A management control system gathers and uses information to evaluate organizational performance and resources in light of strategies. An effective control system should be aligned with organizational goals and structure, motivate employees toward goals through rewards, and provide corrective actions. It emphasizes exceptions to bring important deviations to management's attention. A good control system provides accuracy, timeliness, flexibility, acceptability, and economic feasibility. It generates accurate, timely information for decisions and is adaptable to changing environments while justified in cost. Effective controls help avoid failures and ensure long-term success through strategy execution.

1. What Is Control System
And What Should A Good Control
System Provide ?

2. About 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 in light of the organizational strategies
pursued.
• Management control is concerned with coordination, resource
allocation, motivation, and performance measurement.
feedback

3. Characteristics of Management
Control Systems
 Management control systems should be closely aligned
to an organisation’s strategies and goals.
 Management control systems should be designed to
fit the organisation’s structure and the decision-
making responsibility of individual managers.
 Effective management control systems should
motivate managers and employees to exert efforts
toward attaining organisation goals through a variety
of rewards tied to the achievement of those goals.

4. Features of Control System
• Integration
When the controls are consistent with corporate values and culture,
they work in harmony with organizational policies and hence are
easier to enforce. These controls become an integrated part of the
organizational environment and thus become effective.
• Corrective Action
An effective control system not only checks for and identifies
deviation but also is programmed to suggest solutions to correct such
a deviation.

5. • Strategic Placement
An effective control system not only checks for and identifies
deviation but also is programmed to suggest solutions to correct such
a deviation.
• Emphasis on Exception
A good system of control should work on the exception principle, so
that only important deviations are brought to the attention of
management, In other words, management does not have to bother
with activities that are running smoothly.

6. Elements of Control System
Management control system is an integrated technique for collecting and using
information to motivate employee behavior and to evaluate performance.
 Balanced scorecard
The phrase 'balanced scorecard' primarily refers to a performance
management report used by a management team, and typically this team
is focused on managing the implementation of a strategy or operational
activities by individuals to track personal performance.
Example - Operations management to get survey and goal setting
 Benchmarking
Setting goals and productivity based approach as data based on
performance example:-Manufacturing firm uses customer order for
analyzing performance

7. • Just-in-Time inventory system
In this system, the supplier delivers the components and parts to vendor when
needed .
 Requirements the quality of the parts must be very high, dependable
relation with suppliers
 Make it right the first time, e.g. : Glass bottling
 Set-up reduction
• Activity-based costing (ABC)
 It is a costing methodology that identifies activities in an organization
and assigns the cost of each activity with resources to all products and
services according to the actual consumption by each.
 CIMA (Chartered Institute of Management Accountants) defines ABC as an
approach to the costing and monitoring of activities which involves
tracing resource consumption and costing final outputs.

8. Requirement of good control system
 Accuracy :Accuracy can be improved by using feedback elements. To increase
accuracy of any control system error detector should be present in control system.
 Sensitivity : The parameters of control system are always changing with change in
surrounding conditions, internal disturbance or any other parameters. This change
can be expressed in terms of sensitivity.
 Noise : An undesired input signal is known as noise.
 Stability : It is an important characteristic of control system.
 Bandwidth : Bandwidth should be large as possible for frequency response of good
control system.
 Speed : It is the time taken by control system to achieve its stable output.

9. Factors Influencing Management
Control Systems
(i) Size and Spread of the Enterprise :
The size and spread of a large firm is bound to be different
compared with that of a small firm. This would certainly
determine the content and nature of the control system for
each organisation.
(ii) Organisational Structure, Delegation and Decentralisation:
Statutes and conventions govern organisational structure, and
the extent of decentralisation and delegation in all enterprises.
For example, the management philosophy of the State Bank of
India is bound to be different from that of the State Trading
Corporation.

10. (iii) Nature of Operations and Divisibility :
Nature of operations and their divisibility affect management control
systems. For example, in the oil industry, for instance, sub-units can
not be formed on the basis of products
(iv) Types of Responsibility Centres :
Different control systems are needed for the various responsibility
centres or sub-systems within an organisation. For example, a bank
may apply different performance measures to measure performance
of its different branches.
(v) People and their Perceptions :
Perceptions of people in the organisation about the likely effects of
the control system on their work life, job satisfaction, job security,
promotion and general well-being could differ across organisations.

11. Good Control System
A good control system should Provide :
• Accuracy
Effective controls generate accurate data and information. Accurate
information is essential for effective managerial decisions.
• Timeliness
There are many problems that require immediate attention. If information
about such problems does not reach management in a timely manner, then
such information may become useless and damage may occur.
• Flexibility
The business and economic environment is highly dynamic in nature.
Technological changes occur very fast. A rigid control system would not be
suitable for a changing environment.

12. • Acceptability
Controls should be such that all people who are affected by it are able to
understand them fully and accept them. A control system that is difficult to
understand can cause unnecessary mistakes and frustration and may be
resented by workers.
• Economic Feasibility
The cost of a control system must be balanced against its benefits. The
system must be economically feasible and reasonable to operate. For
example, a high security system to safeguard nuclear secrets may be
justified but the same system to safeguard office supplies in a store would
not be economically justified.

13. Why to have good Control System ?
 In 2001, Enron Corporation, the global energy giant, collapsed in
one of the largest cases of bankruptcy in US corporate history.
 The news that WorldCom, the telecom giant indulged in
deliberate enhancement of its earnings by $ 3.8 billion, rocked
the corporate world.
 In India it was Satyam Computers, which indulged in accounting
irregularities with the active support by one of the leading
financial auditing firms.

14.  All these examples show, the absence or ineffective control
systems can lead to huge losses, and even to corporate
bankruptcy.
 Consider world-class companies like Microsoft, Colgate, Procter
& Gamble, Infosys, Wipro etc.
 Their long term success is not just because they have
developed good strategies but also they execute and control
the strategies effectively.