Management Control System (MCS)

UNIT -1
Management: An organization consists of a group of people who work together to achieve certain common goals (in a
business organization an important goal is to earn a satisfactory profit).

Control: is a function of management that helps to check errors and take corrective actions. This is done to minimize
deviation from standards and ensure that the stated goals of the organization are achieved in a desired manner.

[Link] four basic elements of any control system:

2. Purpose of Management Control System:

 Goal Alignment
 Decision-Making Support
 Resource Optimization
 Strategic Planning
 Performance Evaluation

3. Factors influencing the design of Management Control Systems are as follows:

 Size and Spread of the Enterprise

 Organizational Structure, Delegation and Decentralization

 Nature of Operations and Divisibility

 Type`s of Responsibility Centre’s

 People and their Perceptions

4. Boundaries of Management Control

 [Link] Control

 Management Control Activities

 Goal Congruence

 Tool for Implementing Strategy

 Organizational structure:

 Human Resource Management (HRM):

 Organizational Culture:
 Organizational climate

2. Strategy Planning & Formulation

 Meaning of Strategic Planning:

 Meaning of Strategic Plan
 Meaning of Strategy Formulation
 Meaning of Goals

Various business analysis techniques can be used in strategic planning

 SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats )

 PEST analysis (Political, Economic, Social, and Technological analysis)
 STEER analysis involving Socio-cultural, Technological, Economic, Ecological, and Regulatory
factors
 EPISTEL (Environment, Political, Informatics, Social, Technological, Economic and Legal)

[Link] Control

5. Twelve Commandment Principles and Guidelines of Control Design Management:

  Suitability
 Simplicity
 Objectivity
 Economical
 Flexibility

 Quick Reporting
 Suggestive
 Forward-Looking

 Individual Responsibility
 Strategic Point Control
 Self-Control

 Feedback

6. The Four Levers of Control

 Core values
 Risks to be avoided
 Strategic Uncertainties
 Critical Performance Variables

7. Some common controls which are essential in each organization

 Financial Controls
 Marketing Controls

 Operational Controls

 Human Resource Controls

8. Organizational Structure:
 Entrepreneurial Structure
 Functional Structure
 Business Unit Organization Structure
 Matrix Structure

9. Management Control Process:

10. Strategic planning with MCS:

 Setting Strategic Objectives

 Aligning Control Mechanisms with Strategy:

 Performance Measurement and Monitoring:
 Feedback and Adaptation

 Resource Allocation:
 Risk Management:
 Communication and Coordination

 Performance Evaluation and Incentives:

11. Types of organizational goals

 Strategic goals
 Tactical goals
 Operative goals

12. Steps for Setting Organizational Goals

 Assess the state of the business

 Establish each goal
 Prioritize goals
 Establish measurement metrics
 Integrate goals with processes
 Communicate goals to those involved
 Evaluate progress
13. Factors Considerable deciding span of Control

 Geographical dispersion
 Capability of employees
 Capability of managers
 Similarity of task
 Volume of other tasks
 Business process

14. Management by Objectives (MBO):/STEPS

15. Components of Management by Exception

16. Process of Management by Exception

 Identifying and describing Key Result Areas (KRA).

 Establishing standards and determining an acceptable level of deviations.
 Making Comparison of actual result with that of the expected or the standard result.
 Ascertaining variance.
 Analyzing the causes of such variance (deviation).
 Strategizing and taking necessary actions wherever required and possible.

17. Importance of Management by Exception

 Prompt decision making and a suitable flow of action.
 Assists the firm in growing and improving its output.
 Optimum utilization of the organization’s resources.
 Better delegation of authority
 Identification of crises
 Enhances degree of communication

18. Characteristics of Strategic Business Unit (SBU)

 Separate Mission and Objectives

  Group of Related Businesses

 Own Set of Competitors

19. SWOT analysis will involve the following steps.

 Determine Your Objective

 Gather Resources
 Compile Ideas
 Refine Findings
 Develop the Strategy

20. Elements of Delegation

 Assignment of task or duties
 Conferment of power of authority
 Accountability

21. Principles of Delegation

 Principles of competence
 Principle of trust and confidence
 Principle of effective control
 Principle of reward

22. Factors Determining the Degree of Decentralization

 Size of operations
 Cost and risks of decision-making
 Availability of management resources
 Environmental influence

23. Key Components of People Management

1. Create
2. Comprehend
3. Communicate
4. Collaborate

24. Social Responsibility

 25. Need for Corporate Social Responsibility

26. Types of CSR:

 Environmental corporate responsibility

 Ethical/human rights social responsibility

 Philanthropic corporate responsibility
 Economic corporate responsibility

27. common conflict management styles

1. Collaborating:
2. Competing:
3. Avoiding:
4. Accommodating:
5. Compromising:

28. 6 C's of conflict management?

