Controlling Class 12 Notes CBSE Business Studies Chapter 8 (Free PDF Download)

Definition

“Managerial Control implies the measurement of accomplishment against the standard and the correction of deviations to assure attainment of objectives according to plans.”

Koontz and O'Donnell. 

Meaning

Controlling is a process that entails comparing actual performance to the desired outcome, so as to ensure the successful achievement of objectives. Setting standards, measuring actual performance, and taking corrective action in case of deviations are all part of the managerial role of controlling function. 

Importance Of Controlling

1. Controlling helps in achieving organizational goals: The controlling function tracks progress toward organizational objectives and flags any deviations so that remedial action can be taken.

2. Judging accuracy of standards: An effective control system allows management to determine if the standards set are accurate or not by closely monitoring changes in the organization's environment.

3. Making efficient use of resources: A manager can reduce resource waste by effectively utilizing resources through the controlling process.

4. Improving employees’ motivation: An effective control system guarantees that staff are aware of what they are expected to do as well as the performance requirements. As a result, it inspires and assists them in delivering superior results.

5. Ensuring order and discipline: By maintaining a careful eye on the activities of its employees, the controlling function generates an atmosphere of order and discipline in the firm.

6. Facilitating Coordination in action: The last and most crucial role of controlling is to ensure that each department and employee is governed by predetermined standards and goals that are well-understood and coordinated. This guarantees that the organization's overall goals are met in a timely way.

Limitations Of Controlling

1. Difficulty in setting quantitative standards: When standards cannot be measured, a control system loses some of its effectiveness.

2. Little control on external factors: External elements such as government legislation, technical advancements, and competition, among others, are beyond the control of an organization.

3. Resistance from employees: Employees, for the most part, despise being controlled by their bosses and they dislike being in constant vigilance of the management.

4. Costly affair: Control is an expensive procedure because it necessitates a lot of money, time, and effort in terms of setting standards, measuring performance and correcting the deviations.

Features Of Controlling

In an organization, control is a major goal-oriented function of management. It is a process of comparing actual performance to the company's defined standards to ensure that actions are carried out according to the plans, and if they aren't, corrective action is taken.

1. Goal oriented: The attainment of defined goals or objectives determines the success of any management effort.

2. Pervasive: Controlling is required in all types of organization whether it is profit making, non-profit making, business or non-business, at all levels whether it is top level management or middle level management or lower-level management.

3. Continuous: Continuous performance development, is a real-time, forward-looking approach to performance that businesses utilise to align and grow their people while assisting them in their success.

4. Controlling is the process of reviewing staff performance: Through controlling function, the management can keep a check on the performance, dedication, and problem areas of the staff.

5. It is a forward-looking function: Controlling is a forward looking function, as it helps in deciding the future course of action in case the actual performance does not match with the standards set.

6. It is dependent on the planning: Controlling is dependent on the planning function, as the comparison of actual performance is made with the planned performance. Hence planning acts as a base for controlling.

7. Action oriented: The focus of management is on accomplishing the work with the help of human resources. It is the effective and efficient coordination of all available resources. The actions in an organisation are carried out by subordinates, or workers, who work under the supervision of a manager.

Relationship Between Planning And Controlling

Planning and controlling are intertwined and mutually reinforcing in the sense that:

• Planning is required for effective control. The norm for controlling is set by plans. Managers have no influence over anything if the standards aren't defined ahead of time.

• Without controlling, planning is worthless. When control is exercised, it is fruitful. It detects any deviations and takes corrective action if necessary.

• Controlling assesses the efficiency of planning and aids in the implementation of remedial actions.

• Planning is forward-thinking, whereas controlling is backward-thinking. Planning is a future-oriented activity since it entails thinking ahead and establishing policies to maximize resource use in the future, which is why it is referred to as a forward-looking function. 

• In controlling, we examine the employees' previous performance and compare it to the established requirements. If there are any discrepancies between real and expected performance or output, the controlling functions ensure that future actual performance meets expected performance. As a result, controlling is a function that looks ahead.

