Chapter 8: Controlling NCERT SOLUTION CLASS 12TH BUSINESS STUDIES| EDUGROWN NOTES

Short Answer Type Question:

Q.1Explain the meaning of controlling. 

ANSWER: Controlling is the function of evaluating and assessing the progress of work. It entails establishing specific criteria or standards for the work and then comparing the actual work to the established standards. It aids in identifying deviations from the set targets and, as a result, in taking the necessary corrective actions. It also ensures that everything goes as per the plan. It also ensures that resources are used fully and efficiently. Controlling is an essential managerial function because it keeps a close eye on the progress of work and thus serves as the foundation for future actions and planning.

Q.2 ‘Planning is looking ahead and controlling is looking back’. Comment. 

ANSWER: Planning is forward-thinking, while controlling is backward-thinking. This statement is only partially correct. Planning is a psychological process that involves “thinking and deciding ahead of time” about “what is to be done” and “how it is to be done.” It is a mental activity that entails deciding on goals as well as the actions that will be taken to achieve them. Thus, planning is said to be looking ahead because it involves predicting the future. Controlling, on the other hand, entails assessing past performance and comparing it to predetermined standards. Controlling is a backward-looking function in this sense. Both of these statements, however, are only partially correct. Though planning is a forward-thinking concept, it is founded on past actions and experiences. Without looking into the past, it is impossible to plan for the future. Similarly, while controlling involves evaluating past performance, it also aims to improve future performance by implementing necessary corrective actions. As a result, we can say that planning and controlling are both backward and forward looking functions.

Q.3 ‘An effort to control everything may end up in controlling nothing’. Explain. 

ANSWER: The statement, ‘an effort to control everything may end up controlling nothing,’ refers to the ‘Management by Exception’ principle. It emphasizes the fact that nothing can be effectively controlled. Rather than controlling every deviation in performance, this principle states that an acceptable range of deviations in various activities should be established, and only deviations that exceed the acceptable range should be brought to the attention of managers for control. In other words, only major deviations that exceed the allowable limit should be acknowledged. Assume, for example, that the acceptable range of increase in input cost is set at 3%. In this case, only an increase of more than 3% in input costs (say, 7%) should be brought to the managers’ attention. A decrease of less than 3% (say, 1% ) should, on the other hand, be ignored. As a result, instead of attempting to control everything, an effort should be made to control only the major things.

Q.4 Write a short note on budgetary control as a technique of managerial control. 

ANSWER: Budgetary control is a control technique that entails creating plans in the form of budgets. A budget is considered as a financial or quantitative statement that defines the goals to be achieved and the policies to be implemented over a specific time period. The actual results are then compared to the budgetary standards. This comparison aids in identifying deviations and, as a result, guides in the implementation of appropriate corrective measures. Budgets can be created for various divisions of an organization, such as sales, production, and purchasing. However, in order for budgeting to be effective, future estimates must be carefully made. Budgeting also serves as a source of motivation for employees by establishing the benchmarks against which their performance will be measured. As a result, it motivates them to meet their goals. Furthermore, it is used to facilitate coordination among the organization’s various divisions/departments. Furthermore, proper budgeting ensures that resources are allocated to different divisions based on their needs. As a result, it aids in the most efficient use of resources.

Q.5 Explain how management audit serves as an effective technique of controlling. 

ANSWER: Management auditing is the comprehensive and constructive evaluation of an organization’s management’s overall performance. It aims to improve management’s overall effectiveness and efficiency. It evaluates all of the functions performed by managers and aids in the identification of deficiencies in work performance. The following factors can be used to assess the effectiveness of management auditing for controlling.

i. Identification of Deficiencies: Management auditing assists in identifying current as well as potential deficiencies in performance. As a result, it aids in the implementation of necessary corrective measures.

ii. Increases Efficiency: Management auditing allows various management activities to be continuously monitored. As a result, it aids in improving management’s overall efficiency.

iii.Improves Coordination: As it continuously oversees the work, it improves coordination between employees as well as within the various functions of the organization.

iv.Adapting to Environmental Changes: It assists the organization in appropriately adapting to environmental changes. This is accomplished by ensuring that management policies and strategies are up to date.

Long Answer Type Questions:

Q.1 Explain the various steps involved in the process of control.
ANSWER: Controlling is a systematic process involving following steps
(i) Setting Performance Standards The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured.
Standards can be set in both quantitative as well as qualitative terms.
Some of the qualitative standards are—cost to be incurred, product units to be produced, time to be spent in performing a task etc. Improving goodwill and motivation level of employees are examples of qualitative standards.
(ii) Measurement of Actual Performance
Once performance standards are set, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner. Some of the techniques used for measuring the performance are personal observation, sample checking performance reports etc.
(iii) Comparing Actual Performance with Standards
This step involves comparison of actual performance with the standards. Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week.
(iv) Analysing Deviations
Some deviations in performance can be expected in all activities. It is therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard.
(v) Taking Corrective Action
The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished. Incase the deviations cannot be corrected through managerial action, the standards may have to be revised.

