Management Control System Management Control System is the process of evaluating, monitoring

and controlling the various sub-units of the organization so that there is effective and efficient allocation and utilization of resources in achieving the predetermined goals

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Characteristics of Control System In Organization

Involvement of people Information about the actual state of the organization is compiled by people. It is compared by people. With the desired state decided by people.
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Functions

Planning activities of an organization Coordinating activities of an organization Communication information to different levels of the hierarchical structure Evaluating information and deciding the actions to be taken
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Influencing people to change their

Responsibility Centers
A responsibility center is an organization unit that is headed by manager who is responsible for its activities.

delegation of responsibility for specific to successive lower levels of organization. motivation of the level of management to which a certain task 3/18/12 been delegated. has

The key consideration in determining the responsibility center is ability to control cost or revenue determining the question of controllability evaluation of responsibility 3/18/12 center as per predetermined

Types of Responsibility center

a)

Revenue Centres Expense CentresEngineered Costs Discretionary Costs

b)

)
a)

Profit Centres
Natural Constructive

b)

Investment Centres

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Revenue Centres

In a revenue center, output (I.e., revenue) is measured in monetary terms, but no formal attempt is made to relate input (I.e., expenses or cost) to output. The main focus of managements efforts will be on revenue generated by it. The sales department is an example 3/18/12 a revenue center. for

Expense Center

It is the lowest level of responsibility center in an organization. Its manager is basically responsible for production of a product or service; his decision authority relates to how human resource, machinery and materials should be used to produce the product or service. Expense center manager has no control over revenues, profits or investment. He has no control over marketing decisions or investment decisions. Total performance of an expense center manager depends on how effectively and efficiently an expense center is operated. Effectiveness of an expense center manager will depend on a host of non-financial parameters such as maintaining quality level of output, compliance with production schedules and targets, maintaining morale of the workers and so on.
3/18/12 Normally, separate reporting systems are used to report

Profit Center

A profit center is an organizational unit responsible for both revenues and costs. Profit center manager has no control over the investment in the center's assets. Managers are concerned with both the production & marketing of the products. Activities of the manager is much more broader than that of a revenue 3/18/12

Investment Center

An investment center is responsible for the production, marketing and investment in the assets employed in the segment. An investment center manager decides on aspects such as the credit policies, inventory policies, & within broad framework. Investment center manager responsible for profit in relation to amounts invested in the division.

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Categories Of Audits
Audit category Brief description
Gives an opinion on the accuracy of the financial Financial statement audit statements

Ensures compliance with the relevant accounting standards and reporting framework An independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization Need not be limited to books of accounts and related records

Internal Audit

Deters, detects, investigates, and reports fraud Fraud auditing Forensic: related to the legal system, especially and forensic issues of evidence audit Operational Audit Audits operational aspects of the enterprise Quality audit, R&D audit, etc. 3/18/12

Categories Of Audits
Audit category Brief description
Information systems Audit of computer systems audit Checks whether the computer system safeguards assets, maintains data integrity, and contributes to organizational effectiveness and efficiency Management audit Audit of the management, as a tool for evaluation & control of organizational performance Examines the conditions and provides a diagnosis of deficiencies with recommendations for correcting them Audit of the enterprise's reported performance in meeting its declared social , community, or environmental objectives

Social audit

Environmental audit Environmental compliance audit: a checking mechanism Environmental management audit: an evaluation mechanism 3/18/12

THE BALANCE SCORECARD considering In the rapidly changing world of business,

only the financial measures of performance gives an incomplete picture of the overall organizational performance. It has become increasingly necessary for organizations to simultaneously look at non financial measures for this purpose.

Concepts like JIT, TQM, and SIX SIGMA have brought out the growing importance of non financial measures for evaluating the organizations overall performance. A combination of financial and non financial measures gives a better picture of organizational performance. One concept which has received universal acclaim is the Balance Scorecard (BSC), proposed by Robert Kaplan and David Norton in 1992.
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The BSC framework considers the customer perspective, internal business perspective, & the innovation/learning and growth perspective, in addition to the financial perspective
Perspective Customer Perspective Financial Perspective Internal business perspective Underlying question To achieve our vision, how should we appear to our customer To succeed financially, how should we appear to our shareholders To satisfy our customer and shareholders, at what business processes must we excel? To achieve our vision, how will we sustain our ability to change and improve?

Innovation /learning growth perspective

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Implementing the BSC

If an organization emphasizes only short-term or financial goals, it will not be able to successfully execute its strategies and excel in the business. The balance score card serves as a tool for strategic performance control by clarifying the vision and strategy of the organization and articulating the top management's expectations

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Transfer Pricing

A transfer is referred to the movement of goods from a responsibility center to another, within the same company Different types of responsibility center, belonging to different organizational levels, are involved in the transfers
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Many organizations set up business units that cater to the needs of other business units within their own fold. For example, one business unit may manufacture components that are used by another business unit to assemble the final product. Here , there is a transfer of goods from the first business to the second and the concept of transfer pricing 3/18/12

Decentralization is one of the approaches that many large organizations use to attain operational effectiveness. However , the main challenges in operating in a decentralized manner lie in designing responsibility structures and formulating appropriate policies and methods to determine the performance of the responsibility centers. The technique of transfer pricing plays an important role in the smooth 3/18/12

Objectives of TP policy

Goal congruence:- the divisional manager in maximizing the profits of his division, should not engage in decision-making that fails to optimize the organizations performance. Performance appraisal:-it should aid in reliable and objective assessment of the value added activities by profit centers toward the organization as a whole 3/18/12