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CONTROLLING, Departure Control Systems (DCS), A Departure Control System (DCS), automates processing an airlines airport, management operations which includes, managing the informant required for airport, check-in, printing boarding pass, baggage, acceptance, boarding load control and, aircraft checks. Today almost 98% of DCS, manage e-ticket using interface from a, number of devices including check-in kiosks,, online check‑in, mobile boarding pass and, baggage handling. DCS are able to identify, and capture updated reservations from an, airline computer reservation system for, passengers called passenger name record, (PNR). A DCS is used to update reservations, typically as ckecked-in, boarded, and, flown or another status. Additionally and, increasingly a DCS or some city fare sectors, may also interface with immigration control, for visa, immigration and passenger no fly, watch list., , It is quite clear from the example, that all managers need to manage, situations intelligently and take, corrective action before any damage, is done to the business. Controlling, function of management comes to, the rescue of a manager here. It not, only helps in keeping a track on, the progress of activities but also, ensures that activities conform to, , 8, , CHAPTER, L E A R N I N G, OBJECTIVES, , After studying this chapter,, you should be able to:, n, , n, , n, , n, , n, , Explain the meaning of, controlling;, State the importance of, controlling;, Describe the relationship, between planning and, controlling;, Explain the steps in the, process of controlling; and, Describe the techniques of, controlling., , the standards set in advance so that, organisational goals are achieved., , Meaning, , of Controlling, Controlling is one of the important, functions of a manager. In order, to seek planned results from the, subordinates, a manager needs to, exercise effective control over the, activities of the subordinates. In other, , 2021–22, , Ch_08.indd 205, , 04-10-2019 2:41:18 PM

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Business Studies, , 206, , words, controlling means ensuring, that activities in an organisation are, performed as per the plans. Controlling, also ensures that an organisation’s, resources are being used effectively, and efficiently for the achievement of, predetermined goals. Controlling is,, thus, a goal-oriented function., Controlling function of a manager, is a pervasive function. It is a primary, function of every manager. Managers, at all levels of management— top,, middle and lower-need to perform, controlling functions to keep a, control over activities in their, areas. Moreover, controlling is as, much required in an educational, institution, military, hospital, and a, club as in any business organisation., Controlling should not be misunde­, rstood as the last function of manage­, ment. It is a function that brings, back the management cycle back to, the planning function. The controlling, function finds out how far actual, performance deviates from standards,, analyses the causes of such deviations, and attempts to take corrective actions, based on the same. This process, helps in formulation of future plans, in the light of the problems that were, identified and, thus, helps in better, , planning in the future periods. Thus,, controlling only completes one cycle, of management process and improves, planning in the next cycle., , Importance of Controlling, Control is an indispensable function, of management. Without control the, best of plans can go awry. A good, control system helps an organisation, in the following ways:, (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., , 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’ Donnel, , 2021–22, , Ch_08.indd 206, , 04-10-2019 2:41:18 PM

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Controlling, , 207, , (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 predetermined standards, and norms. This ensures that, resources are used in the most, effective and efficient 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 performance., (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., , The box explains how an importexport company was able to track, dishonest employees by using, computer monitoring as a part, of their control system., (vi) Facilitating coordination in, action: Controlling provides, direction to all activities and, efforts for achieving organisational, goals. Each department and, employee is governed by pre­, determined standards which, are well coordinated with one, another. This ensures that, overall organisational objectives, are accomplished., , Limitations of Controlling, Although controlling is an important, function of management, it suffers, from the following limitations., (i) Difficulty in setting quantitative, standards: Control system loses, some of its effectiveness when, standards cannot be defined in, , Control Through Computer Monitoring, Managers at a New York City import-export company suspected that two employees were, robbing it. Corporate Defense Strategies (CDS) of Maywood, New Jersey, advised the firm, to install a software program that could secretly log every single stroke of the suspects’, computer keys and send an encrypted e-mail report to CDS. Investigators revealed that, the two employees were deleting orders from the corporate books after processing them,, pocketing the revenues, and building their own company from within. The programme, picked up on their plan to return to the office late one night to steal a large shipment of, electronics. Police hid in the rafters of the firm’s warehouse, and when the suspects entered,, they were arrested. The pair was charged with embezzling $3 million over two and a half, years, a sizable amount of revenue for a $25 million-a-year firm., Source: Hellriegel Don, Susan E. Jackson and John W. Slocum Jr., Management:, A Competency-based Approach, , 2021–22, , Ch_08.indd 207, , 04-10-2019 2:41:18 PM