Q.2 Explain the techniques of managerial control.
ANSWER:  The various techniques of managerial control may be classified into broad categories
(i) Traditional Techniques
Those techniques which have been used by the companies for a long time now are traditional techniques. However, these have not become obsolete and are still being used by companies.
(a) Personal Observation
Personal observation enables the manager to collect first hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally in their job.
(b) Statistical Reports
Statistical analysis in the form of averages, percentages, ratios, correlation etc. Present useful information to the managers regarding performance of the organisation in various areas. Such information when presented in the form of
charts, graphs, tables etc enables the managers to read them more easily and allow a comparison to be made with performance in previous periods and also with the benchmarks.
(c) Break-even Analysis
It is a technique used by managers to study the relationship between costs, volume and profits. It determines the probable profits and losses at different levels of activity. The sales volume at which there is no profit, no loss is known as break-even point. It is a useful technique for the managers as it helps in estimating profits at different levels of activities.
(d) Budgetary Control
It is a technique of managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards. This comparison reveals the necessary actions to be taken so that organisational goals are accomplished. A budget is a quantative statement for a definite future period of time for the purpose of obtaining a given objective. It is also a statement which reflects the policy of that particular period. It will contain figures of forecasts both in terms of time and quantities

(ii) Modern Techniques
Modern techniques of controlling are those which are of recent origin and are comparatively new in management literature. They provide a new thinking on the ways in which various aspects of an organisation can be controlled.
(a) Return on Investment
Return on Investment (ROI) is a useful technique which provides the basic yardstick for measuring whether or not invested capital has been used effectively for generating reasonable amount of return. It can be calculated as under

ROI provides top management an effective means of control for measuring and comparing performance of different departments. It also permits departmental managers to find out the problem which affects ROI in an adverse manner.
(b) Ratio Analysis It refers to analysis of financial statements through computation of ratios. The most commonly used ratios are
Liquidity Ratios
Liquidity ratios are calculated to determinedly short term solvency of business.
Solvency Ratios
Ratios which are calculated to determine the long term solvency of business are known as Solvency ratios.
Profitability Ratios
These ratios are calculated to analyse the profitability position of a business.
Turnover Ratios
They are calculated to determine the efficiency of operations based on effective utilisation of resources.
(iii) Responsibility Accounting Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘responsibility centres’. The head of the centre is responsible for achieving the target set for his centre. Responsibility centres may be of the following types
(a) Cost Centre
A cost or expense centre is a segment of an organisation in which managers are held responsible for the cost incurred in the centre but not for the revenues e.g., production department.
(b) Revenue Centre
A revenue centre is held responsible for generating revenue, e.g., marketing department.
(c) Profit Centre
A profit centre is responsible for both cost and revenue e.g., repair and maintenance department.
(d) Investment Centre
An investment centre is responsible not only for profits but also for investments made in the centre in the form of assets.
(iv) Management Audit
Management audit refers to systematic appraisal of the overall performance of the management of an organisation. The purpose is to review the efficiency and effectiveness of management and to improve its performance in future periods. It is helpful in identifying the deficiencies in the performance of management functions. The main advantages are
(a) Helps to locate weaknesses.
(b) It helps to improve control system.
(c) Ensures updating of existing managerial policies and strategies in the light of environmental changes.
(v) PERT and CPM
Programme evaluation and review technique and critical path method are important network techniques useful in planning and controlling. These techniques are especially useful in planning, scheduling and implementing time bound projects involving performance of a variety of complex, diverse and inter-related activities. These techniques deal with time scheduling and resource allocation for these activities and aims at effective execution of projects within given time schedule and structure of costs.
(vi) Management Information System
MIS is a computer based information system that provides information and support for effective managerial decision-making. A decision maker requires up-to-date
accurate and timely information. MIS provides the required information to the managers by systematically processing a massive data generated in an organisation. Thus, MIS is an important communication tool for managers.

Q.3 Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?
ANSWER:  Control is an indispensable function of management. Without control the best of plans can go away. A good control system helps an organisation in the following way
(i) Accomplishing Organisational Goals
The controlling function measures progress towards the organisational goals and brings to light the deviations. If any, and indicates corrective action. It thus, guides the organisation and keeps it on the right track so that organisational goals might be achieved.
(ii) Judging Accuracy of Standards
A good control system enables management to verify whether the standards set are accurate and objective an efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.
(iii) Making Efficient Use of Resources
By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with pre-determined standards and norms. This ensures that resources are used in the most efficient and effective manner.
(iv) Improving Employee Motivation
A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus motivates them and helps them to give better performancer.
(v) Ensuring Order and Discipline
Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities.
(vi) Facilitating Co-ordination in Action
Controlling provides direction Jo al! activities and efforts for achieving organisational goals. Each department and employee is governed by pre-determined standards which are well co-ordination with one another. This ensures that overall organisational objectives are accomplished.
Although controlling is an important function of management. It suffers from the following limitations also
(i) Difficulty in Setting Quantitative Standards Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. This makes measurement of performance and their comparison with standards a difficult task. Employee morale, job satisfaction and human behaviour are such areas where this problem might arise.
(ii) Little Control on External Factors Generally an enterprise cannot control external factors such as government policies, technological changes competition etc.
(iii) Resistance from Employees Control is offer resisted by employees. They see it as a restriction on their freedom. For instance, employees might object when they are kept under a strict watch with the help of Closed Circuit Televisions (CCTVs).
(iv) Costly Affair Control is a costly affair as it involves a lot of expenditure, time and effort. A small enterprise cannot afford to install an expensive control system. It cannot justify the expenses involved. Managers must ensure that the costs of installing and operating a control system should not exceed the benefits derived from it.

Q.4 Discuss the relationship between planning and controlling.
ANSWER:  Planning and controlling are inseparable, they are twins of management. A system of control pre-supposes the existence of certain standards. These standards of performance which serve as the basis of controlling are provided by planning. Once a plan becomes operational controlling is necessary to monitor the progress, measure it, discover deviations and initiate corrective measures to ensure that events conform to
plans.
Planning is clearly a pre-requisite for controlling. Controlling cannot be accomplished with planning. With planning there is no pre-determined understanding of the desired performance, planning seeks consistent, integrated and articulated programmes while controlling seeks to compel events to conform to plans.