NCERT Solutions for Class 12 Business Studies Business Studies I Chapter 8: Controlling

Chapter at a glance

Exercises – Very Short Answer Type

Question VSA – Q1

State the meaning of controlling.

Answer

Controlling means ensuring that activities in an organisation are performed as per the plans. It involves setting standards, measuring actual performance, comparing it with the standards, and taking corrective action where needed.

Controlling is ensuring that work is done according to plans by comparing actual performance with standards and correcting deviations.

Question VSA – Q2

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.

Answer

Principle: Management by exception (and critical point control) – only significant deviations beyond the permissible limit should be brought to the notice of management.

Situation: the control system loses effectiveness when external factors (government policy changes, technological changes, competition) cannot be controlled. (Also: when standards cannot be expressed in quantitative terms, or employees resist control.)

Management by exception; control loses effectiveness when deviations are caused by external factors beyond the organisation’s control.

Question VSA – Q3

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

Answer

When standards cannot be set in quantitative terms (e.g. employee morale, job satisfaction, human behaviour), measurement and comparison become difficult, and control loses its effectiveness.

When performance standards cannot be expressed in quantitative terms (e.g. morale, satisfaction).

Question VSA – Q4

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

Answer

1. Return on investment (or capital expenditure/budget limits).
2. Liquidity ratios such as current ratio, or timely preparation of financial statements and collection period of receivables.

Return on investment and liquidity (current) ratio – also budget limits and timely closing of accounts.

Question VSA – Q5

Which term is used to indicate the difference between standard performance and actual performance?

Answer

Deviation.

Deviation.

Exercises – Short Answer Type

Question SA – Q1

‘Planning is looking ahead and controlling is looking back.’ Comment.

Answer

The statement is only partially correct.

• Planning is looking ahead – it decides in advance what is to be done in the future.
• Controlling is looking back – it compares past/actual performance with standards; it is a post-mortem of past activities.

But planning is also guided by the past – past experience and data from controlling help in making better plans. And controlling also looks ahead – the corrective action it takes improves future performance, and it helps revise future plans. Hence planning and controlling are both backward-looking and forward-looking; they are interrelated and reinforce each other.

Partly true: planning looks ahead and controlling reviews past performance, but planning also uses past experience and controlling improves future performance – both look back and forward.

Question SA – Q2

‘An effort to control everything may end up in controlling nothing.’ Explain.

Answer

This refers to the principle of management by exception (and critical point control). Trying to control every activity, however small, is costly, time-consuming and diverts managers’ attention from important matters. So managers should control only significant deviations beyond permissible limits and focus on key result areas (critical points) that affect the success of the organisation.

Benefits: saves time and effort; managers focus on important issues; better use of managerial talent; routine problems are left to subordinates; facilitates timely action; delegation.

Controlling every small activity wastes time and effort; managers should focus only on significant deviations and key result areas (management by exception), which makes control effective.

Question SA – Q3

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

Answer

Management audit is a systematic appraisal of the overall performance of the management of an organisation – reviewing its efficiency and effectiveness, policies, functions and procedures.

How it helps control

1. Identifies deficiencies in the performance of management functions.
2. Improves control and communication by finding gaps.
3. Updates the managerial system to cope with environmental changes.
4. Improves coordination among various departments.
5. Ensures timely action on matters needing attention.

Management audit reviews management’s overall performance, revealing deficiencies, improving control and communication, keeping systems up to date and improving coordination.

Question SA – Q4

Mr. Arfaaz had been heading the production department of Writewell Products Ltd., a firm manufacturing stationery 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 Ms Vasundhara, the CEO of the Company, to file a complaint against Mr Bhanu Prasad and requested her to terminate his services. Explain the principle of management control that Ms Vasundhara should consider while taking her decision.

Answer

Management by exception – only significant deviations beyond a permissible limit should be brought to the notice of top management. A minor shortfall of 10 units for two days is not a significant deviation; it should be handled at the departmental level (finding the cause, counselling or training the worker) rather than by termination. The CEO should not spend time on, or overreact to, insignificant deviations.

Management by exception – a minor shortfall of 10 units is not a significant deviation needing top-management action; it should be handled at the departmental level, not by termination.

Exercises – Long Answer Type

Question LA – Q1

Explain the various steps involved in the process of control.

Answer

1. Setting performance standards – criteria against which performance is measured; quantitative (cost, units, time) or qualitative (goodwill, motivation). Standards should be flexible.
2. Measurement of actual performance – objectively and reliably, through personal observation, sample checking, reports, etc.
3. Comparing actual performance with standards – to find deviations.
4. Analysing deviations – identifying significant deviations using critical point control and management by exception, and finding their causes.
5. Taking corrective action – when deviations exceed limits, e.g. training employees, revising standards, replacing machinery.

Setting standards, measuring actual performance, comparing it with standards, analysing deviations (critical point control, management by exception) and taking corrective action.

Question LA – Q2

Explain the techniques of managerial control.

Answer

Traditional techniques

1. Personal observation – first-hand information by direct supervision.
2. Statistical reports – averages, percentages, ratios, charts and graphs.
3. Breakeven analysis – relationship of cost, volume and profit; breakeven point = fixed cost ÷ (selling price – variable cost per unit).
4. Budgetary control – preparing budgets for various activities and comparing actual results with them.

