Controlling: It’s Definition,

Importance and Limitations |

Management Functions
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Read this article to learn about the meaning, definition,

importance and limitations of Controlling!

Controlling is an important function of management which all the

managers are required to perform. In order to contribute towards
achievement of organisational objectives, a manager is required to
exercise effective control over the activities of his subordinates.

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Thus, controlling can be defined as a managerial function to ensure

that activities in an organisation are performed according to the plans.
Controlling also ensures efficient and effective use of organisational
resources for achieving the goals. Hence, it is a goal oriented function.

Often, controlling and management control are considered same.

However, there is a vast difference between the two. Controlling is one
of the managerial functions while management control can be defined
as a process which managers follow to perform the controlling
function.

Management control refers to setting of predetermined standards,

comparing actual performance with these standards and, if required,
taking corrective actions to ensure the achievement of organisational
goals.

Definitions of Controlling:
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“Managerial control implies the measurement of accomplishment

against the standard and the correction of deviations to assure
attainment of objectives according to plans”. Koontz And
O’Donnell

“Control is the process of bringing about conformity of performance

with planned action.” Dale Henning

Controlling function is performed in all types of organizations whether

commercial or non commercial and at all levels i.e. top, middle and
supervisory levels of management. Thus, it is a pervasive function.
Controlling should not be considered as the last function of the
management.

The controlling function compares the actual performance with

predetermined standards, finds out deviation and attempts to take
corrective measures. Eventually, this process helps in formulation of
future plans too. Thus, controlling function helps in bringing the
management cycle back to planning.

Importance of Controlling:

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The significance of the controlling function in an

organisation is as follows:

1. Accomplishing Organisational Goals:

Controlling helps in comparing the actual performance with the

predetermined standards, finding out deviation and taking corrective
measures to ensure that the activities are performed according to
plans. Thus, it helps in achieving organisational goals.

2. Judging Accuracy of Standards:

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An efficient control system helps in judging the accuracy of standards.

It further helps in reviewing & revising the standards according to the
changes in the organisation and the environment.

3. Making Efficient Use of Resources:

Controlling checks the working of employees at each and every stage

of operations. Hence, it ensures effective and efficient use of all
resources in an organisation with minimum wastage or spoilage.

4. Improving Employee Motivation:

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Employees know the standards against which their performance will

be judged.

Systematic evaluation of performance and consequent rewards in the

form of increment, bonus, promotion etc. motivate the employees to
put in their best efforts.

5. Ensuring Order and Discipline:

Controlling ensures a close check on the activities of the employees.

Hence, it helps in reducing the dishonest behaviour of the employees
and in creating order and discipline in an organization.

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6. Facilitating Coordination in Action:

Controlling helps in providing a common direction to the all the

activities of different departments and efforts of individuals for
attaining the organizational objectives.

Limitations of Controlling:
The defects or limitations of controlling are as following:

1. Difficulty in Setting Quantitative Standards:

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It becomes very difficult to compare the actual performance with the

predetermined standards, if these standards are not expressed in
quantitative terms. This is especially so in areas of job satisfaction,
human behaviour and employee morale.

2. No Control on External Factors:

An organization fails to have control on external factors like

technological changes, competition, government policies, changes in
taste of consumers etc.

3. Resistance from Employees:

Often employees resist the control systems since they consider them as
curbs on their freedom. For example, surveillance through closed
circuit television (CCTV).

4. Costly Affair:

Controlling involves a lot of expenditure, time and effort, thus it is a

costly affair. Managers are required to ensure that the cost involved in
installing and operating a control system should not be more than the
benefits expected from it.
What is Controlling?

Controlling is the process of

ensuring that actual activities conform to planned activities.

Planning and controlling are closely related.

Controlling is more pervasive than planning.

Controlling helps managers monitor the effectiveness of their planning,

organizing, and leading activities.

Controlling determines what is being accomplished — that is, evaluating the

performance and, if necessary, taking corrective measures so that the
performance takes place according to plans.

Controlling can also be viewed as detecting and correcting significant

variations in the results obtained from planned activities.

