WHAT IS CONTROLLING?
Controlling consists of verifying whether everything occurs in confirmations with the plans adopted, instructions issued and principles established. Controlling ensures that there is effective and efficient utilization of organizational resources so as to achieve the planned goals. Controlling measures the deviation of actual performance from the standard performance, discovers the causes of such deviations and helps in taking corrective actions
According to Brech, “Controlling is a systematic exercise which is called as a process of checking actual performance against the standards or plans with a view to ensure adequate progress and also recording such experience as is gained as a contribution to possible future needs.”
According to Donnell, “Just as a navigator continually takes reading to ensure whether he is relative to a planned action, so should a business manager continually take reading to assure himself that his enterprise is on right course.”
Controlling has got two basic purposes
- It facilitates co-ordination
- It helps in planning
- Features of Controlling Function
Following are the characteristics of controlling function of management-
- Controlling is an end function- A function which comes once the performances are made in conformity with plans.
- Controlling is a pervasive function- which means it is performed by managers at all levels and in all type of concerns.
- Controlling is forward looking- because effective control is not possible without past being controlled. Controlling always look to future so that follow-up can be made whenever required.
- Controlling is a dynamic process- since controlling requires taking reveal methods, changes have to be made wherever possible.
- Controlling is related with planning- Planning and Controlling are two inseparable functions of management. Without planning, controlling is a meaningless exercise and without controlling, planning is useless. Planning presupposes controlling and controlling succeeds planning.
Controlling becomes easy through establishment of these standards because controlling is exercised on the basis of these standards.
- Measurement of performance- The second major step in controlling is to measure the performance. Finding out deviations becomes easy through measuring the actual performance. Performance levels are sometimes easy to measure and sometimes difficult. Measurement of tangible standards is easy as it can be expressed in units, cost, money terms, etc. Quantitative measurement becomes difficult when performance of manager has to be measured. Performance of a manager cannot be measured in quantities. It can be measured only by-
- Attitude of the workers,
- Their morale to work,
- The development in the attitudes regarding the physical environment, and
- Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly, yearly reports.
- Comparison of actual and standard performance- Comparison of actual performance with the planned targets is very important. Deviation can be defined as the gap between actual performance and the planned targets. The manager has to find out two things here- extent of deviation and cause of deviation. Extent of deviation means that the manager has to find out whether the deviation is positive or negative or whether the actual performance is in conformity with the planned performance. The managers have to exercise control by exception. He has to find out those deviations which are critical and important for business. Minor deviations have to be ignored. Major deviations like replacement of machinery, appointment of workers, quality of raw material, rate of profits, etc. should be looked upon consciously. Therefore it is said, “ If a manager controls everything, he ends up controlling nothing.” For example, if stationery charges increase by a minor 5 to 10%, it can be called as a minor deviation. On the other hand, if monthly production decreases continuously, it is called as major deviation.
Once the deviation is identified, a manager has to think about various cause which has led to deviation. The causes can be-
- Erroneous planning,
- Co-ordination loosens,
- Implementation of plans is defective, and
- Supervision and communication is ineffective, etc.
- Taking remedial actions- Once the causes and extent of deviations are known, the manager has to detect those errors and take remedial measures for it. There are two alternatives here-
- Taking corrective measures for deviations which have occurred; and
- After taking the corrective measures, if the actual performance is not in conformity with plans, the manager can revise the targets. It is here the controlling process comes to an end. Follow up is an important step because it is only through taking corrective measures, a manager can exercise controlling.
Planning and control in SME’s and the relationship with company performance
- Business Planning
Traditionally, the Irish SME market has invested in the bookkeeping and accounting skills necessary to keep their business compliant from a regulatory viewpoint e.g. maintaining proper books and records, submitting tax returns to the revenue and having their records available for their external accountant to complete end of year accounts. Many businesses do not invest sufficient resources in ensuring that their business has been financially well planned at the outset, in setting profit and cash reserve targets which will in turn deliver a return on the business owner’s investment in the medium term. Without this foresight many businesses struggle particularly in challenging time.
- Growing Businesses
A business that experiences significant growth whether anticipated or unanticipated will benefit SMEs to avail of the services which they otherwise would not be able to access such as
business planning, supervision and direction of the finance function, periodic management accounts for internal management decision making, restructuring of the business and assistance with cash flow management. The benefits of such tailored value added services far outweigh the costs
In the current downturn, larger businesses are being forced to rationalize and cut costs and unfortunately this has resulted in many skilled financial staff being lost. These businesses still require the skills of an experienced financial controller but not on a full time basis. Outsourcing financial control services may be a cost-effective solution in these challenging circumstances thereby enabling businesses to survive, maintain their existing financial standards improve efficiencies and even gain competitive advantage.
- Financial Control & Online Accounting
The availability of broadband technology, wireless technology and secure online accounting solutions has further enhanced the financial control service offering of accounting firms to the SME market. A significant element of the service offering can now be offered with greater flexibility as the traditional restriction of having to be in one office no longer applies.
While it is still important to have face to face meetings with the client on a regular basis, secure online accounting solutions permits the business owner and the accountant to be in different locations and for example review the latest figures in real-time, without having to formally meet thereby reducing travel time and cost. Additionally, the business owner may by abroad and need to review the latest accounts. As long as the business owner can access the Internet and has a secure Internet connection it is now possible to do this instantaneously with secure online accounting solutions, whether in Boston or Berlin.