Page 1 - Lesson Note 2

SAI INTERNATIONAL SCHOOL
CLASS-12TH

BUSINESS STUDIES
CHAPTER -7 Controlling
TOPIC: Controlling Process

(LESSON - 29)

CONTROLLING PROCESS

Controlling is a systematic process involving the following steps.
1. Setting performance standards
2. Measurement of actual performance
3. Comparison of actual performance with standards
4. Analyzing deviations
5. Taking corrective action

Step 1: Setting Performance Standards:

The first step in the controlling process is setting up of performance standards. Standards are the
criteria against which actual performance would be measured. Thus, standards serve as
benchmarks towards which an organisation strives to work. Standards can be set in both
quantitative as well as qualitative terms. For instance, standards set in terms of cost to be
incurred, revenue to be earned, product units to be produced and sold, time to be spent in
performing a task, all represents quantitative standards.
Sometimes standards may also be set in qualitative terms. Improving goodwill and motivation
level of employees are examples of qualitative standards. The table in the next page gives a
glimpse of standards used in different functional areas of business to gauge performance.

At the time of setting standards, a manager should try to set standards in precise quantitative
terms as this would make their comparison with actual performance much easier. For instance,
reduction of defects from 10 in every 1,000 pieces produced to 5 in every 1,000 pieces produced
by the end of the quarter. However, whenever qualitative standards are set, an effort must be
made to define them in a manner that would make their measurement easier. For instance, for
improving customer satisfaction in a fast food chain having self-service standards can be set in
terms of time taken by a customer to wait for a table, time taken by him to place the order and
time taken to collect the order.

It is important that standards should be flexible enough to be modified whenever required. Due
to changes taking place in the internal and external business environment, standards may need
some modification to be realistic in the changed business environment.