CBSE Class 12 Business Studies Revision Notes Chapter 8

Q.1 State the meaning of controlling.

Ans

Controlling is the process of comparing the actual performance with the standards and taking corrective action, if required.

Q.2 Explain the various steps involved in a controlling process.

Ans

Steps in the controlling process:

1. Setting up standards: The first step in the controlling process is setting up the standards. Standards mean the target against which the actual performance is measured. The standards are the basis of comparison. The standards should be achievable, measurable and should be set keeping in mind the availablity of the resources. For example, an enterprise sets the standard of increasing its sales by 20 percent in the current year. The standards set should also specify the time limit. This means that it must specify the time limit within which they have to be achieved.

2. Measuring of performance: After setting up of standards the performance of the employees is measures by evaluating the actual performance done by the employees. Both the qualitative and quantitative aspects of performance are measured. Although it is difficult to evaluate the quality standards, yet certain quality parameters are fixed to measure the performance.

3. Comparing performance against standards: The next step is to compare the actual performance with the standards. If both are parallel to each other then the controlling process ends there only. But if there are any deviations then the manager tries to find out the reasons for the same. Deviations of minor nature can be ignored but if the deviations are major then timely action must be taken.

4. Analysing deviations: Only the deviations which have a significant impact on the organisation should be brought to the notice of the top management. Deviations must be divided in two categories; deviations which need to be attended urgently and the minor deviations. These two deviations must be controlled in the following way:

• Critical point control: It means focusing on the key areas and in case of any deviation in these areas then it should be attended urgently.

• Management by exception: A manager who tries controlling everything may end up controlling nothing. Therefore the deviations which are beyond the specific range should be handled by him and the minor deviations should be attended to by the lower or the middle level management.

5. Taking corrective measures: After comparing the actual performance with the standards and finding out the deviations, the manger is required to know the reasons for the deviations and taking corrective actions to remove the occurence of such deviations in future.

Q.3 How does controlling help in achieving the goals of an organisation?

Ans

It is important for any organisation to achieve the predetermined goals. As soon as a plan is implemented it is directed towards the achievement of the goals through various activities and programs. These activities and programs are monitored through controlling.

It is done through these steps:

i. Setting performance standards

ii. Measurement of actual performance

iii. Comparison of actual performance with standards

iv. Analysing deviations

v. Taking corrective action

In this way, controlling helps in achieving the organisational goals.

Q.4 What do you mean by Management By Exception (MBE) ?

Ans

Management by exception concept is based on the belief that an attempt to control everything, results in controlling nothing. A good control system should concentrate on key performance aspects. MBE helps in controlling by identifying only significant deviations which cross the acceptable range and bringing them to the ntoce of management. Deviations within the acceptable range are ignored. Thus, it focuses managerial attention on important areas. For instance, if the acceptable range of deviations is 2% and the actual deviation on one day is 3%, then this will need to be analysed, If the actual deviation is only 1.5%, then it will be ignored, since it is within acceptable limits.

Q.5 How does controlling help in maintaining and improving quality ?
Explain with a suitable example.

Ans

Controlling helps in maintaining and improving quality: Controlling process has to start from the beginning i.e.,screening the quality of raw materials then the process of conversion of raw materials into output and later on the inspection of the final product. An effective quality control system will ultimately result in quality products, thereby increasing sales and profits.

Q.6 How does controlling help in decision making ?

Ans

Controlling enables the management to take decisions for future course of action. For example, a salesman is expected to sell 50 articles per week. If his actual performance at the end of the week, falls short of the standard, the sales manager should find out the reasons for it immediately. Then only he will be able to take relevant decisions and prompt remedial actions.

Q.7 Controlling is an indispensible function of management. Give reasons in support of your answer.

