Ch8 controlling class 12 business studies

1. CH8- CONTROLLING

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

5. IMPORTANCE LIMITATIONS
•Accomplishing organisational
goals:- guides the organisation and
keeps it on the right track so that
organisational goals might be
achieved.
•Judging accuracy of standards:-to
verify whether the standards set are
accurate and objective.
•It helps to use resources
effectively by reducing wastage &
spoilage of resources.
•It helps to motivate employees
because a good control system sets a
standard .
•Controlling creates an atmosphere
to build good order & discipline.
•It facilitates coordination to
achieve organizational goals.
•Difficult to set quantitative
standard- All standards cannot be
defined in quantitative terms. Ex-
employee morale & Job satisfaction.
•Organization cannot have control
on external factors such as Govt
Policy & Technological change.
• The employees are resistant to
accept any new changes (EX- Setting
CCTV cameras in office will not be
accepted by employees)
•Controlling is very costly &
involves lot of time.

6. RELATIONSHIP BETWEEN PLANNING
AND CONTROLLING
• Planning is the first step to everything, it
helps in controlling- planning is a base –
basis to controlling.
• Planning is done to set standard, when there
is no planning there is no controlling.
• Planning is a mindful process it helps to take
action but controlling checks if actions are
achieved.
• Planning should be done based on facts &
information but controlling makes it
effective.
• Planning & Controlling are inseparable twins
of management.

7. PROCESS OF CONTROLLING
(CONTROLLING PROCESS)
STEP1
• SETTING PERFORMANCE STANDARDS
STEP2
• MEASUREMENT OF ACTUAL PERFORMANCE
STEP3
• COMPARING ACTUAL PERFORMANCE WITH
STANDARDS
STEP4
ANALYZING DEVIATION
STEP5
TAKING CORRECTIVE ACTION

8. CONTROLLING PROCESS WITH AN EXAMPLE OF CADBURY CHOCOLATE
• STEP1-SETTING PERFORMANCE STANDARDS- Cadbury wants to produce
10,000 pieces of Dairy milk chocolates within 1day.
• STEP2-MEASUREMENT OF ACTUAL PERFORMANCE- The production
department produces 8000 chocolates within 1 day.
• STEP3-COMPARING ACTUAL PERFORMANCE WITH STANDARDS – The
actual target was 10000pc but the production department only produced
8000pc.
• STEP4-ANALYZING DEVIATION – The production manager needs to
understand why there is shortage of 2000.
• STEP5-TAKING CORRECTIVE ACTION- The production manager finds out that
there was a machinery breakdown hence the production was delayed, hence
the old machinery was repaired & employees worked Overtime to fix it.

9. TECHNIQUES OF MANAGERIAL CONTROLLING
TRADITIONAL
Used by companies for a
long time
-Personal observation
-Statistical reports
-Break-even analysis
-Budget control
MODERN
Recent ideas & techniques.
These are new ways to
control the organization
-Return on Investment
-Ratio Analysis
-Responsibility
Accounting.
-Management
Information System.
-PERT & CPM

10. TRADITIONAL TECHNIQUES
1. PERSONAL OBERVATION 2. STATISTICAL REPORTS
•Helps the manager to collect
first hand information.
•The manager directly observes
the work performed by the sub-
ordinates.
•It also creates a pressure on the
employees to perform well as
they are being observed
•Statistical analysis in the form of
averages, percentages, ratios.
•It is used to present useful
information to the managers.
•The information is presented in
the form of charts, graphs, tables,
etc., helps the managers to
analyse data.
•Ex- 2016 SALES was 20% &
2018 sales was 18% It can be
observed that sales has dropped
hence control measures should
be taken to increase sales.

