Friday, December 26, 2014

AHSEC - 12: Controlling Important Notes for Feb' 2017 Exam

Unit – VIII: Controlling
Objective Questions (1 Mark)
1. What is meant by controlling?
Ans: - Under controlling deviations are sought to be noticed in the actual work progress and the standards already determined, the causes of deviations are found out and corrective action is taken so that in future the mistakes are not repeated.
2. Which function of management ensures that actual activities confirm to planned activities?                                2012
Ans: It is controlling.
3. Name the function which reviews the operations in a business unit.
Ans: Controlling function.
4. Why it is said that ‘planning is meaningless without controlling’?
Ans: Because in the absence of controlling no will take it seriously to work according to the plans and hence, the plan will fail.
5. Why it is said that ‘controlling is looking back’?
Ans: Because under it, a manager tries to find out whether the work has been done according to the standards or not.
6. Give meaning of the term’ Deviation’ as used in the control function of management.
Ans: Deviation refers to the difference between actual performance and standard work.
7. Name the two situations in which corrective action is not required.
Ans: (i) Zero Deviation (ii) Positive Deviation.
8. State any one advantage of ‘Critical-point Control’ and ‘Management by Exception.’

Ans: By taking care of important deviations both time and efforts are saved.
9. Why it is said that ‘planning is looking back’?
Ans: Because the planning is done on the basis of the happening of the past.
10. What is meant by ‘Budget’?
Ans: A budget is a quantitative expression of the plan of action.
11. What do you mean by Quantitative Standards?
Ans: They are the standards which are shown with the help of figures, e.g., production of 10 units by a laborer in a day.
12. Which of the following is not an essential element of an effective control system?                                2009
a)      Rigidity
b)      Economy
c)       Simplicity
d)      Flexibility
Ans: Rigidity

Short questions (2/3 marks questions)
1. What is controlling? Explain its nature or Characteristics.
Ans: Control is one of the managerial functions. Under controlling deviations are sought to be noticed in the actual work progress and the standards already determined, the causes of deviations are found out and corrective action is taken so that in future the mistakes are not repeated.
According to Henry Fayol, “In an undertaking, control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established. It has to point out weakness and errors in order to rectify them and prevent recurrence”.
Thus, controlling implies determining and stating specifically what is to be accomplished, then checking performance against such standards prescribed with a view to supplying the corrective action required to achieve the planned objectives.
Nature or Characteristics of Control
1)      Control is a function of management: It is, in fact, a follow-up action to the other functions of management.
2)      Control is a dynamic process: It involves continuous review of standards of performance and results in corrective action, which may lead to changes in other functions of management.
3)      Control is a continuous activity: It does not stop anywhere.
4)      Control is forward looking: It is related to future, as past cannot be controlled. It is usually preventive as the presence of control systems leads to minimize wastages, losses, and deviations from standards.
5)      Planning and Controlling are closely related with each other: Managerial planning seeks consistent and integrated while managerial control seeks to compel events to conform to plans. As a matter of fact, planning is based on control and control is based on planning.
2. “Controlling is a pervasive function.” Explain.
Ans: The controlling is a pervasive function of the management as it is performed in all organizations (business and non-business) and at all managerial levels. It is that function of management under which every manager at every level assures that the actual progress is in conformity with the plans:
3. What are the Limitations of controlling?
Ans:  (i) Difficulty in setting quantitative standards: Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. Employee morale, job satisfaction and human behaviors are such areas where this problem might arise.
(ii) Little control on external factors: Generally an enterprise cannot control external factors such as government policies, technological changes, competition etc.
(iii) Resistance from employees: Control is often resisted by employees. They see it as restriction on their freedom.
(iv) Costly affairs: Control is a costly affair as it involves a lot of expenditure, time and efforts.