Importance of Controlling in Management

Planning without controlling is useless.

Undoubtedly, controlling also helps managers monitor environmental

changes and the effects of these changes on the organizations’ progress.
Coping with changes
Every modern organization has to cope with changes in the environment.

New products and technologies emerge, government regulations are too

often amended or enacted, and competitors change their strategies.

The control function helps managers to respond to these environmental

changes as and when necessary.

Creating better quality

Modern industries follow total quality management (TQM) which has led
to dramatic improvements in control. Under it, process flaws are spotted,
and the process is purged of mistakes.

Employees are empowered to inspect and improve their work and this also
helps change their attitudes and approaches to achieving effective control.

There are innumerable examples in which the TQM program had helped
restore quality, decrease cost and increase the production of giant
organizations that confronted threats of shutdowns owing to low quality, high
cost and declining productivity.

Creating faster cycles

Control helps to speed up the cycles involved in creating and then delivering
new products and services to customers.

Speed is essential in complying with customers’ orders.

But modern marketing managers must remember that today’s customers

expect not only speed but also customized products and services.
It is clear that the most successful companies try to personalize things and
tailor them to individual needs. The most successfully target narrow customer
niches with specific models.

Adding value

An organization that strives to survive through competition should be able to

“add value” to products or services so that customers prefer them to those
offered by the organization’s rivals.

Very often this added value takes the form of above-average quality achieved
through exacting control procedures.

Facilitating delegation and teamwork

Modern participative management has changed the nature of the control

process. Under the traditional system, the manager would specify both the
standards for performance and the methods for achieving them.

Under a new participative system, managers communicate the standards, but

then let employees, either as individuals or as teams, use their creativity to
decide how to solve certain work problems.

The control process, then, lets the manager monitor the employees’ progress
without hampering employees’ creativity or involvement with the work.

Control as a Feed-back System

Most managers exercise control through information feedback, which shows
deviations from standards and initiates changes.

In other words, feedback information helps compare performance with a

standard and to initiate corrective action.

In controlling, managers do measure actual performance, compare this

measurement against standards, and identify and analyze deviations.
 But then, for making necessary corrections, they must develop a program for
corrective action and implement this program to arrive at the performance
desired.

Control Techniques
Managers use a large number of tools and techniques for effective controlling.

Therefore,

We need to discuss specific techniques for managing the control process.

First, we’ll discuss budgetary control. And then we shall deal with other control
techniques and methods.

Budgetary Control
Budgeting is the formulation of plans for a given future period in numerical
terms.

Organizations may establish budgets for units, departments, divisions, or the

whole organization. The usual period for a budget is one year and is generally
expressed in financial terms.

Budgets are the foundation of most control systems.

They provide yardsticks for measuring performance and facilitate comparisons

across divisions, between levels in the organization, and from one time to
another.

Types of Budgets: Most organizations use some different kinds of budgets:

1. financial,

2. operating, and

3. non-monetary.
Non-budgetary Control Devices
The following are some control devices that are not related to the budget.

Operational audit/internal audit

It is the regular and independent appraisal of the accounting, financial, and
other operations of an enterprise by a staff of internal auditors.

In its most usual form, operational auditing includes auditing of accounts,

appraisal of operations in general and weighing actual results against planned
results.

Operational auditors, thus, assures that accounts reflect the fact, appraise
procedures, policies, quality of management, the effectiveness of methods and
other phases of operations.

Milestone budgeting
Used by an increasing number of companies in recent years in controlling
engineering and development, milestone budgeting breaks a project down
into controllable pieces and then carefully follows them.

In this approach to control, “milestones” are defined as identifiable segments.

When a given segment is accomplished, its cost or other results can be
determined.
Traditional Types of Control Techniques
In management, Controlling is one of the most important functions in
an organization which is goal-oriented. Types of Control techniques in
management are Modern and Traditional control techniques.
Feedforward, feedback and concurrent controls are also types of
management control techniques.

