ASSIGNMENT

MANAGEMENT CONTROL SYSTEM

Name

Ms. Priyanka Dilip Kadam

Course

2ND YEAR MMS-A

Roll no

12

Subject In-charge:

Prof. Sengupta

Institute

Aditya Institute of Management Studies and Research

University

University of Mumbai

Academic Year:

2013-2015

 Return on Investment
Return on investment, or ROI, is the most common profitability ratio. There are several ways
to determine ROI, but the most frequently used method is to divide net profit by total assets.
Return on investment isn't necessarily the same as profit. ROI deals with the money you
invest in the company and the return you realize on that money based on the net profit of the
business. Profit, on the other hand, measures the performance of the business. Don't confuse
ROI with the return on the owner's equity. This is an entirely different item as well. Only in
sole proprietorships does equity equal the total investment or assets of the business.
You can use ROI in several different ways to gauge the profitability of your business. For
instance, you can measure the performance of your pricing policies, inventory investment,
capital equipment investment, and so forth.
The return on investment formula is:
ROI = (Net Profit / Cost of Investment) x 100

Sensitivity Analysis

A technique used to determine how different values of an independent variable will impact a
particular dependent variable under a given set of assumptions. This technique is used within
specific boundaries that will depend on one or more input variables, such as the effect that
changes in interest rates will have on a bond's price.
Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be
different compared to the key prediction(s).
Sensitivity analysis is very useful when attempting to determine the impact the actual
outcome of a particular variable will have if it differs from what was previously assumed. By
creating a given set of scenarios, the analyst can determine how changes in one variable(s)
will impact the target variable.
For example, an analyst might create a financial model that will value a company's equity
(the dependent variable) given the amount of earnings per share (an independent variable) the
company reports at the end of the year and the company's price-to-earnings multiple (another
independent variable) at that time. The analyst can create a table of predicted price-toearnings multiples and a corresponding value of the company's equity based on different
values for each of the independent variables.

Financial goals

Financial goals are exactly what the term describes - goals you set that revolve around
finance or money. Financial goals are targets, usually driven by specific future financial
needs. Some financial goals you might set as an individual include saving for a comfortable
retirement, saving to send your children to college, or managing your finances to enable a
home purchase.

Financial Goal Time Frame

When setting a financial goal, you must determine the length of time it is going to take to
reach your goal. Your goal can be considered a short-term, medium-term, or long-term goal.
Below are some examples:
Short-term goals are those that can be achieved in three months or less. As an
example of this, you might want to save $100 to buy an MP3 player in three months.
Medium-term goals are those that will take between three months to one year to
achieve. For example, you might want to save money for six months so that you could
take a trip during your spring break.
Long-term goals take more than one year to accomplish. One of your long-term goals
could be paying off your student loans early by paying an extra $200 per month.
1.How to set your goals
Be specific, realistic, and write down your goals. Keep each goal simple and give it a
timeframe and a dollar amount.
Set some big goals - like buying a home in the next five years or saving for your retirement
(this could be your biggest goal of all).
Set some smaller goals to help you get there like saving for a deposit or paying off your
credit cards.
2.Saving and paying off debt
Financial goals are often about saving or paying off debt:
If you have high-interest debt, like credit card or hire purchase, your main goal should be to
pay that debt off first and as soon as possible. This could involve re-structuring your debt into
lower-interest loans.
Saving two to three months income for an emergency fund can help you and your family if
anything unexpected happens. Its a good idea to have this fund in a savings account separate
from your normal everyday bank account.
If you have a mortgage and can afford to increase your repayments, your goal may be to save
on interest by paying off your loan faster.
The earlier you start saving for your retirement the better. Even a small amount saved every
week or month can add up to a lot over time.
3. Actions to achieve your goals
Actions are the steps you take to reach your goals. Here are some examples:
If your goal is to save for a house deposit, your action may be to open a savings account by
next pay day and save $50 a week into this new account.

