Business StudiesCBSE Class 12 · Controlling

Process of Controlling: Five Steps with Solved Cases (Class 12)

Updated 15 October 2026 · Fact-checked

Controlling is a five-step process: set performance standards, measure actual performance, compare actual performance with standards, analyse deviations, and take corrective action. While analysing deviations, managers use critical point control (focus on key result areas) and management by exception (attend only to significant deviations beyond the permissible limit).

Follow the arrows through the five steps, see how corrective action feeds back, and note the two tools used when analysing deviations.

Illustration drawn for QuestionBuddy.

Understand Process of Controlling

The five steps.

Step 1: Setting performance standards. Standards are the criteria (benchmarks) against which actual performance is measured. They may be quantitative (cost, revenue, units produced and sold, time) or qualitative (goodwill, employee motivation). Set them in precise quantitative terms where possible (e.g. defects cut from 10 to 5 per 1,000 pieces by quarter-end); define qualitative standards so they can be measured (e.g. waiting time for a table in a fast-food outlet). Standards should be flexible enough to modify when the environment changes.

Step 2: Measurement of actual performance. Measure objectively and reliably, in the same units as the standard. Techniques include personal observation, sample checking and performance reports. Where possible, measure during the work, not only after (e.g. each part checked before assembly; gas levels monitored continuously). A company's performance may be measured by ratios such as gross profit ratio, net profit ratio and return on investment. Small firms may check every piece; large firms check pieces at random (sample checking).

Step 3: Comparing actual performance with standards. This reveals the deviation between actual and desired results. Comparison is easier with quantitative standards.

Step 4: Analysing deviations. Some deviation is expected, so decide the acceptable range. Two tools:

Critical point control (CPC): it is neither economical nor easy to check everything, so control should focus on key result areas (KRAs), the critical points. If anything goes wrong there, the whole organisation suffers. (NCERT: in a factory a 5% rise in labour cost may be more troublesome than a 15% rise in postal charges.)
Management by exception (MBE), or control by exception: 'an attempt to control everything results in controlling nothing'. Only significant deviations beyond the permissible limit go to management. (NCERT: if a 2% rise in labour cost is acceptable, only a rise beyond 2% is reported; a major deviation such as 5% needs immediate priority action.)
Advantages of CPC and MBE: saves managers' time and effort; focuses attention on important areas (better use of managerial talent); routine problems are left to subordinates, which facilitates delegation and raises morale; identifies critical problems needing timely action.
Then find the causes: unrealistic standards, defective process, inadequacy of resources, structural drawbacks, organisational constraints, environmental factors beyond control. Without the exact cause, the right correction is impossible.

Step 5: Taking corrective action. No action if deviations are within the acceptable range. Beyond it, especially in important areas, act immediately so deviations do not recur. Examples: training employees if a production target is missed; additional workers, equipment and overtime if a project is behind schedule; revising standards if the deviation cannot be corrected by managerial action.

Cause of deviation	Corrective action
Production target missed because workers lack skill	Training of employees
Important project behind schedule	Additional workers and equipment, permission for overtime
Defective material	Change the quality specification of the material
Defective machinery	Repair or replace the machinery
Unrealistic standard that managerial action cannot meet	Revise the standard

Computing a deviation. Deviation % = (Actual − Standard) ÷ Standard × 100. Compare its size with the acceptable limit to decide whether it is significant.

Process of Controlling: key facts

Five steps: 1.Set standards
2.Measure actual
3.Compare
4.Analyse deviations
5.Corrective action; Mnemonic: 'Smart Managers Compare And Correct' (S-M-C-A-C).
Deviation %: (Actual − Standard) ÷ Standard × 100; Sign shows above or below standard.
Critical point control: Focus control on key result areas (KRAs); What matters most.
Management by exception: Report only significant deviations beyond the permissible limit; 'Control everything = control nothing.'
Measurement techniques: Personal observation, sample checking, performance reports (and ratios such as ROI); Same units as the standard.

