NCERT Solutions for Class 12 Business Studies Chapter 8: Controlling

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Chapter	8. Controlling
Subject	Business Studies
Class	Twelve
Category	NCERT Solutions for Class 12

NCERT Solutions for Class 12 Business Studies can be a great tool for the students who have taken Business Studies stream for higher studies. These NCERT Class 12 Business Studies solutions are written by expert teachers and faculties to make your practice and revision easier. On this page, we have provided you with the complete solutions of Chapter 8: Controlling.

NCERT Solutions for Class 12 Business Studies Chapter 8

Controlling Solutions

Q1) Explain the meaning of controlling.

Answer) Controlling refers to the function of evaluating and assessing the progress of the work done. It involves setting a specific criteria or standards for the work and then comparing the actual work with the set standards. It helps in finding the deviations from the set targets and thereby, take the required corrective actions. It ensures that everything goes as per the plans adopted. It also ensures full and efficient utilisation of resources. Controlling is an imperative managerial function as it keeps a close check on the progress of work and thereby, forms the basis for future actions and planning.

Q2) Name the principle that a manager should consider while dealing with deviations effectively. State any one situation in which an organisation’s control system loses its effectiveness.

Answer) 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 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 Rs 2 per unit can be checked at the supervisory level and any further increase is to be tackled by management.

An organisation’s control system loses its effectiveness when standards cannot be defined in quantitative terms. For example, it is difficult to set standards for accessing ‘Employee Morale’ in employees as every individual is motivated by different motives and drives.

Q3) State any one situation in which an organisation’s control system loses is effectiveness.

Answer) Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. This makes it difficult to measure the deviation between actual performance and standard performance.

For example, setting standards for ‘Job satisfaction’ is difficult as each individual employee is motivated by different motives and drives. Thus, effective control system is difficult to set as the standards cannot be quantitatively provided.

Q4) Give any two standards that can be used by a company to evaluate the performance of its Finance & Accounting department.

Answer) Standards that are used by a company for evaluating performance of Finance and Accounting department are:

1. Liquidity
2. Flow of Capital

Q5) Which term is used to indicate the difference between standard performance and actual performance?

Answer) Deviation is the term that is used to indicate the difference between standard and actual performance.

Short Questions

Q1) ‘Planning is looking ahead and controlling is looking back’. Comment.

Answer) Planning is the process of creating a structure in advance regarding the work that needs to be done. It is helpful in defining the objectives and goals that needs to be achieved by an individual or organisation. Therefore, it is said that planning is about looking ahead which involves predicting about future. Controlling takes into consideration the assessment of past performance and comparing them with set standards. Due to these characteristics, it can be said to be backward looking future. But all these statements are partially correct, as planning is done based on past experiences and how to do better, similarly controlling although looks at past performance, it’s aim is to improve the future performance. Hence it can be said that both planning and controlling are both forward and backward-looking functions.

Q2) ‘An effort to control everything may end up in controlling nothing’. Explain.

Answer) This statement is with regard to the principle of management by exception. In this rule it is said that it is not possible to control everything effectively. This principle states that instead of trying to control all the deviations, there should be some defined ranges that are setup and only when the deviations go beyond the range then it should be notified to managers for control measures.

Q3) Write a short note on budgetary control as a technique of managerial control.

Answer) Budgetary control is a technique of controlling that involves preparing plans in the form of budgets. Budget refers to a financial or a quantitative statement that defines the targets to be achieved and the policies to be followed in a specific period of time. The actual performance is then compared with the budgetary standards. This comparison helps in identifying the deviations and thereby, guides in taking appropriate corrective measures. Budget can be prepared for different divisions of the organisation such as sales budget, production budget, purchase budget, etc. However, for the budgeting to be effective, future estimates must be made carefully. Budgeting also acts as a source of motivation for the employees by setting the standards against which their performance will be assessed. Thus, it encourages them to achieve the set objectives. In addition, it is also used to facilitate coordination among different divisions/departments of the organisation. Moreover, proper budgeting ensures that resources are allocated to different divisions as per their requirements. Thereby, it helps in optimum utilisation of the resources.

Q4) Explain how management audit serves as an effective technique of controlling.

