NCERT solutions class 12 Business Studies Chapter 8 CONTROLLING

Chapter 8: Controlling

Part I: Very Short Answer Type

1. State the meaning of controlling. Concept of Controlling

Controlling refers to the process of comparing actual organizational performance with the pre-determined standards, identifying deviations, and taking corrective actions to ensure goals are achieved effectively.

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. Principle and Limitation

The principle is Management by Exception. An organization’s control system loses its effectiveness when qualitative standards (like employee morale or job satisfaction) cannot be measured in quantitative terms.

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

A control system loses its effectiveness when an organization faces unexpected changes in external factors, such as sudden shifts in government policies, competitor strategies, or technological advancements, which are beyond the manager's control.

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

Two critical standards used to evaluate the Finance & Accounting department are:

1. Liquidity and Solvency Ratios: To ensure the business can meet short and long-term liabilities.
2. Capital Expenditure Limits: Ensuring actual spending aligns strictly with the approved financial budgets.

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

The difference between standard performance and actual performance is referred to as a Deviation.

Part II: Short Answer Type

1. ‘Planning is looking ahead and controlling is looking back.’ Comment. Planning vs. Controlling

This statement is only partially true. Planning is "looking ahead" because it involves forecasting and setting future targets. Controlling is "looking back" because it acts like a post-mortem of past activities to measure if targets were met.

However, the reverse is also true. Planning is "looking back" because new plans are guided by past controlling reports. Controlling is "looking ahead" because corrective actions are taken to ensure future operations do not suffer from the same mistakes.

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

This statement highlights the principle of Management by Exception. In a large organization, it is practically impossible for a manager to control every minute detail. Attempting to do so wastes crucial time and managerial effort.

Instead, managers should focus strictly on significant deviations in Key Result Areas (KRAs). Minor deviations should be ignored. If a manager tries to micromanage everything, core strategic issues will be severely neglected.

3. Explain how management audit serves as an effective technique of controlling. Management Audit

A Management Audit is a comprehensive and systematic appraisal of the overall performance of the management of an organization. It acts as an effective controlling technique by:

1. Identifying existing deficiencies and weaknesses in managerial functions.
2. Improving management efficiency by continuously updating policies and procedures.
3. Ensuring smooth coordination across various departments by aligning them with overarching organizational objectives.

4. Mr.Arfaaz had been heading the production department... Mr.Bhanu Prasad, fell short of his daily production target by 10 units... Explain the principle of management control that MsVasundhara should consider. Applying Management by Exception

Ms. Vasundhara should apply the principle of Management by Exception. This principle dictates that only significant deviations that cross a permissible limit should be brought to the notice of top management.

A shortage of just 10 units is a very minor operational deviation. It should be handled locally by the production manager (Mr. Arfaaz) through counseling or training. Approaching the CEO to terminate the worker for such a minor issue reflects poor time management and an overreaction that defeats the purpose of tiered leadership.

Part III: Long Answer Type

1. Explain the various steps involved in the process of control. The Controlling Process

Controlling is a systematic process involving five distinct steps:

1. Setting Performance Standards: The first step is defining clear, measurable benchmarks (targets) against which actual performance will be evaluated.
2. Measurement of Actual Performance: Performance should be measured objectively and reliably through techniques like personal observation, sample checking, and performance reports.
3. Comparing Actual Performance with Standards: This step involves finding the exact difference between what was planned and what was achieved, thereby identifying the "deviation."
4. Analysing Deviations: All deviations are not equal. Managers use Critical Point Control (focusing on Key Result Areas) and Management by Exception (ignoring minor deviations) to analyze the root causes of major discrepancies.
5. Taking Corrective Action: The final step involves implementing remedies to correct the deviation, ensuring that performance is brought back on track and future errors are completely prevented.

2. Explain the techniques of managerial control. Techniques of Controlling

Managerial control techniques are broadly classified into two categories:

A. Traditional Techniques:

1. Personal Observation: Direct supervision by managers provides first-hand information, though it is highly time-consuming.
2. Statistical Reports: Using averages, percentages, and ratios presented via charts and graphs to evaluate performance trends.
3. Breakeven Analysis: A technique to study the relationship between costs, volume, and profits to determine the point of no profit and no loss.
4. Budgetary Control: Planning future operations in numerical terms (budgets) and strictly comparing actual results against them.

