...Introduction Management control system (MCS), as a vital part of an organization, which purpose allows organizations to ensure that their activities achieve the objects they desire. The process of designing and improving MCSs requires addressing three basic questions. What is desired? What is likely to occur? And What is the effect of contextual factors ?Then managers must address each of these questions. What controls should be used? In recent years, contingency-based research has maintained its popularity with studies including these variables but redefining them in contemporary terms. This paper provides a critical review of findings from contingency-based studies over the past 20 years, deriving a series of propositions relating MCS to organizational context. The paper examines issues related to the purpose of MCS, the elements of MCS, the meaning and measurement of contextual variables, and issues concerning theory development (Robert H. Chenhall 2003). on the effect of contextual variables on the design of Management Control System (MCS). It is tests the effect of each contextual variable on the relationship between MCS design and performance by using survey instruments. It is demonstrates that contextual variables contribute to the design of MCS. The following sections describe how to address each of these questions. What it is the organization Objectives and, more importantly, strategies that are derived from a good understanding of the organization’s objectives...
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...Summaries Management Control ------------------------------------------------- Session 1: Chapters 1,2,3 & 4 Chapter 1 Management and control Management control – all devices or systems managers use to ensure that behaviors and decisions of their employees are consistent with the organizations objectives and strategies (MCS) * Back end of management process * Involves managers taking steps to help ensure that employees do what is best for the org. Primary function of MC: to influence behaviors in a desirable way Benefit of MC: increased probability that organization’s objectives will be achieved Addressing types of problems: theft, fraud, unintentional error, etc Disadvantageous of MC: suppress initiative, creativity and innovation Control System: 1) Strategic Control – Is our strategy (still) valid or do we need to change it and if, how? Focus on the external tools. Management Control – Are our employees likely to behave accordingly? (do they understand what’s expected, and are they capable and willing to do so, if not how can we change it?) Focus on the internal mechanism. Causes of MC problems and needs for control: Can happen in any kind of combination simultaneously Can happen in any kind of combination simultaneously 1. Lack of direction – some employees perform poorly simply because they do not know what the organization wants form them. Management control therefore involves informing employees. 2. Motivational problems – individuals...
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...Q.1 How is RI (EVA) analysis carried out? Explain advantages and disadvantages. Ans. The EVA method is based on the past performance of the corporate enterprise. The underlying economic principle in this method is to determine whether the firm is earning a higher rate of return on the entire invested funds than the cost of such funds (measured in terms of weighted average cost of capital, WACC). If the answer is positive, the firm’s management is adding to the shareholders value by earning extra for them. On the contrary, if the WACC is higher than the corporate earning rate, the firm’s operations have eroded the existing wealth of its equity shareholders. In operational terms, the method attempts to measure economic value added (or destroyed) for equity shareholders, by the firm’s operations, in a given year. Since WACC takes care of the financial costs of all sources of providers of invested funds in a corporate enterprise, it is imperative that operating profits after taxes (and not net profits after taxes) should be considered to measure EVA. The accounting profits after taxes, as reported by the income statement, need adjustments for interest costs. The profit should be the net operating profit after taxes and the cost of funds will be the product of the total capital supplied (including retained earnings) and WACC EVA= [Net operating profits after taxes – [Total Capital * WACC] Example; Following is the condensed income statement...
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...Chapter 1 Management and Control Management control is a critical function in organisations. Management control failures can lead to large financial losses, reputation damage and possibly even to organizational failure. Reality shows us (in some examples illustrated on page 3-4) the importance of having good management control systems (MCS). However, adding to much control does not always lead to better control. Some MCS’s in common use often stifle initiative, creativity, and innovation. I.e. in organisations with a lot of bureaucracy a culture with a lack of responsibility can occur and due to the slow, bureaucratic processes people can find ‘creative’ ways to speed up this process. That good MCS’s are important is widely accepted, but within the field of MCS’s there are different views. An old, narrow view of a MCS is that of a ‘cybernetic’ system involving a single feedback loop. You can compare measuring performance with a thermostat; They measure the temperature, compare those measurements with the desired standard, and, if necessary, take a corrective action (turn on or off). This book, however, takes a broader view. It recognizes that may management controls in common use, such as direct supervision, employee-hiring standards and codes of conduct do not focus on measured performance. The focus instead on encouraging, enabling or, sometimes, forcing employees to act in the organization’s best interest. MCS can rather be proactive (to prevent) than reactive. The primary...