 Communication
 Collaboration
 Compromise
  Control
 Civility
 Commitment

29. Mutual Supportive Management System (MSM):

30. 6 Sources of Tension in Control System:

UNIT-2
1. Objectives of Auditing:
The objectives for carrying out Auditing can be discussed under three heads. They are:
 Primary objectives
  Secondary objectives
 Specific objectives

2. Objectives of Internal Control:

1. Records are valid, complete, and accurate.

2. Recorded transactions are duly authorized.
3. Transactions are properly classified and valued.
4. Transactions are recorded at proper time.
5. Transactions are properly posted to the ledger accounts, and correctly summarized.

3. Techniques for Evaluation of Internal Control System

 Oral approach
 Memorandum approach
 Internal control questionnaire
 Flow charts

4. Different Types of Audit:

 Classification based on Organizational structure.

a) Statutory Audit:
b) Private Audit
c) Government Audit:

 Classification based on timing and scope of audit procedure

 External Audit:
 Internal Audit:
 Compliance Audit
 Classification based on the specific objective behind the audit.

 Cost Audit:

 Special Audit

5. The following are the circumstances in which the central government can order for the conduct of special audit

 Management Audit:

 Distribution / Operational Audit:

  Efficiency Audit
 Proprietary Audit:
 Marketing Audit:

 Social Audit:
 Energy Audit:

6. Objectives of Management Audit

o To improve organizational efficiency

o Guide all members of the organization to perform their duties in efficient manner.
o Assist management in managing their affairs in a better manner
o Make sure that objectives and mission of the organization are met.
o Proper utilization of available resources.
o Improve the overall profitability of the firm

7. Management Audit Process:

 Preliminary survey

 Collection of Data

 Examination of documents

 Observation of work environment

 Internal Auditor’s Report

 Physical inspection:

 Transaction tracking:

 Enquiry with the employees

 Suggestions for improvement of performance

8. Different Roles of an Auditor

 Agent of the Members

 Officer of the company:

 Auditor is not an Advisor:

 Auditor is not a Guarantor or an insurer:

 Auditor is not a critic of Management Decision:

 Auditor is not a Detective:

9. Green Accounting Components

 Environmental Management Systems(EMS)

 Environmental Performance Indicators(EPI)

 Life Cycle Assessment (LCA).
 Full Cost Accounting (FCA)
 Environmental Reporting and Disclosure

10. Green Accounting Types:

 Environmental Management Accounting (EMA):

 Full Cost Accounting (FCA):

 Sustainability Accounting:

11. Green Accounting Importance

 Environmental Protection

 Cost Savings

 Risk Management

 Stakeholder Engagement

 Policy Development
12. Importance of Environmental Accounting

 Reducing Environmental Costs

 Meeting Environmental Regulations

 Enhancing Corporate Reputation
 Assessing Environmental Risks
 Improving Resource Efficiency

 Encouraging Innovation

13. Objectives of Environmental Accounting

o Separating Environmental Accounts

o Linking Environment & Resources Accounts

o Assessing Environmental Costs and Benefits
o Accounting For Tangible Asset Maintenance

o Green Product and Income Metrics

 UNIT-3
1. Factors of Responsibility Accounting for Management Control:
 Planning
 Fixing standards
 Allocation of resources
 Evaluation of Performance
 Analyze the variances

2. Responsibility Centers

3. ABC Model:
 Identification of Resources:
 Determination of Activities
 Description of the Cost Objects:
 Determination of Resource Drivers
 Determination of Cost Drivers:

4. Objectives of Transfer Prices

 Divisional Autonomy
 Divisional Performance
 Goal Congruence
5. Factors are to be considered when developing procedure for determining transfer
prices:

1. The role of the corporate office when the prices are centrally administered

2. The degree of internal bargains

3. Accountants’ role

4. Whether the prices are to be related to costs or resulting from selling prices

6. Types of Transfer Pricing

• Actual or Full cost

Cost-based method
• Variable cost
comprising • Standard cost

• Cost-plus
Revenue-based method
• Market price
comprising • Negotiated price

Hybrid or Dual pricing

method
7. The process of budgetary control System can be organized in the following lines:

 Determination of Objectives:

 Establishment of Budget centre

 Introduction of adequate accounting records and their codification:
 Preparation of budget organization chart
 Establishment of Budget Committee
 Preparation of Budget Manual
 Level of activity
  Selection of the Budget period:
 Locating the Principle Budget Factor:

 Determination of Budget Cost Allowance

 Implementation of the Budget and recording of actual performance:

 Budget Variance Analysis and Reporting

8. Elements of a Successful Budgetary Control System

 Objectives
 Knowledge of Cost Behaviors
 Education
 Acceptance and cooperation
 Adequate Systems Support

9. Types of Budget:

1. Flexible Budget
2. Zero Base Budgets
3. Master Budget
4. Performance Budgeting

10. Standard costing and variance analysis, which is aimed at profit improvement
mainly by reducing:-
 Direct Material, Direct Labor & Overheads

11. Financial Statement Components:

 Balance Sheet

 Cash Flow Statement

 Income (Profit and Loss) Statement

12. Four processes are completed before implementing financial control in a

business:

 Detecting overlaps and anomalies

 Timely updating
 Analyzing all possible operational scenarios
 Forecasting and making projections

13. Importance of Financial Controls:

 Cash flow maintenance

  Resource management
 Operational efficiency
 Profitability
 Fraud prevention

14. This technique is used by Finance Manager for taking various decision making in the
process of Management control system in the following respects:-

➢ Forecasting of profit

➢ Pricing and sales volume decisions.

