30 Controlling Process and Types
Pooja Malhotra
1. Learning Outcome:
After completing this module the students will be able to:
- Understand the concept and meaning of Controlling
- Understand the features and characteristics of controlling.
- Describe various types of control
- Understand the controlling process.
2. Introduction
Controlling is the last and an important function of managerial process which is executed after planning, organising, staffing and directing. Under planning function, future activities are decided in advance. Once, activities are decided, the second function of management is ‘organising’ which aims at implementation of activities decided in planning by providing all necessary resources through an organisational structure. The organisational structure sets out the authority and responsibility relationships between superiors and subordinates. The posts created by the organisational structure are filled through the function ‘Staffing’. The next step comes is ‘directing’ which means providing guidance to all the people working in the organisation. At last, the organisation has to ensure that all the activities which were being planned under the first four functions of management are being performed as per the plans or not. The performance of work is assessed and compared with plans, and if any discrepancies’ are sought out, remedial action is taken immediately to avoid any adverse situations and this function is known as ‘controlling.’ Hence, controlling refers to a process which consists of various steps to ensure that the performance of organisation is according to the plans.
2.1 Meaning and Definition of Controlling
In Management, Control refers to assessing the progress of work from time to time so that the actual progress of work is according to the expected progress. If actual progress is not in accordance with expected one, deviations are found out, and corrective action is taken so that mistakes are not repeated. Control is applicable to all business functions, e.g. finance, purchase, production, marketing, materials, cost, quality etc. different authors and scholars have defined controlling differently, following are some of the definitions given by some authors:
In the words of Philip Kotler, “control is the process of taking steps to bring actual results and desired results closer together.”
Koontz and O’Donnel defined Controlling ‘as the measurement and correction of performance of activities of subordinates in order to make sure that enterprise objectives and plans devised to attain them are being accomplished’.
In nutshell, controlling is a managerial activity which brings the actual results closer to the expected results. It is concerned with setting performance standards, measurement of actual performance, comparing the actual performance with standards, analysing deviations (if any) and taking corrective actions.
3. Nature/Characteristics/Features of Controlling
Following are the characteristics of controlling which reflects its nature:
3.1 Fundamental Managerial Function
Management as a process includes various activities like planning, organising, staffing, directing and controlling. Out of all these functions, controlling is the most important function. Without controlling, all other functions are meaningless. In its absence, it will be difficult to determine, what we want to do and what is being done? Hence, controlling is a fundamental managerial function.
3.2 Pervasive Function
The second characteristic of controlling is that it is being performed at all managerial levels. Every manager has to control the activities and behaviour of subordinates. The scope of control may differ at every level of management. Top level managers perform administrative controlling keeping in view plans and policies. The middle level managers implement the policies and plans of the organisation by way of controlling and the lower level managers control the actual work performed by the subordinates.
3.3 Continuous Process
Control is not performed once or twice. It is needed at all times. It is a continuous activity. The performance of the work has to be assessed on a continuous basis. The performance standards have to be changed as per changing situations. Hence, controlling is a continuous process of measuring, comparing and verifying regularly.
3.4 Universal Process
The control process and its components are universal. The control process remains same regardless of the location in the organisation or the activity involved. Every control process includes four steps, fixing standards, assessing actual performance, comparing actual performance with standards and finding deviations and taking corrective actions.
3.5 Both the beginning and the end of Management Process
The need of control arises both at the beginning and at the end of the management process. The management process starts with planning and ends with controlling. To perform control function, standards are to be fixed which are laid down in planning. In this way, process of management starts with planning which is also the first step of controlling. On the other hand, to achieve the standards already determined comes under controlling which is the last step of process of management. Hence, in this way, controlling is the beginning as well as the end of the management process.