Modern techniques

1. Return on investment (ROI) – net income as a percentage of total investment.
2. Ratio analysis – liquidity, solvency, profitability and turnover ratios.
3. Responsibility accounting – different sections are made responsibility centres (cost, revenue, profit, investment centres).
4. Management audit – appraisal of management’s overall performance.
5. PERT and CPM – network techniques for planning, scheduling and controlling time and cost in complex projects.
6. Management information system (MIS) – a computer-based system providing information to managers for decision-making and control.

Traditional: personal observation, statistical reports, breakeven analysis, budgetary control. Modern: ROI, ratio analysis, responsibility accounting, management audit, PERT/CPM and MIS.

Question LA – Q3

Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Answer

Importance

1. Accomplishing organisational goals – measures progress and corrects deviations.
2. Judging accuracy of standards – helps review and revise standards.
3. Making efficient use of resources – reduces waste and spoilage.
4. Improving employee motivation – employees know what is expected and how they will be judged.
5. Ensuring order and discipline – checks dishonest behaviour.
6. Facilitating coordination in action – all departments work towards common standards.

Problems (limitations)

1. Difficulty in setting quantitative standards – e.g. morale, satisfaction.
2. Little control on external factors – government policy, technology, competition.
3. Resistance from employees – they see control as a restriction on freedom.
4. Costly affair – involves a lot of expenditure, time and effort; benefits should exceed costs.

Controlling helps achieve goals, judge standards, use resources efficiently, motivate employees, maintain discipline and coordinate actions; problems include difficulty in quantifying standards, no control over external factors, employee resistance and high cost.

Question LA – Q4

Discuss the relationship between planning and controlling.

Answer

1. Planning is the basis of controlling – plans set the standards against which performance is measured. Without planning, there is nothing to control.
2. Controlling is meaningless without planning; planning is ineffective without controlling – controlling ensures plans are carried out.
3. Planning is prescriptive; controlling is evaluative – planning prescribes the course of action; controlling evaluates whether decisions have been translated into action.
4. Both are forward- and backward-looking – planning uses past experience (backward) and looks ahead; controlling compares past performance (backward) and corrective action improves the future (forward).
5. Continuous cycle – plan → implement → control → revise plans.

They are therefore called inseparable twins of management.

Planning sets standards that controlling uses; controlling ensures plans are achieved and feeds back for better planning – they are interdependent, both backward- and forward-looking, the “inseparable twins” of management.

Question LA – Q5

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.

Answer

a. Benefits of a good control system: accomplishment of sales and customer satisfaction targets; checking whether standards (targets) are realistic in a changed market; efficient use of resources; motivated sales and service staff; order and discipline; coordination between production, R&D, marketing and service.

b. Relating planning and control

1. Make specific, measurable plans – sales targets by region/model, customer satisfaction scores, delivery time, defect rates, market share.
2. Use these plans as standards for control.
3. Monitor continuously (monthly sales reports, customer feedback, competitor tracking).
4. Use control feedback to revise plans – new models, pricing, technology upgrades, marketing strategy, in response to competitors.
5. Use budgets and MIS to link plans with results.

c. Control process

1. Set standards – sales volume, market share, customer satisfaction index, product quality, cost.
2. Measure actual performance – sales data, surveys, complaints, returns.
3. Compare actual performance with standards.
4. Analyse deviations – find causes (outdated technology, high prices, poor after-sales service) and focus on key result areas.
5. Take corrective action – upgrade technology, revise pricing, improve service, train staff, launch new models, revise targets if unrealistic.

1. Goal achievement, realistic standards, efficient resource use, motivation, discipline and coordination. b. Set measurable plans as standards, monitor continuously and use feedback to revise plans on technology, pricing and marketing. c. Set standards, measure performance, compare, analyse deviations and take corrective action.

Question LA – Q6

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. b. Explain any four points of importance of Controlling.

Answer

a. Features

1. Controlling is goal-oriented – “so that targets are achieved effectively and efficiently”; control ensures that organisational goals are achieved.
2. Controlling is a continuous process – “keep a constant and continuous check”; it involves constant analysis of standards and performance.
3. (Also) Controlling is pervasive – needed in all departments and at all levels (“performance of all the employees in the organisation”).

b. Importance (any four)

1. Accomplishing organisational goals – measures progress and corrects deviations.
2. Making efficient use of resources – reduces wastage.
3. Improving employee motivation – clear standards and fair evaluation.
4. Ensuring order and discipline – keeps a check on employees’ activities.
5. Judging accuracy of standards; facilitating coordination.

1. Controlling is goal-oriented and continuous (also pervasive). b. It helps accomplish goals, use resources efficiently, motivate employees and ensure order and discipline (also judges standards and aids coordination).

Topic checklist

• ☒ Meaning, features and importance of controlling (VSA 1; LA 3, 6)
• ☒ Limitations (VSA 2, 3; LA 3)
• ☒ Control process and principles (VSA 4, 5; SA 2, 4; LA 1)
• ☒ Techniques of control (SA 3; LA 2)
• ☒ Planning and controlling (SA 1; LA 4, 5)

Total questions answered: 15 of 15