[AHSEC Class 12, Business Studies Notes, Revised Syllabus, 2022 Exam, Controlling]
Class 12 Business Studies Notes
Unit –
VIII: Controlling
Objective Questions (1 Mark)
1. What is meant by controlling?
Ans: Under controlling deviations are sought to be noticed in the
actual work progress and the standards already determined, the causes of deviations
are found out and corrective action is taken so that in future the mistakes are
not repeated.
2. Which function of management
ensures that actual activities confirm to planned activities? 2012, 2018
Ans: It is controlling.
3. Name the function which reviews the
operations in a business unit.
Ans: Controlling function.
4. Why it is said that ‘planning is
meaningless without controlling’?
Ans: Because in the absence of controlling no will take it
seriously to work according to the plans and hence, the plan will fail.
5. Why it is said that ‘controlling is
looking back’?
Ans: Because under it, a manager tries to find out whether the
work has been done according to the standards or not.
6. Give meaning of the term’
Deviation’ as used in the control function of management.
Ans: Deviation refers to the difference between actual performance
and standard work.
7. Name the two situations in which
corrective action is not required.
Ans: (i) Zero Deviation (ii) Positive Deviation.
8. State any one advantage of
‘Critical-point Control’ and ‘Management by Exception.’
Ans: By taking care of important deviations both time and efforts
are saved.
9. Why it is said that ‘planning is
looking back’?
Ans: Because the planning is done on the basis of the happening of
the past.
10. What is meant by ‘Budget’? 2019
Ans: A budget is a quantitative expression of the plan of action. It
is a statement of expected results and expected cost expressed in numerical
terms. Budget is a statement which helps us to know the future results and to
achieve these results how much we will have to spend. There are different types
of budgets for example, production budget, sales budget, cash budget, fixed and
flexible budget, overheads budget etc.
11. What do you mean by Quantitative
Standards?
Ans: They are the standards which are shown with the help of
figures, e.g., production of 10 units by a laborer in a day. For example:
efficiency level of managers, labour relations etc.
12. Which of the following is not an
essential element of an effective control system? 2009
a) Rigidity
b) Economy
c) Simplicity
d) Flexibility
Ans: Rigidity
13. Which two standards will you suggest
for production department?
Ans: Standard output, estimated cost of production.
14. Name the two situations in which
corrective action is not required.
Ans: Corrective action
is not required in case of: (i)
Deviations within permissible limits. (ii) Positive deviations.
15. Management audit is a technique to
check on the performance of company. Do you agree? Give reasons.
Ans: No, Management audit is a comprehensive and constructive
review of the performance of management team of any organisation.
16. Does budgeting control require the
preparation of budget? Give reason.
Ans: Yes, the success of budgetary control techniques depends upon
the estimation of standards and for estimation of standards it is necessary to
prepare various types of budget.
17. Is controlling “The End of
Management Cycle”? Give reason.
Ans: No controlling is not the end of management functions cycle
because it brings back the management cycle to planning function.
18. What is critical point of control?
Ans: It means keeping focus on some key areas and if there is any
deviation in these key areas, and then it must be attended urgently.
19. What is feedback in controlling?
Ans: Feedback refers to list of reasons for deviations of plans or
for inefficiency in overall working of organisations along with reasons and
corrective measures.
20. “Controlling is a pervasive
function.” Explain.
Ans: The controlling is a pervasive function of the management as
it is performed in all organizations (business and non-business) and at all
managerial levels. It is that function of management under which every manager
at every level assures that the actual progress is in conformity with the
plans.
21. What is management by exceptions? 2020
Ans: Management by exception is an important 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.
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ALSO READ (AHSEC ASSAM BOARD CLASS 12)
1. AHSEC CLASS 12 BUSINESS STUDIES CHAPTERWISE NOTES
2. AHSEC CLASS 12 BUSINESS STUDIES QUESTION PAPERS (FROM 2012 TILL DATE)
3. AHSEC CLASS 12 BUSINESS STUDIES SOLVED QUESTION PAPERS (FROM 2012 TILL DATE)
4. AHSEC CLASS 12 BUSINESS STUDIES IMPORTANT QUESTIONS
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Short and long questions (2/3/5/8 marks
questions)
Q.1. What is controlling? Explain its
nature or Characteristics.
Ans: Control is one of the managerial functions. Under controlling
deviations are sought to be noticed in the actual work progress and the
standards already determined, the causes of deviations are found out and
corrective action is taken so that in future the mistakes are not repeated.
According to Henry Fayol, “In an undertaking,
control consists in verifying whether everything occurs in conformity with the
plan adopted, the instructions issued and principles established. It has to
point out weakness and errors in order to rectify them and prevent recurrence”.
