01 - the nature of management control systems

8/13/2019 01 - The Nature of Management Control Systems

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Chapter 1

The Nature ofManagement Control Systems


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BASIC CONCEPTS

Define the terms in the name ofthe course:

Control

Management

Systems


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Control

Control: to ensure that strategic intentionsare achieved.

Elements of a control systems:1. A detector or sensor (sensor)

2. An assessor (penilai)

3. An effector (umpan balik)

4. A communications network (jaringankomunikasi)


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Elements of Control Process

Control

device

Entity

being

controlled

2. Assessor. Comparison

with standard.

3. Effector. Behavior

alteration, if needed

1.Detector. Information

about what is happening


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Controlling Examples

Thermostat

A thermometer

An assessor

An affector

A communication network

Body temperature The sensory nerves

The hypothalamus The muscles & organs

Overall communications system of nerves


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Controlling Examples

Automobile driver

Eyes (detector)

Brain (assessor)

Foot (affector)

Nerves (communication network)

Eyes Brain Foot


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Management

An organization consist of a group of people whowork together to achieve common goals(satisfactory profit).

Organization are led by a hierarchy of managers.1. CEO overall strategies

2. Managers of business units strategies

3. Managers of department strategies

4. Managers of section strategies

GOALS


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The management control process is theprocess by which managers at all levels

ensure that the people they supervise

implement their intended strategies.


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Management Control Process VsSimpler Control Processes

1. Standard is not preset (involved planning &control).

2. Management control is not automatic.

3. Management control requires coordinationamong individuals.

4. The connection from the perceiving the need foraction to determining the action required toobtain the desired result may not be clear.

5. Much management control is self-control.


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Systems

A systemis a prescribed and usually repetitiousway of carrying out an activity or a set ofactivities.

Systems are characterized by a more or lessrhythmic, coordinating, & recurring series ofstepsintended to accomplish a specific purpose.

Many management action are unsystematic

(based on judgment).

If all systems ensured the correct action for all situations,

there would be no need for human managers.


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BOUNDARIES OFMANAGEMENT CONTROL

Define management control.

Distinguish it from two other systems (or

activities) that also require planning &control:

Strategy formulation

Task control


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General Relationships Among Planningand Control Functions

Activity Nature of End Product

Strategy

formulation

Management

control

Task

control

Goals, strategies, and policies

Implementation of strategies

Efficient and effective

performance of individual task


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Management Control

Management control is the process by whichmanagers influence other members of theorganization to implement the organizations

strategies. Management Control Activities:

Planning

Coordinating

Communicating Evaluating

Deciding

Influencing


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Management Control Activities

Management control does not necessarilyrequire that all actions correspond to apreviously determined plan (ex. budget).

Based on circumstances

Conforming to a budget is not necessarily good, and

departure from a budget is not necessarily bad.


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Goal Congruence

Goal congruence means the goals of anorganizations individual members should beconsistent with the goals of the organization itself.

Management control process is systematic, butnot mechanical.

Involves interaction among individuals.

The management control systems should be designed &

operated with the principle of goal congruence in mind


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Tools for Implementing Strategy

Management control focuses primarilyon strategy execution.

Management controls a are only one ofthe tools managers use in implementingdesired strategies.


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Framework for Strategy Implementation

Managementcontrols

Implementation Mechanism

Human

Resource

Management

Organization

Structure

Culture

PerformanceStrategy

Framework for Strategy Implementation


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Organizational structurespecifies the roles,reporting relationship, & division ofresponsibilities that shape decision-making with

in an organization. Human resource managementis the selection,

training, evaluation, promotion, & termination ofemployees so as to develop the knowledge &skills required to execute organization strategy.

Culturerefers to the set of common beliefs,attitudes, & norms that explicitly or implicitlyguide managerial actions.

Continued


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Financial & Nonfinancial Emphasis

Management control systemsencompass both financial &nonfinancial performance

measure. Financial: net income, ROE

Nonfinancial: product quality,market share, customersatisfaction


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Aid in Developing New Strategies

Interactive control

Management control canprovide the basis for

considering new strategies. Calling management attention

to developments that need fornew strategic initiatives.

Todays

controls

Tomorrows

strategy


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Strategy Formulation

Strategy formulation is the process of deciding onthe goals of the organization & the strategies forattaining these goals.

Goals the broad overall aims of an organization Objectives specific steps to accomplish the goals

within a given time frame.

Goals are timeless.

In the strategy formulation, goals of theorganization are usually taken as given.


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Continued

Strategy are big plans, important plans

The need for formulating strategies usuallyarises in response to a perceived threat or

opportunity.

A threat or opportunity can arise from anywhere& at any time.

Complete responsibility for strategy formulation should

never be assign to a particular person or organizational unit


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Distinctions between StrategyFormulation & Management Control

Management Control

Implementing strategies

Systematic.

Involves a series of stepsthat occur in a predictablesequence.

Reliable estimates.

Involves managers &their staffs at all level.

Strategy Formulation Deciding on new

strategies.

Unsystematic. Involves judgment.

The numbers used areusually rough estimates.

Involves few people(sponsor of the idea,headquarters staff &senior management).


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Task Control

Task control is the process of assuring thatspecified task are carried out effectively &efficiently.

Transaction-oriented.

Some are mechanical.

Scientific.


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Distinction between Task Control &Management Control

Task Control

Not scientific Focus on specific

task

Relate to specific

task

ManagementControl

Scientific

Organizational units

Concerned withbroadly definedactivities.


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Examples of Decisions in Planning &Control Functions

Strategy Formulation

Acquire an unrelated

business

Enter a new business

Add direct mail selling

Change debt/equity ratio

Adopt affirmative actionpolicy

Devise inventory

speculation policy

Management Control

Introduce new product or

brand within product line

Expand a plant

Determine advertising

budget

Issue new debt

Implement minorityrecruitment program

Decide inventory level

Task Control

Coordinate order entry

Schedule production

Book TV commercials

Manage cash flows

Maintain personnelrecords

Reorder an item


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Impact of the Internet onManagement Control

Benefits of internet: Instant access.

Multi-targeted communication.

Costless communication.

Ability to display images.

Shifting power & control to the individual.

Impact of internet in the world of business:

Change the rules of the game in the business-to-individual consumer sector.

Change business-to-business commerce.


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Impact of the Internet onManagement Control

Internet makes the processing ofinformation involved in MCS easier &faster, with few errors.

Internet facilitates coordination & controlthrough the efficient & effective processingof information.

But the internet cannot substitute for the fundamental

processes that are involved in management control

01 - the nature of management control systems

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