CONTROLLING PROCESS - Controlling is a forward looking process and backward looking function

 

CONTROLLING PROCESS

Controlling is a systematic process involving the following steps:

Step 1- setting performance standard – standards provide the yardsticks against which actual performance is measured.

Standards can be set in both quantitative as well as qualitative terms.

·         Standards should be flexible so that they may be modified as per changes taking place in the business environment.

·         Sometimes standards may also be set in qualitative terms. Improving goodwill and motivation level of employees are examples of qualitative standards.

Step 2- MEASUREMENT OF ACTUAL PERFORMANCE – once the standards have been established, the second step is to measure the actual performance.

·         The performance can also be measured through calculation of certain ratios the like gross profit ratio, return on investment, etc.

·          To make the comparison easier, performance should be measured in the unit in which standards are set.

Step 3- COMPARISON OF ACTUAL PERFORMANCE WITH STANDARDS- The third step in controlling process is to compare the actual performance with the standards.

·         Such comparison will reveal the deviation between the planned and actual performance.

·         Comparison is easy when standards are set in quantitative terms. For instance, it is easy to compare performance of a worker in terms of units produced in a week.

·         However, the comparison becomes difficult when they require subjective evolution.

Step 4- ANALYSING DEVIATION- some deviation in performance is expected in all activities so, the next step in controlling process is to analyze the deviations.

·         For this, an acceptable range of deviation must be fixed as significant deviations need more attention as compared to minor deviations.

·         Moreover, deviation in key areas of business needs to be attended more urgently as compared to deviations in certain insignificant areas.