Ch-1Nature of MCS

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    Ch-1

    Nature of Management Control System

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    Concept :

    Ev ery organization exists to achie v e certainobjecti v es. it has limited resources at itscommand and operates quite often in a dynamicen v ironment. In order to achie v e its objecti v es,managers, therefore require a system by whichthey can regularly monitor process, identify the

    bottlenecks and take timely actions to set thingsrights. This is the function of control.

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    Meaning

    F irst we understand meaning of Management, Control and system.

    ManagementManagement refers to the team of people at the helm of affairs of anorganization which is responsible for running and guiding the destiny of theenterprise.

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    Meaning

    ControlControl means making e v ents conform toplans.

    System A system is defined as a prescribed manner of carrying out repetati v es. It in v olv es

    coordination.

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    Meaning

    Management control is a type of planningand control acti v ity that is done in an

    organization. It is the process by whichManagement influences other members of the organization to implement theorganizations strategies effecti v ely andefficiently.

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    Meaning

    A number of acti v ity inv olv ed in Managementcontrol namely planning, coordination,communication, e v olution, decision making

    and influencing others behav

    ior.Control is the system of ensuring that theactual state of action is in line with thedesired state of action.

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    M eaning

    Management Control is a systematic method

    used by management to exercise control ov

    er the implementation of strategires.

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    D efinition

    Management control is the process whichmanagers assure that resources are obtainedand used effecti v ely and efficiently in theaccomplishment of the organizationsobjecti v es.

    - Robert N Anthony.

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    D efinition

    Managerial Control implies the measurementof accomplishment against the standards andthe correction of de v iations to assureattainment of objecti v es according to plans.

    - Koontz.

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    S cope Of M anagement Control:

    A management control system refers to theframework by which managers can ensurecontrol o v er their subordinates as well as

    control o v er the organization as a whole.E lements:- Setting performance standards

    - Reporting operating results- Analyzing performance- Taking correcti v e action

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    Components Of Control Process

    1 .Detector Communication

    Network

    3. E ffector .

    2.Assessor

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    Components Of Control Process

    Detector: Information about what is happening

    Assessor: Comparison with standard.

    Effecter: Beha

    vior alteration, if needed.

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    B oundaries Of M anagement Control:

    Management control lies between strategyformulation and task control.Therefore strategic planning andoperational/task control are the boundaries of management control system.

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    StrategyF ormulation

    ManagementControl

    TaskControl

    Goals, Strategies and policies

    Implementation of strategies

    E fficient & effecti v e performance of indiv idual tasks.

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    Strategicplanning

    ManagementControl

    TaskControl

    Least systematic, focuses onLong run, based on rough

    approximation

    Most systematic, short termoperating acti v ity, use current

    Accurate data.

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    Str at egic planning

    Strategic planning process used by firms for deciding on the goals of the organization andstrategies to be used for achie v ing the goals.Strategic planning is the process of decidingon the objecti v es of the organizations onchanges in these objecti v es on the resourcesused to attai8n these objecti v es & on the

    policies that are to go v ern the acquisition useand disposition of these resources.

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    Str at egic planning

    In short Its focuses is on a single aspect of thecompany at a time.Strategic planning is essentially irregular.It is neutral and impersonal.It is mainly concerned with unstructured or unprogrammed decisions.It is depends largely on external information.

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    Co nt inue

    It is in v olv es estimates o v er a rather long timeperiod exceeding one year.The degree of uncertainty in v olv ed in strategicplanning is higher than in management control.Strategic planning is an analytical and creati v eacti v ity.

    It's communication is much simpler andinv olv es relati v ely few persons.

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    O per at io nal/ t ask co ntr o l

    O perational/task control is the process of assuring that specific tasks are carried outeffecti v ely and efficiently.F ocus of O perational/task control is onindiv idual tasks or operations.It is concerned with scheduling and

    controlling indi v idual jobs.

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    O per at io nal/ t ask co ntr o l

    In short Its focus is limited to a single task or operation.O perational control occurs within a set of well

    defined procedures and rules deriv

    ed frommanagement control.It is a rational system because the action to betaken is decided by a set of logical rules.Time horizon of operational control tends to beday to day.

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    Characteristics Of M anagement Control

    Continuous processGoal congruenceUniv ersalityTotal SystemCo-coordinating agencyGoal orientationF inancial structureRhythmic

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    D esign Of The Control Process:

    Setting targets which will lead to achie v ementof the organizations objecti v es to beachie v ed in a gi v en time period.Ev aluation of performance by comparing itwith the targets &Taking correcti v e action.

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    D esign Of The Control Process:

    Actual State(Performance)

    Remedial ActionComparison(Gap)

    Desired State(Targets)

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    Str uct ur al f o undat io n o f managemen t

    co

    ntr o

    l syst

    emThe key pre-requisite to effecti v e design of the MCS is to recognize the main features of the v arious sub units in an organization.

    An organization con v erts inputs into desiredoutput.The manager exercises control or authority

    ov er the inputs and process is responsible for generating the desired output.

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    Co nt inue

    Process

    Output-Profit

    In put-MoneyRaw material

    -Humanefforts

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    Co nt inue..

    A firm is di v ided into simpler, morehomogenous, subunits or functions or departments. E ach of these can be v iewed asa process of con v erting input into output.The most important quality of each subunit or department is whether its outputs can be

    quantified and measured.

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    Co nt inue..

    The second major distinguishing feature of v arious types of departments are whether theprocess they use are well defined andunderstand.

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    Co nt inue..

    Process K n ow Process U nkn ow n

    M easurable

    outputs

    F ocus on input-output relationshipefficiency. (MostManufacturing dept.)

    F ocus on output

    ( some staff depts.Namely legal somemaarketing dept.)

    N o n measurableoutputs

    F ocus on process,procedure andpractices. (somestaff dept. such aspersonnel.)

    F ocus on inputs resources allocatio9n.(some R & D dept.)