ch-1-introduction of mcs
DESCRIPTION
management control systemTRANSCRIPT
Introduction to Management Control Systems
“Management control is the process by which managers influence other
members of the organization to implement the organization's
strategies.”
Definition By Robert Anthony & Vijay Govindarajan
THE MANAGEMENT CONTROL SYSTEMS (MCS)
In the Management language , control traditionally refers to the activities of establishing Standards of Performance, Evaluating actual Performance against these standards, and Implementing corrective actions to accomplish Organizational Objectives.
Nature of Management Control Systems
Control :-
The objective of control is to ensure that the things/activities follow the pre-determined track.
Control System of A Car
Press the accelerator , and your car goes faster, rotate the steering wheel, and it changes direction. Press the brake pedal, and the car slows or stops. With these devices, you control speed and direction, if any of them is inoperative, the car does not do what you want it to . In other words, it is out of control
Control of an Organization
An organization must also be controlled. That is devices must be in place to ensure that its strategic intentions are achieved. But controlling an organization is much complicated than controlling a car
Management control
The process by which management: ensures that people in the organization carry
out organizational objectives and strategies;
encourages, enables, or, sometimes “forces”employees to act in the organization’s best interest.
Management control includes all the devices/mechanisms managers use to ensure that the behavior of employees is consistent with the organization’s objectives and strategies.
world-Class Companies
Consider the world-class companies such as 3M corporation, Dell Computers, Wal-Mart, South west Airlines.
Their long term success is not just because they have developed good strategies, but more importantly, they have designed systems and processes that energize their employees to execute those strategies effectively
Collapse Of Companies
Consider the collapse of companies such as World Com, Enron and Global Crossings. Part of their demise was the lapse in controls. CEO and Top management compensation in these companies was so heavily tied to stock options that executives were motivated to manipulate financials to hold up the short term stock price
The nature of MCS
The central focus of MCS is Business Strategy Implementation.
MCS provides knowledge , insight, and analytical skills related to how a corporation’s senior executive design and implement the on going management systems that are used to plan and control the firms performance
Nature of Management Control Systems
ManagementManagement
ControlControl M.C.S.M.C.S.
SystemSystem
SuccessfulSuccessfulStrategy Strategy ExecutionExecution
BASIC CONCEPTSELEMENTS OF CONTROL PROCESS
g
Entitybeingcontrolled
Effector: BehaviorAlteration, if needed
Detector: InformationAbout what’s happening
ControlDevice
Assessor: ComparisonWith standard
Elements of control system
Every control system has at least four elements
1.Detector or Sensor – A Device that measures what is actually happening in the process being controlled. (to measure actual behavior )
2.An Assessor – A Device that determines the significance of what is actually happening by comparing it with some standard or expectation of what should happen. (compare actual with standard)
Continue . . .
3.An Effectors – A Device that alters behavior if the assessor indicates the need to do so. (called ‘feedback’, it alters behavior if assessor indicates need to do so)
4. A Communications network – A Device that transmit information between the detector and the assessor and between the assessor and the effectors.
Examples of CS
1. Thermostat2. Body Temperature3. Driver of an automobile
Thermostat
1. Thermometer which measures the current temperature of a room (detector)
2. An Assessor which compares the current temperature with the accepted standard for what the temperature should be.
Thermostat
3.An effectors which prompts a heater to emit heat or activates an air conditioner which also shuts off these appliances when the temperature reaches the standard levels
4. A communication network, which transmit information from thermometer to the assessor and from the assessor to the heating or cooling element
Body temperature
1. The sensory nerves scattered through the body
2. The Hypothalamus center in the brain, which compares information received from detectors with the 98.6 f standard.
3. The muscles and organs (effectors) that reduce the temperature when it exceeds the standard and rise the temperature when it falls below the standard
Body temperature
4. The overall communications system of nerves is self regulating. If the system is functioning properly, it automatically corrects for deviations from the standards with out requiring conscious effort.
Automobile Driver
Assume you are driving on a high way where the legal speed 65 kmph. Your control system acts as the following.
1. your eyes measures actual speed by observing the speedometer.
2. your brain compares the actual speed with desired speed, and, upon detecting a deviation from the standard.
Automobile Driver
3. Directors your foot to ease up or press down on the accelerator.
4. As in body temperature regulation your nerves form the communication system that transmit information from eyes to brain and brain to foot.
Management
An organization consist of a group of people who work together to achieve certain common goals. The CEO decides on the overall strategies that will enable the organization to meet its goals.
Subject to the approval of the CEO , the various business unit mangers formulate additional strategies that will enable their respective units to further these goals
The management control process is the process by which managers at all levels ensure that the people they supervise implement their intended strategies.
Contrast with Simple Control Processes (Nature of Mgmt.