Ans

Importance of controlling:

1. Accomplishment of organisational goals: Controlling helps in the accomplishment of organisational goals as it helps in the comparison of actual performance with the standards and in case of any deviation, corrective actions are taken which helps in the accomplishment of objectives.
2. Efficient utilisation of resources: Controlling helps in the effective utilisation of human and physical resources. It ensures that no employee deliberately delays his work performance. It also checks any wastage of resources as well.
3. Employee motivation: The controlling process helps the employees to work with full dedication as they know that their work performance will be evaluated. They work in such a way that they get recognition for their performance and hence that helps in motivating them.
4. Ensuring order and discipline: Contolling helps to minimise the dishonest behaviour on the part of the employees by keeping a close check on their activities.
5. Facilitating coordination in action: Controlling provides direction to all activities and efforts for achieving organisational goals. Ech department and employee is governed by pre determined standards which are well coordinated with each other.

Q.8 Controlling helps in coping with organisational complexity. Explain.

Ans

An organisation in its initial stage may have resources, employees and markets. When an organisation expands, it has to adapt itself to organisational complexities. Controlling helps the organisation in coping with a number of diverse activities relating to production, marketing, finance and human resources.

Q.9 What factors should be considered while setting standards?

Ans

Factors to be considered while setting standards are:

1. Standards should be easily obtainable.
2. They should be measurable.
3. They should be flexible i.e. with the change in the environment the standards could also be changed or altered accordingly.

Q.10 Planning and controlling are interlinked and interdependent activities. Explain

Ans

Relationship between planning and controlling:

There is a deep relationship between planning and controlling. Planning is meaningless without controlling and controlling is useless without planning.

1. Planning can be successful only if there is proper controlling. If the process of controlling is not followed then no worker will take the plans seriously and so the plans will fail. Therfore if the process of contolling is not present then it is meaningless to have planning.
2. Controlling is useless without planning. Under the process of controlling actual performance is compared with the standards, and the standards are determined with the help of planning. In the absence of planning, no comparison can be made and so controlling will fail.

Q.11 Define the term ‘‘deviation’’ in the context of the process of control.

Ans

The term ‘‘deviation’’ ‘may be defined as the difference between standard performance and actual performance. Thus’

Deviation = Actual performance – Standard performance

For example, if the production department plans to produce 100 units and in actual only 90 units are produced, then deviation will be 100-90 = 10 units.

After finding out this deviation the organisation will look for reasons for this deviation and take corrective measures to ensure that the deviation do not take place again in future.

Q.12 What is Critical Point Control? Explain with an example.

Ans

Critical Point Control is a control technique for analysing deviations, based on the belief that management should focus on Key Result Areas (KRA) which are critical to the success of an organisation. If anything goes wrong at these KRAs, which are the critical points, the whole organisation suffers.

Example: In a manufacturing unit, an increase in labour cost may be more upsetting than a 15% increase in Rent charges.

Q.13 Mention the techniques of measurement of performance under controlling.

Ans

Certain techniques of measurement of performance are:

i. Personal Observation– Observation by supervisor continuously during performance of work. Most used in assembling industries, where each part is checked during assembling.

ii. Sample checking– In large organisations, production cannot be checked in entirety due to magnitude of production, unlike a small organisation. Hence, production is observed at random for checking quality of production.

iii. Performance reports– Superior prepares performance reports of his subordinates. These can be daily, weekly, monthly, etc.

Q.14 There are two managers Rahim and Pankaj. Rahim says that controlling is forward looking whereas according to Pankaj controlling is looking back. Who is correct ? Explain why.

Ans

In our opinion, Rahim’s viewpoint is totally correct and Pankaj’s view point is also correct to some extent.

Rahim is correct because the controlling function does not end by comparing the actual performance with the standards. But it also includes taking remedial steps to improve the performance in future. Without taking corrective actions controlling will be useless. Remedial actions are taken to ensure efficiency in the future. Therefore, controlling is forward looking.

On the other hand, Pankaj’s viewpoint is also correct to some extent as controlling involves comparing the actual performance with the standards set in the past. This makes controlling backward looking.

Q.15 Which two aspects are compared in controlling?

Ans

In controlling, actual performance is compared with the standards to find out the deviations, if any.

Q.16 Explain the steps of ‘setting performance standards’ and ‘taking corrective action’ in the process of control.

Ans

Setting performance standards– This is the first step of controlling. Standards are the benchmarks against which actual performance would be measured.

The standards can be set in both- quantitative & qualitative terms.

Quantitative standards are- units to be produced, costs to be incurred, sales revenues to be earned,

Qualitative standards are- improving motivation employee motivation, time for resolution of customer queries etc.

