Management Control system

1. Characteristics of Management Control System
# Diagnostic : Formal systems to monitor results and correct deviations from
present performance standards.
# Interactive : Formal systems to personally involve in the decision activities
of subordinates.
# Beliefs : Formal systems to define, communicate and reinforce the basic
values, purpose and direction of the organisation.
# Boundary : Formal systems to establish explicit rules and limits which must
be respected. (code of business conduct)

2. Factors influencing design of MCS
A. Managerial style
B. Corporate culture
C. Organization structure
D. Shareholders ‘s control
E. Communication structure

3. Factors influencing design of management controls:
A. Managerial styles
# External Control :
Premise : Sub-ordinates can be motivated through rewards
An authoritative style
Organisational goals set by top management
# Internal Control :
Premise : Sub-ordinates will be motivated if they are involved in the
decision making process. A Participative style.
Employees experience a sense of achievement,
recognition and self- esteem.
# Mixed Control :
A combination of both.

4. B. Corporate culture :
$ Respect for the individual
$ Customer service
$ Passion for excellence
$ Total Quality Management
Management Control system should fit in well with the existing culture of the
organization.

5. C. Organzation Structure
1. Centralization / Decentralisation :
# Decide on the extent of decentralisation
# Decision making process
# Wider accountability
# Centralisation helps in knitting the sub-units of de-centralisation.
2. Organisational Slack :
Occurs when organisational goals / objectives are achieved without working
at maximum efficiency.
When environmental pressure is not there, slackness sets in.
Slack acts as a cushion against sudden changes in business
environment.

6. D. Stakeholder Control :
$ Investors
$ Customers
$ Employees
$ Public
Identify the crucial stakeholder variables that influence the control process
E. Communication structure :
Could be Formal or Informal.
Planning stages : Strategic
Business
Long-range
Operational
Above planning process must be linked through proper communication
Across various levels of the organisational hierarchy.

7. F. Result Controls :
# Controls employee’s behaviour
# Expectations are clearly communicated to the employees.
Eg; Quality level / Productivity / Sales targets
# Performance is measured.

8. MCS system in a big conglomerate :
>> Shareholder’s interest and expectations
>> Customer expectations
>> Regulatory requirements
>> Safety / Health / Environment
>> Accommodation of appropriate technology as part of controls
>> Multicultural dimensions for multi locations
>> Compatibility of controls in parent unit and subsidiary
>> Active ethics program
>> People dimension
>> Corporate Social Responsibility

9. Twelve steps for establishing Management Controls :
1. Controls must be constructive and not punitive.
2. Measurable objectives
3. Limited number of controls.
4. Balance among various aspects to be controlled
5. Assign specific responsibility
6. Compare actual performance to desired results
7. Capture early warning predictors eg; Absenteeism / Low marks
8. Sample the variable to be controlled
9. Acceptable range of variation for aspects to be controlled
10.Exception reports to go immediately to concerned person
11.Plans for corrective action and verification of effectiveness
12.Judgment in establishing controls

10. Control tightness
Tighter controls :
>> Time consuming
>> Costly to implement
>> Information systems need to be robust
>> Proper measurement techniques required
>> But not suitable for unpredictable environment
Best Control :
>> Combination of tight and loose
>> Autonomy / Flexibility / Innovation / Accountability

11. Elements Internal External Mixed
Infrastructure
Personal participation Rigid / Formal Flexible / Analytical
Rewards
Plan vs Performance High / Specific Parameters identified
Unhealthy Comptn
Coordination &
Integration
Personal Communication Formal meetings / Mix of both
Team based commn. Circulars
Control Process
Informal reports Formal process Less formal reports.
Verbal Integrated info systems
Frequent reports

12. Individual Rewards :
Encourage productivity, creativity, autonomy and accountability
among the employees.
Creates a healthy competition among the employees
Helps to retain best talent in the organisation
Negative :
Ill feelings among employees on account of perceived favoritism
Group rewards :
Creates a healthy competition among groups.
Encourage competitive effort and fosters team spirit among the employees.
Helps employees to motivate one another
Helps in integrating the organisation into a workable whole.
Negatives :
May encourage free riders.
De-motivate high performing individuals who happen to work in
under performing group.

13. Customer focused Total Quality Culture
>> Need to focus on customer satisfaction
>> Total employee involvement
>> Focus on continuous improvement
>> Top management commitment
>> Company wide Quality improvement programme
>> Quality function deployment everywhere.

