Management Control System

-Ranpreet kaur

Management Control System

Management Control System

Management control System:-

Management control system is a process of assuming that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.

According to Billy, E. Goaz:- “Management control seeks to compel event to conform to plans.”

According to William Travers Jerome:- “ Some sort of systematic effort to compare current performance to a predetermined plan or objective, presumably in order to take any remedial action required.”

Characteristics of Management Control System:-

The main characteristics of Management Control system are as following:-

1. A total system2. Monetary standards3. Definite pattern4. Coordinated system5. function of every manager6. Existence of goals and plans7. Forward looking8. Continuous process9. People oriented

10. Understandable11. Reporting deviations quickly12. Critical activity of organization13. Behavioral implications14. Emphasis

SCOPE OF MCSManagerial control is an important process in which accounting information is used

as to accomplish the organization’s objective. Therefore the scope of control is very wide that covers a broad range of management activities.

According to Holden, Fish and Smith the main areas of control are as follow:-

Policies control Control over organization Control over personnel Control over wages and salaries Control over cost Control over technique Control over capital expenditure Production control Overall control Control over External relations Control over Research and Development

Nature of Management Control:-Control is an important element of the process of managing. It ensure work

accomplishment according to plans. It is the process that guides and controls operations towards some predetermined goods.

According to Prof. R.N. Anthony “Management control is the process by which manager assures that the resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.”

It is a process by which people in the organization are made to work properly and most efficiently with a view to obtain best results.

It is concerned with measuring and evaluating performance so as to secure the best results under the circumstances.

An effort is made to compare the current performance to a predetermined objective or plan.

Thus control is fundamental function of the management to ensure work accomplishment according to predetermined plans and standards.

Most controls can be classified as:-

Preventive Controls are designed to discourage the errors and irregularities.

E.g.1. A manager’s review of purchase

prior to approval prevents inappropriate expenditures of office funds.

2. A computer program which ask for password prevent unauthorized access to information.

Defective controls are designed to identify an error or irregularity after it has occurred.

E.g. 1. An exception report that detects and

list incorrect or incomplete transactions.

2. A manager’s review of long distance telephone charges will detect improper or personal calls that should not have charged to the account.

Types of control

Preventive Control Defective Control

Process of Control:-

1. Well defined objective2. Determination of strategic point of control( Planning)3. Establishment of control standards4. Determination of controllable costs and control period5. Measurement of performance (Actual)6. Comparison of Actual Performance with Standard7. Corrective Actions

Adequate or Effective Control System:-

Efficiency and Effectiveness-

The following are the important requirements for making any control system effective in application:-

1. Control by objectives 6. Flexibility2. Direct Control 7. Economy3. Forward looking control 8. Feedback4. Managerial self control5. Simple and balanced control

Control by objective: - the control must be goal oriented and by objectives . As objectives classify the expected results in meaningful and realistic terms, they provide the control standards by which actual performance can be

measured. The control system should be according to the nature and need of the

organization.

Direct control:- Control should be exercised on people who work on machines and material. It should be employee oriented rather than work oriented.

Forward looking Control :- Control should always be forward looking. It should bring out the deviation in light as soon as possible. It must focus on strategic point with exception.

Flexibility:- The control procedure should not be rigid. Even the best plans and other predetermined criteria need to be changed form

time to time to meet a particular situation. However , an effective control system should retain its basic structure.Economy:- A simple control system is bound to be economical . It should not be cumbersome and expensive . Economy is the basic requirement of any good control system.

Feedback:- Feedback is the process of adjusting future actions based upon information

about past performance. This proves the worth and utility of control process.

Control should not be negative . It should be positive , constructive and helpful . Control is not a command, it is guidance. The system is really concerned with the arrangement for implementing decision made in strategic planning.

Control Environment

• An effective control environment supports and strengthen the other control elements, whereas a weak control environment undermines the other elements, rendering them useless.

• In an effective control environment , employees know that doing the right thing is expected and will be supported by upper level management, even if it hurts the bottom line.

• In a weak environment control procedure are frequently overridden or ignored , providing an opportunity for fraud.