Management Control Systems

Basic Concepts
 Press the accelerator, and your car goes faster. Rotate the
steering wheel, and it changes direction. Press the brake
pedaL and the car slows or stops. With these devices, you
control speed and direction; if any of them is inoperative,
the car does not do what you want it to. In other words. it
is out of control.
 An organization must also be controlled: that is. devices
must be in place to ensure that its strategic intentions are
achieved. But controlling an organizabon is much more
complicated controlling a car. We will begin by describing
the control process in simpler systems.
 Elements of a Control System
 Every control system has at least four elements:
 A detector or sensor-a device that measures what is
actually happening in the process being controlled.
 An assessor-a device that detentions the significance of
what is actually happening by comparing it with some
standard or expectation of what should happen.
 An effectors-a device (often called "feedback") that alters
behavior if the assessor indicates the need to do so.
 Communications network-devices that transmit
information between the detector and the assessor and
between the assessor and the effecter.
These four basic elements of any control system are diagrammed in picture . We
shall describe their functioning ill three examples of increasing complexity: the
thermostat, which regulates room temperatme; the biological process that
regulates body temperature; and the driver of an automobile, who regulates the
direction and speed of the vehicle.

Thermostat The components of the thermostat are

(1)a thermometer (the detector), which measures the current temperature of a

room;
(2)an assessor which compares the current temperature with the accepted
standard for what the temperature should be;
(3)an effecter, which prompts a furnace to emit heat (if the actual temperatme is
lower than "he standard) or activates an air conditioner (if the actual temperature
is higher than the standard) and which also shuts off these appliances when the
temperature reaches the standard level
(4)a communications network, which transmits information from the
thermometer to the assessor and from the assessor to the heating or cooling
element.
Body Temperature Most mammals are born with a built-in standard of
desirable body temperature; in human~ that standard is 98.6°F. The
elements of the control mechanism by which the body strives to maintain
that standard are

(1)the sensory nerves (detectors) scattered throughout the body;

(2)the hypothalamus center in the brain assessor), which compares
information received from detectors with the 98.6°F standard:
(3)he muscles and organs (effectors) that reduce the temperature when it
exceeds the standard (via panting and wearing, and opening the skin
pores) and raise the temperate when it falls below the standard (via
shivering and closing the skin pores);
(4)the over all communications system of nerves.
Management

An organization consists of a group of people who work together to

achieve certain common goals (in a business organization a major
goal is to earn a satisfactory profit). Organizations are led by a
hierarchy of managers,
with the chief executive officer (CEO) at the top, and the managers
of business units, departments, functions, and other subunits ranked
below him or her in the organizational chart.

The complexity of the organization determines the number of players

in the hierarchy All managers other than the CEO are both
superiors and subordinates; they supervise the people in their own
units, and they are supervised by the managers to whom they report.
The CEO (or, in some organizations. a team of senior managers)
decides on the overall strategies that will enable the organization to
meet its goals.

Subject to the approval of the CEO, the various business unit

managers formulate additional strategies that will enable their
respective units to further these goals.

The management control process is the process by which managers

at all levels ensure that the people they supervise implement their
intended strategies.
Contrast with Simpler Control Process

The control process used by managers contains the same elements as

those in the simpler control systems described earlier: detectors,
assessors, effectors. And a communications system.

Detectors report what is happening throughout the organization;

assessors compare this information with the desired state;

effectors take corrective action once a significant difference between

the actual state and the desired state has been perceived;

and the communications system tell managers what is happening and

how that compares to the desired state.
Systems
A system is a prescribed and usually repetitious way of carrying out an
activity or a set of activities. Systems are characterized by a more or less
rhythmic, coordinated, and recurring series of steps intended to accomplish
a specified purpose. The thermostat and the body temperature control
processes described above are examples of systems. Management control
systems. as we have seen, are far more complex and judgmental.