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Business Studies, , 208, , 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 often 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., The box on Control System at, FedEx gives an overview of the, control system used by FedEx and, how it helped FedEx to increase its, profits., , Remain level headed, even when things go wrong, , 2021–22, , Ch_08.indd 208, , 04-10-2019 2:41:21 PM

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Controlling, , 209, , Relationship between Planning, and Controlling, Planning and controlling are, inseparable twins of management., A system of control presupposes 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. Thus,, planning without controlling is, meaningless. Similarly, controlling, is blind without planning. If the, standards are not set in advance,, managers have nothing to control., When there is no plan, there is no, basis of controlling., Planning is clearly a prerequisite, for controlling. It is utterly foolish, to think that controlling could be, accomplished without planning., Without planning there is no, predetermined understanding of the, desired performance. Planning seeks, consistent, integrated and articulated, programmes while controlling seeks, to compel events to conform to plans., Planning is basically an intellectual, process involving thinking, articulation, and analysis to discover and prescribe, an appropriate course of action for, achieving objectives. Controlling,, on the other hand, checks whether, decisions have been translated into, , desired action. Planning is thus,, prescriptive whereas, controlling is, evaluative., It is often said that planning is looking, ahead while controlling is looking, back. However, the statement is only, partially correct. Plans are prepared, for future and are based on forecasts, about future conditions. Therefore,, planning involves looking ahead and, is called a forward-looking function., On the contrary, controlling is like a, postmortem of past activities to find, out deviations from the standards. In, that sense, controlling is a backwardlooking function. However, it should, be understood that planning is guided, by past experiences and the corrective, action initiated by control function, aims to improve future performance., Thus, planning and controlling are, both backward-looking as well as a, forward-looking function., Thus, planning and controlling are, interrelated and, in fact, reinforce, each other in the sense that, 1. Planning based on facts makes, controlling easier and effective;, and, 2. Controlling, improves, future, planning by providing information, derived from past experience., , Controlling Process, Controlling is a systematic process, involving the following steps., 1. Setting performance standards, 2. Measurement, of, actual, performance, , 2021–22, , Ch_08.indd 209, , 04-10-2019 2:41:21 PM

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Business Studies, , 210, , 3. Comparison, of, actual, performance with standards, 4. Analysing deviations, 5. Taking corrective action, Step 1: Setting Performance Stan­, dards: The first step in the controlling, process is setting up of performance, standards. Standards are the criteria, against which actual performance, would be measured. Thus, standards, serve as benchmarks towards which, an organisation strives to work., Standards can be set in both, quantitative as well as qualitative, terms. For instance, standards set, in terms of cost to be incurred,, revenue to be earned, product units, to be produced and sold, time to, be spent in performing a task, all, represents quantitative standards., Sometimes standards may also be, set in qualitative terms. Improving, goodwill and motivation level of, employees are examples of qualitative, standards. The table in the next page, gives a glimpse of standards used in, different functional areas of business, to gauge performance., At the time of setting standards, a, manager should try to set standards, in precise quantitative terms as this, would make their comparison with, actual performance much easier. For, instance, reduction of defects from 10, in every 1,000 pieces produced to 5 in, every 1,000 pieces produced by the, end of the quarter. However, whenever, qualitative standards are set, an, , effort must be made to define them, in a manner that would make their, measurement easier. For instance, for, improving customer satisfaction in a, fast food chain having self-service,, standards can be set in terms of time, taken by a customer to wait for a table,, time taken by him to place the order, and time taken to collect the order., It is important that standards, should be flexible enough to be, modified whenever required. Due to, changes taking place in the internal, and external business environment,, standards may need some modification, to be realistic in the changed business, environment., Step 2: 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., There are several techniques for, measurement of performance. These, include personal observation, sample, checking, performance reports, etc., As far as possible, performance, should be measured in the same, units in which standards are set as, this would make their comparison, easier., It is generally believed that, measurement should be done after, the task is completed. However,, wherever possible, measurement, of work should be done during the, performance. For instance, in case of, assembling task, each part produced, 2021–22, , Ch_08.indd 210, , 04-10-2019 2:41:21 PM

