Controlling

Controlling means ensuring that activities in an organisation are performed as per the plans. It also ensures that resources are used effectively and efficiently for achieving predetermined goals.

The principle is management by exception. It means only significant deviations beyond the permissible limit should be brought to the notice of management.

One situation in which control loses effectiveness is when standards cannot be defined in quantitative terms, because then measuring performance and comparing it with standards becomes difficult. For example, employee morale or job satisfaction are difficult to measure precisely.

The control system loses its effectiveness when quantitative standards cannot be set. In such cases, performance cannot be measured and compared easily with standards.

For the Finance & Accounting department, any two standards given in the chapter are:
- Capital expenditures
- Liquidity

Other standards mentioned include inventories and flow of capital.

The difference between standard performance and actual performance is called deviation.

The statement is partly correct. Planning is a forward-looking function because it involves thinking in advance and deciding future courses of action. Controlling is backward-looking because it compares actual performance with standards and finds out deviations from the past or present performance.

However, the statement is only partly true because both are interrelated: planning is guided by past experience, and controlling helps improve future planning by providing information about deviations and corrective actions. So, planning and controlling reinforce each other.

The statement means that controlling requires plans and standards. If an organisation tries to control everything, it ends up wasting time and energy on minor matters and cannot focus on important deviations.

That is why management by exception is used: only significant deviations beyond the permissible limit are brought to management’s notice. This saves time, improves use of managerial talent, and helps managers concentrate on key problem areas. Therefore, trying to control everything may result in controlling nothing effectively.

Management audit is an effective technique of controlling because it provides a systematic appraisal of the overall performance of management. It helps in evaluating how efficiently the managers are performing their functions and whether the organisation is achieving its objectives.

It highlights deficiencies in management, reveals areas needing improvement, and suggests corrective action. In this way, management audit helps management strengthen control and improve future performance.