Controlling – Types, Process, Techniques, and Applications in Management

1. Definition of Controlling

Controlling is the managerial function that ensures activities are carried out as planned, by measuring actual performance, comparing it with established standards, and taking corrective action when deviations occur. It creates a feedback loop that aligns resources, processes, and outcomes with organizational objectives.

2. The Controlling Process

The controlling process is a continuous cycle that can be visualized as follows:

flowchart TD
    A["Set Standards (quantitative & qualitative)"] --> B["Measure Actual Performance"]
    B --> C["Compare with Standards"]
    C --> D{"Is Performance ≥ Standard?"}
    D -- Yes --> E["Maintain Current Operations"]
    D -- No --> F["Analyze Deviation"]
    F --> G["Take Corrective Action"]
    G --> A

1. Set Standards – Define measurable targets (e.g., sales volume, cost limits, quality levels).
2. Measure Performance – Collect data through reports, MIS, or direct observation.
3. Compare – Use variance analysis to identify gaps.
4. Correct – Implement actions such as reallocating resources, revising procedures, or providing training.

3. Types of Control

Visual Comparison

4. Control Techniques

4.1 Budgetary Control

• Definition: Comparing actual expenditures and revenues with budgeted figures.
• Steps: Prepare budget → Record actuals → Compute variances → Investigate causes → Adjust future budgets.

4.2 Financial Ratio Analysis

• Key Ratios: Current ratio, debt‑to‑equity, return on assets, profit margin.
• Purpose: Provide quick insight into liquidity, solvency, efficiency, and profitability.

4.3 Quality Control Charts

• Purpose: Detect variation in manufacturing or service processes.
• Common Charts: $\bar{X}$ chart, $R$ chart, $p$ chart.

4.4 Management Information Systems (MIS)

• Function: Automates data collection, processing, and reporting, enabling timely control decisions.
• Components: Database, software, hardware, procedures, and users.

4.5 Benchmarking

• Definition: Comparing an organization’s processes or performance metrics with best‑in‑class firms.
• Benefit: Identifies performance gaps and improvement opportunities.

5. Worked Example: Controlling an Online Order Process (Daraz)

Scenario: Daraz wants to ensure that 95 % of orders are dispatched within 24 hours of payment.

1. Standard: Dispatch ≤ 24 hours for 95 % of orders.
2. Measurement: Daily MIS extracts order‑to‑dispatch time for each order.
3. Comparison: Calculate the percentage meeting the 24‑hour target. Suppose on Day 5 the rate is 88 %.
4. Analysis: Identify bottlenecks – e.g., warehouse picking delay due to staff shortage.
5. Corrective Action:
   • Re‑schedule staff shifts to cover peak hours.
   • Introduce a barcode scanning system to speed up picking.
   • Set up a real‑time dashboard for supervisors to monitor order age.

After implementing changes, the next week’s performance rises to 96 %, meeting the standard.

6. Advantages and Disadvantages of Controlling

7. Controlling in Different Organizational Levels

• Strategic Control: Monitors long‑term objectives, e.g., market share growth.
• Tactical (Middle‑level) Control: Reviews departmental budgets, production schedules.
• Operational (Front‑line) Control: Checks daily task completion, quality inspections.

8. In the Real World

1. eSewa – Transaction Monitoring: eSewa uses real‑time fraud detection algorithms (feed‑forward control) that flag suspicious payment patterns before the transaction is completed, preventing loss.
2. NTC – Network Performance Dashboard: NTC’s network operations center displays concurrent control charts for bandwidth utilization; when usage exceeds 80 % of capacity, automatic load‑balancing is triggered.
3. Toyota – JIT Production: Toyota applies concurrent control through kanban cards that signal material replenishment exactly when needed, minimizing inventory and ensuring smooth flow.

Worked Real Situation:
A Nepali bank offers a personal loan at 12 % annual interest. The bank’s credit control team sets a standard that the non‑performing loan (NPL) ratio must stay below 2 %. Monthly MIS shows an NPL ratio of 2.8 % due to delayed repayments in the tourism sector. The control team investigates, discovers a surge in loan defaults from hotels, and introduces stricter credit appraisal for tourism‑related borrowers, bringing the NPL ratio back to 1.9 % the following month.

9. Common Pitfalls in Implementing Control

• Setting unrealistic standards – leads to demotivation.
• Delayed feedback – reduces corrective action effectiveness.
• Ignoring human factors – over‑reliance on quantitative data may overlook morale issues.
• Lack of authority – managers must have the power to enforce corrective measures.

10. Summary Checklist for Managers

• ☐ Have clear, measurable standards been defined?
• ☐ Is performance data collected promptly?
• ☐ Are variances analyzed for root causes?
• ☐ Are corrective actions feasible and communicated?
• ☐ Is the control system reviewed periodically for relevance?

Exam tip

• Definition & Process: Memorize the four‑step controlling cycle and be ready to label each step in a diagram.
• Types of Control: Expect a table‑type question asking you to match feed‑forward, concurrent, and feedback with their timing and examples.
• Techniques: Write short notes on at least three techniques (budgetary control, control charts, MIS) and give a concrete example for each.
• Application Question: Practice a scenario‑based question like the Daraz example; outline the standard, measurement, comparison, and corrective action in bullet form.
• Comparison Table: Be able to list advantages and disadvantages of controlling in a two‑column table.

Focus on conceptual clarity and practical illustration – examiners reward answers that link theory to real‑world business contexts.