MCS (1)

Management Control Systems : 

Management Control Systems 1

Slide 2: 

Control is the process of ensuring that a firm’s activities conform to its plan and that its objectives are achieved. Controls are measurement and information, whereas control means direction. 2

Slide 3: 

In other words, ‘controls’ are purely a means to an end; the end is control. ‘Control’ is the function that makes sure that actual work is done to fulfill the original intention, and ‘controls’ are used to provide information to assist in determining the control action to be taken. 3

Operational Control : 

Operational Control Is the process of ensuring that specific and immediate tasks are carried out. 4

Management Control : 

Management Control Is the process that links strategic planning and operational control 5

Control Systems : 

Control Systems A control system is a communications network that monitors activities within the organization and provides the basis for corrective action in the future. 6

Control Systems : 

Control Systems Feedback Control Feed Forward Control 7

Control Costs : 

Control Costs Controllable Costs Uncontrollable Costs 8

Slide 9: 

9 WHY? VISION / MISSION WHAT? PLANS STRATEGIES GOALS HOW WHEN WHERE WHO PROCESS REVIEW Result Ok Rewards Recognition New Opportunities Feedback Process Correction RE-VISION YES NO

Elements of Control System : 

Elements of Control System A detector or sensor An assessor An effector A communication network 10

Slide 11: 

1. Detector Information about what is happening Control Device Entity being controlled 3. Effector Behavior alteration, if needed 2. Assessor Comparison with standard 11

Core Control System : 

Core Control System Strategic plans Financial forecasts Budgets Management by objectives Operations management techniques MIS reports Form an integrated system for directing and monitoring organizational activities. 12

Slide 13: 

Strategic Plan Financial Forecast Targets, standards 13

Slide 14: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Targets, standards 14

Slide 15: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Operations Management System Targets, standards 15

Slide 16: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Operations Management System Operating Budget Targets, standards 16

Slide 17: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Operations Management System Operating Budget Management Information Systems Targets, standards 17

Slide 18: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Operations Management System Operating Budget Manufacturing or Service Operations Management Information Systems Targets, standards 18

Slide 19: 

Strategic Plan Financial Forecast Management by Objectives Performance Appraisal Systems Operations Management System Operating Budget Manufacturing or Service Operations Management Information Systems Targets, standards Information on performance 19

Top Management Financial Control : 

Top Management Financial Control 20

Financial Statements : 

Financial Statements Balance Sheet = A financial statement showing the firm’s financial position with respect to its assets and liabilities at a specific point in time Income Statement = A financial statement that summarizes a company’s financial performance over a given time interval. 21

Financial Ratios : 

Financial Ratios Liquidity ratio = company’s ability to meet its current debt obligations Activity ratio = internal performance with respect to key activities Profitability ratio = describes profits. 22

Financial Audits : 

Financial Audits Independent appraisal of the financial records - Cash - Receivables - Inventory - Fixed assets - Loans - Revenues and expenses. 23

Middle Management Budget Control : 

Middle Management Budget Control 24

Responsibility Center : 

Responsibility Center An organizational department under the supervision of a single individual who is responsible for its activity. 25

Types of Responsibility Centers : 

Types of Responsibility Centers Cost Center Budget based on cost of inputs Resource inputs 26

Types of Responsibility Centers : 

Types of Responsibility Centers Cost Center Budget based on cost of inputs Revenue Center Budget based on amount of revenues Resource inputs Revenue generated 27

Types of Responsibility Centers : 

Types of Responsibility Centers Cost Center Budget based on cost of inputs Revenue Center Budget based on amount of revenues Profit Center Revenues - Cost = Profit Budget Resource inputs Resource inputs Revenue generated Revenue generated 28

Types of Responsibility Centers : 

Types of Responsibility Centers Cost Center Budget based on cost of inputs Revenue Center Budget based on amount of revenues Profit Center Revenues - Cost = Profit Budget Investment Center Revenue - Cost = Profit as % of assets Resource inputs Resource inputs Resource inputs Revenue generated Revenue generated Revenue generated 29

Operating Budgets : 

Operating Budgets The plan for the allocation of financial resources to each organizational responsibility center for the budget period. 30

Operating Budgets : 

Operating Budgets Expense Budget = The expenses for each responsibility center and for the organization as a whole Revenue Budget = Identifies the revenues required by the firm Profit Budget = combines expense budget and revenue budget to show gross and net profits. 31

Financial Budgets : 

Financial Budgets Define where the organization will receive its cash and how it intends to spend it. 32

Financial Budgets : 

Financial Budgets Cash Budget = Estimates cash flows to insure cash to meet obligations Capital Expenditures Budget = Plans future investments in major assets to be depreciated over several years Balance Sheet Budget = Plans the amount of assets and liabilities for the end of a time period. 33

The Budgeting Process : 

The Budgeting Process 34

Top-Down Budgeting : 

Top-Down Budgeting Provides overall economic projections Conveys corporate financial goals and forecasts Tells resource availability and range of budget amounts. 35

Bottom-Up Budgeting : 

Bottom-Up Budgeting Identifies specific resource requirements Includes economies and opportunities in specialized areas Resolves resource inconsistencies among departments Increases employee commitment. 36

Zero-Based Budgeting : 

Zero-Based Budgeting Each responsibility center calculates its resource needs based on the coming year’s priorities rather than on the previous year's budget. 37

Zero-Based Budgeting : 

Zero-Based Budgeting 1. Develop a decision package for their responsibility centers (goals, activities, costs, benefits) 2. Top management reviews decision package and ranks them 3. Top management allocates resources based on rankings. 38

Trends in Financial Controls : 

Trends in Financial Controls 39

Open-Book Management : 

Open-Book Management Sharing financial information and results with all employees in the organization. 40

Economic Value-Added Systems (EVA) : 

Economic Value-Added Systems (EVA) Company’s net operating profit after taxes and after deducting the cost of capital Capture all the things a company can do to add value from its activities Measure each job, department, or process by the value added. 41

Activity-Based Costing (ABC) : 

Activity-Based Costing (ABC) Identifies activities needed to produce product or service Determines the cost of those activities Allocates resources according to the cost of each product or service. 42

Signs of Inadequate Budget Control Systems : 

Signs of Inadequate Budget Control Systems Deadlines missed frequently Poor quality of goods and services Declining or stagnant sales or profits Loss of leadership position or market share Inability to obtain data to evaluate employee or departmental performance 43

Signs of Inadequate Budget Control Systems : 

Signs of Inadequate Budget Control Systems Low employee morale and high absenteeism Insufficient employee involvement and management-employee communication Excessive company debts, uncertain cash flow, unpredictable borrowing Insufficient use of people, material, equipment, and facilities. 44