MANAGEMENT CONTROL

SYSTEMS
 CONTROL

Elements of a Control System Every control system has at least four elements:

1. A detector or sensor—a device that measures what is actually happening in the

process being controlled.
2. An assessor —a device that determines the significance of what is actually
happening by comparing it with some standard or expectation of what should
happen.
3. An effector—a device (often called “feedback”) that alters behavior if the assessor
indicates the need to do so.
4. A communications network—devices that transmit information between the
detector and the assessor and between the assessor and the effector.
 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).

• It includes planning, organizing, directing, staffing, controlling.

• 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 layers in the hierarchy.
• 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 Processes.
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 tells managers what
is happening and how that compares to the desired state.
• Much management control is self-control; that is, control is maintained not by an
external regulating device like the thermostat, but by managers who are using their
own judgment rather than following instructions from a superior.

• Drivers who obey the 65 mph speed limit do so not because a sign commands it, but
because they have consciously decided that it is in their best interest to obey the law.
 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.

• 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.

• If all systems ensured the correct action for all situations, there would be no need for human

managers
 Boundaries of Management Control
• We distinguish it from two other systems: strategy formulation and task control.
• Management control fits between strategy formulation and task control in several respects.
• Strategy formulation is the least systematic of the three, task control is the most systematic,
and management control lies in between.
• Strategy formulation focuses on the long run, task control focuses on short-run activities,
and management control is in between.
• Strategy formulation uses rough approximations of the future, task control uses current
accurate data, and management control is in between.
• Each activity involves both planning and control, but the emphasis varies with the type of
activity. The planning process is much more important in strategy formulation, the control
process is much more important in task control, and planning and control are of
approximately equal importance in management control.
• 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
Management control involves a variety of activities, including:

• 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.

 Management control does not necessarily require that all actions correspond to a previously
determined plan, such as a budget. Such plans are based on circumstances believed to exist at
the time they were formulated. If these circumstances have changed at the time of
implementation, the actions dictated by the plan may no longer be appropriate.

 While a thermostat responds to the actual temperature in a room, management control involves
anticipating future conditions to ensure that the organization’s objectives are attained. If a
manager discovers a better approach—one more likely than the predetermined plan to achieve
the organization’s goals—the management control system should not obstruct its
implementation.

 In other words, conforming to a budget is not necessarily good, and departure from a budget is
not necessarily bad.
 SUMMARY

• A system is a prescribed way of carrying out any activity or set of activities.

• The system used by management to control the activities of an organization is called the management

control system.

• Management control is the process by which managers influence other members of the organization to

implement the organization’s strategies.