Standards should be quantifiable as far as possible. They should be flexible, to enable modifications in light of changes in internal/ external environment.

Taking corrective action- This is last step of controlling. Corrective actions are required to be taken by management immediately when the deviations in critical areas are beyond acceptable limits.

However, in case deviation cannot be corrected, the standard may need to be revised.

Corrective action could be- assigning additional workers, imparting training to workers, repair of machinery, modification of existing process etc.

Q.17 What is the relationship between Planning and Controlling?

Ans

Planning and controlling are interdependent and interlinked with each other. They are the inseparable twins of management.

i. Planning is a prerequisite for Controlling: Planning lays down standards of performance, which serve as the basis of controlling. However, once a plan becomes operational, controlling is necessary to monitor its progress to ensure that the activities are in accordance to planned ones. Thus, controlling helps in ensuring that events confirm to plans. For successful execution of both the functions, planning and controlling must support each other.

ii.Prescriptive Vs Evaluative: Planning is the intellectual process of thinking and analysing to prescribe an appropriate course of action for achieving goals. Controlling, on the other hand, checks whether decisions have been converted into desired action. Thus, planning is prescriptive and controlling is evaluative.

iii.Forward Looking: Plans are framed for future and are based on forecasts about future events. Therefore, planning is regarded as a forward looking function. However, controlling also improves future planning by providing corrective action to the deviations from plans. Thus, controlling is also forward looking.

iv.Backward Looking: Controlling analyses past activities to find out deviations from standards. Planning is also guided by past experiences and corrective action initiated by controlling, for improving future performance. Thus, both are backward looking.

Q.18 Define Control.

Ans

Control is the process of taking steps to bring actual results and desired results closer together.

Q.19 How does controlling improve future planning?

Ans

The controlling function of management measures actual performance against the preset standards and corrects the deviations, if any, by taking corrective actions. Future plans are formulated in the light of the problems that are identified. Thus, through controlling, information can be derived from the past experience which enables the management in making effective plans in future.

Q.20 What do you mean by critical point control?

Ans

Critical point control means to focus on the key or important areas and if there is any deviation in these key areas, then it must be attended urgently. These key areas are the areas which have a significant impact on the whole organisation. For example, if there is an increase in the labour cost by 10 percent and there is increase in postal cost by Rs. 20 then more focus should be made on the increase in labour cost as it will have significant effect on the profits of the organisation.

Q.21 Which function of management ensures work accomplishment according to plan?

Ans

Controlling

Q.22 Which two aspects of performance are compared in controlling?

Ans

Actual performance with standard performance.

Q.23 What are ‘deviations’?

Ans

Deviations refer to the differences between actual performances and standard performances.

Q.24 Name the two steps in the process of controlling that are concerned with compelling the events to conform to plan.

Ans

Steps in controlling that are concerned with compelling the events to conform to the plan:
i. Analysing deviations
ii. Taking corrective action

Q.25 How are deviations revealed in the controlling process?

Ans

Deviations are revealed in the controlling process by comparing the actual performance with the standard performance.

Q.26 Why is controlling called a backward looking function?

Ans

Controlling finds out deviations from the pre- determined standards, so it is called a backward looking function.

Q.27 Controlling is blind without planning. Why?

Ans

Planning provides standards to control without which controlling becomes aimless or baseless.

Q.28 Controlling is an important function of management. Give four reasons in support of your answer.

Ans

Controlling is an important function of management. It can be explained as follows:

i. Helps in accomplishing organizational goals: Controlling compares the actual targets with the planned targets and brings out the deviations and brings the corrective action and thereby helps the organisation in achieving the goals.

ii. Helps in efficient use of resources: Control system helps the manager in reducing the wastage and spoilage of resources. Each activity is performed in accordance with the predetermined standards which ensure effective and efficient utilization of resources.

iii. Helps in judging accuracy of standard: A control system checks the changes of the organisations and helps to review and revise the standards and verifies whether the standards are accurate and objectively based.

iv. Facilitates coordination in action: Control helps to maintain equilibrium between means and ends. It means that proper direction is taken and all the departments are properly controlled according to the pre determined standards which are well coordinated with one another. Controlling provides unity of direction.

