Fundamentals of Management Control.
Overview of MGT Control…..
Use resources effectively and efficiently
Maintaining competitive edge in the industry
Meet the growing demand of the stake holders.
Management Control is a set of interrelated communication structure that facilitates the processing and passing of information
To assist the managers in coordinating the attainment of the purpose of organization on a continuous basis.
Introduction.
Management Control has been defined as “process whereby management & other groups are able to initiate & regulate the conduct of activities so that their results accord with the goals & expectations held by those groups.”
The practice of management control and the design of management control systems draws upon a number of academic disciplines like ME,MA & OB.
It is derived from ME,MA,OB.
Cybernetic Approach to Management Control.
The term “cybernetics” was coined by Norbert Weiner in 1940s. Original greek word Kybernetes.
It is the study of the entire field of control & communication theory whether in the machine or the animal.
When exercising the control function a manager measures the performance of an individual ,a plan,or a,programme against certain predetermined standards & takes corrective actions if there is any deviation.
Basic Control Process.
Determining areas of control.
Establishing Standard.
Measuring Performance.
Comparing actual performance against standards.
Rewarding good performance & or taking corrective action when necessary.
Adjusting standards & measures when necessary. ( Dynamism
Establishing Standards
Standards are generally expressed numerically without diluting standard Q&Q.
Within a specific cost and time frame.
Employee understands what is expected from them and the evaluation
parameter.
Employee identify job difficulties and cause of his low performance and the
same can be rectified.
Management by Objectives (MBO) is a process of agreeing upon objectives/goals within an organization so that management and employees agree to the objectives and understand what they are.
The objectives are set jointly by superiors subordinate.
Objectives can be set in all domains of activities (production, services, sales, R&D, human resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company, others can be individualized .
. MBO introduced the SMART criteria: Objectives for MBO must be SMART Specific, Measurable, Achievable, Relevant, and Time-Specific.
Limitations of MBO.
MBO program may overemphasize short-term goals and performance, postponing or ignoring activities needed to maintain long-term organizational health.
Over-use of quantitative goals jeopardizes the qualitative aspect which may more important than quantification in some cases.
Reliability of Financial Reporting… True and fair view of transaction
Compliance with appropriate legal and regulatory framework.
Behavioral Restriction…..
Pre action appraisal……..
Action Accountability….
Behavioral Restrictions.
An environment is created within an organisation which deters one from doing things which are not in the interest of the organization.
Password on specific computers.
Pre Action Appraisal.
This form of control involves a supervisor reviewing a subordinate’s plan of action.
Brand Manager may have to take the approval of VP –Marketing before launching a new television commercial to replace an existing one.
Action Accountability.
This form of action control entails making employees responsible for their actions & in essence is applicable after an action has been carried out.
A branch manager in a retail bank may be expected to follow certain norms while assessing the credit worthiness of a potential borrower.
If the manager violates the norm & borrower defaults on repayment ,the manager will be liable to make the repayment to the bank.
Results Control
Do not place any such restrictions like action control.
Employees are given discretionary powers to take decision which is in the best interest of the organisation.
A reward system is also in place.
Personnel Control
It aims at encouraging employees to monitor themselves and others with whom they work.
A mix of Action and Results control.
Improves sense of belongingness and well being as well as motivation to work for the best interests of the organisation.
Formal Controls.
FC also referred to as bureaucratic controls involve establishing standard rules & procedures for control of activities & their outcomes.
Delegation of authority and responsibility in a structured manner within a well defined framework.
Informal Controls
IC are not about any fixed controls.
For informal controls to develop & be effective ,interpersonal relationships or peer interactions are encouraged .
A feeling of trust pervades the organization & external agencies dealing with the organisation.
IC are generally found in organizations which rate high on innovations & creativity.
IC co exists with formal controls in a controlled organization & the effect of the one is not independent of the other.
IC dilutes some of the drawback of formal control.
Feedback Control
Deviation from plan occurs first
Then corrective actions are taken
Once the deviations are corrected the plans are updated accordingly.
Feed forward Control.
Continuously scrutinizing and monitoring the various processes in use .
This done on the environmental aspects to which the control is screened.
Proactive modifications made to process or environment as the case may be.
Contextual factors affecting Management Control.
Nature and Purpose of Organization
Organization Structure and Size
National Culture
Corporate Strategy and Org Diversification
Stake holders Expectations.
Managerial styles.
Competitive strategy.
Organisational Slack.
National Culture.
Hofstede defined culture as “the collective programming of mind that
distinguishes the member of one category of people from those of another.
He studied the culture of people in 50 countries & on that basis highlighted 4 dimension on which culture varies across countries.
These 4 dimensions are
Power Distance – Presence of Hierarchical levels where there is inequality in the distribution of power
Uncertainty Avoidance – Risk taking ability and the extent of avoidance of ambiguity.
Individualism /Collectivism – Preference of working together or as and individual.
Masculinity/Femininity –
Higher masculinity implies higher competitive spirit , independent thinking , assertiveness etc.
Higher feminity implies higher interdependence, inclination towards service.
Managerial Style
Level of Involvement of the manager in his subordinate’s work.
Two common style – Autocratic and democratic
Both the style can be permissive or directive.
Autocratic permissive
Autocratic directive
Democratic Permissive
Democratic Directive.
Organizational Slack.
A capacity in the organisation which is in surplus of what is required for normal operation.
Slack may be present in the form of under utilizing resources.
Slack may be voluntary or involuntary and also may be good or bad.
Overview of MGT Control…..
Use resources effectively and efficiently
Maintaining competitive edge in the industry
Meet the growing demand of the stake holders.
Management Control is a set of interrelated communication structure that facilitates the processing and passing of information
To assist the managers in coordinating the attainment of the purpose of organization on a continuous basis.
