NCERT Solutions for class 12 Business studies Chapter 8 Controlling

NCERT Solutions for class 12 Business studies Chapter 8 Controlling

NCERT Textual Question with Answers

Very Short Answer Type

Q. 1. State the meaning of controlling.

Ans.

Controlling is the process of monitoring, measuring, and correcting activities to ensure that organizational goals and standards are achieved.

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 to consider is Management by Exception.

One situation in which an organization’s control system loses its effectiveness is when there is lack of timely feedback on performance, leading to delayed corrective actions.

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

Ans.

One situation is when there is inadequate communication, leading to misunderstandings and delays in corrective actions.

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

Ans.

Two standards are financial ratios (e.g., profitability ratios) and variance analysis (e.g., budget vs. actual performance).

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

Ans.

Variance.

Variance indicates the difference between standard and actual performance, helping identify deviations to implement corrective actions.

Short Answer Type

Q. 1. ‘Planning is looking ahead and controlling is looking back.’ Comment.

Ans.

The statement “Planning is looking ahead and controlling is looking back” highlights the complementary nature of these two management functions.

Planning involves setting goals, defining objectives, and determining the future course of action to achieve desired outcomes. It is a forward-looking process that anticipates potential challenges and opportunities, helping organizations prepare for the future.

Controlling, on the other hand, involves monitoring and evaluating actual performance against the set standards and plans. It is a backward-looking process that identifies deviations, assesses past actions, and implements corrective measures to ensure that organizational goals are met.

Together, planning and controlling create a continuous cycle of setting expectations, measuring results, and making necessary adjustments to achieve organizational success.

Q. 2. ‘An effort to control everything may end up in controlling nothing.’ Explain.

Ans.

The statement “An effort to control everything may end up in controlling nothing” emphasizes the pitfalls of excessive control. When managers attempt to micromanage every aspect of operations, it can lead to several issues:

1. Overwhelm and Inefficiency: Trying to monitor every detail can overwhelm managers, causing them to lose focus on critical tasks and objectives.
2. Employee Demotivation: Excessive control can stifle employees’ creativity, initiative, and morale, leading to reduced productivity and innovation.
3. Communication Breakdown: Micromanagement can create communication bottlenecks, delaying decision-making and problem-solving.

Effective control requires focusing on key areas and trusting employees to manage routine tasks, fostering a balanced and efficient work environment.

Q. 3. Explain how management audit serves as an effective technique of controlling.

Ans.

A management audit serves as an effective technique of controlling by systematically evaluating the efficiency and effectiveness of an organization’s management practices, policies, and procedures. It identifies areas of improvement, ensures compliance with standards, and provides actionable recommendations. By assessing the alignment of activities with organizational goals, it helps in correcting deviations, optimizing resources, and enhancing overall performance. This continuous review process ensures that management practices contribute positively to achieving the organization’s objectives.

Q. 4. Mr. Arfaaz had been heading the production department of Writewell 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 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.
(Hint: Management by exception).

Ans.

Ms. Vasundhara should consider the principle of Management by Exception. This principle focuses on identifying and addressing significant deviations from performance standards while allowing minor issues to be handled at lower levels. In this case, Ms. Vasundhara should assess whether Mr. Bhanu Prasad’s shortfall is an isolated, minor deviation or part of a larger performance issue before making a decision on termination. This approach ensures that managerial efforts are concentrated on critical issues, promoting effective and efficient management.

Long Answer Type

Q. 1. Explain the various steps involved in the process of control.

Ans.

The process of control in management involves a series of systematic steps to ensure that organizational activities are aligned with set objectives and standards. The steps involved in the process of control are as follows:

1. Establishing Performance Standards

Performance standards are the specific criteria against which actual performance will be measured. These standards are derived from the organization’s goals and objectives. They should be clear, specific, measurable, and achievable. Standards can be quantitative (such as production targets, sales volume, and revenue) or qualitative (such as customer satisfaction and product quality).

2. Measuring Actual Performance

The next step is to measure actual performance. This involves collecting data on the performance of various activities and processes within the organization. Performance can be measured through various methods, such as observation, surveys, reports, and feedback from customers and employees. Accurate and timely measurement is crucial for effective control.

3. Comparing Actual Performance with Standards

Once actual performance data is collected, it is compared with the established standards. This comparison helps identify any deviations or discrepancies between what was planned and what was achieved. Variances can be positive (performance exceeds standards) or negative (performance falls short of standards).

