations, labour turnover, labour absenteeism.
• Finance and accounting – capital expenditure, inventories, flow of capital, liquidity.

Standards should be precise, measurable and flexible as business conditions change.

• Performance is measured objectively and reliably.
• Techniques: personal observation, sample checking, performance reports.
• Measure in same units as standards; preferably during performance.
• Employee performance: report by superior.
• Company performance: ratios like gross profit ratio, net profit ratio, return on investment.
• Marketing: units sold, increase in market share.
• Production: pieces produced, defective pieces; use sample checking in large organisations.

• Actual performance is compared with standards to find deviations.
• Comparison is easier when standards are quantitative (e.g. weekly units produced vs standard).

• Some deviation is normal; acceptable limits must be set.
• More attention to deviations in key areas.

Critical Point Control 

• Focus on key result areas critical to organisational success.
• If critical points fail, the whole organisation suffers.

Management by Exception 

• Only significant deviations beyond permissible limits are reported.
• Major deviations require immediate priority action.

Advantages

• Save managerial time and effort.
• Focus on important areas; better use of managerial talent.
• Routine issues handled by subordinates; supports delegation and morale.
• Identify critical problems needing timely action.

Causes of Deviations 

• Unrealistic standards, defective process, resource inadequacy, structural drawbacks, organisational constraints, uncontrollable environmental factors.
• Causes must be correctly identified before corrective action.

• Final step; required when deviations exceed acceptable limits.
• Aim: prevent recurrence and achieve standards.
• Examples: training employees, adding workers and equipment, allowing overtime, revising standards if deviation cannot be corrected.

• Controlling has five steps: setting standards, measuring performance, comparing results, analysing deviations, and taking corrective action.
• Standards should be clear, measurable, and flexible.
• Actual performance is measured and compared with standards to identify deviations.
• Managers focus on important deviations using Critical Point Control and Management by Exception.
• Corrective action is taken to remove deviations and achieve organisational goals.