NATURE OF MANAGEMENT CONTROL SYSTEMS

Basic Concepts

Control: Just as one controls the speed and direction of a car with different devices it is necessary to control an organization Devices should be in place to ensure that strategic intentions are achieved Elements of control system:
or sensor to measure actual behavior (eyes) Assessor compare actual with standard (brain) Effector called feedback, it alters behavior if assessor indicates need to do so (foot) Communications network transmit information between detector and assessor & assessor and Effector (nerves).
Detector

Management
Organizations

are led by hierarchy of managers with CEO at

the top. CEO or team of senior managers decides on overall strategies that enable the organization to meet its goals. Management control process is the process where managers at all levels ensure that the people they supervise implement their intended strategies.
Contrast
Detector

with simpler control process:

reports what is happening throughout the organization

Assessor
Effector

compares this information with desired state

takes corrective action (as actual deviates from standard)

Communication system tells manager what is happening.

System

It is a prescribed and usually repetitious way of carrying out an activity or set of activities Here, more or less routine decisions are taken for which recurring series of steps are available Management control systems: far more complex & judgemental rules are not well-defined managers have to use their best judgement to decide on best course of action

Management Control Process v/s Simple Process

Standard is not preset (like speed limit on highway) Management control is not automatic. Management control requires coordination among individuals. Connection from perceiving the need for action to determining the action required to obtain the desired result may not be clear. E.g. High costs ways/action sort to reduce it not known. Much management control is self-control not only by external device but by managers.

Management Control
Boundaries

of Management Control. Strategy Formulation Management Control Task Control It is the process by which managers influence other members of the organization to implement organizational strategies. Its activities include:

planning coordinating communicating

evaluating
deciding influencing

Goal Congruence the goals of members should be consistent with the organization.

Tool for implementing strategy

MC

is one of the tool for strategy implementation. Primary role is to ensure the execution of chosen strategies.

Management Controls Strategy Organization Structure HRM Culture Performance

Management Control

Financial and non-financial emphasis financial bottom-line of the company non-financial parameters like product quality, market share, customer satisfaction etc. Aid in developing new strategies: Interactive control focuses management attention on positive and negative developments, which signal the need for new strategy formation information of non-financial nature is used to make strategic decisions

Strategy Formulation

It is the process of deciding on goals of the organisation and the strategies for attaining those goals Strategies are important, big plans, showing the direction in which senior management wanted the organisation to move Need for formulating strategies usually arises in response to a perceived threat or opportunity Complete responsibility should never be assigned to a particular person or organisational unit

Strategy Formulation v/s Management Control

Definition Strategy formulation is essentially unsystematic while management control is systematic Strategy formulation involves much judgement and numbers are usually rough estimates while management control has a series of steps in a predictable sequence and with reliable estimates Strategy formulation involves relatively few people, while management control involves managers & staff at all levels in the organisation

Task Control

It is the process of assuring that specified tasks are carried out effectively and efficiently Task control is transaction-oriented Many task control activities are scientific. Most of the information in an organization is task control information. Many activities performed by managers in the past have been automated and are task control activities. E.g. Task control in a steel mill.

Task Control v/s Management Control

Task control is scientific but management control can never be reduced to a science Managers interact with other managers in management control; in task control, either human beings are not involved at all or the interaction is between a manager and a non-manager. Management control focuses on organizational units while task control focuses on specific tasks performed by these organizational units

Internet for Management Control

Instant access Costless communication Multi-targeted communication Ability to display images Shifting power and control to the individual Facilitates coordination and control Availability of large amounts of data Internet has changed the rules of the game. Internet cannot substitute for the fundamental processes that are involved in management control.

Elements of Management Control

Judgments required to design & operate optimal control system involve: understanding relative importance of competing goals developing specific objectives for business units, functional areas and departments determining key variables for an individuals contribution to strategic goals evaluating actual performance designing right reward structure

Examples of decisions in planning and control function:

Strategy Formulation Management Control Task Control

Enter a new business Change debt to equity ratio Add direct mail selling Decide magnitude and direction of research Acquire an unrelated business

Expand a plant Issue new debt

Determine advertising budget Control of research organization Introduce new product or brand within product line

Schedule production Manage cash flows

Book TV commercials Run individual research project Coordinate order entry
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