charactristics of mcs

8/3/2019 Charactristics of MCS

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MCS Meaning of Management Control System

The word Management means the process or art of getting things done. It also

refers to the person or group of persons authorized to & responsible for the

abovementioned task.

A business firm has several resources. It is the task of the management to ensure that

all the resources are aligned together suitably in order to achieve the organizational

goal. Management is primarily responsible for the decision-making that results in the

accomplishment of the organizational objectives.The word Control implies ensuring that any activity is being carried out as per

predetermined standards or norms. For this purpose, the process of control requires

various role players. There should be sensors or detectors that monitor the

situation, the assessors assess or analyze the situation, the decision-makers take

relevant decisions, and the effectors carry out the decisions & ensure feedback.

Control also requires the existence of a strong communication system.

The word System implies existence of a disciplined structure of positions,

components & activities designed to carry out a specific activity.

Thus the term Management control System implies existence of a predeterminedstructure or process that will establish norms for controlling the various activities &

work areas of a management. The term management does not refer to any specific

position or even top management here. In view of MCS, every level, position or

employee who is a part of the organizational activity is part of MCS.

Features / Characteristics of MCS

1) MCS is unavoidable in every such organization that has decentralized

management as it clearly defines the roles to be played by each responsibility center

2) Strategies define the nature of management control system and MCS on the other

hand influences strategy formulation.

3) Where business environment is stable, strategies are formed at first, however incase of volatile business environment, MCS may remain stable & strategies may be

more experimental

4) MCS has to be flexible enough to adapt to strategic changes & changes in

business environment. However it also has to have a certain degree of stability

5) MCS is omnipresent. Its presence is seen in more or less degree in every type of

organization & in every scale of organization

6) MCS is a continuous process of evaluation & setting up of new improved

standards of performance

Evolution of MCS - The management control system of any organization does not

get developed overnight. The development of MCS is not a revolutionary process,

but an evolutionary process. Control system related to even a task is not standardized

easily. & MCS is about controls over total management activities & functions.

The evolution takes place both horizontally and vertically. Horizontal evolution

implies that, the control system at a level of management is made more and more

standardized through different cycles of operations. Every cycle of activities refines


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the controls. Vertical evolution means that, changes in top-level management

controls filter down to & affect the subsequent management level controls too.

In the beginning of a business, if the organization is centralized in control (Sole

proprietorship or partnership or HUF), the controls are developed and managed to

facilitate centralized decision-making. Here the management levels are few,

structure is uncomplicated & therefore the nature of MCS is also simple & focused.

However with the corporate development, the evolution of MCS has become a much

more complex process. All functions of organization, all levels of management, allresponsibility centers & their impact on each other has to be considered while setting

up standards, monitoring them & revising them.

Evolution of control systems

In a STC or partnership, the capitals, management as well as other skills used are

contributed by a single person or a group of persons. The vision behind the business

organization, its policies & procedures, its scope etc everything is decided by the

select persons. The management is mostly centralized with only the routine

functions decentralized. As a result, the control system is also completely

centralized. All the functions are mainly controlled by the owners & they arethemselves the control system focal points

In the initial stage of evolution & in the next step from single ownership, an

organization is generally functional organizations. In such organization, people

with similar skills & interests are brought together under specific functional

divisions. The function carried out by such a group as a whole contributes to the

working of the organization & towards the achievement of common goal. It may not

be possible to determine individual contributions. Within the functions also there are

hierarchies depending on the skills of people involved. Therefore the control systems

in such organizations should carry following features

1) Careful alignment of individual functions with strategic goals of the organization2) Clear definition of functional responsibility as whole as well as inter-functional

responsibilities

3) Careful integration of functional plans with each other

4) Overall MCS approach by top management

After functional organizations, the next step in evolution of business is business

unit organizations or Divisions. A single division is responsible for all functions

related to a product or a service. The divisional managers get directions about central

strategy from the top management but are responsible for planning & co-coordinating work for their own divisions. Within the divisions, the control systems

may again be on the lines of functional organizations. They have quite a lot of

autonomy in deciding control points but they do not have complete authority. Head

quarters reserve the right to decide about central aspects like funds allocation,

permitted product lines, total performance parameters etc. The control systems for

the division as a whole will have to adhere to these norms. In such organizations,

there may be multiplicity of control levels, but it can also lead to duplication of

work.


