Management Control Systems

Management Control SystemsIntroduction

Basic ConceptsElements of a control system consists of:A detectorAn assessorAn effectorA communication networ

Elements of a control system

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.

Elements of a control system3. 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 carDetectors= Your eyesAssessor= Your brainEffector= Your footCommunication network= Your nerves system

ExampleYour eyes (detectors) measure actual speed by observing the speedometer.

Your brain (assessor) compares actual speed with desired speed (standard: the highest speed is 80 km/hour) to detect a deviation from standard.

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 ControlEnsure 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 DEFINEDRobert 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 CONTROLFocuses 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 scheduleCo-coordinated and integrated to other sub systems

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

FACTORS AFFECTING MANAGEMENT CONTROLIdentify 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 SYSTEMSIt 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 CONTROLSFocuses 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 SYSTEMManagement 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 AccountingReporting and Analysis

ESSENTIALS OF A GOOD MANAGEMENT CONTROL SYSTEMEffective 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 doii. Coordinating the activities of the organizationiii. Communicating information to different levels of the hierarchical structureiv. Evaluating information and deciding the action to be taken.v. Influencing people to change their behavior.

Boundaries of Management ControlStrategy 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:

CharacteristicsStrategy FormulationManagement ControlSystem designUnsystematic, Strategic decision may be made any timeRhythmic, predetermined proceduresNature of informationTailored-made to faced problems, more external and predictive, less accurateIntegrated, more internal and historical, more accurateCommunication of informationSimpleDifficultInvolved peopleTop management and staffsTop management and line managers

Distinctions between strategy formulation and management control:

CharacteristicsStrategy FormulationManagement ControlNumber of involved peopleFew peopleMany peopleMental activityCreative and analyticAdministrative and persuasiveDisciplineEconomicsSocial psychologyTime horizonTend to long-termTend to short-termEnd productsGoals, strategiesStrategy implementation

Distinctions between Management Control and Task Control

CharacteristicsManagement ControlTask ControlFocus of activityThe whole of operationIndividual task or transactionNature of informationIntegrated, many financial dataTailored-made to individual task, more non-financial dataInvolved peopleManagementSupervisor or noneMental activityAdministrative and persuasiveFollow direction or noneEnd productsStrategy implementationTasks are carried out effectively and efficiently

Distinctions between Management Control and Task Control

CharacteristicsManagement ControlTask ControlMental activityAdministrative and persuasiveFollow direction or noneDisciplineSocial psychologyEconomics, physicsTime horizonWeekly, monthly, annuallyDailyType of costDiscretionary costsEngineered costs

Examples of decisions in planning and control function:

Strategy FormulationManagement ControlTask ControlEnter a new businessExpand a plantSchedule productionChange debt to equity ratioIssue new debtManage cash flowsAdd direct mail sellingDetermine advertising budgetBook TV commercialsDecide magnitude and direction of researchControl of research organization Run individual research project Acquire an unrelated businessIntroduce new product or brand within product line Coordinate order entry

Significance of human behaviour pattern in Management control.PerceptionAttitudes and BeliefsMotivationGoal CongruenceInter-unit Conflict and CooperationManagerial StylesForce Field AnalysisResistance to ChangeEntrapmentCompromising and SacrificingSocio-Cultural Influences

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