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...ijcrb.webs.com OCTOBER 2010 VOL 2, N O 6 INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Management Control System Hamed Armesh Faculty of Management ,MMU,Malaysia Listed in ULRICH S Dr. Habibollah Salarzehi , Dr.Baqer Kord Faculty of Management, University of Sistan and Baluchestan Abstract A management control systems (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. Finally, MCS influences the behaviour of organizational resources to implement organizational strategies. Keywords: Management , Control , Systems 1. Introduction To introduce this topic and understanding the importance of management control system we know that In the present globalised world, organisations need to use management control systems that go beyond the strategies that focus on acquisition of technology and logistics which are not sufficient to give the organisation sustained long-term competitive edge over its competitors. Management Control Systems (MCS) as defined by Anthony (cited by LangfieldSmith, 1997) is the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization s objectives . MCS is a system used in an organization which collects and uses information to evaluate the performance of the organizational resources...
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...management control system targets. Therefore, conventional management control systems focus on getting better operational efficiency. But as operational efficiency is no longer adequate to create sustainable competitive advantages, management control systems must be expanded to managerial practices that cultivate employee cooperation and creativeness in the discovery and development of new business opportunities. This is especially the case in the high-tech industries that are at the faced with the challenges of globalisation and employee teams must combine efficient communication with creativity. ``Project managers and product designers in software and other industries thus need to find ways to divide up products and tasks so that even teams of many of clever people can work and communicate efficiently as well as creatively'' (Cusumano, 1997). Simons (1987 and 1990) argued that control systems is in four categories, namely i. ii. iii. iv. Diagnostic control systems Boundary control systems Interactive systems Belief systems. These four different management control systems are identified recently by companies as effective categories of controlling system, companies must apply them in a way that maximizes operational effectiveness without limiting employee creativity. This task can be accomplished by using diagnostic measures as a way to improve operational effectiveness and the other three types of control measures as a way to mitigate its negative effects on employee creativity...
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...THE NATURE OF MANAGEMENT CONTROL SYSTEMS Sifat Sistem Pengendalian Manajemen SPM/ MCS SECARA RINGKAS o Berfokus pada strategi o Mendesain dan mengimplementasikan Sistem Manajemen Berkesinambungan o Mengendalikan kinerja perusahaan o Unsur SPM: 1. strategic planning, 2. budgeting, 3. resources allocation, 4. measurement, 5. evaluation, 6. reward systems, 7. responsibility center, dan 8. transfer pricing 9. MCS service, non profit organization, dan lainnya o Posisi SPM: Tujuan Perusahan – dijalankan dan tanggungjawab dari Manajemen – mengelola Sumber Daya yang ada – perlu kepastian Tercapainya Tujuan. Posisi SPM dalam Organisasi [pic] MANAJEMEN Proses Manajemen o Planning o Organizing o Staffing and Human Resource Management o Leading and Interpersonal Influence o Controlling Bidang Manajemen o Marketing o Production/ Operation o Purchasing o Human Resource o Finance and Accounting o Strategic o Information Systems PENGENDALIAN - CONTROL Elemen Proses Pengendalian: [pic] Empat Elemen Sistem Pengendalian 1. Detector: pelacak, sensor, monitor, urai kegiatan, observer. Perangkat yang mengukur apa yang sesungguhnya terjadi dalam proses yang sedang dikendalikan 2. Assessor: evaluator, asesor,selektor. Perangkat yang menentukan signifikansi dari peristiwa aktual dengan...
