Management Control Management Control System is System

the process of evaluating, monitoring and controlling the various sub-units of the organization so that there is Click to edit Master subtitle style effective and efficient allocation and utilization of resources in achieving the predetermined goals

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. For significant difference, a course of action is recommended by people Action taken by people

The management decides the desired state or standards against which performance is compared.

It decides what the organization plans to achieve in a given time framework which is known as Planning Process.

Actual Performance is compared to Planned Performance in control, so planning and controlling are interlinked and are known as P&C systems

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

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 has been delegated.

The key consideration in determining the responsibility center is ability to control cost or revenue determining the question of controllability evaluation of responsibility

Revenue Centres
Engineered Costs Discretionary Costs

Types of Responsibility center

Expense Centres-

a)

b)

Profit Centres
Natural Constructive

a)

b)

Investment Centres

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 for a revenue center.

The effectiveness of the center is not judged by how much sales revenue exceeds the cost of the center.

Sales budget are prepared for revenue center and budgeted figures are compared with actual sales.

Generally the costs are not related to output.

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. Normally, separate reporting systems are used to report effectiveness. Efficiency is judged in terms of financial performance.

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 center manager because of the responsibility to produce the product most efficiently. Profit center's performance measured in terms of profit. It enhances profit consciousness Example : division of a company that produces and markets different products.

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.

Financial performance of the manager of the division is measured by comparing the actual with projected rate of return on investments

Categories Of Audits

Categories Of Audits

THE BALANCE In the rapidly changing world of business, considering SCORECARD gives an only the financial measures of performance

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.

The BSC framework considers the customer perspective, internal business perspective, & the innovation/learning and growth perspective, in addition to the financial perspective

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

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 comes

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

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

Divisional autonomy:- each divisional manger should be free to satisfy the requirements of his profit center from internal or external sources. There should be no interference in the process by other divisions like buying centers and selling centers