MCIS Material

1.What is management Control System ?

 Management Control System is the process by which managers
assure that resources are obtained and used effectively and
efficiently in the accomplishment of organization's goals.
 It is the process by which managers influence the other
members of the organization to implement the Organization’s
Strategy”
2.What are the steps in control process?
• Establishing Standards and methods for Measuring
Performance.
• Measuring Performance.
• Determining whether Performance matches the Standards.
• Taking corrective action.

3. Formal Control Process Diagram

4. Hierarchy of Control
• Anthony and Govindarajan(1990) provided a conceptual framework
of control systems in an organisation in terms of three levels viz.
Strategic Planning, Management Control and Operational Control.
• This terminology has now been sharpened through the idea of an
"interactive hierarchy" of control represented by
• Strategic Planning and Control
• Management Control
• Operation Control or Task Control
5. Relationship between Strategic Planning, Management Control and Operational Control

6. The Relationship between Organizational Structure Planning &Control

7. How Management Control fits between Strategy Formulation and Operational Control?
8. Management Control System: Structure and Process.

9. Responsibility Centers

10.Types of Responsibility Centers

According to the nature of monetary inputs and outputs responsibility Centers
can be classified into four types:
I. Cost Centers
II. Revenue Centers
III. Profit Centers
IV. Investment Centers

Cost Centers are held responsible for the costs incurred but not for generating
revenue.
• The Cost Centre Manager can only independently control either output or
cost but not both at the same time.
• Thus, the cost centre can operate in two ways:
1.Specifying the Cost Budget and try to maximize output.
2. Specifying the expected output and try to minimize the cost.
• In the first case certain fixed budget is allocated to the cost centre and it
is expected to achieve the best possible output with the allocated
budget.
• Ex: Public Relations Department
Revenue Centers: Managers of revenue Centers are held responsible for
revenues(output)
• Generally these Centers are not directly responsible for profits
• The main objective of revenue centre is to maximize the net revenues
and are not responsible for production
• Some times these Centers may incur some cost but they are adjusted
with sales revenue to calculate the net revenue.
Profit Centres: These centers are responsible for earning profits
• The manager of these Centers have control over both the input(cost of
resources) and output(revenue earned).
 • He does not have control over the level of investment which is
controlled by the top management.
The manager in profit centre has to focus both on cost reduction and revenue
maximization without compromising on quality
Investment Centers
• Investment Centers are held responsible for cost incurred, revenue
generated and also the associated Investment .
• In theses Centers the managers have control over inputs, outputs and
investments.
• This motivates the managers to make best possible utilization of
resources under their control.
• The performance of Investment Centers are measured by Return on
Investment(ROI) or Return on Capital Invested(ROCE) and the economic
value added.
• The major problem with Investment Centers is that the value of
ROCE/ROI depend upon the accounting practices adopted in the balance
sheet of the organization.

11.Control Alternatives
• Various other types of controls exists as well.
• Personal/cultural controls: selecting the right people for right
jobs& developing team spirit
• Action Controls: focus on activities
• Results Controls: Focus on the output of action

12. What is adaptive MCS ?

• An adaptive management control system is a type of organizational
control system that emphasizes flexibility, learning, and responsiveness
to changes in the internal and external business environment. This
approach recognizes that the business environment is dynamic and
 uncertain, and it aims to create a system that can adapt and evolve over
time.
13. Management Control System is being viewed by cybernetics as an
Adaptive Control System.
• The word adaptation means the process of adjusting to a new
environment or situation.
• According to this view MCS in an organization is self regulatory and is
designed to assist the management in steering the organisation
towards achieving it’s goals by bringing out unity out of the diverse
efforts of sub units and of individuals.
• Under this view MCS consists of both Formal system and Informal
system
• These two subsytems are distinct, highly correlated and often
indistinguishable
• MCS becomes adaptive when the formal and informal sub systems
are internally consistent, mutually supportive and reinforcing
14. Mutually Supporting Management Sub-systems(MSMS)
 MCS consists of a Formal and Informal Sub systems
 Formal System of MCS makes delegation of authority possible with explicit structure,
policies and procedures to be followed by the members of the organisation.
 Formal documentation of theses structures, policies and procedures assists members of the
organisation in performing their respective duties.
 Within the Formal System, five mutually supportive management sub systems are there.
 Within the Formal System, five mutually supportive formal sub systems are there.
 Management Style and culture: prevailing style
 Infrastructure: organization structure and strategy
 Coordination and Integration: standing committees
 Rewards : individual and groups