3.5 Forward Looking
Controlling is forward looking function. Though, it is also looking back function, because under control actual results are compared with predetermined standards. But it is forward looking also. Under control, when actual results are compared with expected ones to find out the deviations and corrective action is taken, this corrective action is taken with reference to future; also it provides standards for future performance. Hence, control looks forward also.
3.6 Action oriented
Controlling is an action oriented function. It involves taking corrective action to achieve predetermined results. Control is not only concerned with measuring performance, it also takes corrective actions for correcting the deviations coming out of desired performance. Hence, control is action oriented.
3.7 Goal-oriented function
Control is a goal oriented function. It is concerned with accomplishing the organisational goals. It aims at taking actions which results in achievement of desired goals. Though it should be remembered that control is not an end in itself, it is just a means to achieve the desired goals.
3.8 Dynamic Process
Control is a dynamic process rather than a static one. It is concerned with continuous review of standards in view of changing circumstances and comparing results with standards to achieve desired goals. Hence, control is dynamic process which keeps on changing with change in situations.
3.9 Positive process
Control is a positive process as it is concerned with making things happen as desired. It should not be viewed as negative. It does not mean to accuse the employees or acting as a hindrance or interfering in their work. It aims to inspire them to achieve the desired results.
3.10 Information is the guide to controlling
Controlling depends upon timely availability of sufficient information about the progress of actual work. The information related to actual performance and set standards and their difference, help the managers to take necessary action. Hence, an efficient system of control depends upon a well designed information system.
3.11 Emotional and Motivational Implications
Control function has both emotional and motivational impacts upon employees. Some people who take control as a restrictive tool feel it to be a burden and remain in stress. While others take control as a motivational act, as they know that their performance will be measured and recognised by the management in case of good results.
3.12 Wide Scope
The scope of control is very wide. It includes all aspects of performance like quality, quantity, cost, time etc.
3.13 Control of actions and behaviours
Control does not aim at controlling the people and their freedom. It aims at controlling the actions and behaviour of human beings and regulating them towards organisational objectives.
4. Types of Control
There are two main categories of control:
a) Direct Vs. Indirect Control and
b) Physical Vs. Financial Controls
a. Direct Vs Indirect Control Direct Control:
Various control measures like cost control, quality control, budgetary control are known as direct control because, the results can be directly compared in this case.
Indirect Control
Indirect control involves devising a control system whereby control is maintained automatically. Control can also be categorised as physical control and financial control
b. Physical Vs. Financial Control Physical Control
Physical control involves control over quality and quantity. Output standards may be fixed in terms of per day or per man. Similarly quality standards may also be fixed such as hardness or softness of product etc.
Financial Control
Financial controls are expressed in terms of monetary value like cost per unit of output or sale price per unit etc.
Sometimes, physical and financial controls may be applied jointly as in case of budgetary control. In case of budgetary control, physical as well as financial standards are fixed in advance and actual performance is compared with the fixed standards.
c. Other Classifications
Control can also be categorized on the basis of various activities of the business enterprise such as inventory control, sales control, credit control, personnel control, production control, capital expenditure control, safety control etc.
5. Controlling Process
As discussed above, control is a process which involves various steps which remain same irrespective of activity involved or its location. A control process involves various steps which are essential for effective implementation of planning. These steps are mainly classified into four parts: a). Fixing standards, b) Measurement of actual performance, c) Comparison of actual and standard performance and d) Correcting deviations from standards. Following figure shows the steps of control process:
Figure 1: Control Process
5.1 Setting Performance Standards
The first step in controlling process is establishment of standards of performance. Standards serve as a criteria or a test on the basis of which actual performance can be measured. In business context standards mean objectives to be achieved. In order to check whether actual performance is in right directions, there need to have certain standards. In this way, standards become bench marks against which actual performance is measured and compared. In the absence of standards, there will be no use of measuring actual performance. Hence, standards act as the basis of control. They should be established very carefully, objectively and scientifically. Different standards of performance are established for different operations of the organisation. Standards are mainly of two types:
a. Quantitative Standards: standards which are expressed in numerical terms like quantities of goods to be produced, cost to be incurred, investments to be made, profits to be earned, man hours to be worked, speed to be achieved etc.
b. Qualitative Standards: standards which cannot be expressed in numerical terms or which are established for intangible things like improvement in employee morale, customer or employee opinion etc. these cannot be measured directly. E.g. in order to measure employee morale, labour turnover rate, absenteeism rate etc. will be considered. If rate of all these factors is low, it means employee morale has increased. Similarly to measure opinion of customers, variations in sales can be taken into consideration.
