CHARACTERISTICS OF MANAGEMENT CONTROL

The main characteristics of management control are as follows:

(i) Continuous Process: Management control is an ongoing process It is dynamic not static. Just
as the navigator continually takes reading to ascertain whether he is relative to a planned course,
so should the business manager continually take reading to assure himself that his enterprise or
department is on course. The control process is a set of actions such as programming, budgeting,
analyzing, monitoring, evaluating and reporting the performance. Manager control process is
carried on within the framework established by strategy planning. This framework consists of
objectives, strategies, policies, facilities etc., of the organization.

(ii) Goal Congruence: The purpose of management control is to encourage managers to take
actions that are in the best interests of the company. Technically, this purpose can be described
as goal congruence, which means harmony between individual goals and corporate goals. Due to,
several reasons, prefect goal Congruence cannot be –achieved in actual practice. The aim should,
therefore, be to attain a minimum amount of conflict between various goals.

(iii) Universality: Control function is required at every level of management and in every part of
the organization. The-basic control process remains the same irrespective of the function to be
controlled. Every manager is responsible for monitoring the activities of his subordinates and to
keep the operations focused towards goal achievement.

(iv) Total System. Generally, a management control system is a total system in the sense that it
covers different aspects of the organization’s operations. In order to maintain balance among all
parts of the organization, management requires information about ever part. Control system is a
set of inter locking sub-systems, e.g., goal, sensory device to monitor events, mechanisms to
detect-analyze deviations (warning signal) and the corrective element. Management control
system should be an integrated or coordinated system. Although data collected for one purpose
may differ from those collected for another purpose, these should be reconcilable with one
another.

(v) Coordinating Agency: Management Control is exercised by a central Coordinating agency.

Controllers at corporate and divisional levels are generally appointed. The control department is
often the largest staff department in a company but it is the line managers who make the
significant decisions.

(vi) Goal Orientation: Management control is intended to assist in the attainment of

organizational-goals. Its purposes maintain effectiveness and efficiency of performance.
Effectiveness implies the ratio of actual output to the target output, whereas efficiency is the
amount of output per unit of input. The focus of management control is on controlling the
performance of individuals in integrated way so as to influence performance of whole
organization.

(vii) Financial as well as non financial measures: Except in rare cases, management control
system is built around a financial structure. In other words, inputs and outputs are expresses in
monetary units. This is because money is the only common Denominator by means of which the
heterogeneous elements of Inputs. And inputs (labor hours, raw materials, machine hours,
quantity and quality of products) can be combined and compared.

Although the central focus is on financial structure, non-monetary measures such as time,
number of persons, rates of spoilage, etc. are also important parts of the management control
system.

(viii) Rhythmic: The management control system follows a definite pattern and timetable,
month after month and year after year. For example, in Budgetary control, certain steps (e.g.,
dissemination of guidelines, preparation of original estimates, communication of these estimates,
review of the estimates, final approval, operation, reporting and approval of performance) are
taken in a prescribed sequence and at certain dates each year. The procedure to be followed at
each step in the control process, the dates by which each step is to be completed and even the
forms to be used are often set forth in the budget manual.

Dalton and Lawrence mention two other features of control in organizations, which are as
follows:

(ix) Reciprocity: Every living creature tries to control its environment as a means of fulfilling its
needs. Someone in turn must control him. If either refuses to be controlled by the other, he loses
the Control he has. It is the reciprocal nature of the exchange that makes control effective.

(x) Expansibility: Control in organizations is a variable rather than a constant element because it
can expand or contract. The influence of an individual in the organization changes from time to
time. Similarly, an organization's influence in the environment fluctuates.
OBJECTIVES OF MANAGEMENT CONTROL

A sound control system is needed for the following purposes,

1. To measure progress. Under the planning process the fundamental goals and objectives
of the organization are established. The control process is necessary to measure progress towards
these goals. According to Fayol, “Control consists in verifying whether everything occurs in
conformity with the plan adopted, the instructions issued and the principles established.” As the
navigator continually takes readings, to ascertain whether it is relative to a planned course, so
should the manager take readings to see whether his enterprise or department is on the
predetermined course? He needs a control system to take such readings. The feedback enables us
to compare targets with performance and to take corrective action where deviations occur.

2. To uncover deviations. Several forces pull off the enterprise from its charted course. An
efficient control system is required to detect these deviations before they .become serious. The
main forces due to which an organization may go astray are as follows:

(a) Change. Change is an integral part of business environment. Markets shift, new products
emerge, new materials are discovered and new government policies are introduced. The control
system enables a manager to detect changes that are affecting his organization. He can take
action to face the threats and exploit the opportunities, which these changes create.

(b) Delegation. When a manager delegates authority, his responsibility to his own superior is not
reduced. A manager needs a control system to determine whether his subordinates are
accomplishing the tasks delegated to them. In the absence of a control system, he will not be able
to check on the subordinate’s progress and corrective action cannot be taken until failures occur.

(c) Mistakes. Employees very often commit mistakes. Problems may be diagnosed incorrectly,
pricing decisions may be faulty, wrong parts may be ordered, etc. Managers require a control
system to detect and rectify these mistakes before they become serious.

(d) Complexity. Large organizations are complex due to decentralized and geographically
scattered, operations. For example, sales at different retail stores/branches need to be recorded
and analyzed accurately. Close monitoring of diversified product lines is needed to ensure that
quality and profitability are being maintained. Such monitoring is impossible without a control
system.

3. To Indicate corrective action. Controls are required to suggest the remedial actions. A
control system may, for example, reveal that goals should be modified, tasks should be
reassigned, staff should be trained further, etc. A sound control system not only reveals
deviations but suggests the corrective actions required to overcome the deficiencies.