Thus, controlling implies determining and
stating specifically what is to be accomplished, then checking performance
against such standards prescribed with a view to supplying the corrective
action required to achieve the planned objectives.
Nature or
Characteristics of Control
1)
Control is a function of management: It is, in
fact, a follow-up action to the other functions of management.
2)
Control is a dynamic process: It involves
continuous review of standards of performance and results in corrective action,
which may lead to changes in other functions of management.
3)
Control is a continuous activity: It does not
stop anywhere.
4)
Control is forward looking: It is related to
future, as past cannot be controlled. It is usually preventive as the presence
of control systems leads to minimize wastages, losses, and deviations from
standards.
5)
Planning and Controlling are closely related
with each other: Managerial planning seeks consistent and integrated while
managerial control seeks to compel events to conform to plans. As a matter of
fact, planning is based on control and control is based on planning.
Q.2. Discuss the importance and
limitations of controlling. 2009, 2011,
2012, 2015
Ans: Control is one of the managerial functions. Under controlling
deviations are sought to be noticed in the actual work progress and the
standards already determined, the causes of deviations are found out and
corrective action is taken so that in future the mistakes are not repeated.
Advantages
(Importance) of Controlling:
(i) Accomplishing organisational goals: The
controlling function measures progress towards the organisational goals and
brings to light the deviations, if any, and indicates corrective action.
(ii) Judging accuracy of standards: A good
control system enables management to verify whether the standards set are
accurate or not. 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.
(iii) 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.
(iv) 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 appreciated.
(v) Ensuring order and discipline: Controlling
creates an atmosphere of order and discipline in the organisation. It helps to
minimize dishonest behaviors on the part of the employees by keeping a close
check on their activities.
(vi) Facilitating coordination in action:
Controlling provides direction to all activities and efforts for achieving
organisational goals.
Limitations of controlling:
(i) Difficulty in setting quantitative
standards: Control system loses some of its effectiveness when standards cannot
be defined in quantitative terms. Employee morale, job satisfaction and human
behaviors are such areas where this problem might arise.
(ii) Little control on external factors:
Generally an enterprise cannot control external factors such as government
policies, technological changes, competition etc.
(iii) Resistance from employees: Control is
often resisted by employees. They see it as restriction on their freedom.
(iv) Costly affairs: Control is a costly
affair as it involves a lot of expenditure, time and efforts.
Q.3. Explain the relationship between
planning and controlling. 2008, 2011,
2015, 2018
Ans: The relationship between planning and controlling can be
divided into the following two parts.
(i) Interdependence between Planning and
Controlling.
(ii) Difference between Planning and
Controlling.
(i) Interdependence between Planning and
Controlling. Planning is meaningless without controlling and controlling is
blind without Planning. Both the aspects of the interdependence of planning and
control have been discussed below:
(a) Planning is meaningless without
Controlling: if the process of controlling is taken away from management no
person working in the enterprise will take it seriously to work according to
the plans and consequently, the plans will fail.
(b) Controlling is blind without Planning:
Under the system of controlling actual work performance is compared with the
standards. Hence, if the standards are not determined there is no justification
left for control and the standards are determined under planning.
(ii) Difference between Planning and
Controlling: Yes, planning and controlling are incomplete and ineffective
without each other but it doesn’t mean that both are not independent. Reasons
are:
(a) Planning is looking Ahead whereas
Controlling is Looking Back: Plans are always formulated for future and
determined the future course of action for the achievement of objectives laid
down. On the contrary, controlling is looking back because under it a manager
tries to find out, after the work is completed, whether it has been done
according to the standards or not.
(b) Planning is the first function and
Controlling is the last function of Managerial Process: the managerial process
moves in a definite sequence- like planning, organizing, staffing, directing
and controlling happens to be the last step.
Q.4. Explain briefly the various steps
in the process of control. 2009, 2010,
2013, 2016, 2020
Ans: Following are the steps of controlling process:
(i) Setting
Performance Standards: the first step of controlling is to set performance
standards. Standards are those criteria s on the basis of which the actual
performance is measured. Thus, standards serve as benchmarks towards which an
organization strives to work. Standards can be set in both quantitative as well
as qualitative terms.
(ii) Measurement
of Actual Performance: the second step in the controlling process is the
measurement of actual performance. The measurement of actual performance is
done on the basis of pre-determined standards. The measurement of actual
performance tells the manager whether the work has been done according to the
plan or not.
(iii) Comparison
of Actual Performance with Standards: At this step, actual performance is
compared with the standards and deviations are found out.
