Steps in the controlling process

The essentials

Controlling is carried out through a systematic process of five steps. It begins with setting standards and ends with corrective action when actual performance does not match the standards.

Key points

• Setting performance standards: standards are criteria against which performance is measured. They may be quantitative (cost, units produced, time) or qualitative (improving goodwill or motivation). Standards should be flexible.
• Measuring actual performance: through personal observation, sample checking, performance reports and similar methods, preferably in the same units as the standard.
• Comparing actual performance with standards: this reveals deviation. Deviation = Actual − Standard; percentage deviation = (deviation ÷ standard) × 100.
• Analysing deviations: an acceptable range is fixed. Two techniques help: critical point control (focusing on key result areas, the points that are critical to success) and management by exception (only significant deviations beyond the permissible limit are brought to the notice of management).
• Taking corrective action: for example, if a deviation is due to defective material, change the quality of material; if due to obsolete machinery, repair or replace it; if standards are unrealistic, revise them.

Exam tips

• Management by exception saves managers' time because minor deviations are ignored.
• Expect simple numericals: if the standard is 1,000 units and actual is 920, the deviation is 80 units, or 8% below standard.

Common mistakes

• Treating every small deviation as serious. Small deviations within limits need no action.
• Confusing critical point control (which areas to watch) with management by exception (which deviations to report).