MANAGEMENT CONTROL SYSTEMS

COURSE COVERAGE

Unit I
Nature of Management control Control in organisations phases of management
Control system Management control Vs Task control.

Unit II
Control and organizational Behavior Types of organizations and their implications
Types of organizations and their implications Types of control and variations in
controls based on organizational structure and design.

Unit III
Goals and strategies Key variables in Management control Design and their types
key Result Areas.

Unit IV

Management control structure Expense control profit centers Transfer pricing
Investment centers Management control process Programming and
budgeting Analyzing reporting Performance evaluation.

Unit V

M.I.S. for management control Systems theory and management control
Installation of Management Information & Control System Structured and unstructured
decision Implication for control.
Special management control situations Multinational companies Service
organization Non-profit organizations Multi Project organization.
UNIT 1

Basic Concepts of
Management Control System
Management Control?
A systematic effort by business management
to COMPARE
PERFORMANCE to
PREDETERMINED standards, plans or objectives
in order to determine whether the performance is in line
with these standards
and presumably in order to take any remedial action.

In other words, management control are the operational
methods that enable the work to proceed as expected.
Types of Management Controls
Preventive and Detective Controls
- Preventive control- are designed to discourage errors or
irregularities.
Example: a computer program which asks for a password
prevents unauthorised access to information.
- Detective Control- are designed to identify an error or
irregularity after it has occurred.
Example: an exception report that detects and lists incorrect
or incomplete transactions.
CONTROL?
Is seeing that actual performance is guided
towards expected performance.
Helps in taking corrective measure in case of
deviation from planned course of action.
CONTROL IS KNOWING-
Exactly what work is to be done as to quantity, quality
& time available.
What resources are available for doing the work as
men, material & other facilities.
That the work has been done or is being done with
the resources available, within time available, at a
reasonable cost and in accordance with required
standard of quality.
Immediately of any delays, hold-ups or variations as
to what happened, its cause & remedy.
About the completed work as to time finished, quantity
& final cost.

Elements of Control
Authority
Knowledge
Guidance
Direction
Constraint
Restraint
Significance of Control
Reduces Risk
Basis for future action
Indicator for managerial weakness
Facility of coordination
Extension of decentralization
Characteristics of Control
Is a FUNCTION of management.
Is a DYNAMIC process.
Is a CONTINUOUS activity.
Is FORWARD looking.
Planning and Controlling are related to each
other.
Steps in the Control Process
Establishing Standards
(quantity, quality and time)
Appraising Performance
(Mgt. by Exception)
Comparison
(Actual performance meets with planned performance)
Taking Corrective Action
(Deviations may not occur again & objectives achieved)
Important Features of
Management Control System
A total system- covers all aspects of comps
operations.
Monetary standards all resources and outputs are
measured in monetary terms.
Definite pattern- whole operation is regular and
rhythmic.
Coordinated system- MCS is fully coordinated and
integrated system
Emphasis- on planning and control
Characteristics of a Good Control System
Future oriented
Clear objective
-which should be meaningful and realistic
-performance parameters specified
Minimum Control Losses
i.e. control system should be inexpensive and non
cumbersome
Phases of MCS
- Programming - Operating & Accounting
- Budgeting - Reporting & Analysis


Standards of Performance
A standard is a criterion against which performance and
results of the individual is measured or judged.
Standard should be based on scientific analysis and
should not be subjective in nature.
Characteristics
(i) Standard should be capable of achievement with
reasonable amt. of effort & time.
(ii) Standard should concentrate on results & not
procedures.
(iii) Standard should not be rigid.
(iv) Standard should be expressed in quantitative terms.
(v) Standards should be consistent with overall
organizational objectives.
Types of Standards for Measuring Performance
Physical Cost Revenue Capital Intangible
TASK CONTROL
Is the Process of ensuring that specified tasks are carried out
effectively & efficiently.
Is transaction-oriented that is, it involves the performance of
individual tasks according to rules established management
control process.

Task Control & Management Control
Task control involves the control of individual tasks and are
carried out as per rules & regulations laid down by the
management control process. Whereas management control
is oriented towards behavior.
The information important for task control is usually
Quantitative in nature, e.g., components used in a product,
no. of man hours. Management control is Qualitative in
nature involving interaction between superior and
subordinate.
Adequate or Effective Control System
Control by objectives- which should be meaningful and realistic.
Economy i.e. control system should be inexpensive and non
cumbersome.
Forward looking control- should bring out the deviation in light
as soon as possible.
Flexibility- i.e. It should not be rigid and retain its basic structure.
Direct Control- Control should be exercised on people , i.e.
control should be PEOPLE ORIENTED AND NOT WORK
ORIENTED.
Feedback- adjusting future actions based upon information
about past performance.
Simple and Balanced control- control lines must be simple for
both controller and controlled.