14. Implementing TQM
# Top management driven
# TQM training programmes
# Implementation of TQM initiatives
# KAIZEN programmes
# Communication on customer needs / feedback
# Goal oriented team activity
# Data based management
# Empowerment of individuals

15. Infrastructure MGT. Style & Culture
# SBU # Participative
# Problem Solving team # Customer Focus
# Staff support for Q # Kaizen
# Quality training # Innovation
# Trust
Formal Control process
# SQC
# Informal planning
# Bench marking
# Activity Based Costing
# Customer Satisfaction
# Cost of Quality
Rewards Coordination & Integration
# Based on Q performance # Training in TQM
# Recognition programmes # Problem Solving
# Suggestion schemes # Employee Involvement
# Quality circles # Open Communication
MGT CONTROL SYSTEM FOR TOTAL QUALITY
Mutually Supportive Management Systems Model ( MSSM )

16. Total Quality Management
## Covers the entire organisation
## Passion for excellence covering all dimensions of products and services
## Total customer focus
General elements Q.C tools SPC / SQC
Customer focus Check sheets Process capability
Leadership Pareto analysis D.O.E
Employee participation Run charts Sampling plans
Quick response Scatter diagram
Design Quality Control Charts
Management by data Histograms
Partnership development
Corporate responsibility

17. Factors that could deter the success of TQM initiatives :
>> Lack of customer focus
>> Failure to involve employees of all departments at all levels.
>> Lack of integration across the organisation
>> Lack of link to strategy
>> Lack of compatibility with company culture
>> Inability to respond fast to customer needs

18. Environment :
>> Encouraging employee participation
>> Areas for improvement to go beyond cost reduction viz;
Quality / Delivery / Productivity / Safety / Work environment
>> Incentive schemes for “Kaizen ‘ projects
>> Benefit sharing on savings arising out of savings thro’ improvement.
>> Institutionalize :
Suggestion schemes
Quality circles
Small group activity
>> “Suggestor for the month” award
>> Quality training in using basic tools
>> Encouraging innovation at operational level.

19. KEY SUCCESS FACTORS / Key variables
$ Measuring the whole company
$ Measuring whole Department / Division
$ Measuring functional departments
Warrants close monitoring by the management on a continuous
basis.
Some measures of key variables :
1. Short term profitability
2. Market share
3. Productivity
4. Product leadership
5. Personnel development
6. Employee morale
7. Public accountability

20. Some examples
Hospitals
>> Beds occupied
Hotels
>> Occupancy rate
Electricity Board
>> KWH sold
Restaurant
>> Revenue / Labour cost
Retail store
>> Gross margin

21. Marketing Key Variables
1. Order book position
Helps in planning procurement and production planning for distribution
2. Market Share :
Performance indicator
Competitive strength
3. Institutional sale :
Orders received from institutional buyers

22. Asset management variables :
1. Asset turnover :
Relationship between total assets in the organisation and sales volume.
Calls for constant managerial attention.
2. Working capital turnover :
Efficiency in managing working capital is indicated.
3. Inventory turnover :
Relationship between inventory in the organisation and sales volume.

23. Production Variables
1. Capital utilisation :
Affected by Marketing variables / Procurement variables
Eg; Dairy sector >> Milk sold / Milk procured
Hotels >> Occupancy rate
2. Losses :
Rejection & Wastage during manufacturing
3. Quality :
No. of customer complaints
Assembly line rejections
Warranty returns
4. Maintenance :
Machine availability
Various types of maintenance

24. 5. Costs :
Cost control measures
6. Delivery :
Timely delivery
Schedule adherence

25. Key Success variables – Characteristics :
# Directly influences the attainment of management goals
# Require in-depth evaluation
# Must be measurable
# They undergo changes suddenly / unpredictably
# Requires immediate management action
# High importance to management

26. Identifying Key Variables
@ External Variables :
Mostly outside of a firm’s control
Eg; Macroeconomic variables / Behaviour of competitors / Deliveries
of some supplies / Actions of government
@ Internal Variables :
At least partially under control :
Eg; Cost / Product Quality / Demand variables / HR policies

27. Discussion Point :
What are the key success factors for Restaurants ?
>>> Customer focus
Focus on changing needs and preferences of customers
>>> Excellence in human relations
Hiring and retaining competent stores managers
>>> Adaptability
Ability to reposition itself
>>> Value
Deliver superior value to the customer in comparison to price

28. Discussion point :
The success of an organisation depends on its key variable.
What are the key variables for a tea industry ?

29. Key variables of a tea industry :
>> Availability of land to cultivate the raw material for tea
preparation.
>> Cost of transport of raw material to the factory
>> Cost of distribution
>> Cost of production
>> Control over the process time required to manufacture tea
>> Ability to offer the different flavours as required by the
customers
>> Support price offered by the government, if any.
>> Competition from the rival beverage industries

30. Discussion point :
What could be the key variables for a service oriented company ?
>> Customer needs
Focusing on changing needs and preferences of customers
>> Adaptability :
Repositioning organisational goals and objectives to suit customer needs.
Willingness to reposition.
>> Quality :
Delivering high quality of service to customers
>> Customer service :
Training in providing professional customer service.

31. Key success factors for the Auto industry :
>> Global sourcing
>> Strong transport network
>> Lean production systems
>> Quality function deployment
>> Supply chain management
>> Access to technology
>> After sales service network
>> Ability to meet strict environmental standards