What are the types of control in management control system?
These five types of management control systems are (i) cultural controls, (ii) planning
controls, (iii) cybernetic controls, (iv) reward and compensation controls and (v)
administrative controls.
How do you control a management system?
Here is a summary of the five steps of control management:
1.
2.
3.
4.
5.
Performance standards are established.
Actual performance is compared with planned performance.
The difference between the two is measured.
Causes contributing to the difference are identified.
Corrective action is taken to eliminate or minimize the difference.
What is the purpose of the management control system?
A management control system maintains a detailed level of oversight over the use of
resources within a business. The system assigns responsibility for resource
consumption to various individuals, whose performance is judged based on their ability
to manage resources in the most effective manner possible.
Controls: Manufacturing costs are not minimized at the expense of quality;
training and employee development; Cost competitive by setting a standard and
measuring actual costs against this standard. • Discretionary expense centers:
discretionary costs/managed costs – no such engineered estimate is feasible; i. Accounting,
legal, industrial relations, public relations, human resources and most
marketing activities
ii. The difference between budget and actual expense is not a measure of efficiency rather it
is just the difference between the budgeted input and the actual input. • General Control
Characteristics i. Budget Preparation – management formulates the budget for discretionary
expense center by determining the magnitude of the job that needs to be done. 1. Two
types of work: Continuing work and Special
2. Technique: management by objectives (MBO) – a formal process in which a
budgetee proposes to accomplish specific jobs and suggests the measurement to be used
in performance evaluation. ii. Incremental budgeting
iii. Zero-base review
iv. Cost variability 1. Discretionary expense centers – Management tend to approve
changes that correspond to anticipated changes in sales volume
2. Annual budgets for these centers tend to be a constant percentage of budgeted sales
volume. v. Type of financial control 1. Discretionary expense budget is to control costs by
allowing the manager to participate in the planning
Discretionary expense centers: Financial control is primarily exercised at the
planning stage before the costs are incurred. vi. Measurement of performance 1.
Discretionary: Financial performance report Is not a means of evaluating the efficiency of
the manager.
2. Total control is achieved primarily through nonfinancial performance
measures. (e.g. quality of service – through the opinion of their users.)
4. Administrative and Support Centers • Control problems: i. Difficulty in measuring
output
ii. Lack of goal congruence – pursue goals without regard to the whole welfare of the
company. • Budget preparation
Rewards
AND
RECOGNITION
LINE AND STAFF MANAGER:
About 50 Line and Staff Managers participated in the
Incentive Bonus Plan
.
The bonus was based on a fixed formula based on Corporate Earnings per Share.
Each participant in the Bonus Plan received a standard point based onOrganizational
Hierarchy.
The total bonus amount was divided into the total number of points received bythe
participants to arrive at an amount per point.
PLANT MANAGER:
In this case, the percent of award was related to the
plant’s
profit variance i.e.,budget vs. Actual profit.
But, if this profit variance was due to a huge amount of sales to the AM Division,there
was no increment in the percent of bonus of the manager.
FORM OF CONTROL & FACTORS THAT LEAD MANAGERTO CHOOSE ONE OF THE
OBJECT OF CONTROL•Result control – focused on result produced•Action control –
based on action taken•Personnel and cultural control – focus types ofpeople employed
and their shared norm & values
Result control used for controlling the behaviors ofemployees at all organizational level,
especiallybehavior of professional employees, those withdecision authority•Professional
= someone who is responsible forachieving a result rather than (for) performing a
task.•Result Control consistent with philosophy ofdecentralization  strategic business
unit responsibility center•Decentralization/delegation of decision right & designof
incentive systems  organizational architecture•Decentralization  support
empowerment