➢ Make or Buy decisions

➢ Plant Merger decisions

➢ maximizing the profit when there is Key factor or limited factor,

➢ Export decisions whether to accept or reject,

➢ Shut down or continue in production decision

15. Utility of CVP analysis:

 Fixation of selling price:

 Maintenance of a desired level of profit
 Export decisions:
 Key factor decisions
 Shut down or continue in production decisions
 Make or buy decisions:

16. Usefulness of Sensitivity Analysis

 Understanding influencing factors
 Reducing uncertainty
 Catching errors
 Simplifying the model
 Communicating results
 Achieving goals
 UNIT-4
1. Behavioral Aspect of Management Control:
External factors

Internal factors

 Culture:
 Management Style
 Informal Organization
 Perception and Communication:

2. Motivation

3. Agency Theory

 Control Mechanisms
 Monitoring:
 Incentive contracting

4. Morale

Mc Farland defines morale as follows

5. The criteria for superior performance are:

 Control
 Learning
 Variety
 Mutual Support and Respect
 A Promising Future
 Engage one or several of their preferred life interests
 Challenges that match and stretch individual skills
 Concentration and Focus
 Fun

6. Measurements in Human Resource Accounting:

 Valuation at cost
 Valuation Economic
 Valuation of Replacement Cost:

7. Knowledge Management Control System Model:

8. the types of knowledge to include in knowledge management?

o Explicit knowledge
o Implicit knowledge
o Tacit knowledge

9. Benefits of a knowledge management system:

 Identification of skill gaps

 Make better informed decisions
 Maintains enterprise knowledge
 Operational efficiencies
 Increased collaboration and communication
 Data Security

10. Knowledge management process:

 Knowledge Creation
 Knowledge Storage
 Knowledge Sharing

11. Knowledge management tools:

 Document management systems

 Content management systems
  Intranets
 Wikis
 Data warehouses

12. Role of Managers in Risk Management

 Leadership and control:

 Communication:
 Training:
 Motivation:
 Conflict:
 Evaluation:

13. Management Control

 Strategic planning:
 Budgeting:
 Transfer Pricing
 Incentive Compensation
 Competitive Advantage

14. Performance Measurement Systems

A performance measurement system attempts to address the needs of the different stakeholders of
the organization by creating a blend of strategic measures

 outcome and driver measures,

 financial and no financial measures
 internal and external measures

15. Customer-Focused Key Variables:

  Bookings
 Book orders
 Market share
 Key account orders
 Customer satisfaction
 Customer retention
 Customer loyalty

16. Key Variables Related to Internal Business Processes:

 Capacity utilization
 On-time delivery
 Inventory turnover
 Quality
 Cycle time

17. Implementing a Performance Measurement System

 Define Strategy:
 Define Measures of Strategy :
 Integrate Measures into the Management System:
 Review Measures and Results Frequently:

18. Need For Balanced Scorecard:

18. Benefits of Balanced Scorecard

 Alignment of strategy with key performance objectives at all levels of the organization:
 Measuring and managing business performance effectively
 Strategic feedback
 Maximising the overall IT investment
 Outcome Metrics

19. Thus the value of tools measurement lies in their ability to provide a factual basis for defining:

➢Strategic feedback to show the present status of the organization

➢Diagnostic feedback into various processes to guide improvements on a continuous basis.

➢Trends in performance over time

➢Feedback

➢Quantitative inputs to forecasting methods and models for decision support systems
 UNIT-5
1. Sectorial Applications
[Link] Organizations

Characteristics of Service Organizations

 Absence of Inventory Buffer:

 Difficulty in Controlling Quality
 Labor Intensive:
 Multi-Unit Organizations
 Historical Development:

2. Professional Service Organizations

Special Characteristics

 Goals:
 Professionals
 Output and Input Measurement:

 Small Size:
 Marketing:

Management Control Systems

 Pricing:
 Profit Centres and Transfer Pricing:

 Strategic Planning and Budgeting

 Control of Operations:
 Performance Measurement and Appraisal

[Link] Service Organizations

Special Characteristics

1. Monetary Assets:

2. Time Period for Transactions:

3. Risk and Reward:

 4. Technology:

4. Non-profit Organizations

 Absence of the Profit measure:

 Contributed Capital

 Fund Accounting:
 Governance

Management Control System;

 Product pricing:

 Strategic Planning and Budget preparation

 Operation and Evaluation

 Legal Environment

5. Control in Projects

 Project Control Environment

 Project Organization Structure
 Contractual Relationships

 Information Structure
[Link] Twelve Step Process of Designing Control System:
[Link]:

 Optimistic time (O)

 Pessimistic time (P)
 most likely time (M)
 Expected time (TE):