Controlling PDF
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This chapter on controlling outlines the meaning and importance of control in business. It examines steps in the process of controlling and describes techniques. The chapter also discusses the relationship between planning and controlling, as well as the limitations of controlling.
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CONTROLLING Departure Control Systems (DCS) 8 CHAPTER...
CONTROLLING Departure Control Systems (DCS) 8 CHAPTER L E A R N I N G A Departure Control System (DCS) automates processing an airlines airport OBJECTIVES management operations which includes managing the informant required for airport After studying this chapter, check-in, printing boarding pass, baggage you should be able to: acceptance, boarding load control and aircraft checks. Today almost 98% of DCS n Explain the meaning of manage e-ticket using interface from a controlling; number of devices including check-in kiosks, online check‑in, mobile boarding pass and n State the importance of baggage handling. DCS are able to identify controlling; and capture updated reservations from an airline computer reservation system for n Describe the relationship passengers called passenger name record between planning and (PNR). A DCS is used to update reservations controlling; typically as ckecked-in, boarded, and flown or another status. Additionally and n Explain the steps in the increasingly a DCS or some city fare sectors process of controlling; and may also interface with immigration control for visa, immigration and passenger no fly n Describe the techniques of watch list. controlling. It is quite clear from the example the standards set in advance so that that all managers need to manage organisational goals are achieved. situations intelligently and take corrective action before any damage Meaning of Controlling is done to the business. Controlling Controlling is one of the important function of management comes to functions of a manager. In order the rescue of a manager here. It not to seek planned results from the only helps in keeping a track on subordinates, a manager needs to the progress of activities but also exercise effective control over the ensures that activities conform to activities of the subordinates. In other Reprint 2024-25 Ch_08.indd 201 08-08-2022 16:39:15 202 Business Studies words, controlling means ensuring planning in the future periods. Thus, that activities in an organisation are controlling only completes one cycle performed as per the plans. Controlling of management process and improves also ensures that an organisation’s planning in the next cycle. resources are being used effectively and efficiently for the achievement of Importance of Controlling predetermined goals. Controlling is, Control is an indispensable function thus, a goal-oriented function. of management. Without control the Controlling function of a manager best of plans can go awry. A good is a pervasive function. It is a primary control system helps an organisation function of every manager. Managers in the following ways: at all levels of management— top, (i) Accomplishing organisational middle and lower-need to perform goals: The controlling function controlling functions to keep a measures progress towards the control over activities in their organisational goals and brings areas. Moreover, controlling is as to light the deviations, if any, much required in an educational and indicates corrective action. institution, military, hospital, and a It, thus, guides the organisation club as in any business organisation. and keeps it on the right track so Controlling should not be misunde that organisational goals might rstood as the last function of manage be achieved. ment. It is a function that brings (ii) Judging accuracy of standards: back the management cycle back to A good control system enables the planning function. The controlling management to verify whether function finds out how far actual the standards set are accurate performance deviates from standards, and objective. An efficient control analyses the causes of such deviations system keeps a careful check and attempts to take corrective actions on the changes taking place based on the same. This process in the organisation and in the helps in formulation of future plans environment and helps to review in the light of the problems that were and revise the standards in light identified and, thus, helps in better of such changes. 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’ Donnel Reprint 2024-25 Ch_08.indd 202 08-08-2022 16:39:15 Controlling 203 (iii) Making efficient use of The box explains how an import- resources: By exercising control, export company was able to track a manager seeks to reduce wastage dishonest employees by using and spoilage of resources. Each computer monitoring as a part activity is performed in accordance of their control system. with predetermined standards (vi) Facilitating coordination in and norms. This ensures that action: Controlling provides resources are used in the most direction to all activities and effective and efficient manner. efforts for achieving organisational (iv) Improving employee motivation: goals. Each department and A good control system ensures employee is governed by pre that employees know well in determined standards which advance what they are expected are well coordinated with one to do and what are the standards another. This ensures that of performance on the basis of overall organisational objectives which they will be appraised. It, are accomplished. thus, motivates them and helps Limitations of Controlling them to give better performance. (v) Ensuring order and discipline: Although controlling is an important Controlling creates an atmosphere function of management, it suffers of order and discipline in the from the following limitations. organisation. It