If your goal is to save for your retirement (or to save for a deposit on your first home), your
action might be to talk to your employer about joining KiwiSaver.
If you pay your mortgage monthly, your goal could be to change to fortnightly repayments of
at least half the amount you were paying each month. This will pay off your mortgage faster
and save on interest.
4.Review your goals
Review your progress every six months or once a year, on a specific date written in your
diary or calendar. When you achieve a goal, celebrate! Then set yourself a new goal.
New Year is a great time to think about your goals write those resolutions down!
5.Using the goals worksheet
Setting goals is easy with the goals worksheet. Use it to write down your short, medium and
long-term financial goals, then save them to My Sorted to review later.
With the worksheet you can also set actions to achieve your goals.
6.Planning in a relationship
If you are in a relationship and making a financial plan, it's important that you both get
involved in the process.
Find out more about planning in a relationship.
7.Net worth
Knowing your net worth the difference between what you own and what you owe is an
important part of setting your financial goals and building your financial plan.
Find out more about net worth.

Responsibility Budget

A responsibility accounting budget is a report designed to track the controllable costs and
revenues of a manager as well as chart their efficiency and effectiveness. In other words, a
responsibility budget is a budget that companies make for the expenses and revenues that are
controlled by a specific manager. Since not all costs can controlled by managers, it makes
sense to make a budget specifically charting the expenses that managers can control.
Many non-controllable costs or uncontrollable costs like insurance premiums or fixed asset
purchases are out of a department manager's control and authority. Executives and people
higher in the company decide financial decisions like these. Management is generally not
held responsible for these types of expenses.
The responsibility accounting budget is generally prepared by officers or upper level
management to track the responsibilities of each department manager. Upper level

management can use these responsibility budgets to track performance of managers as well as
track goals for the future.
The responsibility accounting budget is only one piece of the responsibility accounting
performance report or RAPR where executives and upper level management track efficiency
and profitability by department and person. The RAPR is also used to help explain changes in
cost structure and profitability.
For instance, if the manufacturing department just invested in new robotic assembly line
equipment, the RAPR should show a decrease in the variable costs per product produced.
Likewise, over labor hours and labor costs should be lower for this department as well.

Management by objectives

According to George Odiome, MBO is "a process whereby superior and subordinate
managers of an Organisation jointly define its common goals, define each individual's major
areas of responsibility in terms Of results expected of him and use these measures as guides
for operating the unit and assessing the contribution of each of its members."
The core concept of MBO is planning, which means that an organization and its members are
not merely reacting to events and problems but are instead being proactive. MBO requires
that employees set measurable personal goals based upon the organizational goals. For
example, a goal for a civil engineer may be to complete the infrastructure of a housing
division within the next twelve months. The personal goal aligns with the organizational goal
of completing the subdivision.
MBO is a supervised and managed activity so that all of the individual goals can be
coordinated to work towards the overall organizational goal. You can think of an individual,
personal goal as one piece of a puzzle that must fit together with all of the other pieces to
form the complete puzzle: the organizational goal. Goals are set down in writing annually and
are continually monitored by managers to check progress. Rewards are based upon goal
achievement.
Management by objectives has become de facto practice for management in knowledgebased organizations such as software development companies. The employees are given
sufficient responsibility and authority to achieve their individual objectives.
Accomplishment of individual objectives eventually contributes to achieving organizational
goals. Therefore, there should be a strong and robust process of assessing the objective
achievements of each individual.
This review process should take place periodically and sufficient feedback will make sure
that the individual objectives are in par with the organizational goals.

