Transcript The Nature of Management Control Systems

The Nature of Management
Control Systems
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Basic Concepts
Elements of a control system consists of:
1. A detector
2. An assessor
3. An effector
4. A communication network
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1. A detector or sensor is a device that measure
what is actually happening in the process being
controlled.
2. An assessor is a device that determines the
significance of what is actually happening by
comparing it with some standards or expectations
of what should happen.
3. An effector (feedback) is a device that alters
behavior if the assessor indicates the need to do so.
4. A communications network consist of devices
that transmit information between the detector and
the assessor and between the assessor and the
effector.
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Example: You are driving a car
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Detectors= Your eyes
Assessor= Your brain
Effector= Your foot
Communication network= Your nerves
system
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• Your eyes (detectors) measure actual speed by
observing the speedometer. Your brain (assessor)
compares actual speed with desired speed
(standard: the highest speed is 80 km/hour) to
detect a deviation from standard. Your brain
(assessor) directs your foot (effector) to ease up the
accelerator if actual speed (90 km/hour) is faster
than the standard speed (80 km/hour), press down
the accelerator if the actual speed (70 km/hour) is
slower than standard speed (80 km/hour). And,
your nerves (communication network) form the
communication system that transmits information
from eyes (detectors) to brain (assessor) and brain
(assessor) to foot (effector).
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Boundaries of Management Control
• Strategy formulation is the process of deciding
on the goals of the organization and the strategies
for attaining these goals.
• Management control (Anthony and
Govindarajan, 2004): is the process by which
managers influence other members of organization
to implement the organization’s strategies.
• Task control is the process of ensuring that
specified tasks are carried out effectively and
efficiently.
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Distinctions between strategy formulation and
management control:
Characteristics
Strategy Formulation
System design
Unsystematic, Strategic
decision may be made
any time
Nature of
information
Tailored-made to faced
problems, more external
and predictive, less
accurate
Communication
of information
Simple
Control
Management
Rhythmic,
predetermined
procedures
Integrated, more
internal and
historical, more
accurate
Difficult
Involved people
Top management and
staffs
Top management and
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line managers
Distinctions between strategy formulation and
management control:
Characteristics
Strategy Formulation
Control
Management
Number of
involved people
Mental activity
Few people
Many people
Creative and analytic
Discipline
Time horizon
Economics
Tend to long-term
Administrative and
persuasive
Social psychology
Tend to short-term
End products
Goals, strategies
Strategy
implementation
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Distinctions between management and task
controls:
Characteristics
Focus of
activity
Nature of
information
Control Management
The whole of operation
Integrated, many financial
data
Involved people Management
Mental activity
End products
Administrative and
persuasive
Strategy implementation
Task Control
Individual task or
transaction
Tailored-made to
individual task, more
non-financial data
Supervisor or none
Follow direction or
none
Tasks are carried out
effectively and
efficiently
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Distinctions between management and task
controls:
Characteristics
Control Management
Task Control
Mental activity
Administrative and
persuasive
Follow direction or
none
Discipline
Time horizon
Social psychology
Weekly, monthly,
annually
Economics, physics
Daily
Type of cost
Discretionary costs
Engineered costs
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Examples of decisions in planning and control
function:
Strategy
Formulation
Enter a new business
Change debt to
equity ratio
Add direct mail
selling
Decide magnitude
and direction of
research
Management
Control
Task Control
Expand a plant
Issue new debt
Schedule production
Manage cash flows
Determine
advertising budget
Control of research
organization
Book TV
commercials
Run individual
research project
Acquire an unrelated Introduce new
business
product or brand
within product line
Coordinate order
entry
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