Q.29 Explain how controlling helps in ’employee motivation’ and ‘coordination’.

Ans

Controlling helps in following ways:
i. Employee motivation: Effective control system communicates the goals and standards of appraisal for employees to subordinates well in advance. The 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 appraised. A good control system also guides employees to come out with their problems. This motivates the employees to give better performance. Hence, controlling helps to improve employee motivation.
ii. coordination: Controlling facilitates coordination in action. Controlling helps to maintain equilibrium between means and ends. It means that proper direction is taken and all the departments are properly controlled according to the pre determined standards which are well coordinated with one another. Controlling provides unity of direction.

Q.30 If you try to control everything you will end up controlling nothing. Explain.

Ans

According to the concept of ‘Management by Exception’ if a manager wants to control everything than he may end up controlling nothing.
According to this concept, the deviations which are beyond the specific range should only be handled by managers and minute or minor deviations can be ignored. Manager should not waste his time and energy in finding solutions for minor deviations, rather he should concentrate on removing deviations of high degree.

For instance, if the cost of production of Rs 1500 and as per policy any deviations beyond 5% need to be controlled. In such a case, if the cost increases by Rs 10, then it can be ignored, since it is within 5%. However, if it increases by Rs 100, then the manager must find out the reasons for such increase. He then need to take corrective steps to correct this deviation.

Q.31 Mr. Sam is a manager in a e-commerce company. He has set a monthly sales target of 20,000 for every tele caller. At the end of the month, he is busy in finding out the reasons why the sales achieved by the tele callers is less than the targets. Identify and explain the step that Mr. Sam carrying out in the controlling process.

Ans

Mr Sam is carrying out the step of ‘analysing of deviations’. After a comparison of actual performance is made with the standards, the deviations found are analysed to identify their causes. Deviations in the critical areas of business need to be attended to urgently.There are two principles of management control followed for analysing the deviations:

i. Critical point control – It advocates that control should focus on Key Result Areas (KRA) which are critical to the success of an organisation. If anything goes wrong at these KRAs, which are set as critical points, the whole organisation suffers as a result of it.

ii. Management by Exception – It advocates that only significant deviations going beyond permissible/acceptable limit should be brought to the notice of the management. Minor deviations can be neglected.

Deviations could be due to- inadequacy of resources, defective process, environmental factors etc. Following this analysis, the causes of the deviations are reported and corrective actions are taken at appropriate level.

Q.32 Mishthi Ltd is manufacturing toys. The company policy is that 2% of the daily production could be defective. Over last three months it is observed that about 8-10% of the production is defective.
Which function of management is required to correct the above case? Define it. State the procedure to be followed and the remedies to correct the deviation.

Ans

The management function required to correct the above case is controlling.

Controlling means, ensuring that activities in an organisation are performed as per the plans. Controlling also ensures that an organisation’s resources are being used effectively and efficiently for the achievement of predetermined goals.

The procedure to be followed is:
i. Find out the causes of deviation of defective percentage from 2% to 8-10%.
ii. Take the corrective measures to control the deviations.

The causes of deviation could be:

Q.33 Controlling is forward looking as well as backward looking. Explain why?

Ans

Controlling is forward looking as it compares the past performance with the standard. It involves finding the reasons for deviations and suggests the measures so that the deviations do not occur in future. Controlling includes suggesting remedial measures to improve the performance in future. For instance, the actual performance may not match with the planned performance because of outdated machines, so the corrective measure will be to change the machines so that the actual performance matches with the planned performance.
Controlling is a backward looking as the actual performance is measured with the past performance for which manager has to look back to previous year’s performance to find out its deviation from standard plans.

Q.34 Comparing the actual performance with the laid standards, finding out the deviations and taking corrective action is an important process of a function of management. Name the function and explain the process.

Ans

Controlling is the function which compares the actual performance with the laid standards, finding out the deviations and takes corrective action.

Steps in the controlling process:

Setting up standards: The first step in the controlling process is setting up of standards. Standards mean the target against which the actual performance is measured. The standards are the basis of comparison. The standards should be achievable, measurable and should be set keeping in mind the availablity of the resources. The standards set should also specify the time limit. For example, an enterprise sets the standard of increasing its sales by 20 percent in the current year.