Introduction.
Management Control has been defined as “process whereby management & other groups are able to initiate & regulate the conduct of activities so that their results accord with the goals & expectations held by those groups.”
The practice of management control and the design of management control systems draws upon a number of academic disciplines like ME,MA & OB.
It is derived from ME,MA,OB.
Cybernetic Approach to Management Control.
The term “cybernetics” was coined by Norbert Weiner in 1940s. Original greek word Kybernetes.
It is the study of the entire field of control & communication theory whether in the machine or the animal.
When exercising the control function a manager measures the performance of an individual ,a plan,or a,programme against certain predetermined standards & takes corrective actions if there is any deviation.
Basic Control Process.
Determining areas of control.
Establishing Standard.
Measuring Performance.
Comparing actual performance against standards.
Rewarding good performance & or taking corrective action when necessary.
Adjusting standards & measures when necessary. ( Dynamism
Establishing Standards
Standards are generally expressed numerically without diluting standard Q&Q.
Within a specific cost and time frame.
Employee understands what is expected from them and the evaluation
parameter.
Employee identify job difficulties and cause of his low performance and the
same can be rectified.
Management by Objectives.
The term "management by objectives" was first popularized by Peter Drucker in his 1954 book 'The Practice of Management'.
Management by Objectives (MBO) is a process of agreeing upon objectives/goals within an organization so that management and employees agree to the objectives and understand what they are.
The objectives are set jointly by superiors subordinate.
Objectives can be set in all domains of activities (production, services, sales, R&D, human resources, finance, information systems etc.).
Some objectives are collective, for a whole department or the whole company, others can be individualized .
. MBO introduced the SMART criteria: Objectives for MBO must be SMART Specific, Measurable, Achievable, Relevant, and Time-Specific.
Limitations of MBO.
MBO program may overemphasize short-term goals and performance, postponing or ignoring activities needed to maintain long-term organizational health.
Problems about Goals Setting.
Individuals may emphasize their own MBO goals to the detriment of the goals of other individuals and groups.
Over-use of quantitative goals jeopardizes the qualitative aspect which may more important than quantification in some cases.
Objectives of Management Control
Effectiveness and Efficiency of Business Operation…….Achieving purpose … Maximum Productivity.
Reliability of Financial Reporting… True and fair view of transaction
Compliance with appropriate legal and regulatory framework.
Action Control
This class of control tries to ensure that all actions being taken by the person in the organisation are at par with org objective
Behavioral Restriction…..
Pre action appraisal……..
Action Accountability….
Behavioral Restrictions.
An environment is created within an organisation which deters one from doing things which are not in the interest of the organization.
Password on specific computers.
Pre Action Appraisal.
This form of control involves a supervisor reviewing a subordinate’s plan of action.
Brand Manager may have to take the approval of VP –Marketing before launching a new television commercial to replace an existing one.
Action Accountability.
This form of action control entails making employees responsible for their actions & in essence is applicable after an action has been carried out.
A branch manager in a retail bank may be expected to follow certain norms while assessing the credit worthiness of a potential borrower.
If the manager violates the norm & borrower defaults on repayment ,the manager will be liable to make the repayment to the bank.
Results Control
Do not place any such restrictions like action control.
Employees are given discretionary powers to take decision which is in the best interest of the organisation.
A reward system is also in place.
Personnel Control
It aims at encouraging employees to monitor themselves and others with whom they work.
A mix of Action and Results control.
Improves sense of belongingness and well being as well as motivation to work for the best interests of the organisation.
Formal Controls.
FC also referred to as bureaucratic controls involve establishing standard rules & procedures for control of activities & their outcomes.
Delegation of authority and responsibility in a structured manner within a well defined framework.
Informal Controls
IC are not about any fixed controls.
For informal controls to develop & be effective ,interpersonal relationships or peer interactions are encouraged .
A feeling of trust pervades the organization & external agencies dealing with the organisation.
IC are generally found in organizations which rate high on innovations & creativity.
IC co exists with formal controls in a controlled organization & the effect of the one is not independent of the other.
IC dilutes some of the drawback of formal control.
Feedback Control
Deviation from plan occurs first
Then corrective actions are taken
Once the deviations are corrected the plans are updated accordingly.
Feed forward Control.
Continuously scrutinizing and monitoring the various processes in use .
This done on the environmental aspects to which the control is screened.
Proactive modifications made to process or environment as the case may be.
Contextual factors affecting Management Control.
Nature and Purpose of Organization
Organization Structure and Size
National Culture
Corporate Strategy and Org Diversification
Stake holders Expectations.
Managerial styles.
Competitive strategy.
Organisational Slack.
National Culture.
Hofstede defined culture as “the collective programming of mind that
distinguishes the member of one category of people from those of another.
He studied the culture of people in 50 countries & on that basis highlighted 4 dimension on which culture varies across countries.
These 4 dimensions are
Power Distance – Presence of Hierarchical levels where there is inequality in the distribution of power
Uncertainty Avoidance – Risk taking ability and the extent of avoidance of ambiguity.
Individualism /Collectivism – Preference of working together or as and individual.
Masculinity/Femininity –
Higher masculinity implies higher competitive spirit , independent thinking , assertiveness etc.
Higher feminity implies higher interdependence, inclination towards service.
Managerial Style
Level of Involvement of the manager in his subordinate’s work.
Two common style – Autocratic and democratic
Both the style can be permissive or directive.
Autocratic permissive
Autocratic directive
Democratic Permissive
Democratic Directive.
Organizational Slack.
A capacity in the organisation which is in surplus of what is required for normal operation.
Slack may be present in the form of under utilizing resources.
Slack may be voluntary or involuntary and also may be good or bad.