To sum up, once a plan becomes operational, control is necessary to measure progress, to
uncover deviations from plans, and to indicate corrective, action.

SCOPE OF MCS
Management control is an important process in which accounting information is used as to
accomplish the organization’s objective. Therefore the scope of control is very wide that covers a
broad range of management activities.

According to Holden, Fish and Smith the main areas of control are as follow:-

1. Policies control:- the success of business hangs on formulation of sound policies and
proper implementation. There is a great need of control over policies.

2. Control over organization:- for the control over organization the management uses
organization’s manual and organizational chart. Designing and organizing various
departments for smooth running of business is very essential. If any problem or conflict
arises the management control attempts to remove the causes of such frictions and
rationalize the organizational structure as to ensure its efficient working.

3. Control over personnel :- anything that the business accomplishes is the result of the
action of those people who work in the organization. It is people, not figure, that get
things done. The personnel manager is responsible to draw a control plan for having
control over the personnel of the concern.

4. Control over wages and salaries :- control over wages and salaries is sometimes assigned
to the personnel department or a specially constituted wages and salary committee.

5. Control over cost:- the cost accountant who is responsible to control cost set cost
standards, labor material and overhead . He makes comparison of actual cost data with
standard cost. Cost control is delicate task and is supplemented by budgetary control
system.

6. Control over technique:- it implies the use of best methods and techniques so as to
eliminate all waste in time, energy and material. The task is accomplished by periodic
analysis and checking of activities of each department with a view to avoid and eliminate
all non essential motions, functions and methods.

7. Control over capital expenditure:- various projects entailing huge amounts require
control. This is exercised through a system of evaluation of projects in terms of capital.
Capital budget is prepared for whole concern. Every project is evaluated in terms of
advantage accruing to the firm. For this purpose capital budgeting, project analysis ,
study of cost of capital etc are carried on extensively.

8. Production control:- the function of production control is to plan, organize, direct and
control the necessary activities to provide products and services. Once the production
system is designed and activated, the problems arise in the areas of production, planning
and control. Market needs and attitudes of consumer are studied minutely for revision in
product lines and their rationalizing. Routing, scheduling, dispatching, follow up,
inventory control, quality control are the various techniques in production control.

9. Overall control :- a master plan is prepared for overall control and all the concerned
departments are made to involve in this procedure.
10. Control over External relations:- public relations department should always be alert in
improving external relations. It may also prescribe norms and measure for other operating
departments to insist on cordial relations with all the parties.

11. Control over Research and Development :- research activities , being technical in nature
cannot be controlled directly . But is should be seen that all facilities are provided to
research staff to improve their ability and keeping in touch with the up-to date techniques
and devices. Training facilities should also be provided by having research budget in the
business. Allocation of experts’ time is also one issue to be addressed under controlling.
Process of Control:-

1. Well defined objective:- the objective and goals of the organization should be clear and
well defined. The organization goals should be split into sub-goals at departmental level.
The operation of various functions and their coordination should be vested in the hands of
executives who are armed with sufficient authority or power to fulfill their responsibility.
The planned goals of the enterprise or of a particular department serve as standard for
performance measurement.

2. Determination of strategic point of control:-the responsibility centers and strategic

points of control should be selected and fixed. To make the control process effective, the
management should concentrate upon strategic points only.

3. Establishment of control standards:-these standards are established criteria against

which actual performance can be compared and measured in terms of money, time,
physical units or some other index. The object of predetermined standard is that
comparison between actual performance and target performance is made possible.
Continuous comparison is very necessary. This requires tabulating the targets framed,
collecting and collating data regarding actual performance and reporting variations
periodically to the controlling authorities. Controls are not possible unless actual
performance and the standards against which it is being measured are comparable.

4. Determination of controllable costs and control period :-optimum control does not mean
excessive control. Sometimes good results are achieved only if critical points are
identified. Secret of good control is to establish strategic points where corrective actions
will be cheapest and most effective. Control period:-the proper control period is the
shortest period of time in which the management can usefully intervene and in which
significant changes in performance are likely. The period is different for different
responsibility centres and for different items within responsibility centres. Spoilage rates
in a production operation may be measured hourly or often. The key cost element of the
centre may be measured daily. Reports on overall performance, particularly those going
to the levels of management are often on a monthly basis and sometimes for quarterly or
longer intervals, since top management does not have either the time or the inclination to
explore the local temporary problems.

5. Strengthening the organization:- the complete framework of control is aimed at

strengthening the organization. Planning is a prerequisite. Control should be tailored to fit
the organization. There should be a system of checks on the managerial activity of
subordinates. The organization should be strengthened first to overcome the weakness of
deviations. Control should incorporate sufficient flexibility in them so as to remain
effective despite the failure of plan.

6. Measurement of performance:- it is not only a process of comparison of actual

performance with objectives, but to initiate steps to achieve the objectives. This is done
without encroaching upon the scope of authority of manager concerned. The evaluation
of performance is very necessary. It involves the measurement of performance in respect
 of work and in terms of control standards. According to Peter F Drucker the
measurement of performance must be clear, simple and rational, relevant and reliable.
The effectiveness of control system depends upon the prompt reporting of past results to
the persons who have power to produce changes.

7. Performance evaluation and action: The next step is to compare the performance of
with the planned standards. It is important to determine the limits within which the
variations can be held and still to be regarded within control when performance is
measured accurately. The management is not only required to find out the extent of
variations but the causes of variation must also be ascertained correctly. The manager
should be able to distinguish between minor and unimportant variation and variations
indicating need for immediate correction. To access whether actual performance is in
accordance with the target comparison with the standards has to be made and variation is
properly analyzed to understand the reason for variation. The comparison should be done
at frequent interval so that immediate corrective action should be taken.