management control systems introduction 1

THE MANAGEMENT THE MANAGEMENT CONTROL SYSTEMS (CONTROL SYSTEMS (MCSMCS))

P. GURU PRASADP. GURU PRASAD

FACULTY MEMBER FOR FACULTY MEMBER FOR FINANCE AND ACCOUNTSFINANCE AND ACCOUNTS

THE MANAGEMENT CONTROL THE MANAGEMENT CONTROL SYSTEMS (SYSTEMS (MCSMCS))

• In the management parlance , control traditionally refers to the activities of establishing standards of performance, evaluating actual performance against these standards, and implementing corrective actions to accomplish organizational objectives

The nature of MCSThe nature of MCS

• The central focus of MCS is Business Strategy Implementation.

• MCS provides knowledge , insight, and analytical skills related to how a corporation’s senior executive design and implement the on going management systems that are used to plan and control the firms performance

The elements of MCSThe elements of MCS

• Elements of MCS include

• Strategic Planning,

• Budgeting,

• Resource Allocation ,

• Performance Measurement,

• Evaluation, And Rewards,

• Responsibility Centers, Transfer Pricing

Concepts of MCSConcepts of MCS

• The MCS builds on concepts from

• Business Strategy,

• Organizational Behavior,

• Human Resource and

• Financial & Managerial Accounting.

Collapse Of CompaniesCollapse Of Companies

• Consider the collapse of companies such as World Com, Enron and Global Crossings. Part of their demise was the lapse in controls. CEO and Top management compensation in these companies was so heavily tied to stock options that executives were motivated to manipulate financials to buoy the short term stock price

World-Class CompaniesWorld-Class Companies

• Consider the world-class companies such as 3M corporation, Dell Computers, Wal-Mart, South west Airlines. Their long term success is not just because they have developed good strategies, but more importantly, they have designed systems and processes that energize their employees to execute those strategies effectively

Control System of A CarControl System of A Car

• Press the accelerator , and your car goes faster, rotate the steering wheel, and it changes direction. Press the brake pedal, and the car slows or stops. With these devices, you control speed and direction, if any of them is inoperative, the car does not do what you want it to . In other words, it is out of control

Control of an OrganizationControl of an Organization

• An organization must also be controlled. That is devices must be in place to ensure that its strategic intentions are achieved. But controlling an organization is much complicated than controlling a car

Elements of Control SystemElements of Control System

• Every control system has at least four elements

1.Detector or Sensor – a device that measures what is actually happening in the process being controlled.

2.An Assessor – a device that determines the significance of what is actually happening by comparing it with some standard or expectation of what should happen

Elements of Control SystemElements of Control System

3.An effectors – a device that alters behavior if the assessor indicates the need to do so.

4. A communications network – a device that transmit information between the detector and the assessor and between the assessor and the effectors

The Three examples of CSThe Three examples of CS

1. Thermostat

2. Body Temperature

3. Driver of an automobile

ThermostatThermostat

1. Thermometer which measures the current temperature of a room (detector)

2. An Assessor which compares the current temperature with the accepted standard for what the temperature should be.

ThermostatThermostat

3.An effectors which prompts a furnace to emit heat or activates an air conditioner which also shuts off these appliances when the temperature reaches the standard levels

4. A communication network, which transmit information from thermometer to the assessor and from the assessor to the heating or cooling element

Body temperatureBody temperature

1. The sensory nerves scattered through the body

2. The Hypothalamus center in the brain, which compares information received from detectors with the 98.6 f standard.

3. The muscles and organs (effectors) that reduce the temperature when it exceeds the standard and rise the temperature when it falls below the standard

Body temperatureBody temperature

4. The overall communications system of nerves is self regulating. If the system is functioning properly, it automatically corrects for deviations from the standards with out requiring conscious effort.

Automobile DriverAutomobile Driver

• Assume you are driving on a high way where the legal speed 65 kmph. Your control system acts as the following.

1. your eyes measures actual speed by observing the speedometer.

2. your brain compares the actual speed with desired speed, and, upon detecting a deviation from the standard.

Automobile DriverAutomobile Driver

3. Directors your foot to ease up or press down on the accelerator.

4. As in body temperature regulation your nerves form the communication system that transmit information from eyes to brain and brain to foot.

ManagementManagement

• An organization consist of a group of people who work together to achieve certain common goals. The CEO decides on the overall strategies that will enable the organization to meet its goals.

• Subject to the approval of the CEO , the various business unit mangers formulate additional strategies that will enable their respective units to further these goals

ManagementManagement

• The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.

systemssystems

• A system is a prescribed and usually repetitious way of carrying out an activity or a set of activities. Systems are characterized more or less rhythmic, coordinated, and recurring series of steps intended to accomplish a specified purpose.

ControlControl

• Management control is the process by which managers influence other members of the organization to implement the organization’s strategies. It includes

• Planning• Coordinating• Communicating• Evaluating• Deciding • Influencing

Thank youThank you• Wise men talk because they have

something to say; Fools also talk, because they have to say something.

• God grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.