Management control system

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A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. Finally, MCS influences the behavior of organizational resources to implement organizational strategies. MCS might be formal or informal. The term management control was given of its current connotations by Robert N. Anthony (Otley, 1994).[1] Robert N. Anthony (2007) defined Management Control as the process by which managers influence other members of the organization to implement the organizations strategies. Management control systems are tools to aid management for steering an organization toward its strategic objectives and competitive advantage. Management controls are only one of the tools which managers use in implementing desired strategies. However strategies get implemented through management controls, organizational structure, human resources management and culture.[2]Anthony & Young (1999) showed management control system as a black box. The term black box is used to describe an operation whose exact nature cannot be observed. MCS involves the behavior of managers and these behaviors cannot be expressed by equations. Anthony & Young (1999) showed that management accounting has three major subdivisions: full cost accounting, differential accounting and management control or responsibility accounting.[3] According to Horngren et al. (2005), management control system is an integrated technique for collecting and using information to motivate employee behavior and to evaluate performance.[4]According to Simons (1995), Management Control Systems are the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities [5] Chenhall (2003) mentioned that the terms management accounting (MA), management accounting systems (MAS), management control systems (MCS), and organizational controls (OC) are sometimes used interchangeably. In this case, MA refers to a collection of practices such as budgeting or product costing. But MAS refers to the systematic use of MA to achieve some goal and MCS is a broader term that encompasses MAS and also includes other controls such as personal or clan controls. Finally OC is sometimes used to refer to controls built into activities and processes such as statistical quality control, just-in-time management.[6]

Q.1) Explain briefly features of an IDEAL management control system?

Management control is a process of assuming that resources are obtained and used effectively and efficiently in the accomplishment of the organizations objectives. It is a fundamental necessity for the success of a business and hence from time to time the current performance of the various operations is compared to a predetermined standard or ideal performance and in case of variance remedial measures are adopted to confirm operations to set plan or policy. Some of the features of MANAGEMENT CONTROL SYSTEM are as follows: Total System: MANAGEMENT CONTROL SYSTEM is an overall process of the enterprise which aims to fit together the separate plans for various segments as to assure that each harmonizes with the others and that the aggregate effect of all of them on the whole enterprise is satisfactory.

Monetary Standard: MANAGEMENT CONTROL SYSTEM is built around a financial structure and all the resources and outputs are expressed in terms of money. The results of each responsibility centre in respect to production and resources are expressed in terms of a common denominator of money.

Definite pattern: It follows a definite pattern and time table. The whole operational activity is regular and rhythmic. It is a continuous process even if the plans are changed in the light of experience or technology.

Coordinated System: It is a fully coordinated and integrated system. Emphasis: Management control requires emphasis both on the search for planning as well as control. Both should go hand in hand to achieve the best results.

Function of every manager: Manager at every level as to focus towards future operational and accounting data, taking into consideration past performance, present trends and anticipated economic and technological changes. The nature, scope and level of control will be governed by the level of manager exercising it.

Existence of goals and plans: MANAGEMENT CONTROL SYSTEM is not possible without predetermined goals and plans. These two provide a link between such future anticipations and actual performance. Forward looking: MANAGEMENT CONTROL SYSTEM is on the basis of evaluation of past performance that the future plans or guidelines can be laid down. Management Control involves managing the overall activity of the enterprise for the future. It prevents deviations in operational goals.

Continuous process: It is a continuous process over the human and material resources. It demands vigilance at every step. Deciding, planning and regulating the activities of people associated in the common task of attaining the objectives of the organization is a the primary aim of MANAGEMENT CONTROL SYSTEM.

People oriented: It is the managers, engineers and operators which implement the ideas and objectives of the management. The coordination of the main division of an organization helps in smoother operations and less friction which results in the achievement of the predetermined objectives.

Control system
From Wikipedia, the free encyclopedia

For other uses, see Control system (disambiguation).

A control system is a device, or set of devices to manage, command, direct or regulate the behavior of other device(s) or system(s). Industrial control systems are used in industrial production. There are two common classes of control systems, with many variations and combinations: logic or sequential controls, and feedback or linear controls. There is also fuzzy logic, which attempts to combine some of the design simplicity of logic with the utility of linear control. Some devices or systems are inherently not controllable.

Overview

A basic feedback loop

The term "control system" may be applied to the essentially manual controls that allow an operator, for example, to close and open a hydraulic press, perhaps including logic so that it cannot be moved unless safety guards are in place. An automatic sequential control system may trigger a series of mechanical actuators in the correct sequence to perform a task. For example various electric and pneumatic transducers may fold and glue a cardboard box, fill it with product and then seal it in an automatic packaging machine.Programmable logic controllers are used in many cases such as this, but several alternative technologies exist.

In the case of linear feedback systems, a control loop, including sensors, control algorithms and actuators, is arranged in such a fashion as to try to regulate a variable at a setpoint or reference value. An example of this may increase the fuel supply to a furnace when a measured temperature drops.PID controllers are common and effective in cases such as this. Control systems that include some sensing of the results they are trying to achieve are making use of feedback and so can, to some extent, adapt to varying circumstances. Open-loop control systems do not make use of feedback, and run only in prearranged ways.