LONG QUESTIONS (5/8 marks questions)
Q.1. What is meant by ‘Controlling’? Discuss the importance of controlling.  2009, 2011, 2012, 2015
Ans:  Control is one of the managerial functions. Under controlling deviations are sought to be noticed in the actual work progress and the standards already determined, the causes of deviations are found out and corrective action is taken so that in future the mistakes are not repeated.
According to Henry Fayol, “In an undertaking, control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established. It has to point out weakness and errors in order to rectify them and prevent recurrence”.
Thus, controlling implies determining and stating specifically what is to be accomplished, then checking performance against such standards prescribed with a view to supplying the corrective action required to achieve the planned objectives.
A good control system helps an organization in the following ways:
(i) Accomplishing organizational goals: The controlling function measures progress towards the organizational goals and brings to light the deviations, if any, and indicates corrective action.
(ii) Making efficient use of resources: By exercising control, a manager seeks to reduce wastage and spoilage of resources. This ensures that resources are used in the most effective and efficient manner.
(iii) Improving employee motivation: A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appreciated.
(iv) Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organization. It helps to minimize dishonest behaviors on the part of the employees by keeping a close check on their activities.
(v) Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organizational goals.
Q.2 Explain the relationship between planning and controlling.  2008, 2011, 2015
Ans. The relationship between planning and controlling can be divided into the following two parts.
(i) Interdependence between Planning and Controlling.
(ii) Difference between Planning and Controlling.
(i) Interdependence between Planning and Controlling. Planning is meaningless without controlling and controlling is blind without Planning. Both the aspects of the interdependence of planning and control have been discussed below:
(a) Planning is meaningless without Controlling: if the process of controlling is taken away from management no person working in the enterprise will take it seriously to work according to the plans and consequently, the plans will fail.
(b) Controlling is blind without Planning: Under the system of controlling actual work performance is compared with the standards. Hence, if the standards are not determined there is no justification left for control and the standards are determined under planning.
(ii) Difference between Planning and Controlling: Yes, planning and controlling are incomplete and ineffective without each other but it doesn’t mean that both are not independent. Reasons are:
(a) Planning is looking Ahead whereas Controlling is Looking Back: Plans are always formulated for future and determined the future course of action for the achievement of objectives laid down. On the contrary, controlling is looking back because under it a manager tries to find out, after the work is completed, whether it has been done according to the standards or not.
(b) Planning is the first function and Controlling is the last function of Managerial Process: the managerial process moves in a definite sequence- like planning, organizing, staffing, directing and controlling happens to be the last step.
Q.3. Explain briefly the various steps in the process of control.  2009, 2010, 2013, 2016
Ans: Following are the steps of controlling process:
(i) Setting Performance Standards: the first step of controlling is to set performance standards. Standards are those criteria s on the basis of which the actual performance is measured. Thus, standards serve as benchmarks towards which an organization strives to work. Standards can be set in both quantitative as well as qualitative terms.
(ii) Measurement of Actual Performance: the second step in the controlling process is the measurement of actual performance. The measurement of actual performance is done on the basis of pre-determined standards. The measurement of actual performance tells the manager whether the work has been done according to the plan or not.
(iii) Comparison of Actual Performance with Standards: At this step, actual performance is compared with the standards and deviations are found out.
(iv) Analyzing Deviations: Deviations are examined the light of pre-determined Deviation Tolerance Limits. If the deviations are within limits they can be avoided. But if they cross the limits, they should be reported to the higher level managers without any delay. There are two important principles regarding this:
(a) Principle of Critical Point Control: According to this principle, those activities should be determined in the very outset which have an important role to play in ensuring the actual work progress in accordance with the plans. These are known as Key Result Areas – KRAs. It means that the managers should not be involved in small insignificant activities but should pay more attention to those activities where unfavourable results can cause heavy loss to the enterprise.
(b) Management by Exception; Management by exception, is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management.
(v) Taking Corrective Action: The last but the most important step in the controlling process is taking corrective action. By now the deviations and their causes become known. Now is the turn of removing the hurdles in the actual work progress. The purpose of corrective action is to bring the actual work progress to the level of expected progress.
Q.4. What is meant by ‘Budgetary Control’? State it’s any four advantages.
Ans: Budgetary control is a system which uses budgets as a means of controlling. It means that when different activities of a business enterprise are sought to be controlled with the help of budget, it is called budgetary control.
Advantages of Budgetary Control
(i) Helpful in Attaining Organizational Objectives: Budgets are based on plans and all the departmental managers are informed about the expectations each one of them. The departmental managers put in their best efforts to achieve their target and consequently it helps in attaining the organizational objectives.
(ii) Source of Motivation for Employees: this technique prescribes the objectives for the employees. Their performance is matched with the standards. If the results are positive, they are appreciated. This motivates them.
(iii) Optimum utilization of Resources: Budgetary Control divides the resources among all the departments in an appropriate manner. This makes it possible the Optimum utilization of available Resources in the organization.
(iv) Achieving Coordination: By implementing this system, the activities of all the departments are directed towards a single goal. In this way, all the departments work for the attainment of the common goal. Consequently, coordination is established among them.
Q.5. Describe in Brief the essentials of an effective control system (Any Five).    2007,2009, 2014
Ans: Essentials of an Effective control system:
The following are the essentials or basic requirements of an effectively control system:
1)      Suitable: The control system must be suitable for the kind of activity intended to serve. Apart from differences in the systems of control in different business, they also vary from department to department and from one level in the organization to the other.
