CBSE Class 12 Business Studies Controlling Worksheet Set B

Key Concepts in nutshell:

1. Meaning of controlling: Comparing actual performance with standards and finding deviations if any and taking corrective action.
Actual Performance = Standards = No deviation

2. Process of Controlling:
1. Setting performance standards: Standards are the Criteria against which actual
performance would be measured. Standards serve as bench marks. They can be set in both quantitative as well as qualitative.
2. Measurement of actual performance: Performance should be measured in an objective and reliable manner.

3. Comparing actual performance with standards: 

4. Analyzing deviations: Major deviation or minor deviation and analyzing the causes of deviation.
a) Critical point control: Focus only on Key Result Areas (KRAs).
b) Management by Exception: Concentrate only on major deviations only.

5. Taking corrective action: When 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.
Conclusion: In case the deviation cannot be corrected through managerial action, the standards may have to be revised.

IMPORTANCE OF CONTROLLING: 

Controlling ensures order and discipline by fixing standards in advance which leads to improved employee motivation, it also facilitates efficient use of resources, judging the accuracy of standards, facilitates coordination in action which will result into accomplishment of organizational goals.

LIMITATIONS OF CONTROLLING: 

1. Difficulty in setting quantitative standards: It is difficult to set standards for all types of activities this makes measurement of performance and their comparison with standards a difficult task.

2. Little control on external factors: Business environment is ever changing. The firm has no control on external factors such as government policies, technological changes, competition etc.

3. Resistance from employees: Employees oppose controlling measures taken by any organisation.

4. Costly affair: It is a costly affair as it involves a lot of expenditure, time and effort.
Especially small organizations cannot afford.

Techniques of Controlling:

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 organizational objectives are accomplished.
A budget is a quantitative statement for definite future period of time for the purpose of obtaining a given objective.

ADVANTAGES OF BUDGETARY CONTROL:
1. It focuses on specific and time-bound targets and helps in attainment of organizational objectives
2. It is a source of motivation to the employees who know the standards against which their performance will be appraised.
3. It helps in optimum utilization of resources by allocating them according therequirements of different departments.
4. It is also used for achieving coordination among different departments of an organisation and highlights the interdependence between them.
5. It facilitates management by exception by focusing on key result areas.

Sub Topic: Nature of Controlling

1.Controlling is a goal oriented function.
Controlling as a function of management ensures that the overall directions of individuals and groups are consistent with short and long range plans of the organization. So it is completely a goal oriented function.

2.Controlling is an all pervasive function. 

Controlling is a function which is applicable to all types of organizations and at all levels. For example the top managers are concerned with administrative control, which is exercised through broad policies, plans and other directives. The middle level managers are concerned with the executor control for the purpose of getting the plans, policies, and programmes executed. At the lower level, supervisors exercise operational control to ensure successful performing of actual operations.

3. Controlling is a continuous function
Control is not a one time activity. Rather, it is a dynamic process that involves constant analysis of actual and planned performance. The resultant deviations, if any, are corrected as per the need of the situation. For example if a firm X Ltd., a ready made garment manufacturing unit sets a target of manufacturing 10,000 premium shirts in a month and is only able to manufacture 8,000 shirts than the controlling mechanism will help in finding the deviation and causes associated with it. This process will carry on every month for the organization in this case.

4.Controlling is both a backward looking as well as forward looking function.
Effective control is not possible without analyzing our past mistakes so from this point of view we can call it backward looking. But the business environment is ever changing and controlling helps bring in changes in the organization in a conducive manner. So we cannot ignore the forward looking aspect of it as well.

5. Controlling is a dynamic process
Since controlling requires taking reviewable methods, changes have to be made wherever possible.

6. Controlling is a positive process
George Terry says, the function of controlling is positive – it is to make things happen, i.e. to achieve the goal within stated constraints, or by means of the planned activities. Controlling should never be viewed as being negative in character – as a hurdle in getting objectives won.
Controlling is a managerial necessity and a help, not an impediment or a hindrance.

Fill up the blank(s)/Complete the Sentence

Question. In large organisations, certain pieces are at random checked for quality. This technique of measurement of performance is known as ___________.
Answer: Sample checking

Question. Time taken by a customer to place the order in a fast food chain having self-service is an example of __________ standards. (quantitative/qualitative)
Answer: Qualitative

Question. In case the deviation cannot be corrected through managerial action, ________.
Answer: The standards may have to be revised.

Question. Only significant deviations which go beyond the permissible limit/ acceptable range should be brought to the notice of management. The technique/principle of management control highlighted above is ___________.
Answer: Management by exception (or control by exception).

Question. Measurement of a company’s performance may involve calculation of certain ratios like __________ at periodic interval.
Answer: Gross profit ratio, net profit ratio, return on investment, etc.

Question. The routine problems are left to the subordinates. ___________________ thus, facilitates delegation of authority and increase morale of employees. (Management by exception/critical point control)
Answer: Management by exception

Question. In the controlling process, there are several techniques for measurement of actual performance. These include. _________.
Answer: Personal observation, sample checking, performance reports, etc.

Question. Control should focus on key result areas (KRAS) only which are critical to the success of an organisation because __________.
Answer: It is neither economical nor easy to keep a check on each and every activity in an organisaton

Question. The principle of management control which a manager should consider while dealing with deviations effectively is referred to as ____________.
Answer: Management by Exception/Control by Exception

Question. 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. The technique/principle of management control discussed above is _____________ (Management by Exception/Critical point control).
Answer: Critical point control

Question. Progress of work in certain operating meas like marketing may be measured by considering ________.
Answer: The number of units sold, increase in market share, etc.