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Management Control System

Management Control System

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Published by Arun Nagar

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Categories:Business/Law
Published by: Arun Nagar on Apr 24, 2012
Copyright:Attribution Non-commercial

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12/02/2012

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Management Control System
 
A
management control systems
(MCS) is a system which gathers and uses information to evaluate theperformance of different organizational resources like human, physical, financial and also the organization as awhole considering the organizational strategies. Finally, MCS influences the behavior of organizational resources to
implement organizational strategies. MCS might be formal or informal. The term „management control‟ was given
of its current connotations by Robert N. Anthony.Robert N. Anthony (2007) defined Management Control is the process by which managers influence other members
of the organization to implement the organization‟s strategies. Management control systems are tools to aid
management for steering an organization toward its strategic objectives and competitive advantage. Managementcontrols are only one of the tools which managers use in implementing desired strategies. However strategies getimplemented through management controls, organizational structure, human resources management andculture.
 Anthony & Young (1999) showed management control system as a black box. The term black box is used
 
to describe an operation whose exact nature cannot be observed. MCS involves the behavior of managers and thesebehaviors cannot be expressed by equations. Anthony & Young (1999) showed that management accounting hasthree major subdivisions: full cost accounting,differential accounting and management control or responsibility
 
accounting. 
 
According to Horngren et al. (2005), management control system is an integrated technique for collecting and usinginformation to motivate employee behavior and to evaluate performance. 
.According to Simons (1995),
 
Management Control Systems are the formal, information-based routines and procedures managers use to maintainor alter patterns in organizational activities.
CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEMS
Effective control systems have certain characteristics. For a control system to be effective, it must be:1.
 
Accurate
. Information on performance must be accurate. Evaluating the accuracy of the information they receive is one of the mostimportant control tasks that managers face.2.
 
Timely
. Information must be collected, routed, and evaluated quickly if action is to be taken in time to produce improvements.3.
 
Objective and Comprehensible
. The information in a control system should be understandable and be seen as objective by theindividuals who use it. A difficult-to understand control system will cause unnecessary mistakes and confusion or frustration amongemployees.4.
 
Focused on Strategic Control Points
. The control system should be focused on those areas where deviations from the standards aremost likely to take place or where deviations would lead to the greatest harm.5.
 
Economically Realistic
. The cost of implementing a control system should be less than, or at most equal to, the benefits derived fromthe control system.6.
 
Organizational Realistic
. The control system has to be compatible with organizational realities and all standards for performance mustbe realistic.7.
 
Coordinated with the Organization's Work Flow
. Control information needs to be coordinated with the flow of work through theorganization for two reasons: (1) each step in the work process may affect the success or failure of the entire operation, (2) the controlinformation must get to all the people who need to receive it.8.
 
Flexible
. Controls must have flexibility built into them so that the organizations can react quickly to overcome adverse changes or totake advantage of new opportunities.9.
 
Prescriptive and Operational
. Control systems ought to indicate, upon the detection of the deviation from standards, what correctiveaction should be taken.10.
 
Accepted by Organization Members
. For a control system to be accepted by organization members, the controls must be related tomeaningful and accepted goals.These characteristics can be applied to controls at all levels of the organization.
 
Effective Organizational Control Systems
The management of any organization must develop a control system tailored to its organization's goals and resources.Effective control systems share several common characteristics. These characteristics are as follows:
 
A focus on critical points.
For example, controls are applied where failure cannot be tolerated or where costscannot exceed a certain amount. The critical points include all the areas of an organization's operations that directlyaffect the success of its key operations.
 
Integration into established processes.
Controls must function harmoniously within these processes and shouldnot bottleneck operations.
 
Acceptance by employees.
Employee involvement in the design of controls can increase acceptance.
 
Availability of information when needed.
Deadlines, time needed to complete the project, costs associated withthe project, and priority needs are apparent in these criteria. Costs are frequently attributed to time shortcomings orfailures.
 
Economic feasibility.
 
Effective control systems answer questions such as, “How much does it cost?” “What will itsave?” or “What are the returns on the investment?” In short, comparison of the costs to the benefits ensures that
the benefits of controls outweigh the costs.
 
Accuracy.
Effective control systems provide factual information that's useful, reliable, valid, and consistent.
 
Comprehensibility.
Controls must be simple and easy to understand.
Need for Strategic PlanningHere are some key ingredients to successful planning and implementation:ƒ Creating Vision and Direction that is simple and clear
 – 
a strategy may be fairly complicated at the highest levelbut the closer it gets to the front line and the marketplace, the simpler it has to be.ƒ A Good Plan
 – 
is well thought out, challenges assumptions, and is created with input from sources inside andoutside the organization.ƒ Great Execution
 – 
requires commitment from the very top. This commitment must be demonstrated throughbehavior, investment, communication and accountability. The plan is a living document that must become part of theculture and updated to reflect changes in the environment.ƒ Communicate, Communicate, and Communicate!
 – 
Continuously using different medium and in terms thatconnect individuals and their roles to the vision and success. Too often communication is done half way. We tell,
 but don‟t test for understand
ing. To close the loop, build in ways to test for employee, at every level an area withinan organization, understanding of the vision and strategy.
You may still be asking the question: “Why go through all this hard work of creating a vision, establishing valuesand formulating a strategy?” When you combine a good strategic plan and g
reat execution an organization willtransform. The result will be an organization with focus, accountability and more time for the important activities.Here are just a few of the benefits of good planning and great execution;ƒ Better Decisions - Information communicated through vision and strategy allows people to make the bestdecisions (hiring and rewarding the right people, adopting and developing the right systems, making the rightinvestments, etc...).ƒ Increased Energy
 – 
Resulting from rallying behind a cause, and elimination of conflict and confusion of priorities.

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