How to answer Process of Controlling questions

The process of controlling is the most-asked controlling topic: 1-mark step identification, 3- or 4-mark cases (identify steps, CPC or MBE) and 6-mark questions on the full process. Some cases include figures to compute a deviation.

1Write the five steps in order in the margin; match each case line to a step.
2If figures are given, compute deviation % = (actual − standard) ÷ standard × 100.
3Compare with the acceptable range: within it, no action (MBE); beyond it, report and act.
4If the case contrasts an important area with a minor one, name critical point control.
5For corrective action, link the action to the cause (training for skill gaps, repair for machines, revising unrealistic standards).
6In 6-mark answers, explain all five steps and mention CPC and MBE under Step 4.

Process of Controlling in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Management by exception

Suppose a school canteen manager allows the daily food cost to vary up to ₹200 from the budget of ₹10,000. On Monday it is ₹10,150; on Thursday it is ₹11,000.

On which day should the principal be informed, and why?

Try it first, then show the solutionSolution

Monday: deviation ₹150, within the ₹200 limit.
Thursday: deviation ₹1,000, far beyond the limit.
Only significant deviations go to the top.

Answer: Only Thursday's deviation should be reported. Management by exception sends only deviations beyond the permissible limit to higher management, saving their time; Monday's small variation is handled routinely.

Memory hook: Only the alarms ring upstairs.

Critical point control

Imagine a pharmaceutical company where vaccine storage temperature must stay at 2-8°C, and the office tea budget sometimes overshoots.

Which should receive the closest control?

Try it first, then show the solutionSolution

A failure in vaccine temperature can destroy stock and harm patients: a key result area.
A tea budget overshoot hardly affects the organisation.

Answer: Vaccine storage temperature is the critical point. Critical point control focuses on key result areas where failure hurts the whole organisation.

Memory hook: Guard the heart, not the fingernails.

Tricks to remember Process of Controlling

Short memory aids. Say each one aloud once, then use it on a question the same day.

S-M-C-A-C
'Smart Managers Compare And Correct': Set standards, Measure, Compare, Analyse, Correct.
Use it when: Order of the five steps.
CPC = what, MBE = how much
Critical point control decides which areas to watch; management by exception decides how big a deviation must be before management steps in.
Use it when: Telling CPC and MBE apart.
Same units rule
Measure in the same units as the standard, or comparison fails.
Use it when: Step 2 cases.

Process of Controlling: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: First step · 1 mark · MCQBoard level

The first step in the process of controlling is:
(a) Measurement of actual performance
(b) Taking corrective action
(c) Setting performance standards
(d) Analysing deviations

Try it first, then show the solutionSolution

Standards must exist before anything can be measured against them (1 mark).

Answer: (c) Setting performance standards

Example 2: Deviation from figures · 3 marks · Short answerBoard level

The standard weekly output of a unit of 'Sahyadri Pumps' is 2,000 pumps; the acceptable range of deviation is ±2%. Actual output this week is 1,880. Calculate the deviation, state whether it should be reported to top management, and name the principle applied. (3 marks)

Try it first, then show the solutionSolution

Deviation = 1,880 − 2,000 = −120 pumps (½ mark).
Deviation % = −120 ÷ 2,000 × 100 = −6% (1 mark).
6% is beyond the 2% limit, so report it (½ mark).
Principle: management by exception (1 mark).

Answer: Output is 120 pumps (6%) below standard. As 6% exceeds the acceptable 2%, it is a significant deviation and should be reported for corrective action. Principle: management by exception.

