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Planning and Controlling, Management by Exception

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CommerceISC Class 12 · Controlling

Planning and Controlling, and Management by Exception (ISC Class 12 Commerce)

Updated 18 October 2026 · Fact-checked

Planning and controlling are interdependent like the two blades of a pair of scissors: planning sets the standards and controlling checks performance against them and feeds back into new plans. Management by exception, or critical point control, means managers act only on significant deviations in key result areas, leaving routine matters to lower levels.

Plan and control feed each other like scissor blades; managers act only when performance leaves the acceptable range, the red point.

Illustration drawn for QuestionBuddy.

Understand Planning and Controlling, and Management by Exception

1. Planning and controlling are interrelated.

  • Planning is the basis of controlling: plans provide the standards against which performance is measured; without planning there is nothing to control.
  • Controlling makes planning effective: without controlling, plans may not be followed and deviations go unnoticed.
  • Looking ahead and looking back: planning looks ahead and controlling looks back, but controlling also looks forward by feeding information back to revise plans.
  • Both aim at achieving goals.

They form a cycle: plan, act, control, re-plan. The usual image is the two blades of a pair of scissors.

2. Differences to remember. Planning decides what ought to be; controlling checks what is. Planning is the first function; controlling is the last. Yet neither works alone.

3. Management by exception (critical point control). Managers should not try to control everything. Only significant deviations beyond an acceptable range are reported to and acted upon by higher management; routine and minor deviations are handled at lower levels.

*Advantages*

  • Saves the time and effort of managers for important issues.
  • Focuses attention on critical problems.
  • Facilitates delegation of routine matters.
  • Timely action on serious problems.
  • Better use of managerial talent.

4. Critical point control. Concentration on the key result areas (KRAs) critical to success, such as cost, quality and delivery time.

5. Applying the rule (imaginary). Standard cost per unit is Rs 80 with an acceptable deviation of 5% (Rs 4). Actual costs: Rs 82 (deviation 2, i.e. 2.5%), Rs 90 (deviation 10, i.e. 12.5%). The first is within range and handled routinely; the second exceeds Rs 84 and goes to top management.

6. Cautions. Management by exception works only if standards are clear and the acceptable range is fixed in advance. Too wide a range may hide trouble; too narrow a range floods top managers with reports.

Planning and Controlling, and Management by Exception: key facts

Planning and controlling
  • Plan sets standards
  • Control checks
  • Feedback revises plan
Cycle.
Exception rule
Within range: routine | Beyond range: report to higher management
Critical deviations only.
Key result areas
  • Cost
  • Quality
  • Delivery time
Critical point control.

How to answer Planning and Controlling, and Management by Exception questions

Questions ask for the relationship between planning and controlling, or apply management by exception to figures.

  1. 1For the relationship, state that planning gives standards and controlling checks and feeds back.
  2. 2For exception questions, compute the permitted limit from the acceptable percentage.
  3. 3Decide which deviations go to top management and which stay with lower levels.
  4. 4Mention the benefit: saved time and better focus.

Planning and Controlling, and Management by Exception 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.

Two blades of scissors

Suppose a school sets a plan that 90% of students must submit homework each week but never checks the figures.

What goes wrong and what does this show?

Try it first, then show the solutionSolution
  1. Without controlling, deviations go unnoticed and the plan is not followed.
  2. Planning without control does not ensure results.

Answer: Controlling is needed to make the plan effective.

Memory hook: A plan unchecked is a plan unfinished.

Management by exception

Imagine a store manager receives daily reports only for items whose sales differ from the plan by more than 10%, instead of a report on every item.

Which principle is applied and what is gained?

Try it first, then show the solutionSolution
  1. Only significant deviations are reported.
  2. The manager saves time for critical problems.

Answer: Management by exception; time saved and focus on critical issues.

Memory hook: Only the exceptions travel upward.

Tricks to remember Planning and Controlling, and Management by Exception

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

  • Scissors

    Planning and controlling are two blades; neither cuts alone.

    Use it when: Relationship question.

  • Exception = Excess only

    Only deviations in excess of the acceptable range go up.

    Use it when: Management by exception.

Planning and Controlling, and Management by Exception: solved examples

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

Example 1: Identify the principle · 1 mark · MCQBoard level

A manager reviews only those departments whose expenses exceed the budget by more than 8%. This is an application of:
(a) planning premises
(b) management by exception
(c) delegation of authority
(d) span of control

Try it first, then show the solutionSolution
  1. Only significant deviations get attention.

Answer: (b)

Example 2: Planning and controlling · 2 marks · Short answerBoard level

Explain how planning provides the basis for controlling and how controlling helps planning.

Try it first, then show the solutionSolution
  1. Planning sets the objectives and standards against which actual performance is measured.
  2. Controlling reveals deviations and feeds information back so that future plans can be revised.

Answer: Plans give standards; control gives feedback for new plans.

Example 3: Apply exception · 4 marks · Short answerHarder board level

Standard cost per unit is Rs 80 with an acceptable deviation of 5%. Actual costs in three departments are Rs 82, Rs 90 and Rs 78. Calculate the permitted maximum, state which should reach top management, and the percentage deviation for it.

