Management Control Systems

Introduction

Basic Concepts
Elements of a control system consists of: 1. A detector 2. An assessor 3. An effector 4. A communication networ

Elements of a control system

1.

A detector or sensor is a device that measure what is actually happening in the process being controlled. An assessor is a device that determines the significance of what is actually happening by comparing it with some standards or expectations of what should happen.

1.

Elements of a control system

3. An effector (feedback) is a device that alters behavior if the assessor indicates the need to do so. 4. A communications network consist of devices that transmit information between the detector and the assessor and between the assessor and the effector.

Example: You are driving a car

Detectors=

Your eyes Assessor= Your brain Effector= Your foot Communication network= Your nerves system

Example
Your

eyes (detectors) measure actual speed by observing the speedometer. brain (assessor) compares actual speed with desired speed (standard: the highest speed is 80 km/hour) to detect a deviation from standard.

Your

Example
Your

brain (assessor) directs your foot (effector) to ease up the accelerator if actual speed (90 km/hour) is faster than the standard speed (80 km/hour), press down the accelerator if the actual speed (70 km/hour) is slower than standard speed (80 km/hour). And, your nerves (communication network) form the communication system that transmits information from eyes (detectors) to brain (assessor) and brain (assessor) to foot (effector

Concept of Management Control

Ensure that Resources are mobilised and deployed efficiently and effectively. Methods and procedures adopted by management to provide reasonable assurance that available resources and assets are properly deployed and safe guarded against waste, mismanagement and frauds. Management control covers the administrative, accounting and financial management areas.

MANAGEMENT CONTROL DEFINED

Robert Anthony and Vijay Govindrajan: Management control is a process by which managers influence other members of the organization to implement the organization strategy. William Newman: Control one of the basic phases of managing, along with planning, organizing and leading. Control is an integral and essential art of the management process and all the managerial efforts of an organization.

CHARACTERISTICS OF MANAGEMENT CONTROL

Focuses on programs and responsibility centers. Relies on two types of information viz. planned data and actual data. Aims at assuring that all aspects are in balance and are operating in close co-ordination. Built around financial structures Follows a definite pattern and time schedule Co-coordinated and integrated to other sub systems

PROCESS OF MANAGEMENT CONTROL

Organizing

the process Segmenting the organization Risk assessments: Planning further activities Management control evaluations: Corrective actions Reporting:

FACTORS AFFECTING MANAGEMENT CONTROL

Identify

the key factors in the business operations Basis for establishing standards of performance such as budgets, standard cost Define the information required for measuring the performance Establishing a reporting system process of measuring may lack objectivity Management control specialists

MANAGEMENT CONTROL SYSTEMS

It

system refers to a framework by which the manager controls the actions of his subordinates and the entire operation of an organization. It facilitates target fixation, collection of information, comparison of actual with targets, identifying and reporting variations and initiating suitable action to ensure attainment of objectives.

NATURE OF MANAGEMENT CONTROLS

Focuses on those activities that facilitate attainment of targets of responsibilities centres. functions on the basis of two sets of information viz. planned data and actual data. Management Control System covers all functional aspects of a companys operation.

It is built around financial variables, although non-monetary variables are also taken in to consideration. It follows a definite pattern and sequence of activities. Management Control System is a coordinated and integrated system.

SCOPE OF MANAGEMENT CONTROL SYSTEM

Management

control system process involves communications and interactions in the form of memoranda meetings and conversations In addition it also includes the following Programs/Goals Budgeting Operating and Accounting Reporting and Analysis

ESSENTIALS OF A GOOD MANAGEMENT CONTROL SYSTEM

Effective

Planning Involvement of Top Management: Motivation of Employees: Establish proper communication mechanism:

Importance of a well structured control system

Control systems in an organization involve the following activities: i. Planning-decides what the organization should do ii. Coordinating the activities of the organization iii. Communicating information to different levels of the hierarchical structure iv. Evaluating information and deciding the action to be taken. v. Influencing people to change their behavior.

Boundaries of Management Control

Strategy

formulation is the process of deciding on the goals of the organization and the strategies for attaining these goals. Management control : is the process by which managers influence other members of organization to implement the organizations strategies. Task control is the process of ensuring that specified tasks are carried out effectively and efficiently.

Distinctions between strategy formulation and management control:

Characteristics System design Strategy Formulation Management Control Unsystematic, Strategic Rhythmic, decision may be made any predetermined time procedures Tailored-made to faced Integrated, more problems, more external andinternal and predictive, less accurate historical, more accurate Difficult

Nature of information

Communication Simple of information

Involved people Top management and staffs Top management and line managers

Distinctions between strategy formulation and management control:

Characteristics Strategy Formulation Management Control Many people Administrative and persuasive Social psychology Tend to short-term Strategy implementation Number of Few people involved people Mental activity Discipline Time horizon End products Creative and analytic Economics Tend to long-term Goals, strategies

Characteristics

Distinctions between Management Control and Task Control

Management Control

Task Control

Focus of activity The whole of operation Individual task or transaction Nature of information Integrated, many financial data Tailored-made to individual task, more non-financial data Supervisor or none Follow direction or none Tasks are carried out effectively and efficiently

Involved people Management Mental activity End products Administrative and persuasive Strategy implementation

Distinctions between Management Control and Task Control

Characteristics Mental activity Discipline Management Control Administrative and persuasive Social psychology Task Control Follow direction or none Economics, physics

Time horizon Type of cost

Weekly, monthly, annually Discretionary costs

Daily Engineered costs

Examples of decisions in planning and control function:

Strategy Formulation Management Control Task Control Schedule production Manage cash flows

Enter a new business Expand a plant Change debt to equity Issue new debt ratio Add direct mail selling Decide magnitude and direction of research

Determine advertising Book TV budget commercials Control of research organization Run individual research project

Acquire an unrelated Introduce new product Coordinate order business or brand within product entry line

Significance of human behaviour pattern in Management control.

Perception Attitudes and Beliefs Motivation Goal Congruence Inter-unit Conflict and Cooperation Managerial Styles Force Field Analysis Resistance to Change Entrapment Compromising and Sacrificing Socio-Cultural Influences