Example 3: Steps from a case · 4 marks · Short answerHarder board level

At 'Pankh Airlines', the target for on-time departures is 92%. Each day the operations team records actual departure times from the control tower log. Every Friday the weekly figure is compared with 92%; when it was 85%, the team found the delays came mainly from slow baggage loading. Identify the four steps of controlling described and suggest the fifth. (4 marks)

Try it first, then show the solutionSolution

'target for on-time departures is 92%': setting standards (½ + ½).
'records actual departure times': measurement (½ + ½).
'weekly figure is compared with 92%': comparison (½ + ½).
'found the delays came mainly from slow baggage loading': analysing deviations (½ + ½).

Answer: (1) Setting performance standards ('target for on-time departures is 92%'). (2) Measurement of actual performance ('records actual departure times'). (3) Comparing actual with standards ('weekly figure is compared with 92%'). (4) Analysing deviations ('found the delays came mainly from slow baggage loading'). (5) Corrective action, e.g. more loading staff or equipment, or training the baggage team.

Example 4: Applying MBE to costs · 3 marks · Short answerHarder board level

The labour-cost budget of 'Vasant Mills' for a month is ₹5,00,000; a 2% rise is acceptable. In March the actual cost was ₹5,08,000 and in April ₹5,30,000. Which month's deviation should go to management, and with what priority? (3 marks)

Try it first, then show the solutionSolution

March: (5,08,000 − 5,00,000) ÷ 5,00,000 × 100 = 1.6%, within 2% (1 mark).
April: (5,30,000 − 5,00,000) ÷ 5,00,000 × 100 = 6%, beyond 2% (1 mark).
April is a major deviation in a key area: immediate, priority action (1 mark).

Answer: March (+1.6%) is within the acceptable 2%, so it need not be reported. April (+6%) is well beyond the limit; as labour cost is a key result area, it needs immediate priority attention (management by exception and critical point control).

Example 5: Quality standard per 1,000 · 4 marks · Short answerHOTS / competency

Suppose 'Kiran Glassware' sets a standard of no more than 5 defective pieces per 1,000. In a batch of 2,400 pieces, 18 are defective. Find the actual defect rate per 1,000 and the percentage by which it exceeds the standard. Suggest two corrective actions linked to possible causes. (4 marks)

Try it first, then show the solutionSolution

Rate = 18 ÷ 2,400 × 1,000 = 7.5 per 1,000 (1 mark).
Excess = (7.5 − 5) ÷ 5 × 100 = 50% above standard (1 mark).
Causes and actions: defective machinery → repair or replace; defective material → change material specification; skill gap → train workers (2 marks).

Answer: Actual rate = 7.5 defects per 1,000, which is 50% above the standard of 5. Corrective action depends on the cause: if machinery is defective, repair or replace it; if material is defective, change its quality specification; if workers lack skill, train them. If the standard itself is unrealistic for the process, revise it.

Example 6: Case study: a food-delivery kitchen · 4 marks · Case-basedHOTS / competency

'Rasoi Express' sets a standard: every order packed within 12 minutes. Instead of checking every order, the supervisor checks 20 random orders a day. The owner tells the supervisor, 'Don't call me for small delays of a minute or two; call me only if packing goes beyond 15 minutes. And watch food hygiene above everything else.' When packing time rose to 18 minutes, the supervisor found that two new packers had not been trained, and arranged training for them.
(i) Name the measurement technique used. (1 mark)
(ii) Identify the principles in 'call me only if packing goes beyond 15 minutes' and 'watch food hygiene above everything else'. (2 marks)
(iii) Identify the step and the action in the last line. (1 mark)

Try it first, then show the solutionSolution

(i) Sample checking (1 mark).
(ii) Management by exception; critical point control (1 + 1 marks).
(iii) Analysing deviations (cause found) and taking corrective action (training) (1 mark).

Answer: (i) Sample checking: random orders are checked rather than every order. (ii) 'Call me only if beyond 15 minutes': management by exception; 'watch food hygiene above everything else': critical point control, since hygiene is a key result area. (iii) The supervisor analysed the deviation (cause: untrained packers) and took corrective action (training), the fourth and fifth steps.