 Profit Centre And Control

Profit centres take the basic idea of cost centres somewhat further. In this case, a profit centre
is run as a separate business within a business. The profit centre will buy services from other
divisions and profit centres within the parent organisation, and then selling their output on to
the final customer or to another part of the parent organisation.
The profit Centre will have its own profit and loss account and bid for investment capital
from the parent company. In recent years there has been a huge growth in the development of
cost centres and profit centres within large Organizations. There are several reasons for the
growth and most of these can be linked to personal motivation and more effective control.
Profit centres take the idea of overhead allocating further; in this case each division of large
business is run as an independent business, with it's own profit and loss account. An example
of an organisation operating profit centres is Corus. Within Corus TIn PLate division operates
as a profit centre. Corus Tin Plate buys service and goods from within the organisation and
sells output to tougher divisions and to external customers.
Profit centres are often evaluated on the basis of different measures of profitability like
1) Contribution Margin
2) Direct Profit
3) Controllable Profit
4) EBIT Margin
5) Net Income
Each type of profitability measure is used by some companies and their relative importance
varies from organization to organization.
Advantages of Profit Centres:

Allows decision-making and power to be delegated effectively. Improves speed and

efficiency of decision making.
Increased motivation- now working for a smaller, more local business.
Allows more effective use of bonuses and other forms of financial motivation - all
linked to profitability of profit centre.

Disadvantages of profit Centres:

Loss of overall central control of the company

Profit centre could be working towards different and non-company agendas
Increased opportunity for empire building by management.

 Transfer Pricing
Commercial transactions between the different parts of the multinational groups may not be
subject to the same market forces shaping relations between the two independent firms. One
party transfers to another goods or services, for a price. That price is known as "transfer
price". This may be arbitrary and dictated, with no relation to cost and added value, diverge
from the market forces. Transfer price is, thus, a price which represents the value of good; or
services between independently operating units of an organisation. But, the expression
"transfer pricing" generally refers to prices of transactions between associated enterprises
which may take place under conditions differing from those taking place between
independent enterprises. It refers to the value attached to transfers of goods, services and
technology between related entities. It also refers to the value attached to transfers between
unrelated parties which are controlled by a common entity.
Suppose a company A purchases goods for 100 rupees and sells it to its associated company
B in another country for 200 rupees, who in turn sells in the open market for 400 rupees. Had
A sold it direct, it would have made a profit of 300 rupees. But by routing it through B, it
restricted it to 100 rupees, permitting B to appropriate the balance. The transaction between A
and B is arranged and not governed by market forces. The profit of 200 rupees is, thereby,
shifted to the country of B. The goods is transferred on a price (transfer price) which is
arbitrary or dictated (200 hundred rupees), but not on the market price (400 rupees).
Thus, the effect of transfer pricing is that the parent company or a specific subsidiary tends to
produce insufficient taxable income or excessive loss on a transaction. For instance, profits
accruing to the parent can be increased by setting high transfer prices to siphon profits from
subsidiaries domiciled in high tax countries, and low transfer prices to move profits to
subsidiaries located in low tax jurisdiction. As an example of this, a group which manufacture
products in a high tax countries may decide to sell them at a low profit to its affiliate sales
company based in a tax haven country. That company would in turn sell the product at an
arm's length price and the resulting (inflated) profit would be subject to little or no tax in that
country. The result is revenue loss and also a drain on foreign exchange reserves.

R&D control

Research and Development (R&D) is a key factor that contributes to the success of any
business organization. But the outcome of R&D is highly uncertain. Organizations face three
important dilemmas while planning and controlling the R&D activities. First, the integration
of the objectives of the R&D function with those of the organization and linking customer
preferences with the objectives of R&D. Lack of proper information from the marketing
function, lack of proper integration of the other functions with R&D, and poor commercial
viability of the R&D projects are factors that influence this integration.
Second, the problem in planning and managing the R&D activities. A proper R&D plan has
to be devised and each R&D project should be controlled by controlling the intermediate