4. Analyzing Deviations

After identifying deviations, the next step is to analyze their causes. This involves investigating the reasons behind the discrepancies and understanding whether they are due to internal factors (such as inefficiencies, lack of resources, or poor planning) or external factors (such as market changes, economic conditions, or competition). Analyzing deviations helps in pinpointing specific areas that need attention.

5. Taking Corrective Actions

Based on the analysis of deviations, appropriate corrective actions are taken to address the issues and bring performance back in line with standards. Corrective actions can include making changes to processes, reallocating resources, providing additional training, or revising targets. The goal is to eliminate the root causes of deviations and ensure that future performance meets or exceeds standards.

6. Implementing Corrective Actions

Once corrective actions are identified, they must be implemented effectively. This involves communicating the changes to the relevant parties, providing necessary resources and support, and monitoring the implementation process to ensure that it is carried out as planned. Effective implementation requires coordination, collaboration, and commitment from all levels of the organization.

7. Follow-up and Feedback

The final step in the control process is to follow up and provide feedback. This involves continuously monitoring performance to ensure that the corrective actions have been effective and that performance standards are being met. Feedback loops help in identifying any further deviations and making necessary adjustments. Regular follow-up and feedback also provide valuable insights for future planning and decision-making.

Conclusion

The process of control is essential for maintaining organizational efficiency and achieving goals. By establishing performance standards, measuring actual performance, comparing it with standards, analyzing deviations, taking corrective actions, implementing those actions, and providing follow-up and feedback, managers can ensure that organizational activities are aligned with objectives. This systematic approach helps in maintaining control over various processes, improving performance, and driving the organization towards success.

Q. 2. Explain the techniques of managerial control.

Ans.

Managerial control techniques are essential for ensuring that organizational activities are aligned with established goals and objectives. These techniques can be broadly categorized into traditional and modern methods. Here’s an explanation of various managerial control techniques:

Traditional Control Techniques

1. Budgetary Control: This technique involves preparing budgets that outline expected revenues, expenses, and resource allocations for specific periods. By comparing actual performance with budgeted figures, managers can identify variances and take corrective actions. Budgetary control helps in planning, coordinating, and controlling financial activities.
2. Standard Costing: Standard costing involves setting predetermined costs for products or services and comparing them with actual costs. Variances between standard and actual costs are analyzed to identify inefficiencies and areas for improvement. This technique is useful in cost control and performance evaluation.
3. Financial Statements Analysis: This technique involves analyzing financial statements, such as the balance sheet, income statement, and cash flow statement, to assess the financial health of the organization. Ratios such as liquidity ratios, profitability ratios, and solvency ratios are used to evaluate performance and identify areas requiring attention.
4. Break-even Analysis: Break-even analysis helps determine the level of sales required to cover all fixed and variable costs. It identifies the break-even point where total revenue equals total costs, indicating no profit or loss. This technique aids in pricing decisions, cost control, and profit planning.
5. Internal Audit: Internal auditing involves an independent and systematic examination of organizational activities, processes, and controls. Internal auditors review financial and operational processes to ensure compliance with policies, procedures, and regulations. They provide recommendations for improving efficiency and effectiveness.

Modern Control Techniques

1. Management Information Systems (MIS): MIS involves the use of computerized systems to collect, process, and present information for decision-making. These systems provide real-time data on various aspects of the organization, enabling managers to monitor performance, identify trends, and make informed decisions.
2. Balanced Scorecard: The balanced scorecard is a strategic management tool that measures organizational performance from multiple perspectives: financial, customer, internal processes, and learning and growth. By tracking key performance indicators (KPIs) across these dimensions, managers can ensure a balanced approach to achieving strategic objectives.
3. Total Quality Management (TQM): TQM is a comprehensive approach to continuous improvement in all aspects of organizational processes. It involves setting quality standards, measuring performance, and implementing improvements to enhance product and service quality. TQM fosters a culture of quality and customer satisfaction.
4. Just-in-Time (JIT) Inventory: JIT inventory control aims to minimize inventory levels by ensuring that materials and products are available just in time for production and delivery. This technique reduces holding costs, minimizes waste, and improves efficiency in the supply chain.
5. Benchmarking: Benchmarking involves comparing organizational performance with that of industry leaders or best-in-class organizations. By identifying performance gaps and adopting best practices, organizations can enhance their processes and achieve higher standards of performance.
6. Six Sigma: Six Sigma is a data-driven methodology for process improvement and quality management. It aims to reduce defects and variability in processes by using statistical tools and techniques. Six Sigma projects follow a structured approach known as DMAIC (Define, Measure, Analyze, Improve, Control) to achieve process excellence.
7. Activity-Based Costing (ABC): ABC is a costing method that assigns costs to activities based on their consumption of resources. This technique provides a more accurate picture of cost drivers and helps managers make informed decisions about pricing, product mix, and process improvements.

