Scribd Logo
Upload

Welcome to Scribd!

  • 51 views

    Management Control Systems: Prof Swapna Tamhankar

    Uploaded by

    Girish Dembla
    1. Management control systems ensure necessary resources are deployed effectively to meet planned objectives on time. They cover administrative, accounting, financial, human resource, and operational areas. 2. Key aspects of management control systems include return on investment, economic value added, responsibility accounting, responsibility centers, performance measurement, and controls in special sectors like R&D, projects, and auditing. 3. Management control systems are tools that help implement business strategies by setting goals and organizational structures at the corporate and business unit levels to ensure goal congruence across external and internal factors.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Management Control Systems: Prof Swapna Tamhankar

    Uploaded by

    Girish Dembla
    51 views21 pages
    1. Management control systems ensure necessary resources are deployed effectively to meet planned objectives on time. They cover administrative, accounting, financial, human resource, and operational areas. 2. Key aspects of management control systems include return on investment, economic value added, responsibility accounting, responsibility centers, performance measurement, and controls in special sectors like R&D, projects, and auditing. 3. Management control systems are tools that help implement business strategies by setting goals and organizational structures at the corporate and business unit levels to ensure goal congruence across external and internal factors.

    Original Description:

    Original Title

    MCS

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    1. Management control systems ensure necessary resources are deployed effectively to meet planned objectives on time. They cover administrative, accounting, financial, human resource, and operational areas. 2. Key aspects of management control systems include return on investment, economic value added, responsibility accounting, responsibility centers, performance measurement, and controls in special sectors like R&D, projects, and auditing. 3. Management control systems are tools that help implement business strategies by setting goals and organizational structures at the corporate and business unit levels to ensure goal congruence across external and internal factors.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    51 views21 pages

    Management Control Systems: Prof Swapna Tamhankar

    Uploaded by

    Girish Dembla
    1. Management control systems ensure necessary resources are deployed effectively to meet planned objectives on time. They cover administrative, accounting, financial, human resource, and operational areas. 2. Key aspects of management control systems include return on investment, economic value added, responsibility accounting, responsibility centers, performance measurement, and controls in special sectors like R&D, projects, and auditing. 3. Management control systems are tools that help implement business strategies by setting goals and organizational structures at the corporate and business unit levels to ensure goal congruence across external and internal factors.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 21

    Management Control Systems

    Prof Swapna Tamhankar


    Introduction - MCS

    Control System
    Detector
    Assessor
    Effectors
    Communication Network

    A common example: Thermostat,


    Automobile Drive
    MCS
    Management Control is all about
    ensuring that the necessary resources are
    mobilized and are deployed effectively so
    that the planned objectives are met
    without much difficulty and IN TIME.

    Covers Administrative, accounting,


    financial, Human Resource &
    Operational Areas
    Syllabus
    ROI & EVA – Sensitivity Analysis
    Understanding Strategies – Corporate Level, Business
    Unit
    Responsibility Accounting – MBO
    Responsibility Centers –
    Cost, expense, profit centers.
    Transfer Pricing
    Performance Measurement
    Control in special sectors
    R&D Expenses
    Project Audit
    Government Audit
    Proprietary Audit
    ROI

    A simple definition for ROI is Profits by


    investments.

    Factors Affecting profits are the net


    expenses and the revenues for a given
    period
    Case - Sensitivity Analysis of profit
    margins
    Started with a scrip scan of Marico.
    One of the key ingredient in soaps, shampoos, hair oils, edible
    oils
    Price drop in 2009
    Favorable delayed monsoon
    Exemption of import duty on the edible oil.
    Poor demand
    How the input costs are determined, factors influencing it,
    respective strategies to be planned to keep the profit margins
    intact.
    Increase or decrease tonnage, pass it on to the consumers
    (increase the S.P.), Transfer the profits of one product to other
    product line, Bear the loss for a given period.
    What would be the effect of the price change on the demand
    for a particular product.
    Current Scenario, rise in the prices which has led to rise in the
    product prices
    Economic Value Added
    EVA is Registered Trademark of Stern Stewart &
    company
    EVA was originally defined by Stewart as

