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12 Chapter 12 - Management Control System

Control involves measuring actual performance against standards, analyzing deviations, and taking corrective actions. There are three types of control: pre-control which predicts future problems, concurrent control which monitors ongoing activities, and post-control which evaluates past performance to improve future actions. The control process involves establishing standards, measuring actual performance, comparing the two, analyzing causes of deviations, and taking remedial actions. Management information systems and decision support systems help managers by processing and summarizing data into useful information for decision-making.

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131 views

12 Chapter 12 - Management Control System

Control involves measuring actual performance against standards, analyzing deviations, and taking corrective actions. There are three types of control: pre-control which predicts future problems, concurrent control which monitors ongoing activities, and post-control which evaluates past performance to improve future actions. The control process involves establishing standards, measuring actual performance, comparing the two, analyzing causes of deviations, and taking remedial actions. Management information systems and decision support systems help managers by processing and summarizing data into useful information for decision-making.

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Control System

Concepts
Controlling is a process to measure the actual
performance achieved with that of planned performance
and taking corrective action, if there is any deviation
between actual and planned performance.
Ivancevich, Donnelly & Gibson – “Controlling consists of
actions and decisions managers undertake to ensure that
actual results are consistent with desired results.”
Types of control
Pre-control: It predicts the problem that the
management may face in future and identifies the
steps to be taken to resolve them; pre control device -
strategies, Policies, and procedures
Concurrent control: It is the technique of controlling
the activities in the process of functioning ; ex – quality
control chart, inventory control, production control
Post control: Process of adjusting future action on the
basis of information about past performance; ex –
financial statement analysis, standard cost analysis,
performance evaluation, and quality control
Process of Control

Measur Analyze
Establis Compar
ement the Taking
hment ison of
of causes remedi
of actual
actual of al
standar perfor
perfor deviatio action
d mance
mance n
Process of Control

Establishment of standard: Practically attainable;


tangible (quantitative, monetary, time, and financial
standard), Intangible (qualitative , competency of
manager, employees’ morale, reputation, public
relation)
Measurement of actual performance: Must be done
in accordance with the standard laid down; helpful to
predict deviation
Comparison of actual performance: Detailed study of
actual performance and comparisons against
standard performance; identify weakness and
strengths in any part of performance
Analyze the causes of deviation: Causes might be
external environment, internal environment;
essential to detect where the problem lies
Taking remedial action: Take corrective action; must
develop strategy to remove limitations in internal
environment, develop strategy to minimize losses due
to change in external environment
Features/Elements of effective control
Suitability: suitable according to nature, type and
requirement of organization
Simplicity: simple design; easy to understand and
operate
Objectivity: Meet the objective of organization
Economical: Must be within the financial capability
Comprehensive: Cover all key functional area; avoid
over concentration
Capable to communicate: With concerned authority;
Communication system must be clear, effective and
scientific
Suggestive: Suggest remedial action
Flexibility: Must be adjust with changing environment;
Responsibility based: Point out the responsibility of
every department; helps to take necessary steps at right
time
Strategic and exceptional: concentrate on keys areas of
organization; focus on those area where controlling
system is essential
Forward looking: Directed toward future; report in order
to protect the future
Managing Information for Effective Control
Transaction Processing System (TPS) : System
designed to handle routine and recurring transactions
of organization
Executive Information System (EIS) : Design to meet
the requirements of top management
Management Information System (MIS)
Decision Support System (DSS)
Management Information System (MIS)
It is a formal method of collecting information in a
summarized form in order to facilitates decision making.
It is a network established within an organization to
provide managers with information that will assist them
in decision making.
Stephen P Robins and Mary Coulter – “ MIS is a system
used to provide management with needed information
on a regular basis.”
Components of MIS
Assembling : Searching and collecting raw data and
putting them into a file
Processing: Editing and summarizing
Analysis: Examining or scrutinizing; useful statistics;
percentage, ratio
Storage and retrieval : Coding and indexing; For quick
recovery and rearrangement
Evaluation : Determining the usefulness of processed
data
Dissemination: Giving information in the required from
to the decision maker.
Features of MIS
Formal methods of collecting information
Network of information established within organization,
to facilitates decision making
Flexible and can be modified as per the demand of the
situation
Integrate required information related with financial and
non-financial activities
Designed within framework that emphasis profit
planning, performance planning and control the
activities at all levels
Decision support system (DSS)
It is a system of converting raw data into information in
the summarized and usable form to the manager
It supports manager to take intelligent and logical
decision on their own way
Ricky W. Griffin- “ Decision supports system is a system
that automatically searches for, manipulates and
summarizes information needed by managers to make
specific decisions”.
Thus, it is a system that enables mangers to provide
immediate and summarized information, that facilitates
in decision making system
Features of DSS
It is a system of converting raw data into information in a
summarized and usable form
Specialized form of MIS
Flexible and helps to deal with non-programmed complex
problems and decisions
Provides information in a understandable form
Manager can manipulate data and explore the
effectiveness of alternative course of action.
Tools and Techniques to Control
Personal control: Managers personally observe
Bureaucratic control
Output control: Fixed units of output for a period
Cultural control: Regulating the behavior of
employees by socializing them
Control through incentives
Market controls: Regulate the behavior of employees
and units by generating internal market for some
valuable resources such as capital. All cash generated
by the divisions is considered as belonging to the
head office where head office act as investment bank

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