helps to minimise (i) Difficulty in setting quantitative dishonest behaviour on the part standards: Control system loses of the employees by keeping a some of its effectiveness when close check on their activities. standards cannot be defined in Control Through Computer Monitoring Managers at a New York City import-export company suspected that two employees were robbing it. Corporate Defense Strategies (CDS) of Maywood, New Jersey, advised the firm to install a software program that could secretly log every single stroke of the suspects’ computer keys and send an encrypted e-mail report to CDS. Investigators revealed that the two employees were deleting orders from the corporate books after processing them, pocketing the revenues, and building their own company from within. The programme picked up on their plan to return to the office late one night to steal a large shipment of electronics. Police hid in the rafters of the firm’s warehouse, and when the suspects entered, they were arrested. The pair was charged with embezzling $3 million over two and a half years, a sizable amount of revenue for a $25 million-a-year firm. Source: Hellriegel Don, Susan E. Jackson and John W. Slocum Jr., Management: A Competency-based Approach Reprint 2024-25 Ch_08.indd 203 08-08-2022 16:39:15 204 Business Studies quantitative terms. This makes a strict watch with the help measurement of performance and of Closed Circuit Televisions their comparison with standards (CCTVs). a difficult task. Employee morale, (iv) Costly affair: Control is a costly job satisfaction and human affair as it involves a lot of behaviour are such areas where expenditure, time and effort. A this problem might arise. small enterprise cannot afford (ii) Little control on external to install an expensive control factors: Generally an enterprise system. It cannot justify the cannot control external factors expenses involved. Managers such as government policies, must ensure that the costs of technological changes, installing and operating a control competition etc. system should not exceed the (iii) Resistance from employees: benefits derived from it. Control is often resisted by The box on Control System at employees. They see it as a FedEx gives an overview of the restriction on their freedom. control system used by FedEx and For instance, employees might how it helped FedEx to increase its object when they are kept under profits. Remain level headed even when things go wrong Reprint 2024-25 Ch_08.indd 204 08-08-2022 16:39:16 Controlling 205 Relationship between Planning desired action. Planning is thus, and Controlling prescriptive whereas, controlling is evaluative. Planning and controlling are It is often said that planning is looking inseparable twins of management. ahead while controlling is looking A system of control presupposes the back. However, the statement is only existence of certain standards. These partially correct. Plans are prepared standards of performance which for future and are based on forecasts serve as the basis of controlling are about future conditions. Therefore, provided by planning. Once a plan planning involves looking ahead and becomes operational, controlling is is called a forward-looking function. necessary to monitor the progress, On the contrary, controlling is like a measure it, discover deviations and postmortem of past activities to find initiate corrective measures to ensure out deviations from the standards. In that events conform to plans. Thus, that sense, controlling is a backward- planning without controlling is looking function. However, it should meaningless. Similarly, controlling be understood that planning is guided is blind without planning. If the by past experiences and the corrective standards are not set in advance, action initiated by control function managers have nothing to control. aims to improve future performance. When there is no plan, there is no Thus, planning and controlling are basis of controlling. both backward-looking as well as a Planning is clearly a prerequisite forward-looking function. for controlling. It is utterly foolish Thus, planning and controlling are to think that controlling could be interrelated and, in fact, reinforce accomplished without planning. each other in the sense that Without planning there is no 1. Planning based on facts makes predetermined understanding of the controlling easier and effective; desired performance. Planning seeks and consistent, integrated and articulated 2. Controlling improves future programmes while controlling seeks planning by providing information to compel events to conform to plans. derived from past experience. Planning is basically an intellectual process involving thinking, articulation Controlling Process and analysis to discover and prescribe Controlling is a systematic process an appropriate course of action for involving the following steps. achieving objectives. Controlling, 1. Setting performance standards on the other hand, checks whether 2. Measurement of actual decisions have been translated into performance Reprint 2024-25 Ch_08.indd 205 08-08-2022 16:39:16 206 Business Studies 3. Comparison of actual effort must be made to define them performance with standards in a manner that would make their 4. Analysing deviations measurement easier. For instance, for 5. Taking corrective action improving customer satisfaction in a Step 1: Setting Performance Stan fast food chain having self-service, dards: The first step in the controlling standards can be set in terms of time process is setting up of performance taken by a customer to wait for a table, standards. Standards are the criteria time taken by him to place the order against which actual performance and time taken to collect the order. would be measured. Thus, standards It is important that standards serve as benchmarks towards which should be flexible enough to be an organisation strives