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Controlling, , 211, , should be checked before assembling., Similarly, in a manufacturing plant,, levels of gas particles in the air could, be continuously monitored for safety., Measurement of performance of an, employee may require preparation of, performance report by his superior., Measurement, of, a, company’s, performance may involve calculation, of certain ratios like gross profit ratio,, net profit ratio, return on investment,, etc., at periodic intervals. Progress, of work in certain operating areas, like marketing may be measured, by considering the number of units, sold, increase in market share, etc.,, whereas, efficiency of production, may be measured by counting the, number of pieces produced and, number of defective pieces in a, batch. In small organisations, each, piece produced may be checked to, ensure that it conforms to quality, specifications laid down for the, product. However, this might not, be possible in a large organisation., , Thus, in large organisations, certain, pieces are checked at random for, quality. This is known as sample, checking., Step 3: Comparing Actual Per­, formance with Standards: This, step involves comparison of actual, performance with the standard. 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., Step 4: Analysing Deviations:, Some deviation 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, , Standards used in Functional Areas to Gauge Performance, Production, , Marketing, , Human Resource, Management, , Finance and, Accounting, , Quantity, , Sales volume, , Labour relations, , Capital expenditures, , Quality, , Sales expense, , Labour turnover, , Inventories, , Cost, , Advertising, expenditures, , Labour absenteeism, , Flow of capital, , Individual job, , Individual, , Performance, , Sales-person’s, performance, , Liquidity, , 2021–22, , Ch_08.indd 211, , 04-10-2019 2:41:21 PM

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Business Studies, , 212, , control and management by exception, should be used by a manager in this, regard., 1. Critical Point Control: It is neither, economical nor easy to keep a, check on each and every activity, in an organisation. Control, should, therefore, focus on key, result areas (KRAs) which are, critical to the success of an, organisation. These KRAs are set, as the critical points. If anything, goes wrong at the critical points,, the entire organisation suffers., For instance, in a manufacturing, organisation, an increase of, 5 per cent in the labour cost, may be more troublesome than, a 15 per cent increase in postal, charges., 2. Management by Exception:, Management by exception, which, is often referred to as control, by exception, is an important, principle of management control, based on the belief that an attempt, to control everything results in, controlling nothing. Thus, only, , significant deviations which go, beyond the permissible limit, should be brought to the notice of, management. Thus, if the plans, lay down 2 per cent increase in, labour cost as an acceptable range, of deviation in a manufacturing, organisation, only increase in, labour cost beyond 2 per cent, should be brought to the notice, of the management. However, in, case of major deviation from the, standard (say, 5 per cent), the, matter has to receive immediate, action of management on a, priority basis., The box below highlights the, advantages of critical point control, and management by exception., After identifying the deviations that, demand managerial attention, these, deviations need to be analysed for their, causes. Deviations may have multiple, causes for their origin. These include, unrealistic standards, defective, process, inadequacy of resources,, structural drawbacks, organisational, constraints and environmental factors, , Advantages of Critical Point Control and Management by Exception, When a manager sets critical points and focuses attention on significant deviations which, cross the permissible limit, the following advantages accrue:, 1. It saves the time and efforts of managers as they deal with only significant deviations., 2. It focuses managerial attention on important areas. Thus, there is better utilisation of, managerial talent., 3. The routine problems are left to the subordinates. Management by exception, thus,, facilitates delegation of authority and increases morale of the employees., 4. It identifies critical problems which need timely action to keep the organisation in right, track., , 2021–22, , Ch_08.indd 212, , 04-10-2019 2:41:21 PM

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Controlling, , 213, , beyond the control of the organisation., It is necessary to identify the exact, cause(s) of deviations, failing which,, an appropriate corrective action might, not be possible. The deviations and, their causes are then reported and, corrective action taken at appropriate, level., Step 5: 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., Corrective action might involve, training of employees if the production, target could not be met. Similarly,, if an important project is running, behind schedule, corrective action, might involve assigning of additional, workers and equipment to the, project and permission for overtime, work. In case the deviation cannot, be corrected through managerial, action, the standards may have to be, revised. The table below cites some, of the causes of deviations and the, respective corrective action that, might be taken by a manager., The information in the box in next page, gives an account of how Saco Defense, was able to control a crisis situation., , Remedial Plan of Action:, Analysing deviations, , 2021–22, , Ch_08.indd 213, , 04-10-2019 2:41:26 PM