Measurement of performance: After setting up of standards, the performance of the employees is measured by evaluating the actual performance done by the employees with the pre-determined standards. Both the qualitative and quantitative aspects of performance are measured. Although it is difficult to evaluate the quality standards, yet certain quality parameters are fixed to measure the performance.

Comparing performance against standards: The next step is to compare the actual performance with the standards. If both are parallel to each other then the controlling process ends there only. But if there are any deviations then the manager tries to find out the reasons for the same.

Analysing deviations: Deviations of minor nature can be ignored but if the deviations are major then timely action must be taken. Only the deviations which have a significant impact on the organisation should be brought to the notice of the top management. Deviations must be divided in two categories; deviations which need to be attended urgently and the minor deviations.

Taking corrective measures: This is the final step of controlling. The manager needs to take corrective actions to remove the occurrence of such deviations which require immediate managerial attention and to take steps so that the deviations do not occur in again future and the organisation is able to achieve its goals.

Q.35 In order to seek planned results from the subordinates, a manager needs to exercise effective control over the activities of the subordinates. Identify the function of management referred to in here. Also explain its importance.

Ans

Controlling means ensuring that activities in an organisation are performed as per the plans. Controlling also ensures that an organisation’s resources are being used effectively and efficiently for the achievement of predetermined goals. Controlling is, thus, a goal-oriented function. Managers

at all levels of management: top, middle and lower, need to perform controlling function to keep a control over activities in their areas. A good control system helps an organisation in the following ways:

• Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action.
• Judging accuracy of standards: An efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.
• 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.
• 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 appraised.
• Ensuring order and discipline: Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities.

Facilitating coordination in action: Controlling provides direction to all the activities and efforts for achieving organisational goals. Each department and employee is governed by predetermined standards which are well coordinated with one another. This ensures that overall organisational objectives are accomplished.

Q.36 Controlling should not be misunderstood as the last function of management. Explain.

Ans

Controlling is the function that brings back the management cycle back to the planning function. The controlling

function finds out how far actual performance deviates from the standard, analyses the causes of such deviations and attempts to take corrective actions based on the same. This process helps in formulation of future plans in the light of the problems that were identified and, thus, helps in better planning in the future periods. Thus, controlling only completes one cycle of management process and improves planning in the next cycle and is not the last function of management.

Q.37 Mathew is of the opinion that planning and controlling are both backward looking as well as a forward looking function. Is the statement true? Explain.

Ans

The above statement of Mathew is correct. It was earlier believed that planning is looking ahead while controlling is looking back. But this statement is partially correct as plans are prepared for future and are based on forecasts about future conditions. Therefore, planning involves looking ahead and is called a forward looking function. Controlling is like a postmortem of past activities to find out deviations from the standards. In that sense, controlling is a backward-looking function.

However, it should be understood that planning is guided by past experiences. The corrective action initiated by control function aims to improve future performance. Thus, planning and controlling are both backward-looking as well as a forward-looking function.

Q.38 In order to increase the volume of business, Mr. Ghosh focuses on proper planning but Mr. Das focuses on controlling. They do not agree that there is a close and reciprocal relationship between the two. Substantiate your answer to justify this statement.

Ans

Planning and controlling are interdependent and interlinked with each other. They are the inseparable twins of management.

Planning is a prerequisite for Controlling: Planning lays down standards of performance, which serve as the basis of controlling. However, once a plan becomes operational, controlling is necessary to monitor its progress to ensure that the activities are in accordance to planned ones. Thus, controlling helps in ensuring that events confirm to plans. For successful execution of both the functions, planning and controlling must support each other.

Prescriptive Vs Evaluative: Planning is the intellectual process of thinking and analysing to prescribe an appropriate course of action for achieving goals. Controlling, on the other hand, checks whether decisions have been converted into desired action. Thus, planning is prescriptive and controlling is evaluative.

Forward Looking: Plans are framed for future and are based on forecasts about future events. Therefore, planning is regarded as a forward looking function. However, controlling also improves future planning by providing corrective action to the deviations from plans. Thus, controlling is also forward looking.

