NCERT Solutions for Class 12 Business Studies Chapter 8 - Controlling

Very Short Answer Type Questions

1. State the meaning of controlling.

Ans. Controlling means ensuring that the activities in an organisation are performed as per the plans. It is a process of comparing actual performance with the standards and taking corrective action. Controlling also ensures that an organisation’s resources are being used effectively and efficiently for the achievement of desired goals. In order to control the activities at all levels, manager needs to perform controlling function

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.

Ans. The principle of management that a manager should consider while dealing with deviations effectively is Management by Exception. According to this technique, ‘an effort to control everything may end up in controlling nothing’. Thus, only significant deviations which are beyond the permissible limit should be acknowledged.
For example, Management may decide that an increase in production cost by ₹2 per unit can be checked at the supervisory level and any further increase is to be tackled by management.

3. State any one situation in which an organisation’s control system loses its effectiveness.

Ans. Control system loses some of its effectiveness when standards cannot be defined in quantitative tears. So, gets difficults to Measure the deviation between actual performance and standard performance.
For example, setting standards for 'Job satisfaction' is difficult as each individual employee is motivated by different motives and drives. Thus, effective control system is tough to set as the standards cannot be quantitatively provided.

4. Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Ans. The standards that can be used by a company to evaluate the performance of its Finance & Accounting department are:

  1. Inventories,
  2. Liquidity,
  3. Capital expenditures,
  4. Flow of capital (any two).

5. Which term is used to indicate the difference between standard performance and actual performance?

Ans. ‘Deviation’ is the term that is used to indicate the difference between standard performance and actual performance. On comparing actual performance with standard performance, the 'deviations' are revealed.

Short Answer Type Questions

1. Planning is looking ahead and controlling is looking back. Comment.

Ans. Planning and controlling are inseparable. Planning is the primary function of every organisation. It is the thinking process, which means looking ahead or making plans that how desired goal is achieved in future thus it is called a forward looking function and on the other hand, controlling is a systematic function which measures the actual performance with the planned performance. It compared and analysed the whole process of an organisation and took corrective actions. Thus, it is a backward looking function but the statement “Planning is looking ahead and controlling is looking back” is partially correct because it should be understood that planning is guided by past experiences and the corrective action is initiated by control function which aims to improve future performance. Thus, planning and controlling are both backward looking as well as a forward looking functions.

2. ‘An effort to control everything may end up in controlling nothing’. Explain.

Ans. It’s a well known fact that “Jack of all, master of none”, when we start controlling everything, it results in controlling nothing because it is not possible at one time to control various activities as this process may neither be economical nor easy. Control thus, focus on KRAs (Key Result Areas). It means instead of controlling all activities, control where the critical points go wrong and by which organisation suffers. Thus, KRAs are set as critical points and one should be aware that he has to control what.

3. Write a short note on budgetary control as a technique of managerial control.

Ans. Budgetary control is a technique of managerial control in which all operations are planned and this will help us in knowing how much we have to spend in order to achieve the future result. It helps to compare the actual result with the budgetary standards. This comparison reveals the necessary actions to be taken so that the organisational objectives are accomplished.

Budgeting offers the following advantages:
(i) Budgeting focuses on specific and time bound targets.
(ii) Budgeting is a source of motivation to the employees so that they set the standards accordingly against which their performance will be appraised and thus, enables them to perform better.
(iii) Budgeting grants optimum utilisation of resources by allocating them according to the requirements of different departments.
(iv) It helps the management in setting standards.

4. Explain how management audit serves as an effective technique of controlling.

Ans. Management audit is a technique which helps in measuring the efficiency and effectiveness of management. It is a comprehensive and constructive review. Thus, we can say, it is the review of the functioning performance and to improve its efficiency in future period. Hence it serves as an effective technique of controlling following points are proving the same.
(i) It helps to locate present and potential deficiencies in the performance of management functions.
(ii) It helps to improve the control system of an organisation by continuously monitoring the performance of management.
(iii) It ensures the updation of existing managerial policies and strategies in the light of environmental changes.
This results in efficient controlling of management.

