Step 1: Understanding the Concept:
The controlling process begins with the Establishment of Standards.
A standard is a criterion against which actual performance is measured.
It serves as a "yardstick" or a "goalpost" for the organization and its employees.
Standards can be quantitative (e.g., selling 100 units) or qualitative (e.g., improving customer satisfaction ratings).
Step 2: Detailed Explanation:
Setting standards is crucial for the following reasons:
1. Direction: Standards tell employees what is expected of them. Without a target, effort is aimless.
2. Measurement Basis: You can only judge if performance is good or bad if you have a benchmark.
3. Motivation: Clear, achievable benchmarks act as a motivator for employees to push their boundaries.
4. Corrective Action: When actual performance is compared to these benchmarks, "deviations" are found. This allows managers to step in and fix problems.
Why other options are incorrect:
- (A) Training: Standards do not eliminate the need for training; in fact, if people consistently fail to meet standards, it highlights a need for training.
- (C) External Factors: Setting internal standards cannot control external factors like government policy or competitor behavior. It can only help the firm react to them.
- (D) No Deviations: Standards do not guarantee that no errors will happen. They only provide a way to detect errors after they occur.
Step 3: Final Answer:
The primary purpose of performance standards is to act as benchmarks. They represent the "ideal" performance level that the organization aims to reach.