Notes
Program Name- MBA
Course Name- Management Control System Sem.- IV
Unit Number-01 Unit Name- Introduction
Topic Name- Basic Concepts
Introduction-
Management control is concerned with coordination, resource allocation, motivation, and
performance measurement. The practice of management control and the design of management
control systems draws upon a number of academic disciplines.
• Management control involves extensive measurement and it is therefore related to and
requires contributions from accounting especially management accounting.
• Second, it involves resource allocation decisions and is therefore related to and requires
contribution from economics especially managerial economics.
• Third, it involves communication, and motivation which means it is related to and must
draw contributions from social psychology especially organizational behaviour.
Content
Management Control as the process by which managers influence other members of the
organization to implement the organization’s strategies. According to Kaplan, management
controls are exercised on the basis of information received by the managers.
Management
An organization consists of a group of people who work together to achieve certain common goals
(in a business organization an important goal is to earn a satisfactory profit). In an organization
you have hierarchy of managers, with the Chief Executive Officer (CEO) at the top, the managers
of the business units, departments, sections and other sub units below the CEO.
Depending on the size and complexity of the organization, there may be several layers in the
hierarchy. Except for CEO, each manager is both a superior and a subordinate. Each one supervises
people in his own organization unit and is a subordinate of the manager to whom he reports.
Control
The control process is similar to control process in a car. In a car if an accelerator is pressed it goes
faster, when the break pedal is pressed it slows or stops, when the steering wheel is rotated it
changes its direction. With these devices, the driver controls the speed and direction of the vehicle.
If any of these devices does not work, the car will be out of control.
System
A system is a prescribed way of carrying out an activity or set of activities, usually the activities
are repeated. Most systems are less precise than computer programs, their instructions do not
cover all eventualities and the user of the system must make judgments when these eventualities
occur. Nevertheless, a system is characterized by more or less rhythmic, recurring, co-ordinated
series of steps that are intended to accomplish a specific purpose.
A control system is a set of formal and informal systems to assist the management in steering
the organization towards its goals. Controls help in guiding employees effectively towards the
accomplishment of the organization’s goals. Establishing a control system in an environment of
distributed accountability, reengineered processes, and local autonomy and empowerment is a
challenging task.
Strategies and Management Control
There is a close interface between strategies and management control. This interface is indicated
by the concept of "interactiv e control" formulated by Simons (1995).
Control system is essentially a strategy implementation tool. When viewed from this perspective,
strategy and control systems are coupled with each other. Information generated from the control
system is useful in formulating new strategies. When control system generates meaningful and
useful information for thinking about new strategies, such a control system is referred to as
"interactive control". The information from such a control system has a learning value for the
managers and the organization as a whole.
Because of "strategic uncertainties" such as changes in technologies, competiton,
lifestyles, Customer preferences etc., it is important that control system should throw
up information relating to indicators of strategic uncertainties and indicators of
troubles. Then such a control system has learning value for all the employees leading
to a proper "learnign environment". Su ch a control system also makes the
organization a "learning centre". Thus a strong interface between the strategy and
control system makes the organizations learning organization.
Characteristics of Good Management Control
• perfect control does not exist; you are dealing with individuals, would be costly
• control loss; cost of not having a perfect control system
• optimal control; control losses are expected to be smaller than the cost of implementing
more controls
• good control is: future-oriented, objectives-driven (however: difficult to assess and plan)
Summary-
• Management control system is an important system which is set of interrelated
communication structure which facilitates the purpose of an organization on a continuous
basis.
• In controlling the organization the leader or manager plays vital role.
• The management control process is the process by which managers at all levels ensure
that the members of the organization implement the departmental strategies to achieve
the goals.
• Every control system has at least four elements, viz. a detector or sensor, an assessor, an
effector and a communication network.
• Management Control does not necessarily mean that actions should correspond to a plan
such as budget.
Self-Assessment Questions-
1. What do you analyse as the impact of the internet on the Management Control?
2. How do you describe formal aspects of management control systems to include a generic
set of five mutually supportive management subsystems?
3. Examine the role played by informal control process in the development of management
control system.
4. Do you approve of disagreements about the domain of management control systems exist
between different experts in the field? Why/why not?
5. Control systems play an important role in service as well as manufacturing organizations.
Do formal and informal systems play an important role in a hospital? What steps should
the hospital management take to ensure the effective implementation of management
control system?