11. TRADITIONAL TECHNIQUES
3.Break-even analysis 4. Budget control
•Is a technique used by managers to
study the relationship between costs,
volume & profits.
•Break even means a no profit no loss
situation.
•It helps the manager to track the profit
& sales & control the activities.
•Ex- If Bata company incurs a cost of
100000 rs to manufacture leather shoes
and they price each shoes at 1000 rs,
then they need to sell 100shoes to earn
back 1lakh rs. When the company sells
its 100th shoes it makes 1lk however it is
a no profit no loss situation.
is a technique of control in which all
operations are planned in advance
in the form of budgets . A budget is an
estimate of expense and income. It can be
used to compare actual results & budget
•Sales Budget: A statement of what an
organisation expects to sell in terms of
quantity as well as value
•Production Budget: A statement of what an
organisation plans to produce in the
budgeted period
• Material Budget: A statement of estimated
quantity and cost of materials required for
production
• Cash Budget: Anticipated cash inflows and
outflows for the budgeted period
•Capital Budget: Estimated spending on
major long-term assets like new factory or
major equipment

12. MODERN TECHNIQUES
1. RETURN ON INVESTMENT 2. RATIO ANALYSIS
Used to calculate how much
profit/return has been achieved out of
the capital invested by the organization.
It can be used to measure the
performance of an organisation or of its
individual departments or divisions.
refers to analysis of financial statements
through computation of ratios.
•Liquidity Ratios:-ability of the business
to pay the amount due to its
stakeholders.
•Solvency Ratios ability of a business to
service its indebtedness.
•Profitability Ratios: analyse the
profitability position of a business.
•Turnover Ratios: Turnover ratios are
calculated to determine the efficiency of
operations based on effective utilisation
of resources

13. MODERN TECHNIQUES
3. RESPONSIBILITY ACCOUNTING. 4. MANAGEMENT INFORMATION
SYSTEM
a system of accounting in which different
sections, divisions and departments of an
organisation are set up as ‘Responsibility
Centres’.
The head of the centre is responsible for
achieving the target set for his centre.
•Cost Centre- Cost incurred in the centre.
Ex- production dept.
•Revenue Centre- responsible for
generation of revenue/income, ex-
marketing.
•Profit Centre- is responsible for both
revenues and costs
•Investment Centre- is responsible not
only for profits but also for investments
made in the centre in the form of assets
Is a computer-based information
system that provides information
and support for managerial
decision-making.
MIS provides the information to the
managers in the form of data at
the right time so that appropriate
corrective action may be taken.
ADVANTAGES
•Collection , management of data at
different levels.
•Supports planning, decision-making
And controlling.
•Cost effectiveness
•Important information are provided by
saving time.

14. 5. MANAGEMENT AUDIT
is a process of judging the overall
performance of the management .
It checks how efficient & effective the
management is. It helps to improve the
policies of the management.
ADVANTAGES-
• It identifies the defects in the
performance of management
functions.
•It helps in improving coordination
among the functions of various
departments.
•Helps to bring changes in policies
according to changes in environment.
•The continuous monitoring of the
performance of management helps in
improving control system.

15. Modern Techniques – 5) PERT & CPM
PERT and CPM:- Programme Evaluation and Review Technique & Critical Path
Method are techniques used in both planning and controlling. It is used to
calculate the total expected time needed to complete a project. This method helps
to identify if there are any problems during the project. It is used in areas like
construction projects, aircraft manufacture, ship building etc.
STEPS-(i) The project is first divided into various activities.
(ii) A network diagram is prepared showing activities from start to end,
(iii)Time to be taken for each activity.
PERT prepares three time estimates
(i) Optimistic (shortest time)
(ii) Most likely time & (iii) Pessimistic (longest time).
In CPM, only one time estimate is prepared & shows the cost estimates for completing
the project.
• The most critical path in the network is the longest path.
• If required, necessary changes are made in the plan for completing the project on
time.

16. MANAGEMENT INFORMATION SYSTEM (MIS)
•is a computer based information system which
provides accurate, timely and up-to-date
information to the managers for taking various
managerial decisions.
• It provides timely information to the managers
so that they can take appropriate corrective
measures in case of deviations from standards.
ADVANTAGES-
(a) It provides only relevant information to the
managers.
(b) It facilitates collection and management of
information at different levels and departments of
the organisation.
(c) It helps in planning, controlling and decision
making at all levels of an organisation.
(d) It helps in improving the quality of
information.
(e) It ensures cost effectiveness by providing all
important information to the management in
time.

17. END OF CHAPTER