targets, time frames and budgets, and by creating appropriate performance measurement
systems for the R&D function. Third, considering R&D as a strategic infrastructure that
includes knowledge assets and competencies, and not merely as a function or collection of
projects.
National culture and organizational culture have a significant impact on R&D and innovation
respectively. The R&D function is characterized by three structures: production structure tasks, cooperation, and conflicts; control structure - autonomy, decision making, and
leadership; and employee relationship - reward and appraisal systems. These structures are
influenced by factors like the type of research undertaken - basic research, applied research,
or development; and nature of the R&D processes - task uncertainty, task interdependence,
and size. These structures are also influenced by the national culture. National culture is
described through the following dimensions: power distance, uncertainty avoidance,
masculinity/femininity, and individualism/collectivism. R&D personnel from national
cultures that rank high on power distance and uncertainty avoidance tend to prefer less
autonomy and strong leadership, accompanied by appropriate reward and appraisal systems.
On the other hand, those from a national culture ranking low on power distance and
uncertainty avoidance and high on femininity prefer greater autonomy and decision-making
authority. They also prefer a leadership which is nurturing and not dominating. This seems to
foster higher creativity and innovation.
Instead of adopting formal controls, a more effective method of managing innovation would
be through the organizational culture. Organizations successful in making the employees feel
like family or imbuing a sense of belonging in the employees usually score higher on
innovation as against organizations that use formal methods of control. To create goal
directed communities, the top management sets the objectives for the employees but the
means to achieve the objectives are decided by the employees themselves. To help enhance
innovativeness, organizations should ensure balanced autonomy, a proper integration of
technical skills and teamwork, and personalized recognition/reward systems.

Scrap Control

Duck R.E.V. (2001) claims that cost reduction methods involve a periodic reappraisal of
issues such as components used, design, possible substitution with cheaper materials, and
production methods. Scrap control can also be used for cost reduction purposes. With regard
to the control of labour costs, labour efficiency and labour productivity techniques are
commonly used to assess the production levels attained. Labour productivity measurements
result in output measured in physical units and calculated as output per man-hour, however
only for productive labour. Quality is a vital component in business strategies of which the
improvement is closely linked to the competitive environment (Adam et al., 2001). In this
respect, the focus of firms on the customer as well as on the involvement of employees is
positively related to quality improvement. Adam et al.s study shows that an increase in the
involvement of employees in Mexico and the USA led to quality improvement in terms of
decreased costs of internal failures, defective items and costs of quality.

Administrative Cost Control

Cost control, also known as cost management or cost containment, is a broad set of cost
accounting methods and management techniques with the common goal of improving
business cost-efficiency by reducing costs, or at least restricting their rate of growth.
Businesses use cost control methods to monitor, evaluate, and ultimately enhance the
efficiency of specific areas, such as departments, divisions, or product lines, within their
operations.
During the 1990s cost control initiatives received paramount attention from corporate
America. Often taking the form of corporate restructuring, divestment of peripheral
activities, mass layoffs, or outsourcing, cost control strategies were seen as necessary to
preserveor boostcorporate profits and to maintainor gaina competitive advantage.
The objective was often to be the low-cost producer in a given industry, which would
typically allow the company to take a greater profit per unit of sales than its competitors at a
given price level.
Some cost control proponents believe that such strategic cost-cutting must be planned
carefully, as not all cost reduction techniques yield the same benefits. In a notable late 1990s
example, chief executive Albert J. Dunlap, nicknamed "Chainsaw Al" because of his
penchant for deep cost cutting at the companies he headed, failed to restore the ailing small
appliance maker Sunbeam Corporation to profitability despite his drastic cost reduction
tactics. Dunlap laid off thousands of workers and sold off business units, but made little
contribution to Sunbeam's competitive position or share price in his two years as CEO.
Consequently, in 1998 Sunbeam's board fired Dunlap, having lost confidence in his "onetrick" approach to management.

Audit

Management Audit' is a systematic examination of decisions and actions of the management

to analyse the performance. Management audit involves the review of managerial aspects like
organizational objective, policies, procedures, structure, control and system in order to check
the efficiency or performance of the management over the activities of the Company.
Unlike financial audit, management audit mainly examine the non financial data to audit the
efficiency of the management. Somehow audit tries to search the answer of how well the
management has been operating the business of the company? Is managerial style well suited
for business operation? Management Audit focuses on results, evaluating the effectiveness
and suitability of controls by challenging underlying rules, procedures and methods.

