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Management Control System


UNIT - I

CHARACTERISTICS OF MANAGEMENT
CONTROL SYSTEM

1.Management control system focuses on programs and responsibility


centres. A programs is a product, product line, research and development
project or similar activity that the organization undertakes in order to
achieve its goals.
2. The information in a management control system is of two types :
Planned data - programs, budgets and standards.
Actual data - information on what is actually happening, both inside the
organization and in the external environment.
3. Management Control System is a total system in the sense that it embraces
all aspects of a companys operation.
4. The Management Control System is usually built around a financial
structure.
5. The Management Control process tends to be rhythmic; it follows a definite
pattern and time table.
6. Management Control System should be a co-ordinated and integrated.

Evolution of Management Control System in an


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Organisation
Meaning of Evolution and Revolution
The term evolution is used to describe theses quieter periods because only
modest adjustments appear necessary for maintaining growth. Even during
smoother periods of evolution, we evidence substantial turbulence, which is
termed as revolution. The speed at which an organization experiences the
phases of evolution and revolution is closely related to the market
environment of this industry.
Evolution is not an automatic affair, it is a contest for survival. The move
ahead, companies must consciously introduce planned structures that not only
are solutions to correct a crisis.
Five phases of Evolution of Management Control System:
Phase I Creativity
The companys founders are usually, technically or entrepreneurially oriented,
and they disclaim management activities; their physical and mental energies
are absorbed entirely on making and selling a new product.
Communication among employees is frequent and informal.

Phase II Direction
Functional organization structure is introduced to separate manufacturing
from marketing activities and job assignments become more specialized
Accounting systems for inventory and purchasing are introduced.
Incentives, budgets and works standards are adopted
Communication becomes more formal and impersonal.
The new manager and his key supervisor take most of the responsibilities for
instituting directing, while lower level supervisors functions as specialist.
Phase III Delegation
Much greater responsibility is given to the managers of plans and market
territories.
Profit centers and bonuses are used to stimulate motivation.
The top executives at headquarters restrain
themselves to managing by
exception, based on periodic reports from different units.
Managers often concentrates on making new acquisition, which can be lined
up besides other decentralized units.
Communication from the top is infrequent usually by correspondence,
telephone or brief visits to decentralized units.

Phase IV Co-ordination
Decentralized units are merged into product groups.
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Formal planning procedures are established and intensively reviewed .
No. of staff persons are hired to initiate programs of control and review for
line managers .
Capital expenditure are carefully pruned across the organization .
Each product group is treated as an investment centre based on ROI
concept.
Phase V Collaboration
The focus is on solving problems quickly through team action.
Teams are combined across functions for task - group activity.
Staff experts are reduced, reassigned and combined in interdisciplinary
teams.
A matrix structure is used in solving appropriate problems.
Previous
formal systems are simplified and combined into single
multipurpose systems.
Conferences of key managers are held frequently to focus on major problem
issues.
T&D programs are given to managers in behavioral skills, teamwork and
conflict resolution.

MCS & Organizational Objectives

Goals are defined as broad statements of what the organization wants to achieve in the
long run on a permanent basis and objective are defined as specific statement of
ends, the achievement of which is contemplated within a specified time. Many times
these terms are also used interchangeably. However, both are subsumed under the term
mission, which is indicative of the strategic intent and strategic direction of the
organization. Mission is articulated on the basis of the vision of the founders or the chief
executive. Mission is achieved through a properly formulated strategy and action plan
with appropriately in - built mid - course correction system. Mission, vision and action
indicate the interactive relationship between strategy and management control system.

Goal Congruence
Although systematic, the management control process is by no means mechanical; it
involves interactions among individuals, which cannot be described as mechanical.
Managers have personal as well as organizational goals. The central control process is to
induce managers to act in pursuit of their personal in ways that will help attain the
organization's goals as well. Goal congruence means that as far as feasible, the goals of
an organizations individual members should be consistent with goals of the
organization itself. The management control system should be designed and operated
with the principles of goal congruence in mind.

Differences - Strategic Planning, Management


Control & Operational control
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Characteristics

Strategic Planning

Management Control

Operational Control

Level

Top management

All level - top to front line


Supervision.

Supervisory

Scope

Total

Overall, consisting of related


subsystem

Operating unit

Long range

Short to intermediate (1 to 5)

Short periods day today,


weekly, monthly

External, towards
developing internal

Internal, adjusting to external factors

Internal only

Basic objectives

Tangible goals, with in framework of


overall objectives

Short - term, tangible to


operating unit

Relatively
unstructured

Fairly highly structured but flexible

Quite rigid pre established

Activity patterns

Irregular

Rhythmic, Regular

Highly repetitive

Character of activity

Creative

Administrative, persuasive

Following directions little


initiatives

Entire organization

All operations, line management

Operating unit

Time frame
Environment
Goals and objectives
Structuring

Focal point

Cybernetic Paradigm Of Grissinger

This is also referred to as micro control framework, since it helps it helps to


establish control or performance measures for a particular problem area in
specific

situation.

Cybernetics

is

derived

from

the

Greek

work

Kybernatics which means Steersman. Cybernetics has been defined as


the service of communication and control. Cybernetics was coined by
Norbert Weiner and it aims at the study of entire field of control and
communication theory. Cybernetics as a biological phenomenon has been
defined as how systems regulate themselves, explore and learn. The
fundamental concern of cybernetics is with negative feedback and role of
negative feedback mechanism to explain purposive and adoptive behavior.
This aspect of cybernetics has relevance for the financial and economic

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The particular version of the paradigm developed by Grissinger (1979)
(Grissinger, Donald W. Management Theory - A Cybernetic Perspective,
Graduate Management Centre Jan. 86) captures all the elements of the control
process, which may be enumerated as follows:

Set goals and performance

Measure achievement
Compare achievement with goals
Compute the variances as the result of the proceeding comparison
Reporting the variances
Determine the cause of variances
Take action to eliminate the variances

Follow up to ensure that goals are met

The Cybernetic Paradigm of the


Control Process

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Functions of the Controller


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To ensure that data are controlled from all the input centers in time.
To see that data are processed speedily and expeditiously for developing
performance reports
To review reports at successive levels to identify remedial actions
To analyze the reports with a view to identify trends and highlighting the
areas requiring follow up action
To assist in formulating corrective actions

The Financial Executive Institute of United States of America lists the


functions of controller as follows:

Planning for control


Reporting and interpreting
Evaluation and consulting
Tax administration
Government reporting
Protecting of assets through internal control, internal audit
Insurance coverage
Economic appraisal

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