5.1.1 Basis of Standards
There are mainly four basis for establishing standards. These are a) Quantity b) Quality c) Cost and d) Time.
Quantity standards are set for production, sales, stock etc. Quality standards are set relating to raw material, finished goods, customers service, employee satisfaction etc. Cost standards are related to material, labour and other expenses. Time standards are related to time consumed in production of goods.
5.1.2 Factors to be considered while setting standards
While setting standards, following factors/points should be kept in mind:
a. Standards should be attainable
b. Standards should be fixed for all key areas of business
c. Standards should be in accordance with goals and policies of the organisation
d. Standards should be expressed in quantitative terms, as far as possible, or they should be easy to measure.
e. Standards should be precise and tangible so that they can be easily understandable.
f. Standards should be focused on achievement of results not on procedures and policies.
g. Standards should be flexible and can be changed according to changing situations.
h. Standards should be objective and based on facts.
i. Standards should be reviewed and revised periodically.
j. Standards should be set in consultation with employees
k. A deviation tolerance limit should be prescribed. It means to what extent deviation of actual from standard performance can be tolerated and there will be no need to
take unnecessary action. E.g. if production of 1950 as against standard target of 2000 units is achieved, it should be acceptable without any extra corrective action.
l. Standards should be capable of achieving with reasonable cost, time and effort.
5.2 Measurement of Actual Performance
After setting standards, the second step of controlling process is to measure actual performance of various individuals, groups or units. Actual Performance can be measured by using any method of evaluation e.g. supervision, observation, reporting, sampling, accounting statements etc. the actual performance should be measured according to fixed standards. The performance should be measured in quantitative terms if standards have been fixed in numerical terms. E.g. if standard is prescribed as number of units per hour, quantity of goods to be produced etc. then information relating to actual performance is same terms can be easily measured.
Managers should select the methods and time of measurement very carefully. Actual performance can be measured either during the course of its operation or after the actual work is completed. In first situation, when the work is in process, it can be measured with the help of supervision and observation to check if the work is being done according to plans and as per standards. If any negative result is found, corrective action can be taken immediately to avoid any further loss to the remaining work. However, in second situation, where work has been completed, in case of any negative result, corrective action can be taken only for future work and the loss cannot be compensated. Following points should be kept in mind at the time of measurement of actual performance:
a. The units of measuring performance should be same as were set at the time of fixing standards.
b. The facts and figures regarding performance of work should be as far as possible true.
c. The figures should be continuously prepared.
d. The time of measurement of performance should neither be too short nor too long.
5.3 Comparing Actual performance with Standards
Once actual performance has been measured, the third main step of control process is comparing actual performance with the fixed standards of performance. It includes two steps:
a) finding out the extent of deviations and
b) identifying the causes of these deviations. The comparison of actual performance with standards will be easy when standards have been fixed numerically.
In all other cases, where results cannot be measured quantitatively, techniques like personal observation, inspection, etc. can be used for evaluation. The managers can find out deficiencies or deviations in actual performance from the fixed standards. The deviations are of two types: positive and negative. When performance is less than fixed standards, it results into negative deviation, on the other hand, when performance is more than the fixed standard, it is positive deviation. Though, it is very important to analyse the causes of negative deviation, it is equally important to examine the causes of positive deviation.
