NCERT Class 12 Business Studies Chapter 8 PDF

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 2020-21 Ch_08.indd 205 04-10-2019 2:41:18 PM  206 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 2020-21 Ch_08.indd 206 04-10-2019 2:41:18 PM  Controlling 207 (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 2020-21 Ch_08.indd 207 04-10-2019 2:41:18 PM  208 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 2020-21 Ch_08.indd 208 04-10-2019 2:41:21 PM  Controlling 209 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 2020-21 Ch_08.indd 209 04-10-2019 2:41:21 PM  210 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 2020-21 Ch_08.indd 210 04-10-2019 2:41:21 PM  Controlling 211 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 2020-21 Ch_08.indd 211 04-10-2019 2:41:21 PM  212 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. 2020-21 Ch_08.indd 212 04-10-2019 2:41:21 PM  Controlling 213 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 2020-21 Ch_08.indd 213 04-10-2019 2:41:26 PM  214 Business Studies Some examples of Corrective Action Causes of deviation Corrective action to be taken 1. Defective material Change the quality specification for the material used 2. Defective machinery Repair the existing machine or replace the machine if it cannot be repaired 3. Obsolete machinery Undertake technological upgradation of machinery 4. Defective process Modify the existing process 5. Defective physical Improve the physical conditions of work conditions of work Techniques of literature. These techniques provide a refreshingly new thinking on the Managerial Control ways in which various aspects of an The various techniques of managerial organisation can be controlled. These control may be classified into two broad include: categories: traditional techniques, and (a) Return on investment modern techniques. (b) Ratio analysis (c) Responsibility accounting Traditional Techniques (d) Management audit Traditional techniques are those which (e) PERT and CPM have been used by the companies (f ) Management information system for a long time now. However, these techniques have not become obsolete Traditional Techniques and are still being used by companies. Personal Observation These include: This is the most traditional method (a) Personal observation of control. Personal observation (b) Statistical reports enables the manager to collect first hand information. It also creates (c) Breakeven analysis a psychological pressure on the (d) Budgetary control employees to perform well as they are aware that they are being observed Modern Techniques personally on their job. However, it is Modern techniques of controlling are a very time-consuming exercise and those which are of recent origin and cannot effectively be used in all kinds are comparatively new in management of jobs. 2020-21 Ch_08.indd 214 04-10-2019 2:41:27 PM  Controlling 215 How Saco Defense Controlled the Situation? At Saco Defense, lack of quality had created a crisis. When the government shut it down because it wasn’t meeting quality standards, Saco brought back a TQM programme that had restored quality, increased production, and decreased costs. Based in Saco, Maine, the 178-year-old defense company was unable to adhere to the U.S. Navy’s quality standards. Although Saco’s weapons worked well, the government questioned the company’s quality practices and policies. For example, if an employee discovered a defective bolt near the completion of an assembly process, the operator would replace the bolt but not document the problem. The presence of one defective bolt might mean that others from the same supplier or batch were also bad but were going undetected. Without follow-up, the underlying materials problem would not be identified and resolved. To solve these problems Saco Defense went through an organisational transformation. The key elements were: (1) empowering employees by giving them the responsibility and accountability for their performance, including the authority to halt production to correct problems; (2) forming work cells, that is, small businesses within the company that manage their production with limited supervision; and (3) reducing the workforce from 760 to about 450 employees and eliminating several layers of management. In addition, ongoing improvement projects at the company range from reducing cycle time and product cost to implementing programmes for skill integration. Productivity has increased, turnover is down, and the company plans to expand its international business. Source: Stoner, A.F. James, R. Edward Freeman and Daniel R. Gilbert, Jr., Management, Prentice-Hall of India Pvt. Ltd., 1998 (Ref: Joyce E. Santora, ‘A Quality Program Transforms Saco Defense’, Personnel Journal, May 1993) Statistical Reports Breakeven Analysis Statistical analysis in the form of Breakeven analysis is a technique used averages, percentages, ratios, by managers to study the relationship correlation, etc., present useful between costs, volume and profits. information to the managers regarding It determines the probable profit performance of the organisation in and losses at different levels of activity. various areas. Such information The sales volume at which there is no when presented in the form of charts, profit, no loss is known as breakeven graphs, tables, etc., enables the managers to read them more easily point. It is a useful technique for and allow a comparison to be made the managers as it helps in with performance in previous periods estimating profits at different levels and also with the benchmarks. of activities. 