NCERT Solutions Class 12 Business Studies 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. It finds out deviations from the pre- determined standards, so it is called a backward looking function and provides standards to control without which controlling becomes aimless or baseless.

Q.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.

Ans. The principle of management that a manager should consider while dealing with deviations effectively is management by exception.

According to this technique, an effort to control everything may end up in the controlling nothing. Thus only significant deviations which are beyond the permissible limit should be acknowledged.

For example, management may decide that an increase in production cost by 2 per unit can be checked at the supervisory level and any further increase is to be tackled by management.

Q.3 State any one situation in which an organisation’s control system loses is effectiveness.

Ans. An organisation’s control system loses its effectiveness when the standards cannot be defined in terms of quantity.

It would be difficult to measure the performance and compare it with the planned performance.

This problem can arise in a situation of job satisfaction and employee morale.

Q.4 Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Ans. Capital expenditure, Inventories, Flow of capital and liquidity are the standards that can be used by a company to evaluate the performance of its finance and accounting department.

Q.5 Which term is used to indicate the difference between standard performance and actual performance?

Ans. Comparison of standard performance and actual performance will reveal the ‘deviation’ between actual and desired results. Comparison becomes easier when standards are set in quantitative terms.

For example, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week.

Q.6 ‘Planning is looking ahead and controlling is looking back.’ Comment.

Ans. 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. 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.7 ‘An effort to control everything may end up in 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.8 Write a short note on budgetary control as a technique of managerial control.

Ans. 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 enables necessary action to be taken on time to improve the performance.

A budget is quantitative statement for a definite period of time. It reflects the policy of that particular period.

Q.9 Explain how management audit serves as an effective technique of controlling.

Ans. It refers to the systematic appraisal of overall performance of management of an organization with the objective of reviewing efficiency and effectiveness of the management. Management audit serves as an effective technique of controlling as it offers following advantages:

• It helps to locate the deficiencies in performance of management functions.
• It helps to improve control system of an organization.
• It improves coordination in the functioning of various departments.
• It ensures updation of managerial policies and strategies for better results.

Q.10 Mr.Arfaaz had been heading the production department of Write well 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).

Ans. Ms Vasundhara should consider management by exception.

This 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.

This principle identifies critical problems which need timely action to keep the organisation in right track.

Q.11 Explain the various steps involved in the process of control.

Ans. Steps in the controlling process are:

(a) 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 availability 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.

(b) 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.

(c) 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.

(d) 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.

(e) 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 occurrence of such deviations in future.

Q.12 Explain the techniques of managerial control.

Ans. The techniques of managerial control be classified as traditional techniques and modern techniques.

Traditional techniques:

• Personal Observation: Observation by supervisor continuously during performance of work. Most used in assembling industries, where each part is checked during assembling.
• Statistical reports: Statistical analysis in the form of averages, percentages, ratios, correlation, etc., present useful information to the managers regarding performance of the organisation.
• Breakeven analysis is a technique used by managers to study the relationship between costs, volume and profits.
• 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.

Modern Techniques:

• Return on investment: It is used as yardstick for measuring that capital is used effectively for generating reasonable returns.
• Ratio analysis: It refers to the analysis of financial statement through computation of ratios. Liquidity, solvency and turnover ratios are computed for such analysis.
• Responsibility accounting: It is a system of accounting in which different section, divisions and departments are set up as responsibility centres.
• Management audit: It refers to the systematic appraisal of overall performance of management of an organization with the objective of reviewing efficiency and effectiveness of the management.
• PERT and CPM: These are important network techniques used in planning, scheduling and implementing time bound projects.
• Management information system: It is a computer based information system that provides information and support for effective managerial decision making.

Q.13 Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

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

• 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.
• 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.
• 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.
• 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.
• Ensuring order and discipline: Controlling helps to minimise the dishonest behaviour on the part of the employees by keeping a close check on their activities.

The problems faced by the organisation in implementing an effective control system are:

• External factors: Business environment keeps on changing and are not in control of the organization.
• Difficulty in setting standards: It is difficult to set standards and these standards are less effective in qualitative terms.
• Expensive: Controlling is the costly process both in terms of money and time.

Q.14 Discuss the relationship between planning and controlling.

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.

• 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. Therefore if the process of controlling is not present then it is meaningless to have planning.
• 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.15 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.

Ans.

Benefits from a good control system are:

1. Helps in accomplishing organisational 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.
2. Helps in efficient use of resources: Control system helps the manager in reducing the wastage and spoilage of resources.
3. 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.
4. Facilitates coordination in action: Control helps to maintain equilibrium between means and ends. Controlling provides unity of direction.
5. Ensuring order and discipline: Controlling helps to minimise the dishonest behaviour on the part of the employees by keeping a close check on their activities.

2. 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 and backward 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. 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.

3. Steps in the controlling process are:

• 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 availability of the resources.
• 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.
• 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: 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: 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 occurrence of such deviations in future.

Q.16 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–any2).

b.Explain any four points of importance of Controlling.

Ans.

a)

Pervasive function: The controlling is a pervasive function of management as it is performed in all organisations and at all the managerial levels. It is the function of management under which every manager at every level assures that the actual progress is in conformity with the plans.

Controlling is a continuous activity:

Control does not mean any activity which is performed only for once or is repeated after a long interval but it is needed at all times. Under controlling, the progress has to be assessed continuously.

b)

Importance of Controlling:

Control is an indispensable function of management.

• Accomplishing organisational goals: The controlling function measures progress towards the organisational goals and brings to light the deviations.
• Judging accuracy of standards: A good control system enables management to verify whether the standards set are accurate and objective. 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.
• 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.