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Nature of Management Control System: Dr. Aayat Fatima

The document discusses the nature and components of management control systems. It defines management control as influencing other managers to implement strategies through planning, coordination, communication, evaluation, and decision making. A management control system involves setting goals and standards, measuring performance, and correcting deviations to influence employee behavior and evaluate performance in working toward organizational strategies. The key components of a management control system are specifying goals and objectives, establishing responsibility centers, developing performance measures, and measuring and reporting on financial and non-financial performance.

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57 views18 pages

Nature of Management Control System: Dr. Aayat Fatima

The document discusses the nature and components of management control systems. It defines management control as influencing other managers to implement strategies through planning, coordination, communication, evaluation, and decision making. A management control system involves setting goals and standards, measuring performance, and correcting deviations to influence employee behavior and evaluate performance in working toward organizational strategies. The key components of a management control system are specifying goals and objectives, establishing responsibility centers, developing performance measures, and measuring and reporting on financial and non-financial performance.

Uploaded by

Kashif Trading
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Nature

of
Management Control
System

Dr. Aayat Fatima


Introduction

 Emergence / Development of Strategy

 Execution or implementation of strategy


Basic Concepts:

Control
Elements of a control system:
 A detector

 An assessor

 An effector

 A communication network

Steps in control process:


 Setting standards

 Measuring performance

 Correction of deviation
System:

 Prescribed and usually a repetitious way of carrying out an activity or a set of


activities.

 Rhythmic, Coordinated and recurring series of steps intended to accomplish a


specific purpose.
Management:

 Common goal

 Management control Different from normal control


 Standard is not preset, but a result of a conscious planning process.
Involves both planning and control

 Not automatic

 Requires coordination among individuals

 Action is not mechanical or fixed


Boundaries of Management Control
 Systematic :
 Least - SF
 Most - TC
 In between - MC
 Focus on activities :
 Long run - SF
 Short run – TC
 In between – MC
 Uses:
 Rough approximates of the future – SF
 Current Accurate data – TC
 In between – MC
 Each activity involves planning and control, emphasis different:
 Planning more imp – SF
 Control more imp – TC
 Both equally imp - MC
Management Control:

 Ensuring that the necessary resources are mobilized and are deployed
effectively so that the planned objectives are met without much
difficulty.

 It is a process by which the managers influence other members of the


organization to implement the organization's strategies.

 The management control process is the process by which managers at all


levels ensure that the people they supervise implement their intended
strategies.
 Activities in Management Control
 Planning what the organization should do

 Coordinating the activities of several parts of the organization

 Communicating information

 Evaluating information

 Deciding what, if any, action should be taken

 Influencing people to change their behavior

 Goal congruence:
 Consistency of goals of individuals with that of organization itself.
Tools for implementing strategy
 Organizational structure specifies the roles, reporting relationships and division of
responsibilities that shape decision making within organization.

 HRM is the selection, training, evaluation, promotion and termination of employees

 Culture refers to the set of common beliefs, attitudes and norms that explicitly or
implicitly guide managerial actions.

 Financial and non-financial emphasis


 Management control system encompass the financial dimension that focuses on
the monetary “bottom line”- net income, return on equity etc,

 Non financial objectives- product quality, market share, customer satisfaction,


employee morale etc.
Strategy formulation :
 It is the process of deciding on the goals of the organization and the strategies for
attaining these goals

 Strategies state a direction in which senior management wants the organization to


move.

 Strategy is an art or science of defining means by which an organization will deliver


value to its customers (or shareholders)

 It is the discipline of choosing between equally attractive alternatives.

 It is a process that senior executives use to evaluate a company’s strengths and


weaknesses in light of the opportunities and threats present in the environment and
then to decide on strategies that fit the company’s core competencies with
environmental opportunities.
 All strategic planning deals with at least one of three key questions:

 “What do we do?”

 “For whom do we do it?”

 “How do we excel?”

 Strategies can be found at two levels:

 Strategies for whole organization

 Strategies for business units within the organization.


Strategy formulation
and
Management Control

 SF is the process of deciding on new strategies, MC is the process of


implementing those strategies.

 In SF threats, opportunities and new ideas do not occur at regular intervals,


thus strategic decisions may be made at any time.

 MC process involves managers and their staffs at all levels in the organization
whereas, analysis of a proposed strategy usually involves very few people.
Mostly senior management.
Task control

 Process of ensuring that specified tasks are carried out effectively and efficiently.

 Seeing if rules are followed

 The four paradigms:

 Adaptability,

 Integration across organization,

 Optimal mix of control and coordination, and

 Reinforcing cooperative instincts.


 Distinctions between task control and management control:

 Many TC systems are scientific, MC involves behavior of managers and this cannot be
expressed by equations

 In MC, managers interact with other managers. In TC, either human beings are not
involved at all or an interaction is between a manager and a non-manager.

 In MC, the focus is on organizational units, in TC the focus is on specific tasks


performed by these organizational units.

 MC is concerned with the broadly defined activities of managers deciding what is to be


done within the general constraints of strategies. TC relates to specified tasks, most
of which require little or no judgment to perform
Management Control System
 Management control systems (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.

 MCS influences the behavior of organizational resources to implement organizational strategies.

 Management control systems are tools to aid management for steering an organization toward its

strategic objectives.

 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

 It is like a black box whose exact nature cannot be observed. MCS involves the behavior of

managers and these behaviors cannot be expressed by equations


 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.

 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.

 According to Maciariello et al. (1994), management control is concerned with


coordination, resource allocation, motivation, and performance measurement.
Purpose of MCS

 clearly communicate the organization’s goals

 ensure that every manager and employee understands the specific actions
required of him/her to achieve organizational goals

 communicate the results of actions across the organization

 ensure that the management control system adjusts to changes in the


environment
Management Control System
Steps
1. Begin by specifying the organization's goals, subgoals and objectives
 Goals are what the organization hopes to achieve in the long run

 Subgoals or key success factors are more specific and provide more focus to guide daily actions

 Objectives are specific benchmarks which management would like to see achieved

 Important to keep all three in balance to avoid concentrating solely on short-run achievements
at the expense of long run goals

2. Establish responsibility centers

3. Develop performance measures

4. Measure and report on financial performance

5. Measure and report on non-financial performance

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