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...Management Control System CHAPTER 1 : THE NATURE OF MANAGEMENT CONTROL SYSTEMS By: Amirul Affan (115020305121001) Maria Dias Ika S (115020307121009) FACULTY OF ECONOMICS AND BUSINESS BRAWIJAYA UNIVERSITY 2014 A. Basic Concepts Management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. MCS influences the behavior of organizational resources to implement organizational strategies. MCS might be formal or informal. Control An organization must be controlled to ensure that is strategic intentions are achieved. But controlling an organization is much more complicated than controlling devices. Every control system has at least four elements: 1. Detector or sensor Device that measures what is actually happening in the process being controlled. 2. Assessor Device that determines the significance of what is actually happening by comparing it with some standard or expectation of what should happen. 3. Effector Device that alters behavior if the assessor indicates the need to do so 4. Communications network Device 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 business...
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...The Formal Control Process No Yes Communication Feedback Measurement Corrective action Revise Revise Responsibility center performance Rules Budgeting Report actual versus plan Was Performance satisfactory Other information Strategic Planning Goals and strategies Goals: The overall objectives, purpose and mission of a business that have been established by its management and communicated to its employees. The organizational goals of a company typically focus on its long range intentions for operating and its overall business philosophy that can provide useful guidance for employees seeking to please their managers. Goals are predetermined and describe future results toward which present efforts are directed. Rules. A business rule is a rule of a business, company, or corporation. It is a rule that defines or constrains some aspect of business and always resolves to either true or false. Business rules are intended to assert business structure or to control or influence the behavior of the business.Business rules describe the operations, definitions and constraints that apply to an organization. Business rules can apply to people, processes, corporate behavior and computing systems in an organization, and are put in place to help the organization achieve its goals. For example a business rule might state that no credit check is to be performed on return customers. Other examples of business rules include requiring a rental agent to disallow a rental tenant if...
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...IDEAL management control system? Management control is a process of assuming that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives. It is a fundamental necessity for the success of a business and hence from time to time the current performance of the various operations is compared to a predetermined standard or ideal performance and in case of variance remedial measures are adopted to confirm operations to set plan or policy. Some of the features of MANAGEMENT CONTROL SYSTEM are as follows: ➢ Total System: MANAGEMENT CONTROL SYSTEM is an overall process of the enterprise which aims to fit together the separate plans for various segments as to assure that each harmonizes with the others and that the aggregate effect of all of them on the whole enterprise is satisfactory. ➢ Monetary Standard: MANAGEMENT CONTROL SYSTEM is built around a financial structure and all the resources and outputs are expressed in terms of money. The results of each responsibility centre in respect to production and resources are expressed in terms of a common denominator of money. ➢ Definite pattern: It follows a definite pattern and time table. The whole operational activity is regular and rhythmic. It is a continuous process even if the plans are changed in the light of experience or technology. ➢ Coordinated System: It is a fully coordinated and integrated system. ➢ Emphasis: Management control requires...
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...tobe able to drive from the distribution centre to a store within a day. * Wal-Mart built large discount stores in small rural towns. 2. How do Wal-Mart’s control systems help execute the firm’s strategy? Answer : * Each store constituted an investment center and was evaluated on its profitsrelative to its inventory systems. Data from over 5,300 stores on its such assales, expenses, and profit and loss were collected, analyzed, and transmittedelectronically on a real-time basis, rapidly revealing how a particular region,district, store, department within a store, or item within a department isperforming. Information enables the company to reduce the likelihood of stock-outs and the need for markdowns and slow moving stock, and tomaximize inventory turnover. * Wal-Mart instituted several other policies and programs for its associates:incentive bonuses, a discount stock purchase plan, promotion from within, payraises based on performance not seniority, and an open-door policy. * Wal-Mart had also persuaded its suppliers to have electronic “hook ups” with its store. * Wal-Mart owned its trucks when most competitors outsources trucks. Case 1-3 Xerox Corporation (A) 1. Outline the management control system at Xerox. What are the key elements that make the system work? Xerox's management control system concentrated and focused on the responsibility and performance of 12 units, which...