B. Modern Techniques:

1. Return on Investment (ROI): Measuring whether the invested capital is generating adequate, expected returns.
2. Ratio Analysis: Computing financial ratios (liquidity, profitability) to judge financial health.
3. Responsibility Accounting: Creating separate investment or cost centers and making specific managers solely accountable for them.
4. Management Audit: A systematic appraisal of overall managerial efficiency.
5. PERT and CPM: Network techniques used for planning, scheduling, and controlling complex, time-sensitive projects.

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

• Accomplishing Organizational Goals: It steers the organization on the right track by correcting deviations.
• Judging Accuracy of Standards: It helps management verify if the initially set standards are still accurate in a changing environment.
• Efficient Use of Resources: It drastically minimizes wastage and spoilage of physical and human resources.
• Improving Employee Motivation: When employees know in advance what standards they will be judged against, it motivates them to perform better.
• Ensuring Order and Discipline: It creates a strict check on dishonest behavior and operational inefficiencies.

Problems in Implementation (Limitations):

• Difficulty in Setting Quantitative Standards: Areas like employee morale and human behavior are impossible to quantify.
• Little Control on External Factors: Management cannot control government policies, technological shifts, or competitor actions.
• Resistance from Employees: Employees often resent strict control systems (like CCTV cameras), feeling their freedom is restricted.
• Costly Affair: Setting up an effective control mechanism requires massive expenditure of time, money, and effort.

4. Discuss the relationship between planning and controlling. The Inseparable Twins of Management

Planning and controlling are deeply interrelated and mutually dependent. They are often referred to as the inseparable twins of management:

1. Planning sets the base for Controlling: Without a plan, there is no standard to compare actual performance against. Controlling is blind and meaningless without planning.
2. Controlling ensures Planning is successful: A brilliant plan is useless if it is not strictly monitored and executed properly. Controlling ensures the plan is actually achieved.
3. Both are Forward-looking and Backward-looking:
   • Planning is looking ahead (forecasting) and looking back (basing new plans on past performance reports).
   • Controlling is looking back (measuring past performance) and looking ahead (taking corrective action to improve future plans).

Thus, planning prescribes the course of action, and controlling ensures the organization stays strictly on that course.

5. A company ‘M’ limited is manufacturing mobile phones... (a) Identify the benefits... (b) How can the company relate its planning with control... (c) Give the steps in the control process... Case Analysis: Revamping the Control System (a) Benefits of a Good Control System:

By revamping its control system, Company M will benefit by rapidly adapting to the changing technological environment, ensuring efficient utilization of resources against new competitors, boosting employee motivation, and steering efforts accurately back towards its lost sales targets.

(b) Relating Planning with Control:

The company must realize that its new plans (better pricing and technology upgrades) are meaningless without control. Planning will set the new benchmark for sales and customer satisfaction. Controlling will act as a strict monitoring device to measure whether the new smartphone models are actually hitting the planned sales volumes and rectifying the strategy if they fail.

(c) Steps in the Control Process to be Followed:

1. Set new quantitative standards for sales and market share.
2. Measure actual sales and customer satisfaction through feedback.
3. Compare the actual sales figures with the revised standards.
4. Analyze why the deviations occurred (e.g., is competitor pricing still lower?).
5. Take immediate corrective action (e.g., launching an aggressive marketing campaign or further dropping prices).

6. Mr Shantanu is a chief manager... instructed him to keep a constant and continuous check on all the activities... (a) Describe any two features of Controlling highlighted... (b) Explain any four points of importance of Controlling. Features and Importance of Controlling (a) Features Highlighted:

1. Controlling is a Continuous Process: He instructed the manager to keep a "constant and continuous check," meaning controlling is not a one-time activity but an ongoing managerial function.
2. Controlling is Goal-Oriented: He checks activities "so that targets are achieved effectively and efficiently," proving that controlling aims strictly at accomplishing organizational goals.

(b) Importance of Controlling:

1. Accomplishing Organizational Goals: It brings to light any deviations and strictly guides the organization back on its intended path.
2. Efficient Use of Resources: Continuous monitoring ensures that human and physical resources are used optimally without any wastage.
3. Ensuring Order and Discipline: By keeping track of performance, it minimizes dishonest behavior and strictly enforces a disciplined work environment.
4. Improving Employee Motivation: When employees know their performance is being tracked and evaluated against clear standards, they are driven to put in their best effort.