Conclusion

Managerial control techniques are crucial for monitoring and improving organizational performance. Traditional techniques like budgetary control, standard costing, financial statements analysis, break-even analysis, and internal audit provide a strong foundation for control. Modern techniques like MIS, balanced scorecard, TQM, JIT inventory, benchmarking, Six Sigma, and ABC offer advanced tools for achieving operational excellence and strategic goals.

By effectively implementing these control techniques, managers can ensure that organizational activities are aligned with objectives, resources are utilized efficiently, and performance is continuously improved. This comprehensive approach to control contributes to the overall success and sustainability of the organization.

Q. 3. Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Ans.

Importance of Controlling in an Organisation

Controlling is a crucial function of management that ensures that an organization’s activities are aligned with its goals and objectives. Here are some of the key reasons why controlling is important in an organisation:

1. Achieving Goals and Objectives: Controlling helps in ensuring that the organizational goals and objectives are achieved by monitoring performance, identifying deviations, and taking corrective actions.
2. Improving Efficiency: By establishing performance standards and measuring actual performance, controlling helps in identifying inefficiencies and areas for improvement. This leads to better utilization of resources and increased productivity.
3. Ensuring Compliance: Controlling ensures that the organization’s activities comply with established policies, procedures, and regulations. This helps in maintaining order and discipline within the organization.
4. Enhancing Decision-Making: The control process provides valuable feedback and information on the performance of various activities and processes. This information helps managers make informed decisions and take timely corrective actions.
5. Minimizing Risks: Controlling helps in identifying potential risks and deviations from the plan. By taking corrective actions, managers can minimize these risks and prevent problems from escalating.
6. Improving Coordination: Controlling ensures that all departments and employees are working towards the same goals. This improves coordination and collaboration within the organization.
7. Motivating Employees: By setting clear performance standards and providing feedback, controlling motivates employees to perform better and achieve their targets.

Problems Faced by Organisations in Implementing an Effective Control System

Despite the importance of controlling, organizations often face challenges in implementing an effective control system. Some of these problems are:

1. Resistance to Change: Employees and managers may resist changes to established processes and procedures. This resistance can hinder the implementation of new control measures.
2. Inadequate Communication: Poor communication can lead to misunderstandings and delays in implementing control measures. Effective communication is essential for ensuring that everyone understands and follows the control procedures.
3. Lack of Training: Employees may lack the necessary skills and knowledge to implement and follow the control measures effectively. Providing adequate training and support is crucial for the success of the control system.
4. Complexity of Control Measures: Complex and rigid control measures can be difficult to implement and may lead to confusion and inefficiency. It is important to design control measures that are simple, clear, and easy to follow.
5. Insufficient Data and Information: An effective control system relies on accurate and timely data. Lack of sufficient data and information can hinder the ability to monitor performance and take corrective actions.
6. Resource Constraints: Implementing an effective control system requires resources such as time, money, and personnel. Resource constraints can limit the organization’s ability to implement and maintain control measures.
7. Overemphasis on Control: Excessive control can lead to micromanagement, which can stifle creativity and innovation. It is important to strike a balance between control and flexibility.
8. Lack of Management Support: Effective control requires the support and commitment of top management. Without their support, it can be difficult to implement and enforce control measures.
9. Cultural Barriers: Organizational culture can influence the acceptance and effectiveness of control measures. A culture that values autonomy and flexibility may resist rigid control measures.

Conclusion

Controlling is essential for achieving organizational goals, improving efficiency, ensuring compliance, enhancing decision-making, minimizing risks, improving coordination, and motivating employees. However, organizations may face challenges in implementing an effective control system, such as resistance to change, inadequate communication, lack of training, complexity of control measures, insufficient data, resource constraints, overemphasis on control, lack of management support, and cultural barriers. By addressing these challenges, organizations can develop and maintain an effective control system that contributes to their overall success and sustainability.