2020-21 Ch_08.indd 215 04-10-2019 2:41:27 PM  216 Business Studies The figure 1 shows breakeven costs and determines the level of chart of a firm. Breakeven point is activity at which the firm can earn determined by the intersection of its target profit. Total Revenue and Total Cost curves. The figure shows that the firm Budgetary Control will break even at 50,000 units of Budgetary control is a technique output. At this point, there is no profit of managerial control in which all no loss. It is beyond this point that operations are planned in advance the firm will start earning profits. in the form of budgets and actual Breakeven point can be calculated results are compared with budgetary with the help of the following formula: standards. This comparison reveals Fixed Costs the necessary actions to be taken Breakeven Point = so that organisational objectives are Selling price per accomplished. unit – Variable cost A budget is a quantitative statement per unit for a definite future period of time Breakeven analysis helps a firm in for the purpose of obtaining a given keeping a close check over its variable objective. It is also a statement which Breakeven Chart Total Revenue Total Cost Profit Cost and Revenue (Rs. Lakhs) Breakeven Point Variable Cost Loss Fixed Cost 25 50 75 Sales Volume (in thousand units) 2020-21 Ch_08.indd 216 04-10-2019 2:41:27 PM  Controlling 217 reflects the policy of that particular 4. Budgeting is also used for period. It will contain figures of achieving coordination among forecasts both in terms of time and different departments of an quantities. The box shows the most organisation and highlights the common types of budgets used by an interdependence between them. organisation. For instance, sales budget cannot Budgeting offers the following be prepared without knowing advantages: production programmes and 1. Budgeting focuses on specific schedules. and time-bound targets and 5. It facilitates management by thus, helps in attainment of exception by stressing on organisational objectives. those operations which deviate 2. Budgeting is a source of motiva- from budgeted standards in a tion to the employees who know significant way. the standards against which their However, the effectiveness performance will be appraised of budgeting depends on how and thus, enables them to accurately estimates have been perform better. made about future. Flexible budgets 3. Budgeting helps in optimum should be prepared which can be utilisation of resources by adopted if forecasts about future allocating them according to turn out to be different, especially in the requirements of different the face of changing environmental departments. forces. Managers must remember Types of Budgets n Sales Budget: A statement of what an organisation expects to sell in terms of quantity as well as value n Production Budget: A statement of what an organisation plans to produce in the budgeted period n Material Budget: A statement of estimated quantity and cost of materials required for production n Cash Budget: Anticipated cash inflows and outflows for the budgeted period n Capital Budget: Estimated spending on major long-term assets like new factory or major equipment n Research and Development Budget: Estimated spending for the development or refinement of products and processes 2020-21 Ch_08.indd 217 04-10-2019 2:41:27 PM  218 Business Studies that budgeting should not be viewed Ratio Analysis as an end but a means to achieve Ratio Analysis refers to analysis organisational objectives. of financial statements through Modern Techniques computation of ratios. The most Return on Investment commonly used ratios used by Return on Investment (RoI) is a useful organisations can be classified into technique which provides the basic the following categories: yardstick for measuring whether or 1. Liquidity Ratios: Liquidity ratios not invested capital has been used are calculated to determine effectively for generating reasonable short-term solvency of business. amount of return. RoI can be used to measure overall performance of Analysis of current position of an organisation or of its individual liquid funds determines the departments or divisions. It can be ability of the business to pay the calculated as under. amount due to its stakeholders. Net income before interest and tax 2. Solvency Ratios: Ratios which RoI = Capital Employed are calculated to determine the Net Income before or after tax may long-term solvency of business be used for making comparisons. are known as solvency ratios. Total investment includes both Thus, these ratios determine the working as well as fixed capital ability of a business to service its invested in business. According to indebtedness. this technique, RoI can be increased 3. Profitability Ratios: These ratios either by increasing sales volume are calculated to analyse the proportionately more than total profitability position of a business. investment or by reducing total Such ratios involve analysis of investment without having any reductions in sales volume. profits in relation to sales or funds RoI provides top management an or capital employed. effective means of control for measuring 4. Turnover Ratios: Turnover ratios and comparing performance of diff­ are calculated to determine the erent departments. It also permits efficiency of operations based on departmental managers to find out effective utilisation of resources. the problem which affects RoI in an Higher turnover means better adverse manner. utilisation of resources. 