Big picture
Plans tell us where we want to go; controlling checks whether we are getting there. It means comparing actual performance with the planned standards, finding deviations, and taking corrective action.
Controlling is the last function of management, but it also feeds back into the first: what we learn while controlling improves the next plan. It is both backward-looking (it checks what has happened) and forward-looking (it improves the future). Exam questions ask you to identify a step of the process or a point of importance from a case, and often to apply critical point control or management by exception.
Learning goals
Explain the meaning and nature of controlling.
Explain the importance and limitations of controlling.
Explain the relationship between planning and controlling.
Describe the five steps of the controlling process, including critical point control and management by exception.
Core ideas
1. Nature of controlling
It is a goal-oriented function: it ensures resources are used to achieve the goals.
It is pervasive: every manager at every level must control the work under them.
It is continuous: performance is checked constantly, not once.
It is both backward-looking and forward-looking.
2. Importance of controlling
Importance | Explanation |
|---|---|
Accomplishing organisational goals | It measures progress and brings deviations to light, so corrective action keeps the firm on track |
Judging the accuracy of standards | A good control system shows whether standards are realistic and need revision |
Making efficient use of resources | Every activity is checked against standards, so waste and spoilage are reduced |
Improving employee motivation | Employees know in advance what is expected and how they will be appraised |
Ensuring order and discipline | Close monitoring reduces dishonest behaviour and inefficiency |
Facilitating coordination in action | Every department works to predetermined standards that are well coordinated |
3. Limitations of controlling
Difficulty in setting quantitative standards: job satisfaction, employee morale and human behaviour cannot easily be measured.
Little control over external factors: government policy, technological change and competition are beyond the firm's control.
Resistance from employees: employees may see control as a restriction on their freedom (for example, CCTV cameras).
Costly affair: a control system needs time, effort and expense; small firms may not afford elaborate systems.
4. Relationship between planning and controlling
Planning is a prerequisite for controlling: there is nothing to control against without standards.
Controlling is meaningless without planning, and planning is ineffective without controlling, because nobody checks whether plans are being achieved.
Planning is forward-looking; controlling is backward-looking. But planning is also based on past experience, and controlling improves future performance. So both are both forward- and backward-looking.
They are often called the Siamese twins of management: inseparable and interdependent.
5. The controlling process
Step 1: Setting performance standards. Standards are the criteria against which performance is measured. They can be quantitative (units produced, cost per unit, sales in rupees, time taken) or qualitative (improving goodwill, raising motivation). Standards should be flexible enough to be modified when needed.
Step 2: Measuring actual performance. Performance is measured objectively and reliably, through personal observation, sample checking, performance reports and so on. Measurement should be in the same units as the standards. It can be done during the activity or after it.
Step 3: Comparing actual performance with standards. This reveals the deviation between actual and desired results. Comparison is easier when standards are quantitative.
Step 4: Analysing deviations. Some deviation is acceptable, so managers decide in advance the acceptable range. Two important techniques guide which deviations need attention:
Critical point control: it is neither economical nor easy to monitor everything, so managers focus on key result areas (KRAs), the critical points where a deviation would affect the whole organisation. Example: a 5% rise in labour cost matters more to a garment exporter than a 15% rise in stationery cost.
Management by exception: "an attempt to control everything results in controlling nothing." Only significant deviations, beyond the permissible limit, are brought to management's attention; minor ones are handled routinely.
Worked example. A plant sets a standard of 1,000 units a day with a permissible deviation of ±2%. Under management by exception, output between 980 and 1,020 units needs no action. If output falls to 950 units, the deviation of 5% is beyond the limit and is reported to management.
After identifying significant deviations, managers find their causes: defective materials, obsolete machinery, untrained workers, poor working conditions, or unrealistic standards.
Step 5: Taking corrective action. If deviations are within the limit, no action is needed. Otherwise, managers act on the causes.
Cause of deviation | Corrective action |
|---|---|
Defective material | Change the quality specification for materials |
Defective machinery | Repair or replace the machinery |
Defective process | Modify the existing process |
Defective physical conditions of work | Improve the working conditions |
Untrained workers | Arrange training programmes |
Unrealistic standards | Revise the standards |
If the deviation cannot be corrected by managerial action, the standards themselves may need revision.
A reliable approach to case-based questions
Deciding what output, cost or time is expected: setting standards.
Checking output through reports or observation: measuring actual performance.
Finding the gap between actual and standard: comparing.
Deciding which gaps matter and why they happened: analysing deviations; focusing on key areas is critical point control; reporting only big deviations is management by exception.
Repairing machines, training workers or revising standards: taking corrective action.
Connections that matter
Planning sets the standards; controlling checks them, and the results feed into the next plan.
Directing motivates people to meet the standards; controlling measures whether they did.
Staffing uses performance appraisal, which is a form of control over people.
Common mistakes
Calling controlling only backward-looking. It also improves future performance.
Treating every deviation as needing action. Only significant deviations, beyond permissible limits, need management's attention.
Mixing up critical point control and management by exception. One focuses on key areas; the other on significant deviations.
Skipping the analysis of causes and jumping straight to corrective action.
Revision checklist
I can explain the nature, importance and limitations of controlling.
I can explain why planning and controlling are inseparable.
I can explain the five steps of the controlling process.
I can apply critical point control and management by exception in a case.
I can match corrective actions to causes of deviation.