ControllingClass 12 Business Studies Part 1 NCERT Solutions

Setting Performance Standards: This is the first step, where standards are established as the criteria against which actual performance will be measured. Standards act as benchmarks and can be set in both quantitative (e.g., units to be produced, revenue to be earned) and qualitative terms (e.g., improving employee motivation). For effective comparison, standards should be precise and flexible enough to be modified if required.

Measurement of Actual Performance: Once standards are set, the actual performance is measured in an objective and reliable manner. This can be done through techniques like personal observation, sample checking, or performance reports. Performance should be measured in the same units as the standards to facilitate easy comparison.

Comparison of Actual Performance with Standards: This step involves comparing the measured actual performance with the predetermined standards. This comparison reveals any deviation between the desired results and the actual results.

Analysing Deviations: Not all deviations require managerial attention. It is important to determine an acceptable range of deviations. Managers use principles like 'Critical Point Control' (focusing on key result areas critical to success) and 'Management by Exception' (addressing only significant deviations) to identify which deviations need urgent attention. After identification, the causes of these deviations, such as unrealistic standards or defective processes, must be analyzed.

Taking Corrective Action: This is the final step. If the deviations are within acceptable limits, no action is needed. However, if deviations exceed the acceptable range, immediate managerial action is required to prevent their recurrence. Corrective actions might include training employees, assigning additional resources, or, if the standards are found to be unrealistic, revising the standards themselves.

Planning provides the basis for Controlling: Planning involves setting objectives and standards of performance. These standards serve as the benchmarks for the controlling function. Without a plan and set standards, managers would have nothing to control, making the controlling function blind.

Controlling ensures plans are executed: Once a plan is operational, the controlling function is necessary to monitor progress, measure performance, identify deviations, and take corrective actions. This ensures that events conform to the plans. Thus, planning without controlling is meaningless, as there is no mechanism to ensure its implementation.

Planning is Prescriptive, Controlling is Evaluative: Planning is an intellectual process that prescribes an appropriate course of action for achieving objectives. In contrast, controlling is an evaluative function that checks whether decisions have been translated into the desired action and if the outcomes match the plans.

Both are Forward-Looking and Backward-Looking: It is often said that planning looks ahead and controlling looks back. While planning is indeed forward-looking as it prepares for the future, it is also guided by past experiences. Similarly, while controlling analyzes past performance, its purpose is to take corrective action to improve future performance. Thus, both functions have forward and backward-looking aspects.

They Reinforce Each Other: The management cycle begins with planning and ends with controlling. The controlling function provides valuable information and feedback derived from past experiences, which helps in the formulation of more realistic and effective future plans. In this way, controlling improves future planning, and better planning makes controlling easier and more effective. They are part of a continuous cycle of management.