5.4 Analysing Deviations
The deviations coming out of comparison of actual performance with standards are analysed. If there are no deviations, there is no need to take any action regarding this. The control process ends here. But if standards are not achieved and actual performance is below standards, it will be checked if deviation is acceptable i.e. if deviation is within deviation tolerance limits, then again there is no need to do anything and hence can be avoided. However, if deviation is large and not acceptable, they should be reported to management and finally, causes of such deviation will be identified and responsibility will be fixed accordingly. The standards will also be reviewed. If the standards are found to be wrong, these will be revised and new standards will be formed. There are two main principles which guide analysis of deviations:
5.4.1 Principle of Critical Point Control
As per this principle, only those activities should be determined, which have an important impact on performance. These are also known as key result areas. Managers should pay more attention to those activities only where negative deviations can bring major loss to the enterprise and should avoid small and insignificant activities.
5.4.2 Principle of Exception
According to this principle, the manager should focus on more important deviations whether good or bad. It means manager should take corrective actions regarding those deviations, only after a thorough study, which are either too good or too bad and which have an important bearing on business. For example, if sales exceed the standards, it is called a positive deviation and is such as case, its cause can be good marketing. Hence, in this case, sales can be promoted by paying more attention to marketing.
The main difference between principle of critical point control and principle of exception is that, under first situation, only those activities or points are controlled which are profitable or important from business point of view, while in second situation, deviations are taken into consideration in respect of the pre-defined critical points. Only those deviations should be concentrated which are most important or which can cause heavy loss to business. Hence, both time and efforts are saved. The less important problems can be delegated to subordinates which will help in boosting their morale.
5.4.3 Causes of Deviations
Some of possible causes of deviations can be human causes like inefficiency of employees, some uncertain events like strikes, shortage of material, breakage of machines, interrupted supply of electricity, etc or wrong standards about sales, profits, costs etc.
Hence, deviations and their causes are identified and reported to concerned officers for taking corrective action.
5.5 Taking Corrective Action
The last and most important step in controlling process is taking corrective action. The purpose of taking corrective action is to bring the actual performance up to the level of expected performance standards. There may be two types of actions like removing deviation in the actual performance e.g. removing hurdles or defects in machines and stopping the repetition of any such problem in future e.g. modification of plans, revising of goals or standards, reassignment of duties etc.
5.5.1 Factors to be considered while taking corrective action
While taking corrective actions, managers should take into consideration following points:
a. Corrective action should be taken only after a thorough analysis of causes of deviations.
b. Standards should be revised if the need be.
c. Corrective action should be taken only by the concerned officers who are directly associated with the work.
d. Action should be taken without loss of time to avoid any further loss.
e. Policies, procedures etc. should also be revised if the need be.
f. Corrective action should be acceptable by the people involved in it.
g. Positive deviations should also be found and causes should be analysed so as to make further improvements in work.
Once corrective action is taken, the process of control repeats. Hence, control is a continuous process. The essence of a good control system is whether a correct action is taken at the correct time.
6. Summary
Controlling is the last and an important function of management process. It is concerned with establishing standards of work performance for various individuals, groups or units, assessing actual performance, comparing actual work performance with pre-established standards, finding and analysing deviations and taking corrective actions. Controls are of various types, direct or indirect, quantitative or qualitative, or depending upon various operations of the organisation like inventory control, sales control, cost control etc. while controlling, managers should take into consideration the principle of critical point control and principle of exception, which means managers should focus on only important activities and deviations which have a major bearing on the progress of the organisation. Once corrective action is taken, the process of control repeats itself. Hence, control is a continuous process. The essence of a good control system is whether a correct action is taken at the correct time.
References:
- Nolakha, R. L. (2008), Principles of Management, 2nd Edition, Ramesh Book Depot, Jaipur.
- Robbins, S., Bergman, R., Stagg, I. and Coulter, M. (2014), Management, 7th Edition, Pearson Education.