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Management Control Systems

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Title: Slide 1 Author: seemam Last modified by: vnaik Created Date: 12/28/2009 6:20:20 AM Document presentation format: On-screen Show Company: HOME – PowerPoint PPT presentation

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Title: Management Control Systems


1
Management Control Systems
  • Prof. Naik,

2
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

3
  • 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?

4
Where does MCS stand in your education?
Cost Mgmt Accounting
Persp I
FMI
OB HRM
Persp Mgmt II
MCS
Business Policy
5
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.

6
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.
7
What Counts gets measured
What gets rewarded really counts
What gets measured gets done
Strategy
What gets done gets rewarded
8
MCS
  • Understanding Strategies Perspective of
    Management Control Systems.
  • Basic concepts Boundaries of Management
    Controls Goals The concept of Corporate and
    Business Unit Strategies

9
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

10
Responsibility Centers
  • Responsibility Centre, Revenue, Expenses and
    Investment Centers, Administrative Support and R
    and D Centers, Responsibility Budgeting

11
Profit Centers
  • General Consideration, concept, Identification
    and Creation Matrix Structure, Profit Centers for
    Control and Decentralization

12
Transfer Pricing
  • Objectives, Cost, Market and Margin based
    Methods, Pricing Corporate Services,
    Administration of TPs

13
Measuring and Controlling Profits and Assets
  • EVA, Free Flow, ROI and Residual Income Measuring
    Assets Employed, Alternatives for Managerial
    Performance Management

14
Performance Measurement and Control
  • Information for performance control, Interactive
    Control, Balance Scorecard

15
MCS in Service and Non Profit Organizations
  • Service Organizations in General, Professional
    and Non-Profit Organizations

16
Summing Up
  • Controls for Differentiated Strategies, Top
    Management Styles, Summing up

17
Audit
  • Efficiency Audit and Management Audit

18
  • 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

19
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

20
Strategy and Strategic Management
  • Concept of Strategy
  • Strategic Managent

21
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

22
Strategic Management
  • Develop vision, mission
  • Set objectives
  • Craft strategy to achieve objectives
  • Implement and execute strategy
  • Monitor, evaluate, take corrective action

23
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

24
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

25
KEY IDEAS
  • Obviously different organisations ,even in the
    same industry have different strategies
  • Different Control Systems are required to
    effectively implement strategies

26
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

27
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

28
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

29
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---

30
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

31
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

32
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

33
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
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