Management Audit is an assessment of methods and policies of an organization's

management in the administration and the use of resources, tactical and strategic planning,
and employee and organizational improvement. Management Audit is generally conducted by
the employee of the company or by the independent consultant and focused on the critical
evaluation of management as a team rather than appraisal of individual.
Objectives of Management Audit
Establish the current level of effectiveness
Suggest Improvement
Lay down standards for future performance
Increased levels of service quality and performance
Guidelines for organizational restructuring
Introduction of management information systems to assist in meeting productivity and
effectiveness goals
Better use of resources due to program improvements

Efficiency Audit

An economy and efficiency audit, or simply efficiency audit, focuses on the resources and
practices of a program or department, according to the Encyclopedia of Public
Administration and Public Policy, which provides descriptions of typical audit activities. An
economy and efficiency audit might analyze the procurement, maintenance and
implementation of resources, such as equipment, to identify areas that require improvement.
Alternately, it might examine the practices of a department or program to find inefficient or
wasteful processes.
Laws
Ensuring adherence to laws and regulations is another important aspect of an economy and
efficiency audit. For example, an auditor might analyze operations to ensure records were
kept in accordance with state and federal regulations, or an auditor might inspect a property
to determine whether the facility is operating according to work-safety guidelines.

Internal Audit

Internal auditing is an independent, objective assurance and consulting activity designed to

add value and improve an organization's operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes.[1] Internal auditing is a
catalyst for improving an organization's governance, risk management and management
controls by providing insight and recommendations based on analyses and assessments of
data and business processes. With commitment to integrity and accountability, internal
auditing provides value to governing bodies and senior management as an objective source of

independent advice. Professionals called internal auditors are employed by organizations to

perform the internal auditing activity.
The scope of internal auditing within an organization is broad and may involve topics such as
an organization's governance, risk management and management controls over:
efficiency/effectiveness of operations (including safeguarding of assets), the reliability of
financial and management reporting, and compliance with laws and regulations. Internal
auditing may also involve conducting proactive fraud audits to identify potentially fraudulent
acts; participating in fraud investigations under the direction of fraud investigation
professionals, and conducting post investigation fraud audits to identify control breakdowns
and establish financial loss.
Internal auditors are not responsible for the execution of company activities; they advise
management and the Board of Directors (or similar oversight body) regarding how to better
execute their responsibilities. As a result of their broad scope of involvement, internal
auditors may have a variety of higher educational and professional backgrounds.
The Institute of Internal Auditors (IIA) is the recognized international standard setting body
for the internal audit profession and awards the Certified Internal Auditor designation
internationally through rigorous written examination. Other designations are available in
certain countries.[2] In the United States the professional standards of the Institute of Internal
Auditors have been codified in several states' statutes pertaining to the practice of internal
auditing in government (New York State, Texas, and Florida being three examples). There are
also a number of other international standard setting bodies.
Internal auditors work for government agencies (federal, state and local); for publicly traded
companies; and for non-profit companies across all industries. Internal auditing departments
are led by a Chief Audit Executive ("CAE") who generally reports to the Audit Committee of
the Board of Directors, with administrative reporting to the Chief Executive Officer (In the
United States this reporting relationship is required by law for publicly traded companies).

Government Cost Audit

Cost Audit represents the verification of cost accounts and check on the adherence to cost
accounting plan. Cost Audit ascertain the accuracy of cost accounting records to ensure that
they are in conformity with Cost Accounting principles, plans, procedures and objective.[1]
Cost Audit comprises following;
1. Verification of the cost accounting records such as the accuracy of the cost accounts,
cost reports, cost statements, cost data and costing technique and
2. Examination of these records to ensure that they adhere to the cost accounting
principles, plans, procedures and objective.
Objectives of Cost Audit

1. Prospective Objective: Under which cost audit aims to identify the undue wastage or
losses and ensure that costing system determines the correct and realistic cost of
production.
2. Constructive Objectives: Cost audit provides useful information to the management
regarding regulating production, economical method of operation, reducing cost of
operation and reformulating Cost accounting plans .
Types of Cost Audit
1.
2.
3.
4.

