Quiz 12: Fundamentals of Management Control Systems

Business

Management control system Management control system is needed to manage the complications arising out of decentralization like dysfunctional decision making. Owners of the organization use structure and procedures of management control system to influence the actions of its managers and other employees to ensure smooth implementation of organizational strategies. Management controls system comprises of three elements such as delegation fo decision making authorities, evaluation of performance and measurement systems and finally awarding compensation and rewards for performance. Accounting an aid in management control system Accounting is helps in management control system in defining the centers as cost center, profit center, revenue center, investment center etc. It also helps in delegating the authorities to center helps and managers to run business operations like approving financial transactions to buy assets, materials, pay overheads etc. It sets goals in measurable terms for each function that are divided on weekly, monthly, yearly basis. Accounting policies and procedures are developed to drive and record the accounting transactions and maintain records. It clearly defines the roles and responsibilities for each role and keep check on transactions processing. Cost accounting also provide yardstick to evaluate the performance of departments and its managers by comparing the actual results with targets set by the top management. It also provides the methods of awarding the best performance and development plans for human resources within the organization. It also provides strong and continuous review mechanism like internal audits, departmental reviews, external audits etc. to check the adherence with internal policies and procedures, external regulations, compliance requirements etc. Thus, accounting helps in addressing the issues and challenges related management controls.

Management control system Management control system is needed to manage the complications arising out of decentralization like dysfunctional decision making. Owners of the organization use structure and procedures of management control system to influence the actions of its managers and other employees to ensure smooth implementation of organizational strategies. Management controls system comprises of three elements such as delegation fo decision making authorities, evaluation of performance and measurement systems and finally awarding compensation and rewards for performance. Accounting an aid in management control system Accounting is helps in management control system in defining the centers as cost center, profit center, revenue center, investment center etc. It sets goals in measurable terms for each function that are divided on weekly, monthly, quarterly, half yearly and yearly basis. Cost accounting also provide yardstick to evaluate the performance of departments and its managers by comparing the actual results with targets set by the top management. It also provides the methods of awarding the best performance and development plans for human resources within the organization. Task to be achieved are measurable and quantified in accounting like sales team need to raise its monthly sales by 10%, production department need to increase production by 5%, administration department need to reduce their operating cost by 8% etc. Accounting records are financial transactions only that can be measured like value of goods sold, cost of material purchased, amount expenses paid etc. Ambiguous and unquantified amounts are not recorded like legal case pending where the amount of claim is not clear and judgement is pending. All targets are clearly defined and precise in accounting and further aligned with main objective of the organization to increase profitability by 10%. Hence, performance measures based on accounting numbers should be objective and precise.

The CEO is top personnel in the management therefore they will be treated as agent of the board of directors. The board of directors are the agents of the shareholders and they have to perform their duties as an agent. The duties of board of directors are like giving information of work in the company to the shareholders by reporting the financial statements to the shareholders periodically, paying dividends to the shareholders etc.