ACCOUNTING FOR MANAGERIAL

CONTROL
 What is Accounting?
Accounting is the process of identifying,
recording and communicating the financial
data of an organisation to interested users.

SO 1 Explain what accounting is.

 Activities of Accounting?
Three Activities
Illustration 1-1
Accounting process

The accounting process includes

the bookkeeping function.

SO 1 Explain what accounting is.

 What is Management?
Management can be defined as a set of
activities such as planning and decision-
making, organizing, leading and controlling
with the aim of achieving organizational goals
by using resources in an efficient and effective
manner.
 Works of Management

Planning
Organizing and
Leading

Controlling
 Controlling

The control function ensures

that plans are being followed.

Monitoring and regulating activities of entire

organization as well as individuals to reach goals
 What is Managerial Control
Managerial control is one of the primary
functions of management, and it involves
setting performance standards, measuring
performance and taking corrective actions
when necessary.
 Processes of Control
Following are the steps involved into the
process of control:
1. Establish the standards/targets;
2. Measure actual performance;
3. Compare actual performance with the
standards and determine the gap
4. look for the reasons of gap and take
corrective action and reinforcement of
successes
 Organisational Control
Organisational Control is the process whereby
managers monitor and regulate how
efficiently and effectively an organization and
its members are performing the activities
necessary to achieve organizational goals.
 Characteristics of Organisational
Control
Following characteristics of organisational
control can be identified:
1) Control is a managerial process
2) Control is forward looking
3) Control exists at each level of organization
4) Control is a continuous process
5) Control is closely linked with planning
6) Purpose of controlling is goal oriented and
hence positive
Importance of Organisational Control
1. Guides the management in achieving pre-
determined goals
2. Ensures effective use of scarce and valuable
resources
3. Facilitates coordination
4. Leads to delegation and decentralization of
authority
5. Spares top management to concentrate on
policy making
 Why do people Oppose Control?
1) Self-organizing organizations, self-managed
teams, network organizations, etc. concepts do
not support the traditional idea of control
concept.
2) As the nature of organizations has changed so
must the nature of management control.
3) The phrase “management control” itself has a
negative connotation.
4) Controls are thought of decreasing autonomy,
stifling creativity, threatening security, and
perpetuating oppression
Types of organisational Control
Controls can be numerous in kind. These may
be classified on the basis of
(a) timing,
(b) designing systems,
(c) management levels, and
(d) responsibility
 Control on the basis of timing
On the basis of timing, control may be:
(i) Feed forward Control
(ii) Concurrent Control
(iii) Feedback Control
 Feed forward Control
The objective of feed forward control or
preliminary control is to anticipate the likely
problems and to exercise control even before
the activity has started or problem has
occurred or been reported.

It is future directed.
 Concurrent Control
Concurrent control monitors ongoing
employee activity to ensure consistency with
quality standards takes place while an activity
is on or in progress.

It involves the regulation of ongoing activities

that are part of transformation process to
ensure that they conform to organizational
standards.
 Feedback Control
The control takes place after the job is over.
Corrective action is taken after analysing
variances with the planned standards at the
end of the activity.

It is also known as ‘post action control’,

because feedback control is exercised after
the event has taken place.
Control on the basis of Designing Systems
Three approaches may be followed while
designing control systems, viz.,
Market Control
Bureaucratic Control, and
Clan Control
Control on the basis of Designing Systems
Market Control:
Control is based upon market mechanisms of
competitive activities in terms of price and
market share.
Different divisions are converted into profit
centres and their performance is evaluated by
segmental top line (turnover), bottom line
(profit) and the market share.
Control on the basis of Designing Systems
Bureaucratic Control:
Bureaucratic control focuses on authority, rule
and regulations, procedures and policies.
Most of the public sector units in Bangladesh
go in for bureaucratic control.
Control on the basis of Designing Systems
Clan Control:
Clan control refers to the values and beliefs of an
organization that operates more like a family than
a company.
Clan control represents cultural values almost the
opposite of bureaucratic control. Clan control
relies on values, beliefs, corporate culture, shared
norms, and informal relationships to regulate
employee behaviors and facilitate the reaching of
organizational goals.
 Clan Control (cont.)
• Organization that use clan control require
trust among their employees. Given minimal
direction and standards, employees are
assumed to perform well - indeed, they
participate in setting standards and designing
the control systems.
 Control on the basis of Levels
Operational Control:
Its focus remains upon the processes used by
the organisation for transforming the inputs
(resources) into outputs (products/services).

Operational controls are used at the lower

management. It is exercised almost every day.
Quality control, financial controls are part of
operational controls.
 Control on the basis of Levels
Structural Control:
Are the different elements of organisation
structure serving their intended aims? Is there
overstaffing? Is the ratio of staff to line
increasing? Necessary action is to be
undertaken.
 Control on the basis of Levels
Tactical Control:
Since tactical control deals with the
departmental objectives, the controls are
largely exercised by middle management
levels.
 Control on the basis of Levels
Strategic Control:
Strategic control is the process to determine
whether the effectiveness of a corporate,
business and functional strategies are
successful in helping organisations to meet its
goals.

Strategic controls are exercised by top level

management.
Control on the basis of Responsibility
Who has the responsibility of controlling?

The responsibility may rest with the person

executing the things or with the supervisor or
manager.

This way control may be internal and external.

Control on the basis of Responsibility
Internal control permits highly motivated
people to exercise self-discipline.

External control means that the thread of

control is in the hands of supervisor or
manager and control is exercised through
formal systems.
Requirements of Effective Control
System
In designing a good and effective control
system, the following basic requirements must
be kept in view:

1. Focus on Objectives and Needs

2. Immediate Warning and Timely Action
3. Indicative, Suggestive as well as corrective
4. Understandable, Objective, and Economical
Requirements of Effective Control
System (Cont.)

5. Focus on Functions and Factors

6. Strategic Points Control
7. Flexibility
8. Attention to Human Factor
9. Suitability
 Tools/Techniques of Control
Some of the important tools are;
Financial Control
Human resource control
Information Control
Production Control
Project Control
 Financial Control
Financial control is exercised through the
following:
1. Financial Statements
2. Financial Audits
3. Ratio Analysis
4. Budgetary Controls
5. Break-even Analysis
6. Standard costing
7. Variance Analysis
8. Measuring performance