Cost Audit on behalf of the management:

Cost audit on behalf of a customer
Cost Audit on behalf of Government
Cost Audit by trade association

Management Audit

A systematic assessment of methods and policies of an organization's management in the

administration and the use of resources, tactical and strategic planning, and employee and
organizational improvement.
The objectives of a management audit are to
(1) establish the current level of effectiveness,
(2) suggest improvements, and
(3) lay down standards for future performance.
Management auditors (employees of the company or independent consultants) do not
appraise individual performance, but may critically evaluate the senior executives as a
management team. See also performance audit.
Simply defined, the management audit is a comprehensive and thorough examination of an
organization or one of its components. The audit is implemented to identify problems or
significant weaknesses in the organization or corporation, thus providing management with a
tool to address and repair the problem area.
The audit is not a new or recent idea. History tells us of the presence of auditors in Pharaoh's
Egypt and the classical periods of Greek and Roman history. As businesses developed and
grew over the centuries of recorded history, the need for controls became increasingly
important. Financial auditing became a standard in American businesses and, following the
lead of New York State, certification for accountants was enacted as legislation in many
states. The financial audit is now fully integrated into business practices. The internal audit
follows the spirit of financial auditing and surpasses it to examine operational matters as well.
Another natural extension is operational auditing. While internal auditing is conducted by

employees within the organization, an operational audit is generally completed by an internal

task force or external analysts.

Financial Reporting to Management

A financial statement (or financial report) is a formal record of the financial activities of a
business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form easy to
understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:
1. A balance sheet, also referred to as a statement of financial position, reports on a
company's assets, liabilities, and ownership equity at a given point in time.
2. An income statement, also known as a statement of comprehensive income, statement
of revenue & expense, P&L or profit and loss report, reports on a company's income,
expenses, and profits over a period of time. A profit and loss statement provides
information on the operation of the enterprise. These include sales and the various
expenses incurred during the stated period.
3. A statement of cash flows reports on a company's cash flow activities, particularly its
operating, investing and financing activities.
For large corporations, these statements may be complex and may include an extensive set of
footnotes to the financial statements and management discussion and analysis. The notes
typically describe each item on the balance sheet, income statement and cash flow statement
in further detail. Notes to financial statements are considered an integral part of the financial
statements.
Management discussion and analysis
Management discussion and analysis or MD&A is an integrated part of a company's annual
financial statements. The purpose of the MD&A is to provide a narrative explanation, through
the eyes of management, of how an entity has performed in the past, its financial condition,
and its future prospects. In so doing, the MD&A attempt to provide investors with complete,
fair, and balanced information to help them decide whether to invest or continue to invest in
an entity.
The section contains a description of the year gone by and some of the key factors that
influenced the business of the company in that year, as well as a fair and unbiased overview
of the company's past, present, and future.
MD&A typically describes the corporation's liquidity position, capital resources, results of its
operations, underlying causes of material changes in financial statement items (such as asset
impairment and restructuring charges), events of unusual or infrequent nature (such as
mergers and acquisitions or share buybacks), positive and negative trends, effects of inflation,
domestic and international market risks, and significant uncertainties.

 MCS in Public Sector Units Service Organisation and Propriety

1. Pricing

The selling price of work is set in a traditional way in many professional firms. If the profession
is one in which members are accustomed to keeping track of their time, fees generally are related
to professional time spent on the engagement.
The hourly billing rate typically is based on the compensation of the grade of the professional
(rather than the compensation of the specific person), plus a loading for overhead costs and
profit. In other professions, such as investment banking, the fee typically is based on the
monetary size of the security issue.