• As a result, planning and controlling are intertwined, and they walk hand in hand. Controlling becomes more successful because of planning, whereas planning enhances future controlling.

Controlling Process

1. Setting Performance Standards:

• The criteria against which actual performance can be measured are known as standards

•  Standards are the goals that an organisation aspires to achieve.

• Due to changes in the business environment, standards should be flexible enough to be adjusted as needed. 

• Standards could be qualitative or quantitative or it could also be time bound or cost bound.

2. Measurement of Actual Performance:

• Performance standards are established first, and then actual performance is assessed.

• Personal observation and sample checking should be used to measure performance in an objective and reliable manner.

• Performance should be measured in the same terms that standards have been defined to make comparisons easier.

• Performance can be checked simultaneously when the work is being performed or after the completion of work.

3. Comparing Actual Performance with Standard:

• In this step, real performance is compared to the standard.

• If the performance meets the norms, everything appears to be under control.

• There can be three scenarios

• Standards = Actual Performance

• Standards > Actual Performance

• Standards < Actual Performance

4. Analyzing Deviations:

The permissible range of variations is determined by assessing deviations from the standards.

1. Critical Point Control: Control should be focused on key result areas (KRAs) that are crucial to an organization's success. These KRAs have been designated as important points.

2. Management by Exception: Exceptional management Control by exception, often known as control by exception, is a key management control philosophy based on the belief that attempting to control everything leads to managing nothing. In other words, you can't control everything at the same time. 

For example, the company controller decides that corrective action is needed when the expenses are greater than $10,000 or 20% higher than projected. The goal of the management by exception approach is to only worry management with the most significant deviations from the business's planned course or performance.

5. Taking Corrective Action: Taking remedial action is the final step in the controlling process. When the variance is within acceptable bounds, no corrective action is necessary. When major aberrations occur, however, corrective action is required like:

• Alarms are being installed.

• Equipment is  redesigned or replaced.

• Tools are arranged which were needed for production.

• Work processes are being updated.

• In case of overestimation or underestimation of standards, the standards are set again.

Techniques Of Managerial Control

Managerial control techniques can be divided into two broad categories:

• Traditional Techniques 

• Modern Techniques.

Traditional Techniques: 

1. Personal Observation: It allows the management to gather firsthand knowledge, but it is time consuming and not applicable to all types of jobs

2. Statistical Reports: Statistical analysis presents managers with important information about the organization's performance in the form of averages, percentages, ratios, correlation, and so on.

3. Break Even analysis: It is a method for determining the link between expenses, volume, and profit. Breakeven is a point where the total revenue is equal to the total cost, hence no profit-no loss condition.

4. Budgetary Control: It is a management control strategy in which all actions are scheduled in advance as budgets and actual results are compared to budgetary standards

Types of budget

1. Sales budget 

2. Production budget 

3. Material budget 

4. Cash budget 

5. Capital budget 

6. Research and development budget

Advantages of Budgeting

1. Assists in the achievement of organizational goals

2. Provides employees with a source of inspiration

3. Assists in the most efficient use of resources

4. It can also be utilized to achieve departmental coordination.

Modern Techniques

1. Return on Investment: Return on Investment (ROI) is a technique for determining whether invested capital was effectively employed to generate a decent level of return. It can be found by dividing net income with total investment.

2. Zero Based Budgeting: It refers to a controlling technique where the budget is formed from scratch, and not referring to the previous budgets. Hence, in this budget is prepared as per the current conditions.

3. Responsibility Accounting: In this various responsibility centers are set up so as to enforce the responsibility control system. The four responsibility centers are:

1. Cost centre: A cost or expenditure centre is a part of a company for which a manager is responsible for the operations. 

For example, a manufacturing unit's production department. Through operational excellence, customer service, and increased product value, a cost centre indirectly contributes to a company's profit.

2. Revenue Centre: It is a division of a company that is largely responsible for revenue generation. 

For example, the gross income of a corporation is 100 if it sells a widget for 100 but only spends $25 to create it. Gross income is calculated at the end of each reporting cycle, which might be monthly or annual. The overall sales created during a given month are referred to as monthly gross revenue, whilst the entire sales generated over the course of a year are referred to as annual gross revenue.

