Business Studies · Ch 8 — Controlling
Summary
Summary
- Controlling is the process of comparing actual performance with standards, identifying deviations, and taking corrective action. It is a goal-oriented, pervasive, continuous, and dynamic function that closes the management loop.
- Relationship with Planning: Planning sets the standards and goals; controlling measures progress against them. Without planning, control has no basis; without control, planning is directionless. They are interdependent and together form the planning-control cycle.
- Steps in the Process:
- Setting Performance Standards — expressed in quantitative terms (units, cost, time) or qualitative terms.
- Measurement of Actual Performance — using reports, personal observation, or samples.
- Comparison of Actual with Standards — to find deviations.
- Analysing Deviations — identifying the cause (critical point control and management by exception are key techniques here).
- Taking Corrective Action — fixing the root cause to prevent recurrence.
- Techniques of Controlling:
- Traditional: Personal observation, statistical reports, break-even analysis (finding the sales level at which total revenue just equals total cost), and budgetary control (comparing actuals with budgets like sales, production, cash budgets).
- Modern: Return on Investment (ROI) (how efficiently invested capital is generating profit), Ratio Analysis (liquidity, profitability, solvency ratios), Responsibility Accounting (assigning cost/revenue centres), Management Audit (evaluating overall management effectiveness), PERT and CPM (network techniques for project control), and Management Information System (MIS) (computer-based data flow for decision-making).
- Critical Point Control — focus control efforts on key result areas (KRAs) where deviations matter most, rather than checking every detail. …