2020-21 Ch_08.indd 218 21-11-2019 9:59:07 AM  Controlling 219 The table given below gives 2. Revenue Centre: A revenue examples of some ratios commonly centre is a segment of an used by managers. organisation which is primarily responsible for generating Responsibility Accounting revenue. For example, marketing Responsibility accounting is a system department of an organisation of accounting in which different may be classified as a revenue sections, divisions and departments center. of an organisation are set up as 3. Profit Centre: A profit centre ‘Responsibility Centres’. The head of is a segment of an organisation the centre is responsible for achieving whose manager is responsible the target set for his centre. for both revenues and costs. For Responsibility centres may be of example, repair and maintenance the following types: department of an organisation 1. Cost Centre: A cost or expense may be treated as a profit center centre is a segment of an if it is allowed to bill other organisation in which managers production departments for the are held responsible for the cost services provided to them. incurred in the centre but not 4. Investment Centre: An inve­ for the revenues. For example, in stment centre is responsible a manufacturing organisation, not only for profits but also production department is for investments made in the classified as cost centre. centre in the form of assets. Examples of Commonly used Ratios Type of Ratio Examples Liquidity Current Ratio Quick Ratio Solvency Debt-Equity Ratio Proprietary Ratio Interest Coverage Ratio Profitability Gross Profit Ratio Net Profit Ratio Return on Capital Employed Turnover Inventory Turnover Ratio Stock Turnover Ratio Debtors Turnover Ratio 2020-21 Ch_08.indd 219 04-10-2019 2:41:27 PM  220 Business Studies The investment made in each 4. It ensures updating of existing centre is separately ascertained managerial policies and strategies and return on investment is in the light of environmental used as a basis for judging the changes. performance of the centre. Conducting management audit may sometimes pose a problem as Management Audit there are no standard techniques of Management audit refers to management audit. Also, management systematic appraisal of the overall audit is not compulsory under any performance of the management of law. Enlightened managers, however, an organisation. The purpose is to understand its usefulness in improving review the efficiency and effectiveness overall performance of the organisation. of management and to improve its performance in future periods. It is PERT and CPM helpful in identifying the deficiencies PERT (Programme Evaluation and in the performance of management Review Technique) and CPM (Critical functions. Thus, management audit Path Method) are important network may be defined as evaluation of techniques useful in planning and the functioning, performance and controlling. These techniques are effectiveness of management of an especially useful for planning, organisation. scheduling and implementing The main advantages of mana- time bound projects involving gement audit are as follows. performance of a variety of complex, diverse and interrelated activities. 1. It helps to locate present and These techniques deals with time potential deficiencies in the scheduling and resource allocation for performance of management these activities and aims at effective functions. execution of projects within given time 2. It helps to improve the control schedule and structure of costs. system of an organisation by The steps involved in using PERT/ continuously monitoring the CPM are as follows: performance of management. 1. The project is divided into a 3. It improves coordination in the number of clearly identifiable functioning of various depart- activities which are then ments so that they work together arranged in a logical sequence. effectively towards the achieve- 2. A network diagram is prepared to ment of organisational objectives. show the sequence of activities, 2020-21 Ch_08.indd 220 04-10-2019 2:41:27 PM  Controlling 221 the starting point and the and support for effective managerial termination point of the project. decision-making. A decision-maker 3. Time estimates are prepared requires up-to-date, accurate and for each activity. PERT requires timely information. MIS provides the the preparation of three time required information to the managers estimates – optimistic (or shortest by systematically processing a massive time), pessimistic (or longest data generated in an organisation. time) and most likely time. In Thus, MIS is an important commun­ CPM only one time estimate is ication tool for managers. prepared. In addition, CPM also MIS also serves as an important requires making cost estimates control technique. It provides data for completion of project. and information to the managers at 4. The longest path in the network the right time so that appropriate is identified as the critical path. It corrective action may be taken in represents the sequence of those case of deviations from standards. activities which are important MIS offers the following advantages for timely completion of the to the managers: project and where no delays can 1. It facilitates collection, manag- be allowed without delaying the ement and dissemination of entire project. information at different levels of 5. If required, the plan is modified management and across different so that execution and timely departments of the organisation. completion of project is under 2. It supports planning, decision- control. making and controlling at all PERT and CPM are used extensively levels. in areas like ship-building, 3. It improves the quality of construction projects, aircraft information with which a manu­facture, etc. manager works. 4. It ensures cost effectiveness in Management Information managing information. System 5. It reduces information overload Management Information System on the managers as only (MIS) is a computer-based informa­ relevant information is provided tion system that provides information to them. 2020-21 Ch_08.indd 221 04-10-2019 2:41:27 PM  222 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. 2020-21 Ch_08.indd 222 04-10-2019 2:41:27 PM  Controlling 223 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. Write a short note on budgetary control as a technique of managerial control. 4. Explain how management audit serves as an effective technique of controlling. 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 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). 2020-21 Ch_08.indd 223 04-10-2019 2:41:27 PM  224 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. 2020-21 Ch_08.indd 224 04-10-2019 2:41:27 PM