Where students lose marks in Process of Controlling

The slips examiners see most often, and what to write instead.

Mistake: Getting the order of steps wrong
Comparing and analysing are swapped.
Wrong working
Set standards, measure, analyse deviations, compare, correct.
Right working
Set standards, measure, compare, analyse deviations, correct.
Do this: S-M-C-A-C.
Usually costs: 1 mark.
Mistake: Reporting every deviation to top management
Ignores management by exception.
Wrong working
A 1.6% rise is reported to the board.
Right working
Only deviations beyond the permissible limit are reported.
Do this: Compare with the acceptable range first.
Usually costs: 1 mark.
Mistake: Wrong base in the deviation %
Dividing by actual instead of standard.
Wrong working
−120 ÷ 1,880 × 100 = −6.38%.
Right working
−120 ÷ 2,000 × 100 = −6%.
Do this: Always divide by the standard.
Usually costs: ½ to 1 mark.
Mistake: Corrective action not linked to cause
Generic answers.
Wrong working
Corrective action: improve performance.
Right working
Defective machinery → repair or replace; skill gap → training; unrealistic standard → revise.
Do this: Cause first, then action.
Usually costs: 1 mark.

Exam tips

The process of controlling (with critical point control and management by exception) is the most-asked controlling topic: 4 marks in the 2026-27 sample paper (Q27) and 2024-25 sample paper (Q28(B)), and 3 marks in the 2026 board paper 66/5/1 (Q23) and the 2023-24 sample paper (Q22(b)).
Put CPC and MBE under Step 4 in long answers; they are often asked separately as 1-mark items.
If figures are given, show the deviation % working; it earns a step mark.
Staffing, Directing and Controlling together carry 20 of the 80 theory marks in 2026-27.