Backward Looking: Controlling analyses past activities to find out deviations from standards. Planning is also guided by past experiences and corrective action initiated by controlling, for improving future performance. Thus, both are backward looking.

Q.39 List the traditional techniques still being used by companies even now.

Ans

The traditional techniques still being used by companies now are:

• Personal observation – Personal observation enables the manager to collect first hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally on their job.
• Statistical report – Statistical analysis in the form of averages, percentages, ratios, correlation, etc., present useful information to the managers regarding performance of the organisation in various areas.
• Breakeven Analysis – Breakeven analysis is a technique used by managers to study the relationship between costs, volume and profits. It determines the probable profit and losses at different levels of activity
• Budgetary control – Budgetary control is a technique of managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards. This comparison reveals the necessary actions to be taken so that organisational objectives are accomplished.

Q.40 A business produces 10,000 units and sells at 50 each unit. Total fixed costs are 10,000. Variable cost are 40 per unit. Calculate the breakeven output. What are the advantages of breakeven analysis?

Ans

Total Variable cost will be = 40,000 ( 40 x 10,000)

Total costs will be = 10,000 + 40,000 i.e 50,000 (total fixed cost +total variable cost)

Total revenue = 50 x 10,000 i.e 50,000

Total revenue and total costs are exactly the same at 50,000.

Therefore business will breakeven at this level of output. So the breakeven output is 1,000 units.

Breakeven analysis helps a firm in keeping a close check over its variable costs and determines the level of activity at which the firm can earn its target profit.

Q.41 L and L limited uses modern techniques of controlling the organisation. Explain these techniques.

Ans

Modern techniques of controlling are the following:

Return on investment: Return on Investment (ROI) is a useful technique which provides the basic yardstick for measuring whether or not invested capital has been used effectively for generating reasonable amount of return. RoI can be used to measure overall performance of an organisation or of its individual departments or divisions.

Ratio Analysis: Ratio Analysis refers to analysis of financial statements through computation of ratios.

Responsibility of accounting: Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘Responsibility Centres’.

Management Audit: Management audit refers to systematic appraisal of the overall performance of the management of an organisation. The purpose is to review the efficiency and effectiveness of management and to improve its performance in future periods. It is helpful in identifying the deficiencies in the performance of management functions. Thus, management audit may be defined as evaluation of the functioning, performance and effectiveness of management of an organisation.

PERT and CPM: PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are important network techniques useful in planning and controlling. These techniques are especially useful for planning, scheduling and implementing time bound projects involving performance of a variety of complex, diverse and interrelated activities.

Management Information System: Management Information System (MIS) is a computer-based information system that provides information and support for effective managerial decision-making. A decision-maker requires up-to-date, accurate and timely information. MIS provides the required information to the managers by systematically processing a massive data generated in an organisation.

Q.42 Responsibility of accounting is a widely used modern technique of controlling a business organisation. How many types of responsibility centers are there?

Ans

Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘Responsibility Centres’. The head of the centre is responsible for achieving the target set for his centre. Responsibility centers may be of the following types:

Cost Centre: A cost or expense centre is a segment of an organisation in which managers are held responsible for the cost incurred in the centre but not for the revenues. For example, in a manufacturing organisation, production department is classified as cost centre.

Revenue Centre: A revenue centre is a segment of an organisation which is primarily responsible for generating revenue. For example, marketing department of an organisation may be classified as a revenue center.

Profit Centre: A profit centre is a segment of an organisation whose manager is responsible for both revenues and costs. For example, repair and maintenance department of an organisation may be treated as a profit center if it is allowed to bill other production departments for the services provided to them.

Investment Centre: An investment centre is responsible not only for profits but also for investments made in the centre in the form of assets. The investment made in each centre is separately ascertained and return on investment is used as a basis for judging the performance of the centre.

Q.43 What are the most commonly used ratios used by organisations?

Ans

The most commonly used ratios used by organisations can be classified into the following categories:

Liquidity Ratios: Liquidity ratios are calculated to determine short-term solvency of business. Analysis of current position of liquid funds determines the ability of the business to pay the amount due to its stakeholders.