Q. 4. Discuss the relationship between planning and controlling.

Ans.

Relationship Between Planning and Controlling

Planning and controlling are essential management functions that are closely interrelated and interdependent. They ensure the achievement of organizational goals through a continuous cycle. Here’s an explanation of their relationship:

1. Planning Sets the Basis for Controlling
Planning involves setting goals, objectives, and determining the course of action. It provides a framework for organizational activities and establishes the criteria for controlling by specifying what needs to be achieved.

2. Controlling Ensures the Implementation of Plans
Controlling involves monitoring and evaluating actual performance against standards and plans. It ensures that activities align with the planned course of action and helps in taking corrective measures for any deviations.

3. Continuous Processes
Both planning and controlling are ongoing processes that require continuous attention. Planning needs to be revisited and revised as circumstances change, while controlling involves regular monitoring, measurement, and feedback.

4. Feedback for Planning
Controlling provides feedback on actual performance, essential for effective planning. By analyzing control results, managers can adjust or improve future plans, creating a loop where planning informs controlling and vice versa.

5. Integration of Planning and Controlling
Effective management requires integrating planning and controlling. Plans provide direction and standards, while controlling ensures adherence. A well-defined plan without a robust control mechanism is likely to fail, just as controlling without a clear plan lacks purpose.

Example

Consider a company setting a goal to increase production by 20%. The planning process sets targets, allocates resources, and defines strategies. Controlling monitors production levels, compares them with targets, and identifies deviations. Corrective actions are taken based on control feedback, refining future plans.

Conclusion

In conclusion, planning and controlling are closely linked, supporting each other to achieve organizational objectives. Together, they form a continuous cycle of setting goals, implementing actions, monitoring performance, and making necessary adjustments, driving the organization towards its desired outcomes.

Q. 5. 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.

a. Benefits of a Good Control System for Company M

A robust control system can provide several advantages to Company M:

1. Goal Achievement: By continuously monitoring performance against set targets, a good control system ensures that the company’s goals are met. This involves tracking sales and customer satisfaction metrics to identify any deviations from planned objectives.
2. Efficiency Improvement: A good control system helps identify inefficiencies in operations and processes. By pinpointing areas of waste or bottlenecks, the company can implement corrective actions to streamline operations and reduce costs.
3. Enhanced Decision-Making: Timely and accurate information provided by the control system enables better decision-making. Managers can quickly respond to market changes, technological advancements, and competitive pressures.
4. Risk Minimization: By regularly monitoring key performance indicators, the control system can identify potential risks early, allowing the company to take proactive measures to mitigate them.
5. Employee Motivation: Clear performance standards and feedback mechanisms provided by a good control system can motivate employees to perform better, as they understand what is expected of them and receive recognition for their achievements.

b. Relating Planning with Control in Mobile Phone Manufacturing

To ensure that plans are implemented and targets are attained, Company M can relate its planning with control through the following steps:

1. Setting Clear Objectives: During the planning phase, set specific, measurable, achievable, relevant, and time-bound (SMART) objectives for sales, customer satisfaction, and market share.
2. Defining Performance Standards: Establish performance standards and benchmarks that align with the company’s objectives. These standards should be clear and communicated to all employees.
3. Implementing Monitoring Mechanisms: Use key performance indicators (KPIs) to monitor progress towards the set objectives. Regularly track sales figures, customer feedback, market trends, and competitor actions.
4. Feedback Loop: Create a feedback loop where information from the control system is used to assess the effectiveness of plans. Analyze deviations and identify areas for improvement.
5. Adjusting Plans: Based on feedback, revise plans and strategies to address any issues or capitalize on new opportunities. Ensure that adjustments are communicated to all relevant stakeholders.
6. Integrating Technology: Leverage technology and data analytics to enhance the accuracy and timeliness of monitoring. Use tools like customer relationship management (CRM) systems to gather and analyze data.

c. Steps in the Control Process for Company M

To remove the problems it is facing, Company M should follow these steps in the control process:

1. Establishing Performance Standards:

• Set specific performance standards for sales targets, customer satisfaction, and market share.
• Ensure that standards are aligned with the company’s strategic goals and objectives.