Control): The standard is not preset. It involves
planning process Management control is not automatic Management control requires coordination
among individuals The connection from perceiving the need
for action to determining the action required to obtain the desired result may not be clear.
Much management control is self-control
Systems
A system is a prescribed and usually repetitious way of carrying out an activity or a set of activities.
Systems are characterized more or less rhythmic, coordinated, and recurring series of steps intended to accomplish a specified purpose.
Skills & personality of person involved is more important in system
• Here, more or less routine decisions are taken for which recurring series of steps are available
• Management control systems: Far More complex & Judgmental Rules are not well-defined Managers have to use their best
judgment to decide on best course of action
THE ELEMENTS OF MCS
Elements of MCS include Strategic Planning, Budgeting, Resource Allocation Performance measurement Evaluation & rewards Responsibility & transfer pricing
BOUNDARIES OF MANAGEMENT CONTROL: MANAGEMENT CONTROL
Management control is the process by which managers influence other members of the organization to implement the organization’s strategies.
It includes following main activities
Planning- what the org. should do Coordinating-the activities of several parts of
the org. Communicating-information. Evaluating-information. Deciding what if any, action should taken. Influencing people to change their behavior.
MC is the process by which managers influence other members of the organization to implement the organization’s strategies
Activity Nature of End Product Strategy formulation Goals, strategies, policies
Management control Implementation of strategies
Task Control Efficient and Effective performance
of individual tasks
Concepts of MCS
The MCS builds on concepts from Business Strategy, Organizational Behavior, Human Resource and Financial & Managerial Accounting.
Goal Congruence
Managers have personal as well as organization goals
Goal congruence means that, insofar as is feasible, the goals of an organization’s individual members should be consistent with the goals of the organization itself
The MCS should be designed and operated with the principle of goal congruence in mind
MCS…Tool for Implementing Strategy
MCS help managers move an organization toward its strategic objectives It focuses primarily on strategy execution
MCS encompass both financial (‘bottom-line’ of the company-net income , return on equity etc.) and nonfinancial (Product quality, Market share, Customer satisfaction ) performance measures
MCS provide information in developing new strategies (Today’s control Tomorrow’s strategy) :
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
Framework for Strategy Implementation (exhibit 1.3 & 1.4)
Strategy Implementation mechanisms:
Organization structure Management controls Human resource management Culture
Performance
Strategy Formulation
• It is the process of deciding on goals of the organization and the strategies for attaining those goals
• Strategies are important, big plans, showing the direction in which senior management wanted the organization 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 organizational unit
Difference between strategy formulation & Management control
It is the process of deciding on new strategy
It is essentially unsystematic
Rough estimation for strategic analysis
Strategy process involves few people
It is the process of implementing those strategy
It is systematic It uses reliable
estimates for analysis
Management control process involves all level staff in the organization
Strategy Formulation Management control
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 i.e.
using management science and operations research techniques
• 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
Difference Between Task Control & Management Control
Task control system are scientific
Either human beings are not involved at all or the interaction is between managers &nonmanagers
It focus on specified task
It Is relates to specified tasks
It can not turn in to science
Managers interact with other managers
It focus on organizational unit
It is concerned with broadly define activities of managers
Task Control Management Control
Strategy-formulation, Mgmt.Control, and Task
Control Least systematic (SF); most systematic (TC);
in between (MC) Focuses on long run (SF); short run (TC); in
between (MC) Using rough approximations data of the
future (SF); current accurate data (TC); in between (MC)
Includes planning and control, but the planning process is much more important (SF); control process is much more important (TC); equal importance (MC)
ExamplesStrategy Strategy
formulationformulationMManagementanagement
controlcontrol
TTask ask CControlontrol
Acquired an unrelated Acquired an unrelated businessbusiness
Enter a new businessEnter a new business
Add direct mail sellingAdd direct mail selling
Change debt/Change debt/eequity ratioquity ratio
Adopt affirmative action Adopt affirmative action policypolicy
Devise inventory Devise inventory speculation policyspeculation policy
Decide magnitude and Decide magnitude and direction of researchdirection of research
Intoduce new product or Intoduce new product or brand w/in product linebrand w/in product line
Expand a plantExpand a plant
Determining advertising Determining advertising budgetbudget
Issue new debtIssue new debt
Implement minority Implement minority recruitment programrecruitment program
Decide inventory levelDecide inventory level
Control research Control research organizationorganization
Coordinate order entryCoordinate order entry
Schedule productionSchedule production
Book TV commercialsBook TV commercials
Manage cash flowsManage cash flows
Maintain personnel Maintain personnel recordsrecords
Reorder an itemReorder an item
Run individual research Run individual research projectproject
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
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 individual’s Contribution to Strategic goals
Evaluating actual Performance Designing right reward structure