PROCESS
The essential elements of any control process are Establishment of Standards Measurement Comparing performance with the standards Taking corrective actions Establishment of Standards is the first step in control process. Standards represent criteria for performance. A standard acts as reference line or a basis of appraisal of actual performance. Standards should be set precisely and preferable in quantitative terms. Setting standard is closely linked and is and integral part of the planning process. Standards are used or bench marks by which performance is measured in the control operations at the planning stage, planning is the basis of control. Measurement of Performance After establishing the standards, the second step is to measure actual performance of various individuals, groups or units. Management should not depend upon the guess that standards are being met measurement of performance against standards should ideally be done on a forward looking basis so that deviations may be detected in advance of their occurrence and avoided by appropriate actions. Comparing Performance with Standards Appraisal of performance or comparing of actual performance with pre-determined standards is an important step in control process. Comparison is easy where standards have been set in quantitative terms as in production and marketing. In other cases, where results are intangible and cannot be measured quantitatively direct personal observations, inspection and reports are few methods which can be used for evaluation. The evaluation will reveal some deviations from the set standards. The evaluator should point out defect or deficiencies in performance and investigate the causes responsible for these. Taking Corrective Actions Managers should know exactly where in the assignment ofindividual or group duties, the corrective action must be applied. Managers may correct deviations by redrawing their plans or by modifying their goals. Or they may correct deviations by exercising their organizing functions through reassignment or clarification of duties. They may correct, also, by additional stapling or better selection and training of subordinates.

Strategy
From Wikipedia, the free encyclopedia

For other uses, see Strategy (disambiguation). Strategy (Greek "" - stratgia, "art of troop leader; office of general, command, generalship"[1]) is a general, undetailed plan of action, encompassing a long period of time, to achieve a complicated goal. Strategy, as a way of action, becomes necessary in a situation when, for the direct achievement of the main goal, the available resources are not enough. The task of strategy is an efficient use of the available resources for the achievement of the main goal. Tactics is the tool to implement strategy, and is subordinated to the main goal of strategy. Detailing it further, strategy is all about gaining (or being prepared to gain) a position of advantage over adversaries or best exploiting emerging possibilities. As there is always an element of uncertainty about the future, strategy is more about a set of options ("strategic choices") than a fixed plan. Henry Mintzberg from McGill University defined strategy as "a pattern in a stream of decisions" to contrast with a view of strategy as planning [2]while Max Mckeown (2011) argues that "strategy is about shaping the future" and is the human attempt to get to "desirable ends with available means".

Steps
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order. 1. Setting Organizations objectives - The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives. While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions. 2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors strengths and weaknesses. After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to discover probable opportunities of threats to its market or supply sources.

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Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

Elements
The elements of control
The four basic elements in a control system (1) the characteristic or condition to be controlled (2) the sensor (3) the comparator (4) the activator occur in the same sequence and maintain a consistent relationship to each other in every system.
[3]

The first element is the characteristic or condition of the operating system which is to be measured. We select a specific characteristic because a correlation exists between it and how thesystem is performing. The characteristic can be the output of the system during any stage of processing or it may be a condition that is the result of the system. For example, it may be the heat energy produced by the furnace or the temperature in the room which has changed because of the heat generated by the furnace. In an elementary school system, the hours a teacher works or the gain in knowledge demonstrated by the students on a national examination are examples of characteristics that may be selected for measurement, or control. The second element of control, the sensor, is a means for measuring the characteristic or condition. For example, in a home heating system this device would be the thermostat, and in a quality-control system this measurement might be performed by a visual inspection of the product. The third element of control, the comparator, determines the need for correction by comparing what is occurring with what has been planned. Some deviation from plan is usual and expected, but when variations are beyond those considered acceptable, corrective action is required. It involves a sort of preventative action which indicates that good control is being achieved. The fourth element of control, the activator, is the corrective action taken to return the system to expected output. The actual person, device, or method used to direct corrective inputs into the operating system may take a variety of forms. It may be a hydraulic controller positioned by a solenoid or electric motor in response to an electronic error signal, an employee directed to rework the parts that failed to pass quality

inspection, or a school principal who decides to buy additional books to provide for an increased number of students. As long as a plan is performed within allowable limits, corrective action is not necessary; however, this seldom occurs in practice. Information is the medium of control, because the flow of sensory data and later the flow of corrective information allow a characteristic or condition of the system to be controlled. To illustrate how information [4] flow facilitates control, let us review the elements of control in the context of information.

Effective c s
Effective Organizational Control Systems
The management of any organization must develop a control system tailored to its organization's goals and resources. Effective control systems share several common characteristics. These characteristics are as follows:

A focus on critical points. For example, controls are applied where failure cannot be tolerated or where costs cannot exceed a certain amount. The critical points include all the areas of an organization's operations that directly affect the success of its key operations. Integration into established processes. Controls must function harmoniously within these processes and should not bottleneck operations. Acceptance by employees. Employee involvement in the design of controls can increase acceptance. Availability of information when needed. Deadlines, time needed to complete the project, costs associated with the project, and priority needs are apparent in these criteria. Costs are frequently attributed to time shortcomings or failures. Economic feasibility. Effective control systems answer questions such as, How much does it cost? What will it save? or What are the returns on the investment? In short, comparison of the costs to the benefits ensures that the benefits of controls outweigh the costs. Accuracy. Effective control systems provide factual information that's useful, reliable, valid, and consistent. Comprehensibility. Controls must be simple and easy to understand.