Answer) Management audit is the process of appraisal of the management in an organisation. It is useful in improving the effectiveness of the management and also increases efficiency. It evaluates the functions of the managers and highlights areas where deficiencies are observed. The following point will be helpful in explaining the importance of management audit as a technique of controlling:

Management audit refers to the extensive and constructive appraisal of the overall performance of the management of an organisation. It aims at improving the overall effectiveness and efficiency of the management. It evaluates all the functions performed by the managers and helps in identifying the deficiencies in the work performance. The effectiveness of management audit for controlling can be judged from the following points.

• Identification of Deficiencies: Management audit helps in recognising the current as well as probable deficiencies in the performances. Thereby, it helps in taking the necessary corrective measures.
• Improves Efficiency: Through management audit, various activities of the management can be continuously monitored. Thereby, it helps in improving the overall efficiency of the management.
• Enhances Coordination: It improves the coordination between employees as well as within the different functions of the organisation as it continuously oversees the work.
• Adapting to Environmental Changes: It helps the organisation to adapt to the environmental changes appropriately. This is done by ensuring that the managerial policies and strategies are up-to-date.

Q5)

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 MsVasundhara, 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 MsVasundhara should consider while taking her decision.

Answer) The principle of management control that MsVasundhara should consider while taking her decision is Management by Exception. According to this technique ‘an effort to control everything may end up in controlling nothing’. Thus, only significant deviations which are beyond the permissible limit should be acknowledged.

The principle of management control that MsVasundhara should consider while taking her decision is Management by Exception. According to this technique ‘an effort to control everything may end up in controlling nothing’. Thus, only significant deviations which are beyond the permissible limit should be acknowledged.

Long Questions

Q1) Explain the various steps involved in the process of control.

Answer) Controlling is the process of systematic approach for managing activities in an organisation. It includes the following steps:

• Setting Standards: This step involves setting standards and developing of benchmarks on the basis of which actual performance can be determined. Standards can be either qualitative and quantitative.
• Measure actual performance: After setting standards, the next step is determining actual performance that is taking place through the activities. These can be determined by observation, obtaining data from performance reports.
• Comparing performances: This step involves comparing of the actual performance with the standard. It helps determine the deviations which guides managers in assessing the performance and take necessary steps.
• Analysing Deviation: When comparing actual performance with set standards there will be deviations. It is therefore important to find these deviations in the key areas. The methods most used are Critical Point Control and Management by exception.
• Corrective measures: Deviations reaching beyond admissible limits, the management needs to take corrective actions. This step is all about correcting the errors so that they do not happen again. It is the last step that is taken in the process of controlling.

Q2) Explain the techniques of managerial control.

Answer) Managerial control techniques can be divided into two categories

1. Traditional Technique
2. Modern Technique

Traditional techniques are techniques that were followed by managers in old days. Following techniques can be discussed:

1. Personal Observation: Managers oversee the work conducted by employees in this technique. Managers will be getting a right information which makes workers keen on performing well. It is a time-consuming process though.
2. Statistical Reports: Managers can get the performance data which is in the form of average, percentages or ratio and it can be easily represented in charts and graphs. Therefore, comparison of performance with standards is determined.
3. Break-Even Analysis: To determine profit or loss break even analysis is used. It is that point where total costs becomes equal to total revenue. Using this technique managers can determine profit or loss and thereby devise ways to generate profit.
4. Budgetary Control: It is a technique where future business operations are determined in the form of budgets. It sets standards for measuring of actual performance.

Modern techniques are more recently introduced. It provides ideas for having a better control. Following methods are seen:

1. Return on Investment: It is referred to as the gains or similar benefits that are earned on the amount of investment done. It gives a good idea of the returns a company is earning with the amount of investment done.
2. Return on Investment: It is referred to as the gains or similar benefits that are earned on the amount of investment done. It gives a good idea of the returns a company is earning with the amount of investment done.
3. Responsibility Accounting: Various responsibility centres are established and each centre head is responsible for the outcome of the centres. The responsibility centre includes cost centre, revenue centre, investment centre and profit centre.
4. Management Audit: It is an audit of the management processes. It checks capability of the management and identifies the deficiencies present in the system. It is done through continuous monitoring.
5. PERT and CPM: These are modern management techniques that help determine the scheduling and resource allocation, it enables project execution in most effective way. These techniques are used in construction, ship building industries etc.
6. MIS: Management Information System is the process of controlling that helps in effective decision making. It also is cost effective and helps in collection and dispersal of information across levels.