to work. modified whenever required. Due to Standards can be set in both changes taking place in the internal and external business environment, quantitative as well as qualitative standards may need some modification terms. For instance, standards set to be realistic in the changed business in terms of cost to be incurred, environment. revenue to be earned, product units Step 2: Measurement of Actual to be produced and sold, time to Performance: Once performance be spent in performing a task, all standards are set, the next step is represents quantitative standards. measurement of actual performance. Sometimes standards may also be Performance should be measured in set in qualitative terms. Improving an objective and reliable manner. goodwill and motivation level of There are several techniques for employees are examples of qualitative measurement of performance. These standards. The table in the next page include personal observation, sample gives a glimpse of standards used in checking, performance reports, etc. different functional areas of business As far as possible, performance to gauge performance. should be measured in the same At the time of setting standards, a units in which standards are set as manager should try to set standards this would make their comparison in precise quantitative terms as this easier. would make their comparison with It is generally believed that actual performance much easier. For measurement should be done after instance, reduction of defects from 10 the task is completed. However, in every 1,000 pieces produced to 5 in wherever possible, measurement every 1,000 pieces produced by the of work should be done during the end of the quarter. However, whenever performance. For instance, in case of qualitative standards are set, an assembling task, each part produced Reprint 2024-25 Ch_08.indd 206 08-08-2022 16:39:16 Controlling 207 should be checked before assembling. Thus, in large organisations, certain Similarly, in a manufacturing plant, pieces are checked at random for levels of gas particles in the air could quality. This is known as sample be continuously monitored for safety. checking. Measurement of performance of an Step 3: Comparing Actual Per employee may require preparation of formance with Standards: This performance report by his superior. step involves comparison of actual Measurement of a company’s performance with the standard. Such performance may involve calculation comparison will reveal the deviation of certain ratios like gross profit ratio, between actual and desired results. net profit ratio, return on investment, Comparison becomes easier when etc., at periodic intervals. Progress standards are set in quantitative of work in certain operating areas terms. For instance, performance of like marketing may be measured a worker in terms of units produced by considering the number of units in a week can be easily measured sold, increase in market share, etc., against the standard output for the whereas, efficiency of production week. may be measured by counting the Step 4: Analysing Deviations: number of pieces produced and Some deviation in performance can number of defective pieces in a be expected in all activities. It is, batch. In small organisations, each therefore, important to determine the piece produced may be checked to acceptable range of deviations. Also, ensure that it conforms to quality deviations in key areas of business specifications laid down for the need to be attended more urgently product. However, this might not as compared to deviations in certain be possible in a large organisation. insignificant areas. Critical point Standards used in Functional Areas to Gauge Performance Production Marketing Human Resource Finance and Management Accounting Quantity Sales volume Labour relations Capital expenditures Quality Sales expense Labour turnover Inventories Cost Advertising Labour absenteeism Flow of capital expenditures Individual job Individual Liquidity Performance Sales-person’s performance Reprint 2024-25 Ch_08.indd 207 08-08-2022 16:39:16 208 Business Studies control and management by exception significant deviations which go should be used by a manager in this beyond the permissible limit regard. should be brought to the notice of 1. Critical Point Control: It is neither management. Thus, if the plans economical nor easy to keep a lay down 2 per cent increase in check on each and every activity labour cost as an acceptable range in an organisation. Control of deviation in a manufacturing should, therefore, focus on key organisation, only increase in result areas (KRAs) which are labour cost beyond 2 per cent critical to the success of an should be brought to the notice organisation. These KRAs are set of the management. However, in as the critical points. If anything case of major deviation from the goes wrong at the critical points, standard (say, 5 per cent), the the entire organisation suffers. matter has to receive immediate For instance, in a manufacturing action of management on a organisation, an increase of priority basis. 5 per cent in the labour cost The box below highlights the may be more troublesome than advantages of critical point control a 15 per cent increase in postal and management by exception. charges. After identifying the deviations that 2. Management by Exception: demand managerial attention, these Management by exception, which deviations need to be analysed for their is often referred to as control causes. Deviations may have multiple by exception, is an important causes for their origin. These include principle of management control unrealistic standards, defective based on the belief that an attempt process, inadequacy of resources, to control everything results in structural drawbacks, organisational controlling nothing. Thus, only constraints and environmental factors Advantages of Critical Point Control and Management by Exception When a manager sets critical points and focuses attention on significant deviations which cross the permissible limit, the following advantages accrue: 1. It saves the time and efforts of managers as they deal with only significant deviations. 