(iv) Analyzing
Deviations: Deviations are examined the light of pre-determined Deviation
Tolerance Limits. If the deviations are within limits they can be avoided. But
if they cross the limits, they should be reported to the higher level managers
without any delay. There are two important principles regarding this:
(a) Principle of Critical Point Control:
According to this principle, those activities should be determined in the very
outset which have an important role to play in ensuring the actual work
progress in accordance with the plans. These are known as Key Result Areas –
KRAs. It means that the managers should not be involved in small insignificant
activities but should pay more attention to those activities where unfavourable
results can cause heavy loss to the enterprise.
(b) Management by Exception; Management by
exception, is an important 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. 2017
(v) Taking Corrective Action: The last but
the most important step in the controlling process is taking corrective action.
By now the deviations and their causes become known. Now is the turn of
removing the hurdles in the actual work progress. The purpose of corrective
action is to bring the actual work progress to the level of expected progress.
Q.5. What
is meant by ‘Budgetary Control’? State it’s any four advantages.
Ans: Budgetary control is a system which uses
budgets as a means of controlling. It means that when different activities of a
business enterprise are sought to be controlled with the help of budget, it is
called budgetary control.
Advantages
of Budgetary Control
(i)
Helpful in Attaining Organizational Objectives: Budgets are based on plans and
all the departmental managers are informed about the expectations each one of
them. The departmental managers put in their best efforts to achieve their
target and consequently it helps in attaining the organizational objectives.
(ii)
Source of Motivation for Employees: this technique prescribes the objectives
for the employees. Their performance is matched with the standards. If the
results are positive, they are appreciated. This motivates them.
(iii)
Optimum utilization of Resources: Budgetary Control divides the resources among
all the departments in an appropriate manner. This makes it possible the
Optimum utilization of available Resources in the organization.
(iv)
Achieving Coordination: By implementing this system, the activities of all the
departments are directed towards a single goal. In this way, all the
departments work for the attainment of the common goal. Consequently,
coordination is established among them.
Q.6.
Describe in Brief the essentials of an effective control system (Any
Five). 2007, 2009, 2014, 2017, 2020
Ans:
Essentials of an Effective control system:
The
following are the essentials or basic requirements of an effectively control
system:
1) Suitable:
The control system must be suitable for the kind of activity intended to serve.
Apart from differences in the systems of control in different business, they
also vary from department to department and from one level in the organization
to the other.
2) Understandable:
The system must be understandable, i.e., the control information supplied
should be capable of being understood by those who use it. A control system
that a manager cannot understand is bound to remain ineffective.
3) Economical:
The system must be economical in operation, i.e., the cost of a control system
should not exceed the possible savings from its use. The extent of control
necessary should be decided by the standard of accuracy or quality required. A
very high degree or standard of accuracy or quality may not really
be-necessary.
4) Flexible:
The system of control must be flexible, i.e. workable even if the plans have to
be changed. A good control system would be sufficiently flexible to permit the
changes so necessitated.
5) Forward
Looking: The control system must be forward looking, as the manager cannot
control the past. In fact, the control system should be so designed so as to
anticipate possible deviations, or problems. Thus deviations can be forecast so
that corrections can be incorporated even before the problem occurs.
6) Suggestive
Of Corrective Action: An adequate control system should not only detect
failures must also disclose where they are occurring, who is responsible for
them and what should be done to correct them. Overall summary information can
cover up certain fault areas.
Q.7.
Mention various techniques of managerial control. 2012, 2019
Ans:
Techniques of Control or Methods of Establishing Control
A number
of techniques or tools are used for the purpose of managerial control. Some of
the techniques are used for the control of the overall performance of the
organisation, and some are used for controlling specific areas or aspects like
costs, sales, etc. The various techniques of control can be classified into
categories, viz.
(1)
The important Traditional or Conventional techniques are: Direct supervision and observation,
Budgetary Control, Standard Costing, Break-even Analysis, Inventory Control,
Internal Audit, Statistical Data Analysis, Production Planning and Control.
(2)
The Important Modern or Contemporary techniques are: Financial Statement Analysis, Return
on Investment Control, Management Information System, Management Audit, Zero-base
Budgeting, Human Resources
Accounting, and Responsibility Accounting.
Some
of the techniques are discussed below
1. Direct
Supervision and Observation: 'Direct Supervision and Observation' is the
oldest technique of controlling. The supervisor himself observes the employees
and their work. This brings him in direct contact with the workers. So, many
problems are solved during supervision. The supervisor gets first hand
information, and he has better understanding with the workers.
2.
Financial Statements: All business organisations prepare Profit
and Loss Account. It gives a summary of the income and expenses for a specified
period. They also prepare Balance Sheet, which shows the financial position of
the organisation at the end of the specified period. Financial statements are
used to control the organisation. The figures of the current year can be
compared with the previous year's figures. They can also be compared with the
figures of other similar organisations.
3.