Q3) Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system?

Answer) Following are the importance of controlling in an organisation:

1. Controlling helps in achieving of organisational goals by optimum use of resources and correcting deficiencies in the process.
2. It helps in determining the accuracy of the standards set by management. It also helps in reviewing the standards as per changing business requirement.
3. It also helps an employee to become motivated as they know what the management expects from them.
4. It also helps an employee to become motivated as they know what the management expects from them.
5. It improves coordination among employees and departments which helps organisation productivity.

Controlling is effective for management but there are certain problems that are faced by organisations which are highlighted below:

• The set of standards cannot be set for both qualitative and quantitative terms as qualitative terms make controlling less effective.
• Changing factors in business environment results is changing of control mechanisms in an organisation.
• Controlling will be resisted if it is against the comfort level of employees.
• Controlling will be resisted if it is against the comfort level of employees.

Q4) Discuss the relationship between planning and controlling.

Answer) Planning and controlling are closely interrelated functions of management. On one hand, planning refers to the psychological process of thinking and deciding about what is to be done and how it is to be done. That is, planning decides the objectives to be achieved and the course of action to be followed. On the other hand, controlling refers to the process of managing and evaluating the work done in accordance with the standards and taking corrective measures, if there are any deficiencies. These standards that form the basis of controlling are provided by planning. The various objectives and policies as formulated under planning serve as standards against which the actual performance is evaluated. Controlling without planning is meaningless. If there are no standards and no objectives, there is nothing to control. That is, if the managers do not know what the final objective is, they do not have any standard against which they can judge the current performance and deficiencies. Similarly, planning without controlling holds no meaning. Once the plans are formulated, it becomes necessary to monitor and evaluate whether the performance is as per the desired plans. Controlling is a requisite for measuring whether the plan is being properly implemented, if there are any deficiencies in the work and if there is a need for taking corrective actions in order to achieve the planned goals. If there is no controlling, planning cannot be accomplished. Thereby, planning without controlling is of no use. Thus, it can be said that both planning and controlling complement each other.

Both the concepts of planning and controlling are interlinked in a way as they are forward looking as well as backward looking. Though it is often said that planning is looking forward and controlling is looking backward, however, the statement is only partially true. Though planning is a futuristic concept dealing with preparing plans and setting standards in advance, it is also based on past experiences and actions initiated in the controlling function. Thus, planning besides being forward looking, is backward looking as well. Similarly, although controlling is based on the past actions and deals with comparing the current actions with the pre-defined standards, it also focuses on taking the corrective actions to improve the future performance of the management. Thus, controlling besides looking back, also looks forward.

Hence, while on one hand, planning is a prerequisite for controlling, on the other hand, controlling is incomplete without planning. Both are inseparable functions that support each other towards the achievement of the goals of the organisation.

Q5)

A company ‘M’ limited is manufacturing mobile phones both for domestic Indian market as well as for export. It had enjoyed a substantial market share and also had a loyal customer following. But lately it has been experiencing problems because its targets have not been met with regard to sales and customer satisfaction. Also mobile market in India has grown tremendously and new players have come with better technology and pricing. This is causing problems for the company. It is planning to revamp its controlling system and take other steps necessary to rectify the problems it is facing.

• a. Identify the benefits the company will derive from a good control system.
• b. How can the company relate its planning with control in this line of business to ensure that its plans are actually implemented and targets attained.
• c. Give the steps in the control process that the company should follow to remove the problems it is facing.

Answer)

Answer a). Controlling is an important and an indispensable function of management. It aims at managing the managerial actions by setting the standards and identifying the deviations of actual performance as against the set standards. It also ensures optimum utilisation of resources while taking corrective measures for the deviations. The following are the benefits that the company would derive from an effective controlling system.