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 Ms Vasundhara, the CEO of the Company, to file a complaint against Mr. Bhanu Prasad and requested her to terminate his services. Explain the principle of management control that Ms Vasundhara should consider while taking her decision.

Ans. The principle of management control that Ms Vasundhara should consider while taking her decision is Management by Exception. Only significant deviations which are beyond the permissible limit should be acknowledged.
In this case, Mr. Bhanu had fallen short of only 10 units, he should not be terminated for such a small deviation.

Long Answer Type Questions

1. Explain the various steps involved in the process of control.

Ans. Controlling is a systematic process involving following steps:

(i) Setting Performance Standards: The first step in the controlling process is to set up the performance standards. Standards are the criteria against which actual performance would be measured.
Standards can be both quantitative as well as qualitative terms.
Some of the quantitative standards are—cost to be incurred, product units to be produced, time to be spent in performing a task etc. Improving goodwill and motivation level of employees are the examples of qualitative standards.

(ii) 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. Some of the techniques used for measuring the performance are personal observation, sample checking, performance reports etc.

(iii) Comparing Actual Performance with Standards: This step involves comparison of actual performance with the standards. 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.

(iv) Analysing Deviations: Some deviations 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 control and management by exception should be used by a manager in this regard.

(v) Taking Corrective Action: The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within the 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. In case the deviations cannot be corrected through managerial action, the standards may have to be revised.

2. Explain the techniques of managerial control.

Ans. The various techniques of managerial control may be classified into broad categories:

(i) Traditional Techniques are: Those techniques which have been used by the companies for a long time now are traditional techniques. However, these have not become obsolete and are still being used by companies.
(a) Personal Observation: 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 in their job.
(b) Statistical Reports: Statistical analysis can be 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.
(c) Break-even Analysis: It is a technique used by managers to study the relationship between costs, volume and profits. It determines the probable profits and losses at different levels of activity. The sales volume at which there is no profit no loss is known as break-even point. It is a useful technique for the managers as it helps in estimating profits at different levels of activities.
(d) Budgetary Control:It 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 goals 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 reflects the policy of that particular period. It will contain figures of forecasts both in terms of time and quantities.

(ii) Modern Techniques: Modern techniques of controlling are those techniques which are of recent origin and are comparatively new in management literature. They provide a new thinking on the ways in which various aspects of an organisation can be controlled.
(a) Return on Investment: Return on Investment (ROI) is a useful technique which provides the basic criterion for measuring whether or not invested capital has been used effectively for generating reasonable amount of return. It can be calculated as:

$$\\ROI =\frac{NetIncome}{TotalInvestment}×100$$

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.
(b) Ratio Analysis: It refers to analysis of financial statements through computation of ratios. The most commonly used ratios are:
(i) Liquidity Ratios: Liquidity ratios are calculated to determine short term solvency of business. It includes the current ratio and quick ratio.
(ii) Solvency Ratios: Ratios which are calculated to determine the long term solvency of business are known as Solvency ratios. It includes, debt-equity ratio, proprietory ratio, interest coverage ratio.
(iii) Profitability Ratios: These ratios are calculated to analyse the profitability position of a business.
(iv) Turnover Ratios: They are calculated to determine the efficiency of operations based on effective utilisation of resources.

(iii) 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:
(a) 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 e.g., production department.
(b) Revenue Centre: A revenue centre is held responsible for generating revenue, e.g., marketing department.
(c) Profit Centre: A profit centre is responsible for both cost and revenue e.g., repair and maintenance department.
(d) Investment Centre: An investment centre is responsible not only for profits but also for investments made in the centre in the form of assets.

(iv) 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.
The main advantages are:
(a) It helps to locate weaknesses.
(b) It helps to improve control system.
(c) It ensures the updation of existing managerial policies and strategies in the light of environmental changes.

(v) PERT and CPM: (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques useful in planning and controlling. These techniques are especially useful in planning, a scheduling and implementing time bound projects which involve performance of a variety of complex, diverse and inter-related activities. These techniques deal with time scheduling and resource allocation for these activities and aim at effective execution of projects within given time schedule and structure of costs.