3. Profit Centre: It is a part of a company whose manager is responsible for both revenue and expenses. A profit centre is judged on how much profit it generates, and it tries to boost profits by boosting sales or cutting costs. 

Manufacturing and sales are two departments that fall under the profit centrE.

4. Investment Centre: It is responsible for not only profits, but also all the center's investments. Human resource and marketing departments are examples of departments that make up the cost centre. 

4. Management Audit:

The term "management audit" refers to a systematic assessment of an organization's management performance.

5. PERT and CPM:

• PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) are key management approaches for planning, scheduling, and controlling complex project

• These strategies are particularly beneficial for planning, scheduling, and implementing time-bound projects that require the execution of a range of complicated, diversified, and linked tasks.

6. Management Information System

A management information system (MIS) is a computer-based information system that provides data and support to help managers make better decisions. It's a crucial control strategy.

Managers benefit from MIS in the following ways:

1. It makes information collection, management, and dissemination easier.

2. It facilitates all levels of planning and control.

3. It enhances the information quality.

4. It ensures value for money.

5. It helps to alleviate information overload.

CBSE Class 12 Business Studies Chapter 8 Notes PDF

What is the Meaning of Controlling?

Let’s begin the revision notes class 12 business studies chapter 8 by looking at the definition. In a basic sense, controlling consists of the comparison that exists between the actual performance and the planned performance.

As you might have guessed, this practice of controlling helps an organization to achieve the objectives efficiently and effectively. There are also many other reasons why the practice of controlling is important. And some of those reasons are:

• Judging the Accuracy of Standards

According to various class 12 notes controlling, a good control system works by enabling the management to check whether the standards set by the organization are correct or not.

• Achieve Organizational Goals

The controlling measures help an organization achieve its various goals. This helps in bringing out methods or techniques that can be followed to help an organization achieve more success.

• Effectively Using Resources

With the help of process control, a manager can actively reduce the amount of wastage of resources that might be happening regularly in an organization.

• Enhancing the Motivation of Employees

There are many NCERT class 12 revision notes business studies chapter 8 solution that highlights the importance of employees staying motivated. This is exactly what a good control system can help an organization to achieve.

• Following Discipline and Order

With the help of controlling, one can create a workplace environment in which all employees will follow the correct order and discipline.

• Facilitating Coordination in Action

According to various business studies class 12 chapter 8 revision notes, another reason why controlling is important is because it helps each and every department and employee to be governed by a set of predetermined standards.

The Features of Controlling

Till now, in this class 12 revision notes chapter 8, we have looked at what controlling is and why it is important. In this section, we will move towards the various features of controlling. To help readers grasp this concept quickly, we have created a list of those features. And that list is mentioned below.

• Controlling is goal-oriented

• Controlling is pervasive. It can be said without a doubt that controlling is essential for every manager

• Controlling is continuous

• Controlling involves looking back. When it comes to controlling, it involves the measurement of the actual performance and its comparison with the desired performance

• According to NCERT solutions chapter 8 class 12 business studies revision notes, controlling consists of looking forward. The main objective of controlling is to achieve future results

• Controlling is dependent on planning

• Controlling is action-oriented

• It is the primary function of management as it is performed in all organizations and at all levels of management

• Controlling is not the last function. Instead, it brings back the management cycle to planning

All of these features are also depicted visually in the image that is attached below. It is suggested that all readers should go through this image carefully.

(Image to be added soon)

Fun Facts about Controlling

Did you know that according to various controlling class 12 business studies revision notes, there are also many limitations of controlling? This is true and some of those limitations are:

• It is difficult to set quantitative standards. Further, control systems tend to lose their effectiveness if the standards of performance are not defined in quantitative terms. This would create trouble with comparing the actual performance with the standard performance

• There is little to no control over external factors like technological changes, competition, and government policies

• Control can also be resisted by the employees. In some cases, employees might feel as if their freedom is being restricted

• Controlling cannot be done without spending a considerable amount of time, effort, and monetary resources. This creates an implementation issue for small organizations

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Conclusion

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