Management Control Systems

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Management Control Systems

• Prof. Naik,

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Flow of lecture 1

• Relation of course with overall MMS/PGDM syllabus
• Newspaper cuttings
• Measurement
• Taxi Riksha fares
• Third wave-Alvin Toffler
• Cost centre-Responsibility Centre
• Profit centre
• Transfer price
• Controller

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• A few months from now, most of you will be
  working or having your own set up
• Some of you may work for a large organisation,
  some for small some for MNCs, some in family
  business
• But no matter where you work, all organisations
  will have something in common
• WHAT IS IT?

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Where does MCS stand in your education?
Cost Mgmt Accounting
Persp I
FMI
OB HRM
Persp Mgmt II
MCS
Business Policy
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Admission Mania

• It is that time of the year which brings anxiety
  to parents and students seeking college
  admissions.
• Government of Maharashtra brought another scheme
  this year - 85 or above Percentage reserved for
  students appearing for SSC board to compensate
  for the extra marks being allegedly awarded by
  ICSE and other boards.
• Our correspondents moved from South Mumbai
  colleges to Central and Western Suburban Colleges
  and finally to colleges in the Eastern suburbs.

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Admission Mania

• Here is what they found out.

College
Sydenham 60,000 70,000
HR College 70,000 1,00,000
Poddar 40,000 60,000
Ruparel Arts 60,000 65,000
Ruia 30,000 40,000
Elphistone 25,000
NM 70,000
Kelkar 25,000
Ruparel Science 80,000
Students appear to prefer Commerce streams over
Art and Science.
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What Counts gets measured
What gets rewarded really counts
What gets measured gets done
Strategy
What gets done gets rewarded
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MCS

• Understanding Strategies Perspective of
  Management Control Systems.
• Basic concepts Boundaries of Management
  Controls Goals The concept of Corporate and
  Business Unit Strategies

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Financial Goal Setting

• EVA, Free Cash Flow market Gap, RONW, P/E, EPS
  and their Inter- relationship, ROI and
  Sensitivity Analysis.
• Organization Hierarchies and Behavior
• Goal Congruence, Information Factors that
  influence
• Goal Congruence, Types of Organization and the
  Formal Control Systems, Functions of Controller

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Responsibility Centers

• Responsibility Centre, Revenue, Expenses and
  Investment Centers, Administrative Support and R
  and D Centers, Responsibility Budgeting

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Profit Centers

• General Consideration, concept, Identification
  and Creation Matrix Structure, Profit Centers for
  Control and Decentralization

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Transfer Pricing

• Objectives, Cost, Market and Margin based
  Methods, Pricing Corporate Services,
  Administration of TPs

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Measuring and Controlling Profits and Assets

• EVA, Free Flow, ROI and Residual Income Measuring
  Assets Employed, Alternatives for Managerial
  Performance Management

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Performance Measurement and Control

• Information for performance control, Interactive
  Control, Balance Scorecard

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MCS in Service and Non Profit Organizations

• Service Organizations in General, Professional
  and Non-Profit Organizations

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Summing Up

• Controls for Differentiated Strategies, Top
  Management Styles, Summing up

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Audit

• Efficiency Audit and Management Audit

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• Case Study West Port Electric Company
• Case Study North Country Auto or any Other
  Similar Case
• Case Study Birch Paper Company
• Case Study Quality Metal Service
• Case Study General Electric B

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Suggested Readings

• Management Control systems by Rober Antony and
  Vijay Govindrajan (Tata McGraw Hill)
• Management Control Systems Dr. R.S Aurora and
  Prof S R kale (Jaico Publishing House)
• OTHER INFORMATION
• Each session of 90 Minute duration. For
  Quantitative topics, basis application knowledge
  required but advanced techniques topics, basic
  application knowledge is required but advanced
  techniques are not expected to be covered
• Emphasis should be covering the subject of
  Management Control as a Process (and not as
  Techniques)
• Due attention would be given to behavioral
  aspects of all the topics

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Strategy and Strategic Management

• Concept of Strategy
• Strategic Managent

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Concept of strategy

• Strategy indicates the general direction in which
  an organisation plans ot move to attain its goals
• In some organisations it may not be stated
  explicitly
• Strategy is usually developed by matching core
  competencies with industry oportunities. Another
  school of thought-NOT MATCH STRETCH

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Strategic Management

• Develop vision, mission
• Set objectives
• Craft strategy to achieve objectives
• Implement and execute strategy
• Monitor, evaluate, take corrective action

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MCS

• Management Control Systems are systems intended
  to help implement strategies.
• In your First Semester Perspective Management
  course, you have covered that control cannot
  exist without planning and that planning and
  control are two sides of the same coin
• Control includes Planning and Control processes

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MCS

• Course is designed to help you to think through
  how you would manage strategy implementation
  dilemas in which operating managers find
  themselves. In particular, course is meant for
  you to gain knowledge, insights and analytical
  skills related to how managers go about designing
  and implementing formal systems for strategy
  implementation

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KEY IDEAS

• Obviously different organisations ,even in the
  same industry have different strategies
• Different Control Systems are required to
  effectively implement strategies

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MCS

• The following material is based on correspondence
  with Dr Anthony
• Any technological process should and does bring
  about improvement
• Obviously technology will lead to improvements in
  the effectiveness and efficiency of management
  control in ways not foreseen

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Dr Anthony (contd)

• Framework for MCS was developed in the 60s
• Much technological changes, particularly in the
  field of IT have taken place since
• However, MCS framework has not changed and is
  unlikely to change in the immediate future
• BECAUSE IT IS GROUNDED ON HUMAN NATURE

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Dr Anthony(contd)

• Management Control Proces is behavioural-involving
  interactions among managers, between managers
  and their subordinates
• Because managers differ from one another in their
  ability, leadership qualities, interpersonal
  skills, experience, approach to decision making,
  understanding ability and affinity to numbers and
  in other ways the DETAILS of management control
  process varies from organisation to organisation
  and among centres

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Dr Anthony(contd)

• The differences relate to the way the control
  system is USED. However, to function effectively,
  the FORMAL system must be basically the same
  THROUGHT the organisation
• The importance of the subject matter covered in
  this subject is captured well in the widely
  accepted truism among management consultants-
  that over 90of business and (nonprofit
  organisations) keep foundering on the rocks of
  implementation---

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Dr Anthony(contd)

• ----either strategies never come into being, or
  get distorted or the implementation is much more
  costly and time consuming than anticipated.
  However laudable strategic intentions maybeto
  change the product mix, to improve the quality of
  products, to become the lowest cost producer, to
  build market share or to maximise short term
  earnings and cash flowif the strategies do not
  get converted into reality, they are usually not
  the paper they are written on

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Dr Anthony (contd)

• Soon most of you will be soon in positions, where
  you will be directly responsible for strategy
  implementation, material in this course is of
  high relevance to you
• BUT

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Dr Anthony(contd)

• The topic is completely new,and the early
  reaction of students is one of frustration
• In particular, first two topics (covered in
  Chapters 1 and 2)in which some of the givens
  must be recognised and dealt with in the design
  of a control system, frequently dont make the
  impact on the students (AT THE TIME) that is
  desirable

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Dr Anthony (contd)

• The Gap between student achievement and faculty
  expectation reduces in Chapters 3 4 when
  students begin to fit the earlier pieces together
  in specific CASE contexts.
• The delayed student appreciation of the
  intellectual content and administrative
  importance of the course is unavoidable
• Additional Case Studies(10 marks in paper and 20
  marks in internal assessment plus theory is
  reinforced)
• Class participation
• Regularity in attendence/studies
• Perseverance