Management Control

Systems
Introduction

Basic Concepts
Elements of a control system consists of:
1. A detector
2. An assessor
3. An effector
4. 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 system

3. 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 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 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 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:
Characteristics

Strategy Formulation

Management
Control

System design

Unsystematic, Strategic
Rhythmic,
decision may be made any predetermined
time
procedures

Nature of
information

Tailored-made to faced
problems, more external
and predictive, less
accurate

Integrated, more
internal and
historical, more
accurate

Communication Simple
of information

Difficult

Involved people Top management and

staffs

Top management
and line managers

Distinctions between strategy formulation

and management control:
Characteristics

Strategy Formulation

Management
Control

Number of
Few people
involved 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 Control
Characteristics

Management
Control

Task 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 Control
Characteristics

Management
Control

Task 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 Book TV

budget
commercials

Decide magnitude
and direction of
research

Control of research
organization

Acquire an
unrelated business

Introduce new product Coordinate order

or brand within
entry
product line

Run individual
research project

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