Try it first, then show the solutionSolution
  1. 5% of 80 = 4, so the maximum is 80 + 4 = Rs 84.
  2. Rs 82 and Rs 78 are within the limit (Rs 78 is below standard).
  3. Rs 90 exceeds Rs 84: deviation = 10, i.e. 10 / 80 x 100 = 12.5%.
  4. Only that department's deviation goes to top management.

Answer: Limit Rs 84; only Rs 90 (12.5% over) is reported.

Example 4: Why neither works alone · 4 marks · Short answerHarder board level

Suppose firm A prepares detailed annual plans but never compares results, while firm B checks performance carefully but has set no clear targets. Explain the problem in each firm using the relationship between planning and controlling.

Try it first, then show the solutionSolution
  1. Firm A: planning without controlling; deviations go unnoticed, and plans may not be followed.
  2. Firm B: controlling without planning; there are no standards against which to measure, so nothing can be controlled.
  3. Each function depends on the other, like two blades of a pair of scissors.
  4. Together they form a cycle of planning, action, control and re-planning.

Answer: A lacks control, B lacks standards; they are interdependent.

Example 5: Design a reporting system · 8 marks · Long answerHOTS / competency

Suppose a company with 60 departments wants its chief executive to see only what matters. Propose a reporting system based on management by exception and critical point control, covering the key result areas, the acceptable ranges, who handles what, and benefits and one risk.

Try it first, then show the solutionSolution
  1. Identify key result areas such as cost, quality and delivery time for critical point control.
  2. Set a standard and an acceptable range for each area, for example cost within 5% of standard.
  3. Departments handle deviations within the range and routine matters themselves.
  4. Only deviations beyond the range are reported to the chief executive for action.
  5. Benefits: saves managers' time, focuses on critical problems, facilitates delegation and gives timely action.
  6. Risk: a very wide range may hide trouble, while a very narrow range floods top management with reports.
  7. Review the ranges regularly; controlling feedback also improves future plans.

Answer: KRAs, ranges, reporting only of exceptions, benefits, and the risk of a wrongly set range.

Where students lose marks in Planning and Controlling, and Management by Exception

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

  • Mistake: Treating planning and controlling as opposites

    They are interdependent.

    Wrong working

    Planning and controlling are separate and unrelated.

    Right working

    They are interdependent like two blades of scissors: planning gives standards and controlling checks and feeds back.

    Do this: Cycle of plan and control.

    Usually costs: 1-2 marks.

  • Mistake: Reporting every deviation under management by exception

    Only significant ones go up.

    Wrong working

    All deviations are reported to top management.

    Right working

    Only deviations beyond the acceptable range are reported.

    Do this: Check the range.

    Usually costs: 1 mark.

  • Mistake: Computing the limit from the actual value

    The range is a percentage of the standard.

    Wrong working

    5% of 82 = 4.1.

    Right working

    5% of the standard 80 = 4, limit Rs 84.

    Do this: Use the standard.

    Usually costs: 1-2 marks.

Exam tips

  • Use the scissors image in the relationship answer.
  • Mention feedback for revising plans.
  • In exception questions show the limit calculation.
  • Name key result areas for critical point control.

Practice questions on Planning and Controlling, and Management by Exception

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

  1. Q1 · 1 mark · Very short answerBoard level

    Another name for management by exception is:

    Hint

    Key areas.

    Answer

    Critical point control.

  2. Q2 · 2 marks · Short answerBoard level

    State two advantages of management by exception.

    Hint

    Time and focus.

    Answer

    It saves managers' time and effort and focuses attention on critical problems (also facilitates delegation, timely action, better use of talent).

  3. Q3 · 2 marks · Short answerHarder board level

    Why is planning called the basis of controlling?

    Hint

    Standards.

    Answer

    Plans provide the standards against which actual performance is measured; without plans there would be nothing to compare with, so no control would be possible.

  4. Q4 · 4 marks · Short answerHarder board level

    A company's acceptable deviation in monthly sales is 6%. Standard sales are Rs 5,00,000; actual sales over three months are Rs 4,85,000, Rs 4,60,000 and Rs 4,75,000. Which months go to top management, with percentage deviations?

    Hint

    Find the lower limit.

    Answer

    6% of 5,00,000 = 30,000, so the lower limit is Rs 4,70,000. Rs 4,85,000 (3%) and Rs 4,75,000 (5%) are within range. Rs 4,60,000 is below the limit: deviation 40,000, which is 8%, so only that month is reported.

  5. Q5 · 4 marks · Short answerHOTS / competency

    A manager says, 'We should check every activity every day, because any deviation could be serious.' Evaluate with management by exception.

    Hint

    Cost of checking everything.

    Answer

    Checking everything is costly and takes managers' time from important matters. Management by exception sets acceptable ranges and key result areas so that only significant deviations reach higher management, leaving routine matters to lower levels, with timely action on serious problems.

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. 1.What does planning provide controlling?Show answer

    Standards.

  2. 2.What does controlling give back to planning?Show answer

    Feedback to revise plans.

  3. 3.Name two key result areas.Show answer

    Cost, quality or delivery time.

  4. 4.Who handles minor deviations?Show answer

    Lower levels of management.

Planning and Controlling, and Management by Exception: frequently asked questions

Which function is first and which is last?

Planning is first and controlling is the last, but they form a cycle.

Can the acceptable range differ by area?

Yes, ranges are set according to the importance of each key result area.

Does exception mean ignoring small problems?

They are handled at lower levels, not ignored.