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As the last & complete form of evolution of organizations, we have objective based

organizations. They still do carry the basic structure same as the functional or

business unit organizations. However, the running of the organization is completely

common objective based. The top management designs the strategic plans in line

with the objectives. There is a common pool of mangers devoted to the task of

ensuring compliance with them. Majority of todays corporate houses & diversified

industries are of this type. The objectives defined in this case form the base of MCS.

They are generic but still comprehensive. For e.g., in case of marketing a) Highmarket visibility & penetration, b) Balanced pricing c) Efficient sales staff, d)

efficient distribution network etc. can be the objectives.

The control systems in such organization are multi-point, overlapping, quantitative

& qualitative. An efficient MIS is of utmost requirement.

The main features of control systems in evolving business organizations is

increasing degree of decentralization of management & therefore control systems.

Relating MCS to organizational objectives Establishment of suitable controls is necessary for the success of every activity &

decision being carried out in an organization. In control process standards of

performance of an activity are preset. An automatic activity is ensured whereby the

actual performance is monitored & compared with the standards. The process also

allows for correction & analysis of deviations. Even if a control activity like this is

included in MCS, its purpose is not limited to merely establishment of controls.

Management of a business has to achieve various functions. Specifically, planning,

organization, direction, communication, leadership, motivation, budgeting &

decision-making etc. are seen as managerial functions. MCS tries to ensure that

control process is applied to all the above functions so that, all strategies & decisionsare directed towards such achievement of organizational goals

MCS, as seen from above, is an activity combining elements of management &

control in order to establish a system. The system provides a framework for taking &

implementing management decisions. Its scope therefore includes all management

activities given as above. It also includes activities related to control process.

(Further Steps in control process given later). Budgeting & budgetary control, audit

procedures, transfer pricing & related decisions etc. are also a part of MCS. MCS

can include both Formal Control process & Informal control process. Formal controlprocess starts with completion of strategic planning & ends with actual operational

control. Informal control process on the other hand, is visible through informal

group dynamics, rewards & recognition system & social interactions. Both types of

activities require their own infrastructures, management styles, work cultures &

methods for coordinating & integrating various activities. All of these aspects are

included under MCS.


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Boundaries of Management Control System

The meaning of the term Management Control System clarifies that it is

establishment of a disciplined set of activities in order to bring control over various

management functions & activities. The main purpose behind MCS is to ensure that

through controls over management activities organizational goals are successfully

achieved. It is therefore important to understand the exact place of MCS in the

process of goal setting & achievement. The process of deciding about organizational

goals & selecting the suitable strategies to achieve them is called as Strategicplanning. These goals are then conveyed within the organization to all levels of

management suitably. Finally through various tasks & operations the goals are

actually achieved. The process of actually ensuring achievement of goals at

operational level is called as Task or operational control Management control

system comes in to existence on the basis of the strategic plans made by top

management. The system tries to understand these plans & convey them to all in

such a manner that their implementation is carried out in a systematic & disciplined

manner. This ultimately results in task control at junior management level. Thus the

role of MCS is to link strategic planning on one hand with actual task control byestablishing suitable channels of overall control. Therefore strategic planning & task

control can be considered as boundaries defining MCS.

a) Strategic Planning - It is a long-range activity. It tries to understand future of

business in terms of threats & opportunities likely to occur. Then, an attempt is made

to develop future goals & strategies for achieving these goals. The goals visualized

under strategic planning are generally not very specific or time bound. They are long

term in focus & therefore flexible within a certain limit. However the basic goals

adapted by any organization are generally not challenged in the exercise of strategic

planning.SP provides the framework for establishing MCS. It is an unsystematic exercise

unlike MCS, which is establishment of a disciplined system. As compared to MCS,

SP is more flexible. Top management generally carries it out & therefore it involves

few people with more creative ideas. It generally relies upon simple lines of

communication & does not have many constrains of discipline & organizational

behavior. MCS has to be implemented over all the organizational functions. It

therefore, involves a large number of people. Establishment of MCS requires

complex network of both formal & informal communication as well as consideration

of organizational management & behavior principles.