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Business Studies, , 214, , Some examples of Corrective Action, Causes of deviation, 1. Defective material, , Corrective action to be taken, Change the quality specification for the material, used, , 2. Defective machinery, , Repair the existing machine or replace the machine if, it cannot be repaired, Undertake technological upgradation of machinery, Modify the existing process, Improve the physical conditions of work, , 3. Obsolete machinery, 4. Defective process, 5. Defective physical, conditions of work, , Techniques of, Managerial Control, The various techniques of managerial, control may be classified into two broad, categories: traditional techniques, and, modern techniques., , Traditional Techniques, Traditional techniques are those which, have been used by the companies, for a long time now. However, these, techniques have not become obsolete, and are still being used by companies., These include:, (a) Personal observation, (b) Statistical reports, (c) Breakeven analysis, (d) Budgetary control, , Modern Techniques, Modern techniques of controlling are, those which are of recent origin and, are comparatively new in management, , literature. These techniques provide, a refreshingly new thinking on the, ways in which various aspects of an, organisation can be controlled. These, include:, (a) Return on investment, (b) Ratio analysis, (c) Responsibility accounting, (d) Management audit, (e) PERT and CPM, (f ) Management information system, , Traditional Techniques, Personal Observation, This is the most traditional method, of control. 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 on their job. However, it is, a very time-consuming exercise and, cannot effectively be used in all kinds, of jobs., , 2021–22, , Ch_08.indd 214, , 04-10-2019 2:41:27 PM

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Controlling, , 215, , How Saco Defense Controlled the Situation?, At Saco Defense, lack of quality had created a crisis. When the government shut it down, because it wasn’t meeting quality standards, Saco brought back a TQM programme that, had restored quality, increased production, and decreased costs. Based in Saco, Maine, the, 178-year-old defense company was unable to adhere to the U.S. Navy’s quality standards., Although Saco’s weapons worked well, the government questioned the company’s quality, practices and policies. For example, if an employee discovered a defective bolt near the, completion of an assembly process, the operator would replace the bolt but not document, the problem. The presence of one defective bolt might mean that others from the same, supplier or batch were also bad but were going undetected. Without follow-up, the, underlying materials problem would not be identified and resolved., To solve these problems Saco Defense went through an organisational transformation., The key elements were: (1) empowering employees by giving them the responsibility and, accountability for their performance, including the authority to halt production to correct, problems; (2) forming work cells, that is, small businesses within the company that manage, their production with limited supervision; and (3) reducing the workforce from 760 to, about 450 employees and eliminating several layers of management. In addition, ongoing, improvement projects at the company range from reducing cycle time and product cost, to implementing programmes for skill integration. Productivity has increased, turnover is, down, and the company plans to expand its international business., Source: Stoner, A.F. James, R. Edward Freeman and Daniel R. Gilbert, Jr.,, Management, Prentice-Hall of India Pvt. Ltd., 1998, (Ref: Joyce E. Santora, ‘A Quality Program Transforms Saco Defense’, Personnel, Journal, May 1993), , Statistical Reports, , Breakeven Analysis, , 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., , Breakeven analysis is a technique used, by managers to study the relationship, between costs, volume and profits., It determines the probable profit, and losses at different levels of activity., The sales volume at which there is no, profit, no loss is known as breakeven, point. It is a useful technique for, the managers as it helps in, estimating profits at different levels, of activities., , 2021–22, , Ch_08.indd 215, , 04-10-2019 2:41:27 PM