Practice questions on Process of Controlling

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Checking a few pieces at random from a large production run is called:
(a) Personal observation
(b) Sample checking
(c) Performance report
(d) Critical point control
Hint
Random pieces.
Answer
(b) Sample checking
Q2 · 6 marks · Long answerBoard level
'Controlling is a systematic process.' Explain the steps involved, with an example from a school canteen. (6 marks)
Hint
S-M-C-A-C, with CPC and MBE in step 4.
Answer
(1) Setting performance standards: quantitative or qualitative benchmarks, precise and flexible. (2) Measurement of actual performance: objective, in the same units, by personal observation, sample checking or performance reports, during work where possible. (3) Comparing actual performance with standards to find deviations. (4) Analysing deviations: fix the acceptable range; use critical point control (focus on key result areas) and management by exception (only significant deviations reported); find causes. (5) Taking corrective action: none within limits; otherwise training, extra resources, repairs, or revising standards. Example: a canteen sets a standard of food waste under 3 kg a day, weighs waste daily, compares it with 3 kg, finds that cooking for absent students causes the excess, and starts taking a head count before cooking.
Q3 · 2 marks · Short answerBoard level
State any two advantages of management by exception. (2 marks)
Hint
Time, attention, delegation, critical problems.
Answer
Any two: saves managers' time and effort; focuses attention on important areas for better use of managerial talent; leaves routine problems to subordinates, facilitating delegation and raising morale; identifies critical problems needing timely action.
Q4 · 2 marks · Short answerHarder board level
A shop's monthly sales target is ₹40 lakh, with an acceptable shortfall of 5%. Actual sales are ₹37 lakh. Calculate the deviation % and say whether corrective action is needed. (2 marks)
Hint
(37 − 40) ÷ 40 × 100.
Answer
Deviation = (37 − 40) ÷ 40 × 100 = −7.5%. The shortfall of 7.5% exceeds the acceptable 5%, so it is significant and needs analysis of causes and corrective action.
Q5 · 3 marks · Short answerHarder board level
Distinguish between critical point control and management by exception. (3 marks)
Hint
Which areas vs how large.
Answer
Critical point control focuses control on key result areas (KRAs) critical to the organisation's success, because checking everything is neither economical nor easy. Management by exception holds that trying to control everything controls nothing, so only significant deviations beyond the permissible limit are brought to management's notice. CPC decides which areas to watch; MBE decides which deviations need management's attention.
Q6 · 3 marks · Short answerHarder board level
Why should standards be set in quantitative terms as far as possible? Give an example of making a qualitative standard measurable. (3 marks)
Hint
Easy comparison.
Answer
Quantitative standards make comparison with actual performance much easier and more objective. A qualitative standard such as 'customer satisfaction' in a self-service restaurant can be made measurable through waiting time for a table, time to place an order and time to collect it.
Q7 · 1 mark · Assertion-reasonHarder board level
Assertion (A): No corrective action is needed when deviations are within the acceptable range.
Reason (R): Some deviation in performance can be expected in all activities.
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Hint
Why fix an acceptable range?
Answer
(a) Both A and R are true and R is the correct explanation of A.
Q8 · 3 marks · Short answerHarder board level
A delivery firm's standard is 30 minutes per delivery; a delay of up to 5 minutes is acceptable. This week's average is 33 minutes. Find the deviation in minutes and as a percentage, and state what the manager should do. (3 marks)
Hint
Compare 3 minutes with the 5-minute limit.
Answer
Deviation = 33 − 30 = 3 minutes = 3 ÷ 30 × 100 = 10% above standard. Since the acceptable range is up to 5 minutes, the 3-minute delay is within limits; under management by exception, no corrective action or reporting to top management is needed, though the trend should be watched.
Q9 · 3 marks · Short answerHOTS / competency
In a factory, labour cost of ₹10,00,000 rose by 5% and postal charges of ₹20,000 rose by 15%. Calculate the rupee increase in each and explain which deserves more managerial attention, naming the principle. (3 marks)
Hint
Rupees and importance, not just percentages.
Answer
Labour cost rises by 5% of ₹10,00,000 = ₹50,000; postal charges by 15% of ₹20,000 = ₹3,000. Despite the smaller percentage, labour cost deserves more attention: it is a key result area where a rise affects the whole organisation. This is critical point control.
Q10 · 3 marks · Short answerHOTS / competency
Suppose a manager keeps missing a sales target despite training salespeople, adding staff and extending hours, and later finds that the target was based on a market survey from before a new competitor entered. What should the corrective action be? Explain with reference to the controlling process. (3 marks)
Hint
When managerial action cannot correct it.
Answer
The cause is an unrealistic standard, set before the environment changed. When a deviation cannot be corrected through managerial action, the standard itself should be revised. Standards must be flexible enough to be modified in a changed business environment; the revised target should reflect the competitor's entry.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Name the five steps of controlling.Show answer
Set standards, measure actual performance, compare, analyse deviations, take corrective action.
2.What are KRAs?Show answer
Key result areas, critical to the organisation's success; the focus of critical point control.
3.State the belief behind management by exception.Show answer
An attempt to control everything results in controlling nothing.
4.Name three techniques of measuring performance.Show answer
Personal observation, sample checking, performance reports.
5.What if a deviation cannot be corrected by managerial action?Show answer
Revise the standard.
6.Standard 500, actual 470: deviation %?Show answer
−6%.

Process of Controlling: frequently asked questions

What are the steps in the process of controlling?

Setting performance standards, measuring actual performance, comparing it with standards, analysing deviations and taking corrective action.

What is management by exception?

A control principle under which only significant deviations beyond the permissible limit are brought to management's notice, because trying to control everything results in controlling nothing.

What is critical point control?

Focusing control on key result areas, where something going wrong would hurt the whole organisation, instead of checking every activity.

How do you calculate a deviation?

Deviation = actual − standard; as a percentage, divide by the standard and multiply by 100. Then compare it with the acceptable range.