Budgetary Control: A budget is a
planning and controlling device. Budgetary control is a technique of managerial
control through budgets. It is the essence of financial control. Budgetary control
is done for all aspects of a business such as income, expenditure, production,
capital and revenue. Budgetary control is done by the budget committee.
4. Break
Even Analysis: Break-even analysis is a simple control tool. Break Even
Analysis or Break Even Point is the point of no profit, no loss. The Break-even
analysis acts as a control device. It helps to find out the company's
performance. So the company can take collective action to improve its
performance in the future.
5. Return
on Investment (ROI): Investment consists of fixed assets and working capital used in
business. Profit on the investment is a reward for risk taking. If the ROI is
high then the financial performance of a business is good and vice-versa. ROI is a
tool to improve financial performance. It helps the business to compare its
present performance with that of previous years' performance. 2016, 2018
6.
Management by Objectives (MBO): MBO facilitates planning and control. It
must fulfill following requirements:
Ø
Objectives for individuals are jointly fixed by the superior and
the subordinate.
Ø
Periodic evaluation and regular feedback to evaluate individual
performance.
Ø
Achievement of objectives brings rewards to individuals.
7.
Management Audit: Management Audit is
an evaluation of the management as a whole. It critically examines the full
management process, i.e. planning, organising, directing, and controlling. It
finds out the efficiency of the management. Management auditing is conducted by
a team of experts. They collect data from past records, members of management,
clients and employees. The data is analysed and conclusions are drawn about
managerial performance and efficiency.
8.
Management Information System (MIS): In order to control the organisation
properly the management needs accurate information. They need information about
the internal working of the organisation and also about the external
environment. Information is collected continuously to identify problems and
find out solutions. MIS collects
data, processes it and provides it to the managers. MIS may be manual or
computerised. With MIS, managers can delegate authority to
subordinates without losing control.
Advantages
of MIS are: 2016
a) It
provides accurate information to all the managers working at different levels.
b) It
helps in planning, controlling and decision-making.
c) It
provides cost effective management information.
d) It
improves quality of information with which a manager works.
e) It
reduces information overload i.e., only relevant information is provided to
them.
9. PERT
and CPM Techniques: Programme Evaluation and Review Technique (PERT) and Critical Path Method (CPM) techniques were developed in USA in the late 50's.
Any programme consists of various activities and sub-activities. Successful completion
of any activity depends upon doing the work in a given sequence and in a given
time. CPM / PERT can be used to minimise the total time or the total cost
required to perform the total operations. In these techniques, the job is
divided into various activities / sub-activities. From these activities, the
critical activities are identified. More importance is given to completion of
these critical activities. So, by controlling the time of the critical
activities, the total time and cost of the job are minimised.
Steps
involved in using PERT/CPM are given below:
a) The
project is divided into a number of clearly identified activities.
b) These
clearly identified activities are arranged in logical sequence.
c) A
network diagram is prepared to show the sequence of activities.
d) Time
estimates are prepared for each activity.
e) In CPM
cost required to complete the project is also calculated.
f) The
longest path is identified as critical path where no delay can be permitted.
10.
Self-Control: Self-Control means self-directed control. A person is given
freedom to set his own targets, evaluate his own performance and take
corrective measures as and when required. Self-control is especially required
for top level managers because they do not like external control. The
subordinates must be encouraged to use self-control because it is not good for
the superior to control each and everything. However, self-control does not
mean no control by the superiors. The superiors must control the important
activities of the subordinates.
11.
Responsibility accounting: Under this technique of controlling organisation is
divided into various responsibility centres and head of each centre is
responsible for the achievement of their centres. Common types of
responsibility centres are profit centre, cost centre, revenue centre,
investment centre etc. These centres are generally various sections or
departments of the organisation.
12. Ratio
analysis: It refers to analysis of financial statements by calculating various
types of ratios. Some of the important ratios are current ratio, liquid ratio,
debt-equity ratio, proprietary ratio, profitability ratios. These ratios help
in knowing the operating efficiency and financial position of the company. 2020
13.
Zero-Base Budgeting (ZBB): In the words of Peter A Pyher, “Zero-base budgeting
is a planning and budgeting process which requires each manager to justify his
entire budget request in detail from scratch and shifts the burden of proof to
each manager to justify why he should spend money at all. The approach requires
that all activities be analysed in ‘decision packages’ which are evaluated by
systematic analysis and ranked in order of importance”. From his definition, it
is clear that Zero-base budgeting is a technique of preparing the budget in
which the previous year is not taken as the base, and every year is taken as a
new year for preparing the current year’s budget.
14. Human Resources Accounting: The American Accounting Association has defined human resources accounting as “the process of identifying and measuring data about human resources and communicating this information to interested parties”.