PRINCIPLES OF MANAGEMENT
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Controlling s
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• Controlling means ensuring that activities in an organisation are performed as per the
plans.
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• 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
planning
function.
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• Controlling is the function that connects the management
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cycle back to planning. It
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involves measuring actual performance, comparing it with the predetermined standards,
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identifying deviations, analyzing their causes, and taking corrective measures.
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• By doing so, controlling not only ensures that organisational activities remain aligned with
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goals but also provides valuable insights for the formulation of future plans.
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and deviations identified during controlling help managers improve future planning.
• Thus, controlling completes one cycle of the management process and strengthens
planning for the next cycle.
Importance -
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• Accomplishing organisational goals: The controlling function measures progress
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towards the organisational goals and brings to light the deviations, if any, and indicates
corrective action. sai Target
• Judging accuracy of standards: A good control system enables management to verify
whether the standards set are accurate and objective.
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• Making efficient use of resources:
• Improving
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employee motivation: An effective control system makes employees aware
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in
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advance of what is expected from them and the performance
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standards against which
they will be evaluated. This clarity not only motivates them but also encourages
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improved performance.
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• Ensuring order and discipline: It helps to minimise dishonest behaviour on the part of
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the employees by keeping a close check on their activities.
• Facilitating coordination in action: Controlling provides direction to all activities and
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efforts for achieving organisational goals.
Limitations
• Difficulty in setting-
quantitative standards
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• Little control on external factors
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• Resistance from employees
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• Costly affair
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Relationship between Planning and Controlling
• A system of control presupposes the existence of certain standards, which are
established through planning. These performance standards provide the foundation for
control.
• Once a plan is put into action, controlling becomes necessary to track progress, measure
outcomes, identify deviations, and take corrective steps to ensure that actual
performance aligns with planned objectives. Hence, planning without controlling is
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meaningless, and controlling without planning is directionless.
• Without predefined standards, managers have nothing to measure against, -
and without
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plans, there can be no control.
Forward B
a ackward
• While planning involves developing consistent and integrated programmes for
achieving objectives, controlling ensures that actual events conform to those plans. In
essence, planning is prescriptive, whereas controlling is evaluative.
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• It is often said that planning is “looking ahead” while controlling is “looking back.”
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• However, in reality, both functions are interdependent and operate in both directions.
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Planning is influenced by past experiences, while control not only analyzes past actions
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but also-
provides corrective measures to improve future performance.
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• Therefore, planning and controlling are best understood as both forward-looking and
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A backward-looking functions, complementing each other in the management process.
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Controlling Process
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Controlling is a systematic process involving the following steps.
1. -
Setting
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performance standards
2. Measurement of actual performance - G
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3. Comparison of actual performance with standards
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4. i
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Analysing deviations
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5. Taking corrective action %
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Analysing deviations:
• Some deviation in performance can be expected in all activities. It is, therefore,
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important to determine the acceptable range of deviations.
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• Critical point control and management by exception should be used by a manager in
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this regard. Proactive ↑
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• Critical Point Control: It is neither economical nor easy to keep a check on each
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and every activity in an organisation. Control
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should, therefore, focus on key result
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areas (KRAs) which are critical to the success of an organisation. These KRAs are
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set as the critical points. If-
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anything goes wrong at the critical points, the entire
15%
organisation suffers.
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• Management by Exception: often referred to as control by exception, is an
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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
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management.
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Techniques of Managerial Control
Traditional Techniques
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a. Personal observation
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b. Statistical reports
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c. Breakeven analysis
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d. Budgetary control
Modern Techniques
• Return on investment
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• Ratio analysis
• Responsibility accounting
• Management audit
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• PERT and CPM
• Management information system
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Techniques of Managerial Control
Traditional Techniques
a. Personal observation
b. Statistical reports
c. Breakeven analysis
d. Budgetary control
Modern Techniques
• Return on investment
• Ratio analysis
• Responsibility accounting
• Management audit
Techniques of Managerial Control
Traditional Techniques
a. Personal observation
b. Statistical reports
c. Breakeven analysis
d. Budgetary control
Modern Techniques
• Return on investment: is a financial metric used to measure the profitability or
efficiency of an investment. It shows the return (gain or loss) from an investment
relative to its cost, usually expressed as a percentage.
Production =
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• RoI provides top management an effective means of control for measuring and
comparing performance of different departments. It also permits departmental managers
to find out the problem which affects RoI in an adverse manner.
• Ratio analysis: analysis of financial statements that involves computing and
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interpreting relationships between various items of financial statements (Balance Sheet,
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Income Statement, etc.) to assess the financial health and performance of a business.
Eg: Liquidity
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Ratios, Solvency Ratios, Profitability Ratios etc
• Responsibility accounting: is a system of accounting in which the organization is
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divided into various responsibility centers, and each manager is held accountable for
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the performance of their respective area.
• Types of responsibility centres;
• Cost or Expense Centre: managers are held responsible for the cost incurred in the
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centre. Eg: production department.
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• Revenue Centre: eg: Marketing
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• Profit Centre: manager is responsible for both revenues and costs
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• Investment Centre:
• Management audit: the systematic appraisal of the overall performance of the
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management of an organisation. It is an evaluation of the functioning, performance and
effectiveness of management of an organisation.
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The main advantages of management audit are as follows. ↑
• It helps to locate present and potential deficiencies in the performance of management
functions.
• It helps to improve the control system of an organisation by continuously monitoring
the performance of management.
• It improves coordination in the functioning of various departments so that they work
together effectively towards the achievement of organisational objectives.
• 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.
PERT and CPM ↑
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• PERT (Programme
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Evaluation and Review Technique) and CPM (Critical Path-
Method) are significant network-based techniques applied in planning and control.
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They are particularly useful for projects that are time-bound and involve multiple
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complex, diverse, and interdependent activities. Both techniques focus on time
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scheduling and resource
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allocation for different tasks, with the objective of ensuring
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effective project execution within the specified timeframe and cost framework.
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Steps Involved in Using PERT/CPM
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1.Project Breakdown: The project is divided into a set of clearly identifiable activities,
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which are then arranged in a logical sequence.
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2.Network Diagram: A network diagram is prepared to illustrate the sequence of
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activities, along with the project’s starting and ending points.
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3.Time and Cost Estimates:
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• In PERT, three
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time estimates are prepared for each activity:
1.Optimistic time (shortest possible duration),
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G 2.Pessimistic time (longest possible duration), and
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3.Most
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likely time (realistic estimate).
• In CPM, only a single time estimate is used. Additionally, CPM requires cost
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estimates
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for project
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completion.
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4. Identification of Critical Path – The longest path in the network is determined as the
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critical path, representing the sequence of essential activities where no delays are
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permissible without affecting the entire project timeline.
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5. Modification and Control – If necessary, the plan is revised to ensure smooth
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execution and on-time completion of the project.
Applications – PERT and CPM are widely used in large and complex projects such as
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ship-building, construction, aircraft manufacturing, and infrastructure development.
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