Controlling helps the managers in eliminating the gap between

organizations actual performance and goals. Controlling is the process
in which actual performance is compared with the company standards.
Comparing it gives the visibility that activities are performed according
to strategy or not. If it is not performed then necessary corrective action
should be taken.  Let us learn more about Control Techniques in
Management.

Types of Control Techniques in Management

Management theorists and experts have devised several techniques over
the years. They often divide these techniques into two categories:
traditional and modern. Traditional types of techniques generally focus
on non-scientific methods. On the other hand, modern techniques find
their sources in scientific methods which can be more accurate.
Traditional Types of Control Techniques in
Management
 Budgetary Control
 Standard Costing
 Financial Ratio Analysis
 Internal Audit
 Break-Even Analysis
 Statistical Control
 

Despite the emergence of modern techniques, traditional practices are

still widely in use these days. Let us discuss them one by one.
Budgetary Control
Budgeting simply means showcasing plans and expected results using
numerical information. As a corollary to this, budgetary control means
controlling regular operations of an organization for executing budgets.

A budget basically helps in understanding and expressing expected

results of projects and tasks in numerical form. For example, the
amounts of sales, production output, machine hours, etc. can be seen in
budgets.

There can be several types of budgets depending on the kind of data

they aim to project. For example, a sale budget explains selling and
distribution targets. Similarly, there can also be budgets for
purchase, production, capital expenditure, cash, etc.

The main aim of budgetary control is to regulate the activity of an

organization using budgeting. This process firstly requires managers to
determine what objectives they wish to achieve from a particular
activity. After that, they have to lay down the exact course of action that
they will follow for weeks and months.

Next, they will translate these expected results into monetary and
numerical terms, i.e. under a budget. Finally, managers will compare
actual performances with their budgets and take corrective measures if
necessary. This is exactly how the process of budgetary control works.

Standard Costing
Standard costing is similar to budgeting in the way that it relies on
numerical figures. The difference between the two, however, is that
standard costing relies on standard and regular/recurring costs.
Under this technique, managers record their costs and expenses for
every activity and compare them with standard costs. This controlling
technique basically helps in realizing which activity is profitable and
which one is not.

Financial Ratio Analysis

Every business organization has to depict its financial performances
using reports like balance sheets and profit & loss statements. Financial
ratio analysis basically compares these financial reports to show the
financial performance of a business in numerical terms.

Comparative studies of financial statements showcase standards like

changes in assets, liabilities, capital, profits, etc. Financial ratio analysis
also helps in understanding the liquidity and solvency status of a
business.

Internal Audit
Another popular traditional type of control technique is internal
auditing. This process requires internal auditors to appraise themselves
of the operations of an organization.

Generally, the scope of an internal audit is narrow and it relates to

financial and accounting activities. In modern times, however,
managers use it to regulate several other tasks.

For example, it can also cover policies, procedures, methods, and

management of an organization. Results of such audits can,
consequently, help managers take corrective action for controlling.
Break-Even Analysis
Break-even analysis shows the point at which a business neither earns
profits nor incurs losses. This can be in the form of sale output,
production volume, the price of products, etc.

Managers often use break-even analysis to determine the minimum

level of results they must achieve for an activity. Any number that goes
below the break-even point triggers corrective measures for control.

Statistical Control
The use of statistical tools is a great way to understand an
organization’s tasks effectively and efficiently. They help in showing
averages, percentages, and ratios using comprehensible graphs and
charts.

Managers often use pie charts and graphs to depict their sales,
production, profits, productivity, etc. Such tools have always been
popular traditional control techniques.

Types of Control in an
Organisation: 3 Types |

Management
Three Types of Control

Type # 1. Feed-Forward Controls:

Feed forward controls are future-directed — they attempt to detect
and anticipate problems or deviations from the standards in advance
of their occurrence (at various points throughout the processes). They
are in-process controls and are much more active, aggressive in
nature, allowing corrective action to be taken in advance of the
problem.

Feed forward controls thus anticipate problems and permit action to

be taken before a problem actually arises.

Feed forward control devices are of two broad categories: diagnostic

and therapeutic.