• With effective controlling the deficiencies in the system can be identified and accordingly corrective action can be taken. This would help in moving in the right direction as per the set objectives.
• A controlling system would help in judging the accuracy of the standards adopted by the management. It would enable the manager to review and revise the standards according to the changing business environment.
• A continuous control and monitoring helps in the efficient and optimum utilisation of resources. As each work is done according to the set standard, there is less wastage and spoilage of resources.
• The employees get to know well in advance about what is expected from them and the standards against which their performance will be assessed. This motivates them to achieve the assigned targets in a better way.

Answer b). Planning and controlling are closely interrelated functions of management. While, planning decides the objectives to be achieved and the course of action to be followed, on the other hand, controlling refers to the process of managing and evaluating the work done in accordance with the standards and taking corrective measures, if there are any deficiencies. In the given situation plans can be made with regard to improving the sales, customer satisfaction and pricing policy. These plans would serve as standards in the controlling process. If there are no standards and no objectives, there is nothing to control.

Answer c). The following steps would be followed in the controlling process.

• Setting Standards: Setting up of standards involves developing the benchmarks against which the actual performance is to be measured. The standards can be set in qualitative (such as number of initiatives taken by an employee) as well as quantitative terms (such as in the form of sales targets, units to be produced).
• Measuring Actual Performance: Once the standards are set, the next step is to measure the actual performance of the activities. This may be done through various techniques such as personal observation and performance reports.
• Comparing the Performances: Performances once measured are then compared with the set standards. Such a comparison helps in assessing the deviations in the work. Thereby, it guides the managers in taking the necessary steps so as to improve the performances.
• Analysing Deviation: Every organisation faces deviations when comparing the actual performance with the pre-developed standards. Thus, it is important to find the deviations that are in the permissible range. It is said that deviations in key areas should be attended first. For analysing the deviations the managers generally use ‘Critical Point Control’ and ‘Management by Exception’. Once the deviations are recognised, the cause for it must be identified.
• Corrective Measures: When deviations go beyond the admissible limits, there arises a need for the management to take corrective actions. This is the last step of controlling which aims at correcting the deficiencies of the organisation so that the errors do not occur again.

Q6)

Mr. Shantanu is a chief manager of a reputed company that manufactures garments. He called the production manager and instructed him to keep a constant and continuous check on all the activities related to his department so that everything goes as per the set plan. He also suggested him to keep a track of the performance of all the employees in the organisation so that targets are achieved effectively and efficiently.

• a. Describe any two features of Controlling highlighted in the above situation. (Goal Oriented, continuous and pervasive – any 2).
• b. Explain any four points of importance of Controlling.

Answer)

Answer a). The features of Controlling highlighted in the above case are: (any two)

• Goal oriented: Controlling keeps a close watch on the work in progress and constantly works towards the accomplishment of organisational goals.
• Continous process: Controlling is an on-going process as it involves a constant assessment and evaluation of the progress of current tasks and activities as against the set standards.
• Pervasive process: Controlling is a pervasive function. It is exercised by all managers irrespective of their level, department or division.

Answer b). Control is an indispensable function of management without which best of plans can fail. Importance of Controlling are: (any four)

• Accomplishing organisational goals- Controlling indicates the deviations in performance and takes the required corrective measures. In this way, it helps in the accomplishment of organisational goals in a better manner.
• Evaluating the standards- It helps in assessing and reviewing the accuracy and feasibility of the set standards according to the changing business environment.
• Optimum utilisation of resources- Controlling ensures that each task is performed as per the set standards, thereby helping in minimising the wastage of resources.
• Employee motivation- The employees know well in advance as to what is expected from them and the standards against which their performance will be judged. This encourages them to work to the best of their capabilities and achieve the assigned targets.
• Order and discipline- The employees are aware of the fact that they are being continuously observed. Thus, dishonesty and inefficiency in behaviour is minimised.
• Promoting coordination- Proper controlling ensures that every department is aware of its respective activities and tasks and coordinates with one another.

That’s it. These were the solutions of NCERT Class 12 Business Studies Chapter 8 – Controlling. Our team hopes that you have found these solutions helpful for you. If you have any doubt related to this chapter then feel free to comment your doubts below. Our team will try their best to help you with your doubts.