2. Profit Centers and Transfer Pricing

Support units, such as maintenance, information processing, transportation, telecommunication,
printing, and procurement of material and services, charge consuming units for their services.
3. Strategic Planning and Budgeting
In general, formal strategic planning systems are not as well developed in professional
organizations as in manufacturing companies of similar size.
Part of the explanation is that professional organizations have no great need for such systems. In
manufacturing companies, many program decisions involve commitments to procure plant and
equipment;
they have a predictable effect on both capacity and costs for several future years, and, once made,
they are essentially irreversible.
In a professional organization, the principal assets are people; although the organization tries to
avoid short-run fluctuations in personnel levels, changes in the size and composition of the staff
are easier to make and are more easily reversed than changes in the capacity of a physical plant.
4. Control of Operations
Much attention is, or should be, given to scheduling the time of professionals. The billed time
ratio, which is the ratio of hours billed to total professional hours available, is watched
closely.
If, to use otherwise idle time or for marketing or public service reasons, some engagements are
billed at lower than normal rates, the resulting price variance warrants close attention.
5. Performance Measurement and Appraisal
As noted above in regard to teachers, at the extremes the performance of professionals is easy to
judge.
Appraisal of the large percentage of professionals who are within the extremes is much more
difficult.
For some professions, objective measures of performance are sometime available:
The recommendations of an investment analyst can be compared with actual market behavior of
the securities;
the accuracy of a surgeons diagnosis can be verified by an examination of the tissue that was
removed; and the doctors skill can be measured by the success ratio of operations.

These measures are, of course, subject to appropriate qualifications, and in most circumstances
the assessment of performance is finally a matter of human judgment by superiors, peers, self,
sub ordinates, and clients.

Financial Service Organizations

Financial service organizations include commercial bank and thrift institutions, insurance companies,
and securities firms. These companies are in business primarily to manage money. Some act as
intermediaries; that is, they obtain money from depositors and lend it to individuals or companies.
Others act as risk shifters; they obtain money in the form of premiums, invest these premiums, and
accept the risk of the occurrence of specific events, such as death or damages to property. Still others
are traders; they buy and sell securities ,either for their own account or for customers.
Healthcare Organizations
Because of the shift in the product mix an because of the increase in the quality an cost of new
equipment , the strategic planning in hospitals is important. The annual budget preparation processes
is conventional. Huge quantities of information are available quickly for the control of operating
activities. Financial performance is analyzed by comparing actual revenues, an expenses with
budgets, identifying important variances, an taking appropriate actions on them.
MCS Interface with Management Information Service and Cost and

Management Accounting
Direct costs pertain to the acquisition expenses or the cost of buying the system, and cover all of
the following activities:
Researching possible products to buy, which is essentially a labor cost but may also include
materials cost, such as purchase of third-party research reports or consultant fees.
Designing the system and all the necessary components to ensure that they work well together.
Naturally, this cost component will be higher if a move to a totally different system platform is
being considered.
Sourcing the products, which means getting the best possible deal from all possible vendors
through solicited bids or market research
With the Internet, it's even easy to get price quotations from sources outside the country, to get a
good spectrum of pricing options.
Purchasing the product(s), which includes the selling price of the hardware, software, and other
materials as negotiated with the chosen suppliers. Include all applicable taxes that might be
incurred.
Delivering the system, which includes any shipping or transportation charges that might be
incurred to get the product into its final installation location.
Installing the system. Bear in mind that installation also incurs costs in utilities and other
environmentalnot just labor costs. If the installation of the system will result in downtime for
an existing system, relevant outage costs must be included. Any lost end-user productivity hours
during this activity should also be factored in.
Developing or customizing the application(s) to be used.
Training users on the new system.