Diagnostic controls seek to determine what deviation is taking (or has

taken) place. The sales manager, for instance, who receives the
monthly sales figures (showing sales quota results) is virtually working
with a diagnostic control device. It will no doubt indicate deviations
from the acceptable standard (i.e., what is wrong) but not why.
Discovering the ‘why’ is often the most difficult part of the process.

Therapeutic controls tell us both what and why, and then proceed to
take corrective action. For example, engines having internal control
system such as an engine speed governor and automatic transmission
are designed to take necessary corrective actions when warranted by
the conditions.

An example of utilisation of such control can be found in case of a

manager who conducts employee training using the coaching method.
When, for instance, the trainee is performing the task, the manager
observes him closely by standing on his side. The objective is to
discover if any deviations from the intended processes take place.

In case a deviation occurs, the manager observes it, diagnoses the

reason for the incorrect technique, and corrects the deviation
immediately (i.e., without any loss of time). Thus the control and
correction take place during the process itself, not after a few days.
Type # 2. Concurrent (Prevention) Control:

Concurrent control, also called steering control because it allows

people to act on a process or activity while it is proceeding, not after it
is proceeding, nor after it is completed. Corrections and adjustments
can be made as and when the need a rises. Such controls focus on
establishing conditions that will make it difficult or impossible for
deviations from norms to occur.

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An example of concurrent control is the development by companies of

job descriptions and job specifications. It may be recalled that job
description identifies the job that has to be done, thus clarifying
working relationships, responsibility areas, and authority
relationships. It thus assists in preventing unnecessary duplication of
effort (work) and potential organisational conflict.

In a like manner job specification identifies the abilities, training,

education and characteristics needed of an employee to do the work. It
is control device inasmuch as it works to prevent a person who is
totally unqualified and unfit from being selected for the job, thereby
saving money and time, and thus precluding potential poor
performance.

Type # 3. Feedback Controls:

Feedback control is future-oriented. It is historical in nature and is

also known as post-action control. The implication is that the
measured activity has already occurred, and it is impossible to go back
and correct performance to bring it up to standard. Rather, corrections
must occur after the act.

Such post-action controls focus on the end results of the process. The
information derived is not utilised for corrective action on a project
because it has already been completed. Such control provides
information for a manager to examine and apply to future activities
which are similar to the present one. The basic objective is to help
prevent mistakes in the future.

What Are the Types of Internal Controls?

Internal controls are the policies and procedures that a business puts
into place in order to protect its assets, ensure its accounting data is
correct, maximize the efficiency of its operation and promote an
atmosphere of compliance among its employees. There are three main
types of internal controls: detective, preventative and corrective.

Detective Internal Controls

Detective internal controls are designed to find errors after they have
occurred. They serve as part of a checks-and-balances system and to
determine how efficient policies are. Examples include surprise cash
counts, taking inventory, review and approval of accounting work,
internal audits, peer reviews, and enforcement of job descriptions and
expectations. Detective internal controls also help protect assets. For
instance, if a cashier does not know when her cash drawer will be
counted, she may be more likely to be honest.
Preventative Internal Controls
Preventative internal controls are put into place to keep errors and
irregularities from happening. While detective controls usually occur
irregularly, preventative controls usually occur on a regular basis. They
range from locking the building before leaving to entering a password
before completing a transaction. Other preventative controls include
testing for clerical accuracy, backing up computer data, drug testing of
employees, employee screening and training programs, segregation of
duties, enforced vacations, obtaining approval before processing a
transaction and having physical control over assets (locking money in a
safe, for example).

Corrective Internal Controls

As the name suggests, corrective internal controls are put into place to
correct any errors that were found by the detective internal controls.
When an error is made, employees should follow whatever procedures
have been put into place to correct the error, such as reporting the
problem to a supervisor. Training programs and progressive discipline
for errors are other examples of corrective internal controls.

Limitations

It is important to keep in mind that internal controls, while effective, are not a guarantee that a
company's objectives will be met. Human errors and computer errors are not accounted for by internal
controls. In addition, internal controls assume employees are honest and that they would not bypass
guidelines or alter data to benefit themselves.