b) MCS - As seen before, MCS forms a link, a network that converts strategic plans

into actual results through tasks. MCS is established considering the availability of

organizational resources. Some of the activities in MCS like budget preparation &

auditory procedures can be standardized to the very root level. However, all systems

cannot be so rigidly established. MCS must allow for improvement, growth &

flexibility. It has to be by nature, an evolutionary process, working towards better


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controls. Overall goal achievement is its main aim. Therefore it has to have co-

ordination in all functions.

c) Task control Tasks or operations are the actual implementations of plans being

carried out. These are seen at the end of the chain of management functions, as a

result generally it is seen as a junior management level activity. Individual tasks in

organizations require co-ordination of both human & other types of resources. Tasks

are required to be specifically definedAs compared to MCS, tasks are more clearly defined, scientific & sharply focused.

They have less involvement of human element as compared to MCS & can be more

easily standardized in respect of expected results. MCS principles are generally the

same while applying them to different areas in the organization; however different

tasks in different areas require different types of controls.

Purpose of Management control system Establishment of suitable controls is necessary for the success of every activity &

decision being carried out in an organization. In control process standards of

performance of an activity are preset. An automatic activity is ensured whereby the

actual performance is monitored & compared with the standards. The process also

allows for correction & analysis of deviations. Even if a control activity like this is

included in MCS, its purpose is not limited to merely establishment of controls.

Management of a business has to achieve various functions. Specifically, planning,

organization, direction, communication, leadership, motivation, budgeting &

decision-making etc. are seen as managerial functions. MCS tries to ensure that

control process is applied to all the above functions so that, all strategies & decisionsare directed towards such achievement of organizational goals

Activities Under MCS

MCS, as seen from above, is an activity combining elements of management &

control in order to establish a system. The system provides a framework for taking &

implementing management decisions. Its scope therefore includes all management

activities given as above. It also includes activities related to control process. (Steps

in control process given later). Budgeting & budgetary control, audit procedures,

transfer pricing & related decisions etc. are also a part of MCS. MCS can includeboth Formal Control process & Informal control process. Formal control process

starts with completion of strategic planning & ends with actual operational control.

Informal control process on the other hand, is visible through informal group

dynamics, rewards & recognition system & social interactions. Both types of

activities require their own infrastructures, management styles, work cultures &

methods for coordinating & integrating various activities. All of these aspects are

included under MCS.


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Cybernetic Paradigm of control process

Steps in Control process - Control process for any activity generally has the

following steps 1) Setting up of goals or standards of performance 2) Monitoring

actual activity 3) Measurement of performance 4) Comparison of actual performance

with standards 5) Ascertainment of variances 6) Analysis of the cause of variances

7) Carrying out of corrective action to eliminate the variances 8) Follow-up ofcorrective action 9) Setting up of revised goals & standards.

As seen from the above steps, the 1st as well as the last step of control process is

setting up of standards. However the standards are not the same. They are better &

evolved. While carrying out the allotted responsibilities, each responsibility center of

an organization assesses surrounding environment & gets feed back from it. The

feedback is formed into perceptions, which helps in achievement of goals. In order

to achieve goals, several behaviour choices are examined & one is chosen. The

chosen plan is implemented .Its results are compared with pre-set goals. The

deviations are analyzed. This whole process takes place at every level ofmanagement through the various channels of communication. There are various role

players in the process. Sensors, effectors, comparators, all have a role to play.

Grissinger calls the process that betters itself while moving through the same

evolutions using various role players & communication network as Cybernetic

Paradigm.

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charactristics of mcs

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