Controlling: Control Process, Techniques, Budgetary Control and Management by Objectives (MBO)

Overview

Controlling is the function of ensuring that actual work is in line with planned objectives. In simple words, controlling asks: Are we going as per plan? If not, why not, and what correction is required? It is not about “punishing” employees; it is about measurement, feedback, and improvement.

This topic covers:

• Control process (standards → measurement → comparison → corrective action)
• Types and essentials of control
• Budgetary control and variance analysis (basic)
• MBO as a modern control tool linking goals with performance

Learning objectives

After studying this topic, you should be able to:

• Define controlling and explain its importance.
• Write steps of control process with a neat flowchart.
• Explain types of control (feedforward, concurrent, feedback).
• List essentials of a good control system.
• Explain control techniques including budgetary control and MBO.
• Write advantages and limitations of MBO.

Key terms

• Controlling: measuring performance and correcting deviations to achieve goals.
• Standard: expected level of performance (target).
• KPI (Key Performance Indicator): measurable indicator (e.g., defect rate, on-time delivery).
• Variance: difference between standard and actual performance.
• Corrective action: steps taken to remove causes of deviation.
• Budget: numerical plan for a future period.
• Budgetary control: controlling through budgets and variance checks.
• MBO: management system where objectives are set jointly and performance is measured against them.

Meaning and importance of controlling

Controlling is the process of:

• setting performance standards,
• measuring actual performance,
• comparing with standards,
• finding reasons for deviation, and
• taking corrective action.

Importance (exam points)

• Ensures goal achievement by keeping activities on track.
• Improves efficiency and reduces wastage.
• Helps in coordination by aligning departmental performance with objectives.
• Facilitates decision-making through feedback and reports.
• Basis for improvement and learning (continuous improvement).

Relationship between planning and controlling

Planning and controlling are inseparable:

• Planning sets standards/targets.
• Controlling checks whether performance meets standards.

No planning → no standard → no control. No control → plans may fail due to deviations not corrected.

Control process (steps)

1. Setting standards

• Standards should be clear, measurable and realistic (quantity, quality, time, cost).

2. Measuring actual performance

• Collect data through reports, inspections, audits, dashboards, KPIs.

3. Comparing actual with standards

• Identify deviations (positive/negative).

4. Analysing deviations

• Find causes (machine breakdown, skill gap, wrong plan, poor communication).

5. Corrective action

• Correct current deviations and prevent future recurrence (training, maintenance, revised method, revised standard).

Flowchart (write/draw): Standards → Measurement → Comparison → Deviation analysis → Corrective action → Feedback

Types of control

1) Feedforward control (preventive)

Controls before activity begins.

• Example: checking raw material quality before production.

2) Concurrent control (during operation)

Control while work is in progress.

• Example: supervision during production line, real-time dashboards.

3) Feedback control (after completion)

Control after activity is completed.

• Example: sales report vs target; customer complaints analysis.

Essentials of a good control system

Good control system should be:

• Simple and understandable
• Economical (benefit > cost)
• Flexible (adapts to changes)
• Objective and measurable
• Timely (quick feedback)
• Corrective (focus on action, not just reporting)
• Suitable to organisation (nature/size/technology)

Common control techniques

• Budgetary control (budgets + variance checks)
• Standard costing and variance analysis (basic idea)
• Statistical quality control (sampling, defect rate)
• Internal audit (compliance and process check)
• Performance appraisal (for people control)
• Management Information System (MIS) and dashboards (KPIs)
• Break-even analysis (cost–volume–profit for decisions, overview)

Budgetary control (meaning + steps)

Budgetary control is controlling through budgets.

Steps

1. Prepare budgets for departments (sales, production, cash, expenses).
2. Communicate responsibilities and budget limits.
3. Record actual performance.
4. Compare actual with budget.
5. Analyse variances and take corrective action.

Example: If advertising budget is ₹10 lakh but actual is ₹12 lakh, management analyses reasons (higher media rates, extra campaign) and decides corrective action (cut other expenses or revise plan).

Variance analysis (basic idea)

Variance = Standard (budget) − Actual.

• Favourable variance: performance better than standard (e.g., cost lower).
• Unfavourable variance: performance worse than standard (e.g., cost higher).

Main purpose: identify causes and take corrective action.

Management by Objectives (MBO): meaning and process

MBO is a management approach where objectives are jointly set and performance is evaluated against those objectives.

Process (steps)

1. Set organisational objectives.
2. Set departmental and individual objectives (jointly).
3. Develop action plans.
4. Periodic performance review (feedback).
5. Appraise and reward performance; set new objectives.

MBO cycle (easy to draw): Set objectives → Action plan → Review → Feedback/Rewards → New objectives

Advantages and limitations of MBO

Advantages

• Clear goals and priorities
• Improves motivation (participation)
• Better communication and coordination
• Objective performance evaluation

Limitations

• Time-consuming paperwork if poorly designed
• Difficult to set measurable objectives for some jobs
• Needs top management support and training
• May encourage short-term targets if not balanced

Quick recap (1-minute revision)

• Controlling ensures work happens as per plan.
• Steps: standards → measure → compare → analyse → corrective action + feedback.
• Types: feedforward, concurrent, feedback.
• Essentials: simple, economical, flexible, timely, objective, corrective.
• Techniques: budgetary control, audit, KPIs/MIS, SQC.
• MBO: joint objective setting + periodic review + appraisal.