Management control system
A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies.
Management control system influences the behavior of organizational resources to implement organizational strategies. Management control system might be formal or informal.
Overview
Management control systems are tools to aid management for steering an organization toward its strategic objectives and competitive advantage. Management controls are only one of the tools which managers use in implementing desired strategies. However strategies get implemented through management controls, organizational structure, human resources management and culture.[1]
According to Simons (1995), Management Control Systems are the formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities [2]
Anthony & Young (1999) showed management control system as a black box. The term black box is used to describe an operation whose exact nature cannot be observed.
Management control system, topics
Management control
The term ‘management control’ was given of its current connotations by Robert N. Anthony (Otley, 1994).[3]
According to Maciariello et al. (1994), management control is concerned with coordination, resource allocation, motivation, and performance measurement. The practice of management control and the design of management control systems draws upon a number of academic disciplines.
- Management control involves extensive measurement and it is therefore related to and requires contributions from accounting especially management accounting.
- Second, it involves resource allocation decisions and is therefore related to and requires contribution from economics especially managerial economics.
- Third, it involves communication, and motivation which means it is related to and must draw contributions from social psychology especially organizational behavior (see Exhibit#1).[4]
Robert N. Anthony (2007) defined Management Control as the process by which managers influence other members of the organization to implement the organization’s strategies.
Management accounting
Anthony & Young (1999) showed that management accounting has three major subdivisions: full cost accounting, differential accounting and management control or responsibility accounting.[5]
Management accounting system
Chenhall (2003) mentioned that the terms management accounting (MA), management accounting systems (MAS), management control systems (MCS), and organizational controls (OC) are sometimes used interchangeably.
In this case, management accounting refers to a collection of practices such as budgeting or product costing. But management accounting systems refers to the systematic use of management accounting to achieve some goal and management accounting systems is a broader term that encompasses management accounting systems and also includes other controls such as personal or clan controls.
Finally organizational controls is sometimes used to refer to controls built into activities and processes such as statistical quality control, just-in-time management.[6]
Management control system techniques
According to Horngren et al. (2005), management control system is an integrated technique for collecting and using information to motivate employee behavior and to evaluate performance.[7] Management control systems use many techniques such as
- Activity-based costing
- Balanced scorecard
- Benchmarking and Benchtrending
- Budgeting
- Capital budgeting
- JIT
- Kaizen (Continuous Improvement)
- Program management techniques
- Target costing
- Total quality management (TQM)
See also
References
- ^ Anthony, R. and Govindarajan, V., 2007. Management Control Systems, Chicago, Mc-Graw-Hill IRWIN.
- ^ Simons, 1995, Levers of Control, Boston: Harvard Business School Press, p. 5
- ^ Otley, D., 1994. Management control in contemporary organizations: towards a wider framework, Management Accounting Research, 5, 289-299.
- ^ Maciariello, J. and Kirby, C., 1994. Management Control Systems - Using Adaptive Systems to Attain Control, New Jersey, Prentice Hall.
- ^ Anthony, R. and Young, D., 1999. Management control in nonprofit organizations, Boston, Irwin McGraw-Hill.
- ^ Chenhall, R., 2003. Management control system design within its organizational context: Findings from contingency-based research and directions for the future, Accounting, Organizations and Society, 28(2-3), 127-168.
- ^ Horngren, C., Sundem, G. and Stratton, W., 2005. Introduction to Management Accounting, New Jersey, Pearson.