1. Measuring Actual Performance:

• Collect data on actual sales figures, customer feedback, and market trends.
• Use tools like surveys, CRM systems, and market analysis reports to gather accurate and timely information.

1. Comparing Actual Performance with Standards:

• Compare actual performance data with the established standards.
• Identify any deviations or discrepancies between planned and actual outcomes.

1. Analyzing Deviations:

• Investigate the causes of deviations to understand why targets are not being met.
• Analyze internal factors (e.g., production inefficiencies, employee performance) and external factors (e.g., market competition, technological changes).

1. Taking Corrective Actions:

• Implement corrective actions to address the identified deviations.
• Examples include revising marketing strategies, investing in new technology, improving customer service, and providing additional training to employees.

1. Implementing Corrective Actions:

• Communicate the corrective actions to all relevant stakeholders.
• Ensure that necessary resources and support are provided for effective implementation.

1. Follow-up and Feedback:

• Continuously monitor the impact of corrective actions to ensure that they are effective.
• Gather feedback from employees, customers, and market analysis to assess the success of the implemented measures.

1. Adjusting Plans and Strategies:

• Based on follow-up and feedback, make necessary adjustments to plans and strategies.
• Ensure that the organization remains adaptable and responsive to changing market conditions.

By following these steps, Company M can revamp its controlling system, address its current challenges, and ensure that its plans are effectively implemented to achieve its targets and maintain its competitive edge in the market.

Q. 6. 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 – any 2).

b. Explain any four points of importance of Controlling.

Ans.

a. Features of Controlling Highlighted in the Situation

1. Continuous Process: In the situation, Mr. Shantanu instructs the production manager to keep a constant and continuous check on all activities related to the department. This highlights the continuous nature of controlling, which involves regular monitoring and evaluation of performance to ensure that everything goes as per the set plan. Controlling is not a one-time activity but an ongoing process that requires continuous attention and action.
2. Goal Oriented: Mr. Shantanu suggests keeping track of the performance of all employees to ensure that targets are achieved effectively and efficiently. This emphasizes that controlling is goal-oriented. It focuses on achieving specific objectives by measuring actual performance against set standards and taking corrective actions when necessary. The ultimate aim of controlling is to ensure that organizational goals are met.

b. Importance of Controlling

1. Ensuring Goal Achievement: Controlling is essential for ensuring that organizational goals and objectives are achieved. By establishing performance standards and regularly monitoring actual performance, controlling helps identify deviations and take corrective actions to bring performance in line with the set targets. This ensures that the organization stays on track to achieve its goals.
2. Improving Efficiency: Controlling helps in identifying inefficiencies and areas for improvement within the organization. By analyzing performance data and identifying deviations from standards, managers can pinpoint specific processes or activities that need optimization. This leads to better utilization of resources, reduced waste, and increased productivity.
3. Facilitating Decision-Making: Controlling provides valuable feedback and information on the performance of various activities and processes. This information helps managers make informed decisions and take timely corrective actions. Effective control systems provide accurate and timely data, enabling managers to respond quickly to changing conditions and make strategic decisions.
4. Minimizing Risks: Controlling helps in identifying potential risks and deviations from the planned course of action. By regularly monitoring key performance indicators and analyzing deviations, managers can identify potential problems early and take proactive measures to mitigate risks. This helps prevent issues from escalating and ensures the stability and success of the organization.
5. Enhancing Employee Motivation: Controlling involves setting clear performance standards and providing feedback to employees. When employees understand what is expected of them and receive regular feedback on their performance, they are more likely to stay motivated and committed to achieving their targets. Controlling also provides opportunities for recognizing and rewarding employee achievements, further boosting morale and motivation.
6. Ensuring Compliance: Controlling ensures that organizational activities comply with established policies, procedures, and regulations. By monitoring performance and taking corrective actions, controlling helps maintain order and discipline within the organization. This ensures that the organization operates within legal and regulatory boundaries and upholds ethical standards.

Conclusion

In summary, controlling is a critical management function that plays a vital role in ensuring that organizational goals are achieved, efficiency is improved, decision-making is facilitated, risks are minimized, employee motivation is enhanced, and compliance is ensured. By continuously monitoring performance, identifying deviations, and taking corrective actions, controlling helps organizations stay on track and achieve their objectives effectively and efficiently.