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Business Studies, , 216, , The figure 1 shows breakeven, chart of a firm. Breakeven point is, determined by the intersection of, Total Revenue and Total Cost curves., The figure shows that the firm, will break even at 50,000 units of, output. At this point, there is no profit, no loss. It is beyond this point that, the firm will start earning profits., Breakeven point can be calculated, with the help of the following formula:, Breakeven Point =, , costs and determines the level of, activity at which the firm can earn, its target profit., , Budgetary Control, Budgetary control 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 objectives are, accomplished., A budget is a quantitative statement, for a definite future period of time, for the purpose of obtaining a given, objective. It is also a statement which, , Fixed Costs, , Selling price per, unit – Variable cost, per unit, Breakeven analysis helps a firm in, keeping a close check over its variable, Breakeven Chart, , Total Revenue, , Cost and Revenue (Rs. Lakhs), , Total Cost, Profit, , Breakeven Point, , Variable Cost, , Loss, , Fixed Cost, , 25, , 50, , 75, , Sales Volume (in thousand units), , 2021–22, , Ch_08.indd 216, , 04-10-2019 2:41:27 PM

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Controlling, , 217, , reflects the policy of that particular, period. It will contain figures of, forecasts both in terms of time and, quantities. The box shows the most, common types of budgets used by an, organisation., Budgeting offers the following, advantages:, 1. Budgeting focuses on specific, and time-bound targets and, thus, helps in attainment of, organisational objectives., 2. Budgeting is a source of motivation to the employees who know, the standards against which their, performance will be appraised, and thus, enables them to, perform better., 3. Budgeting helps in optimum, utilisation of resources by, allocating them according to, the requirements of different, departments., , 4. Budgeting is also used for, achieving coordination among, different departments of an, organisation and highlights the, interdependence between them., For instance, sales budget cannot, be prepared without knowing, production programmes and, schedules., 5. It facilitates management by, exception by stressing on, those operations which deviate, from budgeted standards in a, significant way., However,, the, effectiveness, of budgeting depends on how, accurately estimates have been, made about future. Flexible budgets, should be prepared which can be, adopted if forecasts about future, turn out to be different, especially in, the face of changing environmental, forces. Managers must remember, Types of Budgets, , n, n, n, n, n, n, , Sales Budget: A statement of what an organisation expects to sell, in terms of quantity as well as value, Production Budget: A statement of what an organisation plans to, produce in the budgeted period, Material Budget: A statement of estimated quantity and cost of, materials required for production, Cash Budget: Anticipated cash inflows and outflows for the, budgeted period, Capital Budget: Estimated spending on major long-term assets, like new factory or major equipment, Research and Development Budget: Estimated spending for, the development or refinement of products and processes, , 2021–22, , Ch_08.indd 217, , 04-10-2019 2:41:27 PM

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Business Studies, , 218, , that budgeting should not be viewed, as an end but a means to achieve, organisational objectives., , Modern Techniques, 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. RoI can be used, to measure overall performance of, an organisation or of its individual, departments or divisions. It can be, calculated as under., Net income before interest and tax, RoI =, Capital Employed, Net Income before or after tax may, be used for making comparisons., Total investment includes both, working as well as fixed capital, invested in business. According to, this technique, RoI can be increased, either by increasing sales volume, proportionately more than total, investment or by reducing total, investment without having any, reductions in sales volume., RoI provides top management an, effective means of control for measuring, and comparing performance of diff­, erent departments. It also permits, departmental managers to find out, the problem which affects RoI in an, adverse manner., , Ratio Analysis, Ratio Analysis refers to analysis, of financial statements through, computation of ratios. The most, commonly used ratios used by, organisations can be classified into, the following categories:, 1. Liquidity Ratios: Liquidity ratios, are calculated to determine, short-term solvency of business., Analysis of current position of, liquid funds determines the, ability of the business to pay the, amount due to its stakeholders., 2. Solvency Ratios: Ratios which, are calculated to determine the, long-term solvency of business, are known as solvency ratios., Thus, these ratios determine the, ability of a business to service its, indebtedness., 3. Profitability Ratios: These ratios, are calculated to analyse the, profitability position of a business., Such ratios involve analysis of, profits in relation to sales or funds, or capital employed., 4. Turnover Ratios: Turnover ratios, are calculated to determine the, efficiency of operations based on, effective utilisation of resources., Higher turnover means better, utilisation of resources., , 2021–22, , Ch_08.indd 218, , 21-11-2019 9:59:07 AM