Solvency Ratios: Ratios which are calculated to determine the long-term solvency of business are known as solvency ratios. Thus, these ratios determine the ability of a business to service its indebtedness.

Profitability Ratios: These ratios are calculated to analyse the profitability position of a business. Such ratios involve analysis of profits in relation to sales or funds or capital employed.

Turnover Ratios: Turnover ratios are calculated to determine the efficiency of operations based on effective utilisation of resources. Higher turnover means better utilisation of resources.

Q.44 Carl Mathew, CEO of Sun and Ray limited is very particular in getting management audit done for his organisation. What are its advantages and disadvantages?

Ans

Carl Mathew is very particular in getting management audit done for his organisation due to its following advantages:

• It helps to locate present and potential deficiencies in the performance of management functions.
• It helps to improve the control system of an organisation by continuously monitoring the performance of management.
• It improves coordination in the functioning of various departments so that they work together effectively towards the achievement of organisational objectives.
• It ensures updating of existing managerial policies and strategies in the light of environmental changes.

The following are its disadvantages:

• Conducting management audit may sometimes pose a problem as there are no standard techniques of management audit. Also, management audit is not compulsory under any law.
• Enlightened managers, however, understand its usefulness in improving overall performance of the organisation.

Q.45 Joy is working in an MNC. He has created an enviornment of proper controlling in his department. For this he keeps himself aware about any dishonest behaviour and takes a strict action immediately. Recently he has installed CCTV cameras to keep an eye on the employees.

In the above case which importance of controlling has been implemented by Joy? Can you suggest one more way by which Joy could have implemented controlling?

Ans

The importance of controlling implemented in the above case by Joy is that controlling ensures proper order and discipline in the organisation. Controlling creates an atmosphere of order and discipline in the organisation by keeping a check on the activities of employees. It also helps to minimise dishonest behaviour on the part of employees.

Joy could have implemented controlling by issuing balance score card to every employee to check their performance and contribution to the organisation on a daily basis.

Q.46 Voyage Builders is a well-known coach manufacturing company. Organising is doing good but employees complain as they say there are no standards to judge the state of mind of the employees, their motivation and job satisfaction level. The HR department is trying to know the problem that has recently occurred with the employees. In other areas however company has set some standards and is trying to effect the control mechanism but the company finds all such efforts expensive. All this has not been so easy. Employees in other departments have time and again resisted to the installation of CCTVs as according to them it is against their freedom. Despite all these efforts made by the company it had to face losses last year. Even though all the control mechanisms are in place, competitors with better technology are entering the market.

Identify the concept of management highlighted here. Also state its importance.

Ans

The concept of management which is highlighted in the above case is controlling. Controlling is the function which compares the actual performance with the laid standards, finding out the deviations and takes corrective action.

A good control system helps an organisation in the following ways:

• Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations, if any, and indicates corrective action.
• Judging accuracy of standards: An efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes.
• 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.
• 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 appraised.

Q.47 Ana is trying to reduce wastage of resources in her organization in the best possible way. She has set standards for performance of various types of activities and is doing her level best to perform according to these set standards for this. Things are not going to be over for her as she will have to look into other aspects too. She has set up a good monitoring system that helps her to know how to encourage employees to perform according to set standards as when the employees meet these standards they will be given incentives. She is hoping to pull out a good performance from her team this year. Which function of management has been referred to in the above case? What are the benefits of this function of management?

Ans

The function of management which has been referred to in the above case is controlling. Benefits of controlling highlighted in the above case are:

• • Controlling helps in efficient utilisation of resources. She has set standards for performance of various types of activities and is doing his level best to perform according to these set standards to minimise wastage of resources.
  • Controlling helps in improving employee motivation. She has set up a good monitoring system that helps him know how employees are performing according to set standards as when the employees meet these standards they will be given incentives.

Q.48 Kwality Sewing was a renowned name for quality sewing machines since 1970. Sameer, owner of this company, was upset as the production had declined during the last two months. He asked the Production Manager to find out the reason. Product Manager ordered one of the supervisors to prepare a performance report of the workers working under them.
Identify the steps taken by the Production Manager that is related to one of the functions of management.