 Deploying the system, including transitioning existing business processes and complete
integration with other existing computing resources and applications. Include here the costs to
promote the use of the new system among end users.
Indirect costs address the issues of maintaining availability of the system to end users and
keeping the system running, which includes the following:
Operations management, including every aspect of maintaining normal operations, such as
activation and shutdown, job control, output management, and backup and recovery.
Systems management, such as problem management, change management, performance
management, and other areas.
Maintenance of hardware and software components, including preventive maintenance,
corrective maintenance, and general housekeeping.
Ongoing license fees, especially for software and applications.
Upgrade costs over time that may be required.
User support, including ongoing training, help desk facilities, and problem-resolution costs.
Remember to include any costs to get assistance from third-parties, such as maintenance
agreements and other service subscriptions.
Environmental factors affecting the system's external requirements for proper operation, such as
air conditioning, power supply, housing, and floor space.
Other factors that don't fall into any of the above categories, depending on the type of system
deployed and the prevailing circumstances.
All these cost factors seem fairly obvious, but quantifying each cost is difficult or impractical in
today's world, because few organizations have an accounting practice that's mature enough to
identify and break down all these types of expenses in sufficient detail.
Management control system integrated with strategic management

Management control system is an integrated technique for collecting and using information to
motivate employee behavior and to evaluate performance.
Management control systems use many techniques such as
1. Activity-based costing
Activity-based costing (ABC) is a costing methodology that identifies activities in an organization
and assigns the cost of each activity with resources to all products and services according to the
actual consumption by each. This model assigns more indirect costs (overhead) into direct costs
compared to conventional costing.
2. Balanced scorecard
The balanced scorecard (BSC) is a strategy performance management tool - a semi-standard
structured report, supported by design methods and automation tools, that can be used by managers
to keep track of the execution of activities by the staff within their control and to monitor the
consequences arising from these actions.
3. Benchmarking and Bench trending

Benchmarking is the process of comparing one's business processes and performance metrics to
industry bests or best practices from other companies.
Dimensions typically measured are quality, time and cost. In the process of best practice
benchmarking, management identifies the best firms in their industry, or in another industry
where similar processes exist, and compares the results and processes of those studied (the
"targets") to one's own results and processes.
In this way, they learn how well the targets perform and, more importantly, the business
processes that explain why these firms are successful.
Benchmarking is used to measure performance using a specific indicator (cost per unit of
measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit
of measure) resulting in a metric of performance that is then compared to others

4. Budgeting
A budget is a quantitative expression of a plan for a defined period of time. It may include
planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities
and cash flows.
It expresses strategic plans of business units, organizations, activities or events in measurable
terms.
5. Capital budgeting
Capital budgeting, or investment appraisal, is the planning process used to determine whether an
organization's long term investments such as new machinery, replacement machinery, new plants,
new products, and research development projects are worth the funding of cash through the firm's
capitalization structure (debt, equity or retained earnings).
It is the process of allocating resources for major capital, or investment, expenditures.
One of the primary goals of capital budgeting investments is to increase the value of the firm to
the shareholders.
Many formal methods are used in capital budgeting, including the techniques such as
Accounting rate of return
Payback period
Net present value
Profitability index
Internal rate of return
Modified internal rate of return
Equivalent annual cost
Real options valuation
6. Program management techniques
Program management or programmed management is the process of managing several related
projects, often with the intention of improving an organization's performance. In practice and in its
aims it is often closely related to systems engineering and industrial engineering.
7. Target costing

Target costing is a pricing method used by firms. It is defined as "a cost management tool for
reducing the overall cost of a product over its entire life-cycle with the help of production,
engineering, research and design".
A target cost is the maximum amount of cost that can be incurred on a product and with it the
firm can still earn the required profit margin from that product at a particular selling price.
In the traditional cost-plus pricing method, materials, labor and overhead costs are measured and
a desired profit is added to determine the selling price.

8. Total quality management (TQM)

Total quality management (TQM) consists of organization-wide efforts to install and make
permanent a climate in which an organization continuously improves its ability to deliver
highquality products and services to customers.
While there is no widely agreed-upon approach, TQM efforts typically draw heavily on the
previously developed tools and techniques of quality control.