• Just like in formal control system, there exists subsytems in

informal control system
• This set is symmetrical to the formal set that we studied earlier.
 • For infrastructure the informal counterpart is emergent roles

• Emergent roles are the informal relationships and responsibilities that emerges based on
expertise,experience and trust of managers

• These emergent roles arise out of personal contacts

• Management style and culture consists of the prevailing style of the organization and
principle values of the organization

• Informal coordination and integration mechanism are cooperative networks of

relationships that emerges as result of socialization and mutual adjustment

The informal rewards conists of personal feedback based upon performance.

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16. Goals and Objectives
• Every organisation functions to attain it’s goals
• Goals are defined as " broad qualitative statements of what the
organization wants to achieve in the long run on a permanent
basis “
• In many organisations corporate goals are set by the CEO with the
advise of the other member of the senior management and is
usually ratified by Board of directors.
• Some times goals are originally set by the founding fathers.
• Objectives are defined as "specific quantitative statement of ends,
the achievement of which is contemplated within a specified time".
• Many times these terms are also used interchangeably
• Generally, obtaining a goal will require completion or
accomplishment of various objectives.
 • As such, objectives can be thought of as pieces of a goal. While
goals are often repeated over time, objectives tend to be specific
and carried out during a single period - rather than repeated.

17.Characteristic of Goals (SMART)

18.Types of goals
19. Strategy : levels

Corporate Strategy
• It is about the right mix of business/businesses in which the organization want to
participate.

• In corporate strategy the issues are two:

• The definition of business in which the firm will participate

• The deployment of resources among the businesses

• Corporate Strategy decisions involves:

• Which businesses to be added

• Which businesses to be retained

• Which businesses should be given priority

• Which businesses should be deemphasized

20.Corporate Strategy formulation Process
1. Identify Strategic Objectives
- Determine the overall goals and objectives of the organization.
2. SWOT Analysis
3. Strategic Options Generation:
- Generate various strategic options based on the analysis.
- Aggressive strategy
- Diversification
- Turnaround
- Defend/quit
4. Strategy Selection:
5. Strategy Implementation
6. Monitoring and evaluation

Flow Chart
21.Goal Congruence
• Goal congruence is a concept in which the objectives and goals of different people
working in the organization tally and coincide with the organizational goals.
• Goal congruence means achieving agreement and alignment of orgnisational goals
with individual goals.

How to achieve goal Congruence?

• Know the all-Important Goals
• Set Achievable Targets
• Reward and Retain
• Pay or bonuses related to the size of profits termed as profit-related
pay.
• Rewarding managers with shares
• Rewarding managers with share options.
• Create A Happy Work Environment
• Make Organisational Structure simple

• Harmony of formal and informal communication systems

22. Organisational Structures
• Organization structure is essentially the arrangement of various
sub-units, departments and responsibility centers with defined
authority and responsibilities
• Types :For a proper understanding of the control process, it is
important to understand the nature of organization structure. The
following are the broad forms of organization structure:
• Functional Structure
• Divisional Structure
• Matrix Structure
• Network Structure
• In functional structure, an organization is structured on the basis of
critical. functions such as production, marketing, finance, HRD etc.,
with each manager having responsibility for the respective function.
 Integration across functions is ensured by the top management
through formal and informal meetings and controls.
• In divisional strucutre, an organization is structured on the basis of
a product line or group of product lines that constitutes the
division; the divisional manager is responsibile for all functions
related to the division. Integration across divisions is ensured by the
top management by initiating divisional performance control
systems
• In matrix organizations, organization is structured along two
dimensions viz, according to functions and according to projects /
products. Such strucutres are quite common in case of project
management organizations / R & D institution's wherein a person is
simultaneously responsible to two bosses e.g. the project manager
and the functional manager. In such organizations, integration is
achieved through task forces and project teams
• In network structures, organization is structured on the basis of
network requirements. With the advent of Information Technology,
the network structures have emerged as a new form of
organization structure. Most Information Technology firms are
organized around network