(vi) Management Information System (MIS): Management Information System (MIS) is a computer based information 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 communication tool for managers.

3. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Ans. Control is an indispensable function of management, without it the best of plans can go away. 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 taking the necessary. 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 the objective of an efficient control system keeps a careful check on the changes taking place in the organisation and the environment which helps to review or revise the standards in the light of such changes.

(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 pre-determined standards and norms. This ensures that resources are used in the most efficient and effective 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.

(vi) Facilitates Co-ordination 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.
Although controlling is an important function of management it suffers from the following limitations also: (i) Difficulty in Setting Quantitative Standards: Control system loses some of its effectiveness when standards cannot be defined in 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) Less 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.

4. Discuss the relationship between planning and controlling.

Ans. Planning and controlling are inseparable, they are twins of management. A system of control pre-supposes 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.
Planning is clearly a pre-requisite for con-trolling. Controlling cannot be accomplished with planning. With planning there is no pre-determined understanding of the desired performance, planning seeks consistent, integrated and articulated programmes while controlling seeks to compel events to conform to plans.

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.
(i) Identify the benefits the company will derive from a good control system.

Ans. When company starts following a good control on operations, it leads to derive benefits such as:
(i) Helps in achieving desired goals.
(ii) Judging accuracy of operations.
(iii) Making efficient and effective use of resources.
(iv) Improving employ ee morale.
(v) Ensuring proper flow of orders and the whole system is in discipline.
(vi) It facilitates the co-ordination and improve the performance of every individual.

(ii) 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?

Ans. Company relates its planning with control in this line of business by implementing effective control system as this will help in two aspects i.e., planning makes controlling effective and efficient, whereas controlling improves future planning because it is like a postmortem of past activities to find out deviations from the standards and in order to ensure that its plans are actually implemented and targets are attained. They will take the help from controlling process as it is a systematic process and it leads to following benefits:
(i) Setting Up of Standards: In this step, company sets some targets against which the actual performance is measured.
(ii) Measuring of Performance: In this step, company is able to measure the performance and evaluating that what is actually done by the employees.
(iii) Compare Performance: After evaluating the actual result, company compares the actual performance with the planned one this helps in knowing that the desired goal is achieved or not.
(iv) Analysing Deviations: This refers to the difference between actual and desired performance. It helps in knowing to the company that the deviation is positive or negative. It needs focus on which part rather than analysing whole.
(v) Taking Corrective Measures: Final step is to know the type of deviation and trying to remove this deviation and in future it matches with the plans.

(iii) Give the steps in the control process that the company should follow to remove the problems it is facing.
Ans. The company should follow these steps in a systematic manner:
(i) Setting performance standards,
(ii) Measurement of actual performance
(iii) Comparison of actual performance with standards,
(iv) Analysing deviations
(v) Taking corrective actions.

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.

Ans. (a) The features of controlling highlighted in the above case are:

  1. Goal oriented: Controlling keeps a close watch on the work in progress and constantly works towards the attainment of organisational goals.
  2. Continous process: Controlling is an on-going process as it involves a constant analysis and evaluation of the progress of current tasks and activities as against the set standards.
  3. Pervasive process: Controlling is a pervasive function as it can be exercised by all managers irrespective of their level, department or division.

(b) Control is an indispensable function of management without which best of plans can fail.

Importance of Controlling are:

  1. Attainment of organisational goals: Controlling indicates the deviations in performance and takes the required corrective measures. In this way, it helps in the accomplishment of organisational goals in a better manner.
  2. Evaluating the standards: It helps in assessing and reviewing the accuracy and feasibility of the set standards according to the changing business environment.
  3. Optimum utilisation of resources: Controlling ensures that each task must be performed according to the set standards, which helps in minimising the wastage of resources.
  4. Employee motivation: The employees should know well that what is expected from them and the standards against which their performance will be judged. This encourages them to work to the best of their capabilities and achieve the assigned targets.
  5. Order and discipline: The employees are aware of the fact that they are being continuously observed. Thus, dishonesty and inefficiency in behaviour is minimised.
  6. Promoting coordination: Proper controlling ensures that every department is aware of its respective activities and tasks and coordinates with one another.