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Controlling, , 219, , The table given below gives, examples of some ratios commonly, used by managers., , 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:, 1. 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. For example, in, a manufacturing organisation,, production, department, is, classified as cost centre., , 2. Revenue Centre: A revenue, centre is a segment of an, organisation which is primarily, responsible, for, generating, revenue. For example, marketing, department of an organisation, may be classified as a revenue, center., 3. Profit Centre: A profit centre, is a segment of an organisation, whose manager is responsible, for both revenues and costs. For, example, repair and maintenance, department of an organisation, may be treated as a profit center, if it is allowed to bill other, production departments for the, services provided to them., 4. Investment Centre: An inve­, stment centre is responsible, not only for profits but also, for investments made in the, centre in the form of assets., , Examples of Commonly used Ratios, Type of Ratio, Liquidity, Solvency, , Profitability, , Turnover, , Examples, Current Ratio, Quick Ratio, Debt-Equity Ratio, Proprietary Ratio, Interest Coverage Ratio, Gross Profit Ratio, Net Profit Ratio, Return on Capital Employed, Inventory Turnover Ratio, Stock Turnover Ratio, Debtors Turnover Ratio, , 2021–22, , Ch_08.indd 219, , 04-10-2019 2:41:27 PM

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Business Studies, , 220, , The investment made in each, centre is separately ascertained, and return on investment is, used as a basis for judging the, performance of the centre., , 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. Thus, management audit, may be defined as evaluation of, the functioning, performance and, effectiveness of management of an, organisation., The main advantages of management audit are as follows., 1. It helps to locate present and, potential deficiencies in the, performance of management, functions., 2. It helps to improve the control, system of an organisation by, continuously monitoring the, performance of management., 3. It improves coordination in the, functioning of various departments so that they work together, effectively towards the achievement of organisational objectives., , 4. It ensures updating of existing, managerial policies and strategies, in the light of environmental, changes., Conducting management audit, may sometimes pose a problem as, there are no standard techniques of, management audit. Also, management, audit is not compulsory under any, law. Enlightened managers, however,, understand its usefulness in improving, overall performance of the organisation., , PERT, , and CPM, PERT (Programme Evaluation and, Review Technique) and CPM (Critical, Path Method) are important network, techniques useful in planning and, controlling. These techniques are, especially useful for planning,, scheduling and implementing, time bound projects involving, performance of a variety of complex,, diverse and interrelated activities., These techniques deals with time, scheduling and resource allocation for, these activities and aims at effective, execution of projects within given time, schedule and structure of costs., The steps involved in using PERT/, CPM are as follows:, 1. The project is divided into a, number of clearly identifiable, activities, which, are, then, arranged in a logical sequence., 2. A network diagram is prepared to, show the sequence of activities,, , 2021–22, , Ch_08.indd 220, , 04-10-2019 2:41:27 PM

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Controlling, , 221, , the starting point and the, termination point of the project., 3. Time estimates are prepared, for each activity. PERT requires, the preparation of three time, estimates – optimistic (or shortest, time), pessimistic (or longest, time) and most likely time. In, CPM only one time estimate is, prepared. In addition, CPM also, requires making cost estimates, for completion of project., 4. The longest path in the network, is identified as the critical path. It, represents the sequence of those, activities which are important, for timely completion of the, project and where no delays can, be allowed without delaying the, entire project., 5. If required, the plan is modified, so that execution and timely, completion of project is under, control., PERT and CPM are used extensively, in, areas, like, ship-building,, construction, projects,, aircraft, manu­facture, etc., , Management Information, System, Management Information System, (MIS) is a computer-based informa­, tion 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 commun­, ication tool for managers., MIS also serves as an important, control technique. It provides data, and information to the managers at, the right time so that appropriate, corrective action may be taken in, case of deviations from standards., MIS offers the following advantages, to the managers:, 1. It facilitates collection, management and dissemination of, information at different levels of, management and across different, departments of the organisation., 2. It supports planning, decisionmaking and controlling at all, levels., 3. It improves the quality of, information with which a, manager works., 4. It ensures cost effectiveness in, managing information., 5. It reduces information overload, on the managers as only, relevant information is provided, to them., , 2021–22, , Ch_08.indd 221, , 04-10-2019 2:41:27 PM