Ans

Measurement of actual performance which is related to (controlling) function of management. Comparing Actual Performance with Standards reveals the deviations, if any, between the actual performance and the desired results. Focus is on two aspects i.e., significant deviations in key areas of business critical for its success and the acceptable range of deviations.

Q.49 Paul is a production manager in a rubber tube manufacturing company. Recently he noticed that target of 80 units per day was not achieved by the team. Instead on an average the production was only 65 units. On detailed analysis he found out that the deviation between standard production and actual production is far beyond acceptable range, on overall analysis he also found out that there has been a marginal increase in office stationery expenses. Also, he detected that the machine installed for the purpose of manufacturing was not able to perform at its best. Being a management expert, can you suggest Paul how he should deal with the existing problem?

Ans

Paul should follow the following principles of managerial control while analysing deviations:

1. Critical point control. Controlling significant deviations in key areas of business is critical for its success. CPC focuses on key result areas (KRAs) which are critical for the survival of an enterprise. It is based on the fact that every activity is neither economical nor easy to control.
2. Management/Control by Exception: It states that only significant deviations beyond permissible limit should be analysed. It is based on the belief that ‘an attempt to control everything results in controlling nothing’

Q.50 Read the following text and answer the question:

A company was manufacturing Bluetooth headphones which were in high demand. It was observed that the goal of making 100 units a day was not met by the employees. After analysis, it was noticed that it was not the fault of employees as there were multiple power failures throughout the day which hindered the production efficiency.

So to fulfil the demand and complete the targets on time, the company assessed that approximately 50 additional employees would be needed and out of these 5 employees would work as heads of different departments and rest would work as subordinates under each head. For appointing new employees, the required qualifications and job specifications were also enlisted and all efforts were made to match the ability of the applicants with the nature of work.

i. Which two management functions are mentioned in the above passage?
a. Directing and controlling
b. Staffing and planning
c. Controlling and staffing
d. Planning and directing

ii. State the function of management which helped in finding out that it was not the fault of employees but the multiple power failures throughout the day which hindered the production efficiency.
a. Directing
b. Planning
c. Controlling
d. Coordination

iii. Choose from the following, first step in the function of management that is identified in point (ii).
a. Measurement of Actual Performance
b. Setting Performance Standards
c. Comparison of Actual Performance with Standards
d. Analysing Deviations

Ans

i. c) Controlling and staffing
Controlling is the process of ensuring that the activities in an organisation are performed as per plans.
Staffing is the management process to fill the various posts identified in the organisation structure.

ii. c. Controlling
Controlling is the process of ensuring that the activities in an organisation are performed as per plans. It is an action-oriented function as it helps to analyse the causes for the deviation between the actual and standard performance.

iii. b. Setting Performance Standards
Setting Performance Standards is the first step in the process of controlling. Standards are the benchmarks of performance which the organisation strives to achieve. Criteria against which the actual performance is measured in an organization.

Q.51 Controlling enables management to check whether set standards are right and objective and further helps in observing changes that occurring within the internal and external business environment.
Answer the following after reading the following passage. (3 marks)
i. State the importance of controlling function being highlighted here.
a. Accomplishing organisational goals
b. Judging accuracy of standards
c. Improving employee motivation
d. Facilitating coordination in action

ii. There are two are inseparable twins of management. One is controlling and what is other one?
a. Planning
b. Organising
c. Staffing
d. Directing

iii. Choose from the following, last step in controlling function of management.
a. Measurement of Actual Performance
b. Setting Performance Standards
c. Comparison of Actual Performance with Standards
d. Taking corrective steps

Ans

i. b) Judging accuracy of standards
Judging Accuracy of Standards: Controlling enables management to validate whether set standards are accurate and objective. It helps to keep an eye on changes occurring within and outside organisation, to review and revise standards.

ii. a. Planning
Planning and controlling are interdependent & interrelated activities. Standards of performance provided by planning, serve as the basis of controlling. On the other hand, controlling is necessary to monitor the progress of activities to ensure that they are in accordance to plans.

iii. d. Taking corrective steps
Taking immediate remedial steps when deviations go beyond the permissible limit. No corrective action required for deviations within the permissible limit. Revision of standards if managerial actions fail to correct deviations.