    EVA = NOPAT- (C * CAPITAL)


    Where,
    NOPAT = Net Operating Profit After Taxes
    C = The weighted Average Cost of Capital
    What is NOPAT

    NOPAT includes following aspects:


    Income Available to Equity Stock Holders Plus
    Interest Expenses after Taxes Plus
    Preferred Dividends Plus
    Minority Interest Provisions
    Reasons to use EVA
    Same profit objective, i.e. accept the
    project which has the return more than
    the cost of capital.
    Some projects may get rejected by ROI
    principle as the increase in ROI may
    decrease the units profits.
    Different interest rates for different
    investment.
    Affinity towards the shareholders
    Uses of EVA

     As a measure of corporate and divisional performance


     As a Compensation Base
     To increase managers awareness of stockholders
    interest
     To emphasis on long term benefits of employee training
    and R & D expenses as they are capitalized
     To increase firms value
    Illustration
    Particulars

    Debt 50 Crores
    Equity 2766 crores
    Cost of debt 7.72 %
    Cost of equity 16.7%
    PAT 15.41 Crores
    Interest expenses 5 crores

    Calculate Weighted average cost of capita & EVA


    Illustration 2
    Particulars A B

    Profit 2 Lacs 3.2 Lacs


    Investment 10 Lacs 16 Lacs
    Cost of capital 10% 15%
    ROI ? ?
    Illustration
    ROI Calculation
    Units Cash Debtor Stocks Fixed Total Profit ROI
    Assets
    A 10 20 30 60 120 24

    B 20 20 30 50 120 14.4

    C 15 40 40 10 105 10.5

    D 5 10 20 40 75 3.8

    E 10 5 10 10 35 1.8
    Contd
    Units Profit Current Reqd Fixed Reqd EVA
    Assets Earning Assets Earning
    @ 4% @ 10%
    A 24 20 60

    B 14.4 20 50

    C 10.5 40 10

    D 3.8 10 40

    E 1.8 5 10
    Disadvantages

    Cumbersome
    Absolute measure rather than a relative
    measure, allowance for the size of the
    unit should be made for comparison.
    Low EVA for R&D projects
    Future values are not taken into
    consideration
    Strategic Management

    Management control systems are tools to


    implement business strategies.

    To understand the strategy one has to


    know what are the company goals.

    Maximizing profits / shareholder value /


    stakeholder value etc
    Example
    Henry Fords operating philosophy was
    satisfactory profit, not maximum profit. He
    wrote “let me say right here that I do not
    believe that we should make such an awful
    profit on our cars. A reasonable profit is right,
    but not too much. So it has been my policy to
    force the price of car down as fast as production
    would permit and give the benefits to the users
    and laborers – with resulting surprisingly
    enormous benefits to ourselves”
    Levels of strategy
    Corporate level
    Industry analysis
    Single Industry firm – McDonalds, Ford
    Unrelated diversified firms – Reliance, Future
    Group
    Related diversified firms - 3 M, P & G
    Product / Service mix that should be planned
    Business unit level
    Various products offered by HUL become
    there business units.
    Organisational Behaviour

    Goal Congruence
    External & Internal factors
    Organizational Structure
    Functional
    Business Unit Structure
    Matrix Organization
    Controller on various levels
    Responsibility Centres

    Responsibility centre is an organization


    unit that is headed by a manager who is
    responsible for its activities.

    Ex: Plants, stores, warehouses, corporate


    offices etc
    Expense Centre, Revenue centre &
    Profit Centre.
    Expense
    Engineered – ex manufacturing plant
    Discretionary – ex R&D dept
    Revenue
    Marketing Depts
    Profit centers
    Business Units
    Investment Centers
    Business units, company as a whole

    You might also like