5-Step Process & Techniques (BEP/ROI/MIS)

8.6 The Controlling Process — Five NCERT Steps

Controlling is a systematic process. It is not a one-shot activity but a sequence of disciplined steps. NCERT lays it out in five steps that together close the loop between plan and performance.

Step 1 — Setting Performance Standards^?

Standards are the criteria against which actual performance will be measured. They serve as benchmarks toward which the organisation strives. Standards can be set in two forms:

Step 2 — Measurement of Actual Performance

Once standards are set, performance must be measured in an objective and reliable manner. NCERT lists several techniques: personal observation, sample checking, performance reports. Performance should be measured in the same units as the standards — to make comparison easier.

Step 3 — Comparing Actual Performance with Standards

The third step compares actual performance with the standard, revealing the deviation^? between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, the performance of a worker measured in units produced in a week can be easily measured against the standard output for the week.

Step 4 — Analysing Deviations

Some deviation in performance can be expected in all activities. The job of the manager is to determine the acceptable range of deviations. Deviations in key areas need urgent attention; deviations in insignificant areas can be tolerated. NCERT introduces two complementary principles for managing this: Critical Point Control and Management by Exception.

(a) Critical Point Control (CPC)

It is neither economical nor easy to keep a check on every activity in an organisation. Control should therefore focus on key result areas (KRAs) which are critical to the success of the organisation. These KRAs are set as the critical points. If anything goes wrong at the critical points, the entire organisation suffers.

(b) Management by Exception^? (MBE)

Often called "control by exception", MBE is based on the belief that "an attempt to control everything results in controlling nothing". Only significant deviations that go beyond the permissible limit should be brought to the notice of management.

Why Identify Causes Before Acting?

After identifying deviations that demand attention, these need to be analysed for their causes. NCERT lists multiple possible causes:

Step 5 — Taking Corrective Action^?

The final step is taking corrective action. No corrective action is required when deviations are within acceptable limits. However, when deviations go beyond the acceptable range — especially in important areas — they demand immediate managerial attention.

8.7 Techniques of Managerial Control

NCERT divides the techniques of control into two major families — Traditional and Modern — based on whether they have been in use for decades or have emerged with newer management practice.

A. Traditional Techniques of Managerial Control

(i) Personal Observation

The oldest technique — the manager personally goes to the workplace, watches operations and forms first-hand impressions. While time-consuming and not always feasible in large organisations, personal observation captures tacit signals that no report can — a worker's mood, a machine's vibration, a queue's length. NCERT considers this the most expensive technique in terms of management time.

(ii) Statistical Reports

Statistical analysis in the form of averages, percentages, ratios, correlation, charts and graphs presents performance data in a comprehensible manner. They are particularly useful for spotting trends, comparing actuals against targets across periods, and presenting findings to senior management. Excel dashboards and modern BI tools are essentially statistical-report engines.

(iii) Breakeven Analysis^?

Breakeven analysis is a technique used by managers to study the relationship between costs, volume and profits. It pinpoints the breakeven point (BEP) — the level of sales at which there is no profit and no loss. Below this point, the firm operates at a loss; above it, the firm earns a profit.

Once the BEP is known, managers can ask "if I want to earn ₹X profit, how many units must I sell?" — making breakeven a powerful cost-control and pricing-control tool.

(iv) Budgetary Control^?

Budgetary control is a technique in which different budgets are prepared for different operations of the business in advance, and the actual results are compared with these budgetary standards. NCERT lists the following types of budgets:

B. Modern Techniques of Managerial Control

(i) Return on Investment^? (ROI)

ROI is a useful technique that provides the basic yardstick for measuring whether or not invested capital has been used effectively for generating a reasonable return.

(ii) Ratio Analysis

The use of financial ratios to monitor business performance. NCERT highlights four categories:

1. Liquidity Ratios — measure short-term solvency (e.g., current ratio, quick ratio).
2. Solvency Ratios — measure long-term solvency (e.g., debt-equity ratio).
3. Profitability Ratios — measure profitability (e.g., gross-profit ratio, net-profit ratio).
4. Turnover Ratios — measure efficiency in asset utilisation (e.g., inventory turnover).

(iii) Responsibility Accounting^?

A system of accounting in which different sections, divisions and departments of an organisation are set up as responsibility centres. The head of each centre is responsible for achieving the targets set for that centre. Four main types are recognised:

(iv) Management Audit^?

Management Audit refers to the systematic appraisal of the overall performance of the management of an organisation. The aim is to review the efficiency and effectiveness of management and to improve its performance in future periods. NCERT lists its main advantages:

• It helps to locate present and potential deficiencies in the performance of management functions.
• It helps to improve the control system of an organisation.
• It ensures updated managerial policies and strategies in light of environmental changes.
• It improves coordination among different functional areas through better managerial alignment.

(v) PERT & CPM^?

PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) are network techniques widely used in project planning and control. The project is split into clearly identifiable activities; each activity's expected time is estimated; activities are sequenced into a network; the critical path (the longest sequence of dependent activities) is identified; and progress is controlled against the critical path. They are heavily used in defence, R&D, infrastructure and software projects to control projects that involve hundreds of activities.

(vi) Management Information System^? (MIS)

An MIS is a computer-based system that provides information and support for effective decision-making by managers. It is an important communication tool for managers — supplying the right information at the right time and in the right format. MIS draws data from operational systems and pre-processes it into reports, dashboards and alerts that managers use for control. NCERT identifies its key benefits:

• Facilitates collection, storage, processing, retrieval of data — and dissemination to relevant managers.
• Avoids information overload by filtering data into management-relevant items.
• Helps in better planning, controlling and decentralisation.
• Improves overall efficiency of management.

8.8 Bridging to Part 3 — Worked Numericals & Exercises

Part 3 of this chapter takes the breakeven and ROI techniques into worked numericals — a fully solved BEP example (Fixed Cost ₹40,000; Selling Price ₹40; Variable Cost ₹20 → BEP = 2,000 units), a comparative ROI illustration across two firms, the chapter Conclusion, every NCERT exercise (5 VSA + 6 SA + 6 LA + 5 case-style questions) with full model answers, the Summary, the Key Terms list, and finally the celebratory End-of-Book banner marking the completion of the entire Principles of Management (Part I) NCERT — eight chapters covered in full.

Part 2 Summary & Key Takeaways

Controlling is implemented through a five-step process: setting performance standards (quantitative + qualitative), measuring actual performance, comparing actual vs standard, analysing deviations using Critical Point Control and Management by Exception, and finally taking corrective action — which may include retraining, additional resources, or revising the standard itself. Two families of techniques support this process. Traditional techniques include personal observation, statistical reports, breakeven analysis (BEP = Fixed Cost ÷ Contribution Margin per unit) and budgetary control (sales / production / cash / master budgets). Modern techniques include Return on Investment (ROI = Net Income ÷ Investment × 100), ratio analysis, responsibility accounting, management audit, PERT & CPM, and Management Information System.