2. It focuses managerial attention on important areas. Thus, there is better utilisation of managerial talent. 3. The routine problems are left to the subordinates. Management by exception, thus, facilitates delegation of authority and increases morale of the employees. 4. It identifies critical problems which need timely action to keep the organisation in right track. Reprint 2024-25 Ch_08.indd 208 08-08-2022 16:39:16 Controlling 209 beyond the control of the organisation. occur again and standards are It is necessary to identify the exact accomplished. cause(s) of deviations, failing which, Corrective action might involve training of employees if the production an appropriate corrective action might target could not be met. Similarly, not be possible. The deviations and if an important project is running their causes are then reported and behind schedule, corrective action corrective action taken at appropriate might involve assigning of additional level. workers and equipment to the Step 5: Taking Corrective Action: project and permission for overtime The final step in the controlling work. In case the deviation cannot be corrected through managerial process is taking corrective action. action, the standards may have to be No corrective action is required when revised. The table below cites some the deviations are within acceptable of the causes of deviations and the limits. However, when the deviations respective corrective action that go beyond the acceptable range, might be taken by a manager. especially in the important areas, The information in the box in next page it demands immediate managerial gives an account of how Saco Defense attention so that deviations do not was able to control a crisis situation. Remedial Plan of Action: Analysing deviations Reprint 2024-25 Ch_08.indd 209 08-08-2022 16:39:18 210 Business Studies Key Terms Controlling Critical point control Management by exception Breakeven analysis Budgetary control Return on investment Ratio analysis Responsibility accounting Management audit PERT and CPM Management Information system Summary n Controlling is the process of ensuring that actual activities conform to planned activities. n The importance of managerial control lies in the fact that it helps in accomplishing organisational goals. Controlling also helps in judging accuracy of standards, ensuring efficient utilization of resources, boosting employee morale, creating an atmosphere of order and discipline in the organisation and coordinating different activities so that they all work together in one direction to meet targets. n Controlling suffers from certain limitations also. An organisation has no control over external factors. The control system of an organisation may face resistance from its employees. Sometimes controlling turns out to be a costly affair, especially in case of small organisations. Moreover, it is not always possible for the management to set quantitative standards of performance in the absence of which controlling exercise loses some of its effectiveness. n The process of control involves setting performance standards, measurement of actual performance, comparison of actual performance with standards, analysis of deviations and taking corrective action. n Planning and controlling are inseparable twins of management. Planning initiates the process of management and controlling completes the process. Plans are the basis of control and without control the best laid plans may go astray. n Personal observation, statistical reports, breakeven analysis and budgetary control are traditional techniques of managerial control. n Return on investment, ratio analysis, responsibility accounting, management audit, PERT and CPM and Management Information System are modern techniques of managerial control. Reprint 2024-25 Ch_08.indd 210 08-08-2022 16:39:18 Controlling 211 Exercises Very Short Answer Type 1. State the meaning of controlling. 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. 3. State any one situation in which an organisation’s control system loses is effectiveness. 4. Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department. 5. Which term is used to indicate the difference between standard performance and actual performance? Short Answer Type 1. ‘Planning is looking ahead and controlling is looking back.’ Comment. 2. ‘An effort to control everything may end up in controlling nothing.’ Explain. 3. Explain how management audit serves as an effective technique of controlling. 4. 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 MsVasundhara, the CEO of the Company, to file a complaint against MrBhanu Prasad and requested her to terminate his services. Explain the principle of management control that MsVasundhara should consider while taking her decision. (Hint: Management by exception). Reprint 2024-25 Ch_08.indd 211 08-08-2022 16:39:18 212 Business Studies Long Answer Type 1. Explain the various steps involved in the process of control. 2. Explain the techniques of managerial control. 3. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system? 4. Discuss the relationship between planning and controlling. 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. a. Identify the benefits the company will derive from a good control system. b. 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. c. Give the steps in the control process that the company should follow to remove the problems it is facing 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. Reprint 2024-25 Ch_08.indd 212 08-08-2022 16:39:18 Notes Reprint 2024-25 Ch_08.indd 213 08-08-2022 16:39:18 Notes Reprint 2024-25 Ch_08.indd 214 08-08-2022 16:39:18