Management Control Systems
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Transcript of Management Control Systems
Management Control Systems
Introduction
Basic Concepts
Elements of a control system consists of:1. A detector2. An assessor3. An effector4. 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.
1. 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 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.
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 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 company’s 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 organization’s 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 Strategy Formulation Management
ControlSystem design Unsystematic, Strategic
decision may be made any time
Rhythmic, predetermined procedures
Nature of information
Tailored-made to faced problems, more external and predictive, less accurate
Integrated, more internal and historical, more accurate
Communication of information
Simple Difficult
Involved people Top management and staffs
Top management and line managers
Distinctions between strategy formulation and management control:Characteristics Strategy Formulation Management
ControlNumber of involved people
Few people Many people
Mental activity Creative and analytic Administrative and persuasive
Discipline Economics Social psychology
Time horizon Tend to long-term Tend to short-term
End products Goals, strategies Strategy implementation
Distinctions between Management Control and Task ControlCharacteristics Management
ControlTask 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
Involved people Management Supervisor or none
Mental activity Administrative and persuasive
Follow direction or none
End products Strategy implementation
Tasks are carried out effectively and efficiently
Distinctions between Management Control and Task ControlCharacteristics Management
ControlTask Control
Mental activity Administrative and persuasive
Follow direction or none
Discipline Social psychology Economics, physics
Time horizon Weekly, monthly, annually
Daily
Type of cost Discretionary costs Engineered costs
Examples of decisions in planning and control function:
Strategy Formulation
Management Control
Task Control
Enter a new business
Expand a plant Schedule production
Change debt to equity ratio
Issue new debt Manage cash flows
Add direct mail selling
Determine advertising budget
Book TV commercials
Decide magnitude and direction of research
Control of research organization
Run individual research project
Acquire an unrelated business
Introduce new product or brand within product line
Coordinate order entry
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