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Business Studies, , 222, , Key Terms, Controlling Critical point control Management by exception, Breakeven analysis Budgetary control Return on investment, Ratio analysis Responsibility accounting Management audit, PERT and CPM Management Information system, , Summary, n, n, , n, , n, , n, , n, , n, , Controlling is the process of ensuring that actual activities, conform to planned activities., The importance of managerial control lies in the fact that it helps, in accomplishing organisational goals. Controlling also helps in, judging accuracy of standards, ensuring efficient utilization of, resources, boosting employee morale, creating an atmosphere, of order and discipline in the organisation and coordinating, different activities so that they all work together in one direction, to meet targets., Controlling suffers from certain limitations also. An organisation, has no control over external factors. The control system of an, organisation may face resistance from its employees. Sometimes, controlling turns out to be a costly affair, especially in case of, small organisations. Moreover, it is not always possible for, the management to set quantitative standards of performance, in the absence of which controlling exercise loses some of its, effectiveness., The process of control involves setting performance standards,, measurement of actual performance, comparison of actual, performance with standards, analysis of deviations and taking, corrective action., Planning and controlling are inseparable twins of management., Planning initiates the process of management and controlling, completes the process. Plans are the basis of control and without, control the best laid plans may go astray., Personal observation, statistical reports, breakeven analysis, and budgetary control are traditional techniques of managerial, control., Return on investment, ratio analysis, responsibility accounting,, management audit, PERT and CPM and Management Information, System are modern techniques of managerial control., , 2021–22, , Ch_08.indd 222, , 04-10-2019 2:41:27 PM

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Controlling, , 223, , Exercises, Very Short Answer Type, 1. State the meaning of controlling., 2. Name the principle that a manager should consider while, dealing with deviations effectively. State any one situation, in which an organisation’s control system loses its, effectiveness., 3. State any one situation in which an organisation’s control, system loses is effectiveness., 4. Give any two standards that can be used by a company, to evaluate the performance of its Finance & Accounting, department., 5. Which term is used to indicate the difference between, standard performance and actual performance?, Short Answer Type, 1. ‘Planning is looking ahead and controlling is looking back.’, Comment., 2. ‘An effort to control everything may end up in controlling, nothing.’ Explain., 3. Write a short note on budgetary control as a technique of, managerial control., 4. Explain how management audit serves as an effective, technique of controlling., 5. Mr.Arfaaz had been heading the production department of, Writewell Products Ltd., a firm manufacturing stationary, items. The firm secured an export order that had to be, completed on a priority basis and production targets were, defined for all the employees. One of the workers, Mr.Bhanu, Prasad, fell short of his daily production target by 10, units for two days consecutively. Mr.Arfaaz approached, MsVasundhara, the CEO of the Company, to file a complaint, against MrBhanu Prasad and requested her to terminate his, services. Explain the principle of management control that, MsVasundhara should consider while taking her decision., (Hint: Management by exception)., , 2021–22, , Ch_08.indd 223, , 04-10-2019 2:41:27 PM

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Business Studies, , 224, , Long Answer Type, 1. Explain the various steps involved in the process of control., 2. Explain the techniques of managerial control., 3. Explain the importance of controlling in an organisation., What are the problems faced by the organisation in, implementing an effective control system?, 4. Discuss the relationship between planning and controlling., 5. A company ‘M’ limited is manufacturing mobile phones, both for domestic Indian market as well as for export., It had enjoyed a substantial market share and also, had a loyal customer following. But lately it has been, experiencing problems because its targets have not been, met with regard to sales and customer satisfaction. Also, mobile market in India has grown tremendously and new, players have come with better technology and pricing., This is causing problems for the company. It is planning, to revamp its controlling system and take other steps, necessary to rectify the problems it is facing., a. Identify the benefits the company will derive from a, good control system., b. How can the company relate its planning with control, in this line of business to ensure that its plans are, actually implemented and targets attained., c. Give the steps in the control process that the company, should follow to remove the problems it is facing, 6. Mr Shantanu is a chief manager of a reputed company that, manufactures garments. He called the production manager, and instructed him to keep a constant and continuous, check on all the activities related to his department so that, everything goes as per the set plan. He also suggested him, to keep a track of the performance of all the employees, in the organisation so that targets are achieved effectively, and efficiently., a. Describe any two features of Controlling highlighted, in the above situation.(Goal Oriented, continuous and, pervasive – any 2)., b. Explain any four points of importance of Controlling., , 2021–22, , Ch_08.indd 224, , 04-10-2019 2:41:27 PM