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...Management control systems Solutions to Chapter 16 questions (a) See Chapter 16 for the answer to this question. In particular, your answer should stress: (i) The need for a system of responsibility accounting based on a clear definition of a manager’s authority and responsibility. (ii) The production of performance reports at frequent intervals comparing actual and budget costs for individual expense items. Variances should be analysed according to whether they are controllable or non-controllable by the manager. (iii) The managers should participate in the setting of budgets and standards. (iv) The system should ensure that variances are investigated, causes found and remedial action is taken. (v) An effective cost control system must not be used as a punitive device, but should be seen as a system that helps managers to control their costs more effectively. (b) Possible problems include: (i) Difficulties in setting standards for non-repetitive work. (ii) Non-acceptance by budgetees if they view the system as a punitive device to judge their performance. (iii) Isolating variances where interdependencies exist. (a) See ‘Planning’, ‘Motivation’ and ‘Performance evaluation’ in the section on the multiple functions of budgets in Chapter 15 for the answer to this question. The answer should emphasize that the role of motivation is to encourage goal congruence between the company and the employees. (b) See ‘Conflicting roles of budgets’ in Chapter 15 for an explanation of how...
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...Abrams’ top management is satisfied with their management systems and performance measurement scheme but they notice three areas of concern. The first concern is that there are conflicts over transfer prices of parts sold by the product divisions to the AM divisions. The problem arises when the part being transferred is an AM division part. Usually the transfer prices are based on the outside OEM market prices but here it is not possible because the part has never been sold by Abrams on the OEM market. So, there is not any historical cost. This part is exclusively sold by the AM division. The internal policy concerning the transfer pricing based on the outside OEM market prices works well when it is possible to use it. But nothing was planned when it is a part which is sold solely by the AM division. That is why conflict occurred. It is important to take into consideration this conflict because they could have a negative impact on the company performance such as the less efficiency of the division which is losing time with this problem and the relationship between these two divisions is affected. It is not in the company’s best interest. The solution to this problem * There should be a transfer price fixed by the top management in compliance with the AM division and the other divisions involved which could be revised when it is out of date. This fixed price could be adjusted due to inflation. * There should be an internal policy on it. Therefore, top management should...
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...Term Paper On Management Control System Topic: Recent Balance Scorecard Theory & Practices Of Bangladeshi Company SUBMITTED TO: Md. ABUL KASHEM Associate professor SUBMITTED BY: RIFFAT ARA RAFIQ; ID: 61018-11-061 SESSION: Fall’ 2011 DATE OF SUBMISSION: 26th DECEMBER ’2011 DEPARTMENT OF MANAGEMENT INFORMATION SYSTEM Acknowledgement I express my gratefulness to Almighty Allah for his kindness, which enabled us to complete this work properly and in time I am grateful to our course teacher, Md. Abul Kashem, Associate Professor , Department of Management information system, University of Dhaka for providing us all the information about information technology, for his guidance, constructive criticism, valuable suggestions and untiring help throughout the course of this work. I am highly delighted to express our cordial gratitude and veneration to our parents for their constant help, affection support and sacrifices. The Author December 26th , 2011 Letter of transmittal Date: 26/12/2011 To, Md. Abul Kashem, Associate Professor Department of Management Information System, University of Dhaka. Sub: Application for the submission of Term Paper. Sir, I respectfully state that, I am a student of EMBA program in this department at the session of spring’2011.you have asked for the term paper on 28th November’2011. The topic of...
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...Chapter 8 Strategic Planning and Ten–Ten Planning To be strategic is to have plans of action that provide directions for operating in an uncertain world. In this section, our focus is on developing strategic plans to compete in a world characterized by monopolistic competition. Notice that the emphasis is on plans of action and not on a single plan. There is no single plan or single planning approach that can deal with the complexity of contemporary markets. What is needed is a continuous process for churning out new plans, for differentiated products and services, in order to compete in a dynamic environment. This chapter presents a brief overview of the various approaches to strategic planning and provides an overview of the planning literature. There is a lot of material to slog through, but each approach to planning has something to offer. This overview will set the stage for presenting the Ten–Ten planning process in the next chapter. The next chapter will integrate the various planning approaches and present a simplified, yet robust approach to planning called the Ten–Ten planning process. The key benefit of the Ten–Ten planning process is that it can be used for developing business plans in a very short time span. 8.1 Planning Concepts There are two generic planning strategies that a business can pursue.Michael Porter originally identified three generic strategies. He noted that a business can also focus on a market that is not very competitive. Most people consider...
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