2)      Understandable: The system must be understandable, i.e., the control information supplied should be capable of being understood by those who use it. A control system that a manager cannot understand is bound to remain ineffective.
3)      Economical: The system must be economical in operation, i.e., the cost of a control system should not exceed the possible savings from its use. The extent of control necessary should be decided by the standard of accuracy or quality required. A very high degree or standard of accuracy or quality may not really be-necessary.
4)      Flexible: The system of control must be flexible, i.e. workable even if the plans have to be changed. A good control system would be sufficiently flexible to permit the changes so necessitated.
5)      Forward Looking: The control system must be forward looking, as the manager cannot control the past. In fact, the control system should be so designed so as to anticipate possible deviations, or problems. Thus deviations can be forecast so that corrections can be incorporated even before the problem occurs.
6)      Suggestive Of Corrective Action: An adequate control system should not only detect failures must also disclose where they are occurring, who is responsible for them and what should be done to correct them. Overall summary information can cover up certain fault areas.
6. Mention various techniques of managerial control.   2012
Ans: Techniques of Control or Methods of Establishing Control
A number of techniques or tools are used for the purpose of managerial control. Some of the techniques are used for the control of the overall performance of the organisation, and some are used for controlling specific areas or aspects like costs, sales, etc. The various techniques of control can be classified into categories, viz.
(1) The important Traditional or Conventional techniques are:  Direct supervision and observation, Budgetary Control, Standard Costing, Break-even Analysis, Inventory Control, Internal Audit, Statistical Data Analysis, Production Planning and Control.
(2) The Important Modern or Contemporary techniques are:  Financial Statement Analysis, Return on Investment Control, Management Information System,  Management Audit,  Zero-base Budgeting,  Human Resources Accounting, and Responsibility Accounting.
Some of the techniques are discussed below
1. Direct Supervision and Observation: 'Direct Supervision and Observation' is the oldest technique of controlling. The supervisor himself observes the employees and their work. This brings him in direct contact with the workers. So, many problems are solved during supervision. The supervisor gets first hand information, and he has better understanding with the workers.
2. Financial Statements: All business organisations prepare Profit and Loss Account. It gives a summary of the income and expenses for a specified period. They also prepare Balance Sheet, which shows the financial position of the organisation at the end of the specified period. Financial statements are used to control the organisation. The figures of the current year can be compared with the previous year's figures. They can also be compared with the figures of other similar organisations.
3. Budgetary Control: A budget is a planning and controlling device. Budgetary control is a technique of managerial control through budgets. It is the essence of financial control. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee.
4. Break Even Analysis: Break Even Analysis or Break Even Point is the point of no profit, no loss. The Break-even analysis acts as a control device. It helps to find out the company's performance. So the company can take collective action to improve its performance in the future. Break-even analysis is a simple control tool.
5. Return on Investment (ROI): Investment consists of fixed assets and working capital used in business. Profit on the investment is a reward for risk taking. If the ROI is high then the financial performance of a business is good and vice-versa. ROI is a tool to improve financial performance. It helps the business to compare its present performance with that of previous years' performance.                                                    2016
6. Management by Objectives (MBO): MBO facilitates planning and control. It must fulfill following requirements: Objectives for individuals are jointly fixed by the superior and the subordinate.
Periodic evaluation and regular feedback to evaluate individual performance.
Achievement of objectives brings rewards to individuals.
7. Management Audit: Management Audit is an evaluation of the management as a whole. It critically examines the full management process, i.e. planning, organising, directing, and controlling. It finds out the efficiency of the management. Management auditing is conducted by a team of experts. They collect data from past records, members of management, clients and employees. The data is analysed and conclusions are drawn about managerial performance and efficiency.
8. Management Information System (MIS): In order to control the organisation properly the management needs accurate information. They need information about the internal working of the organisation and also about the external environment. Information is collected continuously to identify problems and find out solutions. MIS collects data, processes it and provides it to the managers. MIS may be manual or computerised. With MIS, managers can delegate authority to subordinates without losing control.
Advantages of MIS are:                                                 2016
a) It provides accurate information to all the managers working at different levels.
b) It helps in planning, controlling and decision-making.
c) It provides cost effective management information.
d) It improves quality of information with which a manager works.
e) It reduces information overload i.e., only relevant information is provided to them.
9. PERT and CPM Techniques: Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM) techniques were developed in USA in the late 50's. Any programme consists of various activities and sub-activities. Successful completion of any activity depends upon doing the work in a given sequence and in a given time. CPM / PERT can be used to minimise the total time or the total cost required to perform the total operations. In these techniques, the job is divided into various activities / sub-activities. From these activities, the critical activities are identified. More importance is given to completion of these critical activities. So, by controlling the time of the critical activities, the total time and cost of the job are minimised.
Steps involved in using PERT/CPM are given below:
a) The project is divided into a number of clearly identified activities.
b) These clearly identified activities are arranged in logical sequence.
c) A network diagram is prepared to show the sequence of activities.
d) Time estimates are prepared for each activity.
e) In CPM cost required to complete the project is also calculated.
f) The longest path is identified as critical path where no delay can be permitted.
10. Self-Control: Self-Control means self-directed control. A person is given freedom to set his own targets, evaluate his own performance and take corrective measures as and when required. Self-control is especially required for top level managers because they do not like external control. The subordinates must be encouraged to use self-control because it is not good for the superior to control each and everything. However, self-control does not mean no control by the superiors. The superiors must control the important activities of the subordinates.

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