 Many management actions are unsystematic. Managers regularly encounter

situations for which the rules are not well defined and thus must use their
best judgment in deciding what actions to take. The effectiveness of their
actions is determined by their skill in dealing with people, not by a rule
specific to the system (though the system may suggest the general nature of
the appropriate response)
Management Control
Management control is the process by which managers influence
other members of the organization to implement the organization's
strategies. Several aspects of this process are amplified here.

Management control Activities;

• Planning what the organization should do

• Coordinating the activities of several parts of the organization
• Communicating Information
• Evaluating Information
• Deciding what, if any action should be taken .
• Influencing people to change their behavior.
Goal Congruence

Although systematic, the management control process is by no means mechanical;

rather, it involves interactions among individuals. which cannot be described in
mechanical ways. Managers have personal as well as organizational goals. The
central control problem is to induce them to act in pursuit of their personal goals
in ways that will help to attain the organizations goals as well.

Goal congruence means that, in so far as is feasible, the goals of an organization's

individual members should be consistent with the goals of the organization itself.
The management control system should be designed and operated with the
principle of goal congruence in mind.

Thus, management control focuses primarily on strategy execution.

Control characteristics in Business activities
The first step in planning is establishing goals and developing strategy. This leads to
the second step in planning (developing action plans and functional strategies). The
standards set for control purposes also play a role in determining action plans and
functional strategies.

The action plans and functional strategy assume significance in performance and
measure­ment. Existing action plans, functional strategies, measured performance
and comparisons of performance with standards then affect the updating and
modification of future plans.

Finally, decisions about whether to maintain or change goals and strategy are
affected by previous modifications and updates, by comparisons between standards
and performance, and by evaluations and actions taken within the control system.

At the start of the process, planning plays a major role in shaping the control
system. By the end of the process, however, the later stages of control exert a
primary influence of planning. And, as P.F. Drucker has pointed out a careful
integration of planning and control can improve the effectiveness of both sets of
activities.
2. Flexibility:
Another characteristic of an effective control system is flexibility. This means that the
control system itself must be flexible enough to accommodate change

3. Acceptance by Members of the Organization:

The effectiveness and efficiency of controls largely depend on the acceptance by the
members of the organization.

Doing the right thing and doing things right both require people; controls are unlikely
to work unless people want them. If controls are to be accepted, it is important that
people clearly understand the purpose of the system and feel that they have an
important stake in it, more so when new systems are established.

People resent controls, especially those considered excessive. Excessive controls create
the impression that people are not treated to act on their own
4. Focus on Critical Activities:

The proper activities should be controlled. When people recognize that

certain specific areas will be monitored and compared to some standard, their
behaviour is likely to be channeledtoward the standards set.

Critical control areas (points) include allthe areas of an organisation’s

operationsthat directly affect the success of its keyoperations such as sales,
revenue,expenses, inventory levels, personnel turnover, safety for people and
otherassets, etc.

Furthermore, each manager will have his (her) own critical areas to
control.The focus should be on those areaswhere failures cannot be tolerated
andthe costs in time and money are excessive.

It may also be noted that management has to frequently balance control

systems to assure that controlling one activity does not cause another to
getout of control. For example, to meet production standard a supervisor may
overtax machinery and equipment.
5. Timeliness:

Another characteristic of an effective control system is that it

provides performance information in a timely way. Timeliness
does not necessarily mean maintaining a time schedule for
exercising control. It simply means exercise of control
mechanisms (or technique) as and when required.

6. Economic Feasibility:

Control benefits should outweigh costs. In other words, control

should be cost-effective. Thus the costs of the control system
have to be weighed against the benefits it can return.
7. Accuracy:
Information must be accurate if it is to be useful. This point is
directly related to our discussion of feed forward controls, used
in diagnosing a deviation. Since control systems are important
indicators of progress and are the basis for corrective reactions,
care has to betaken to ensure that control measurements are
accurate.
8. Ease of Understanding:
The control process should be simple so that it can be easily
understood and applied. Complexity often means lack of
understanding. Controls often become complex because various
persons are responsible for creating, implementing and
interpreting them.