Management Control Lesson 1

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Structure of control

Set of instruments (tools) of the controlling process.

Strategic Plans are designed with the entire organization in mind and begin with an organization's mission.

Strategic Plans look ahead to where the organization wants to be in 3, 5, ebbed ten years.

Discretionary Cost Center

Subunits where there is not a well defined relation between outputs and inputs. Examples are Administration, HR, R&D, Legal

Operational Auditing

Systematic review of effectiveness, efficiency and economy of operation. Operational audit is a future-oriented, systematic, and independent evaluation of organizational activities. In Operational audit financial data may be used, but the primary sources of evidence are the operational policies and achievements related to organizational objectives

Internal Implications

The company should have a management control system and auditing process for its CSR objectives. This would require transversal processes in all the organization related to CSR

External Implications

The company should have adequate communication channels with stakeholders to know their expectations and to improve its transparency.

Process of Control

The controlling process is a set of steps (actions) a manager uses to determine whether organization goals have been met.

To evaluate

The degree of achievement and to identify the cause of deviation.

RC has control over

costs, revenues, and investment funds.

EBIT =

revenues- expenses Net sales - production expenses

Revenue Center

Group is solely responsible for generating sales. Ie. Commercial department

To coordinate

Guide the efforts of the individuals and groups in the achievement of the objectives, considering always the efficient use of resources.

Output Control

Is the firm efficiently converting inputs into outputs? Is product quality improving? Are employees responsive to customers? Are customers satisfied with the services offered?

Management control is an approach that is pursued over time: before the action (planning phase) and after the action (in the monitoring and analysis phase).

It is a progressive approach; a process

Competency Australia

Leader in the area of competence assessment for rail safety workers and continues to benchmark for excellent in this field.

Competences Control

Management's consideration of the competence levels for specific jobs and how those translate into requisite skills and knowledge (potential training needs, recruitment requirements etc)

Profit Center

Manager has control over production and sales. (Costs and Revenues)

Investment Center

Managers are responsible for large amounts of money with which to make capital budgeting and other decisions affecting the use of assets.

RI=

Operating income - (operating assets x cost of capital)

Tools and Instruments of Structure Control

-Responsibility Centers -Traditional Tools -Indicators (financial, or non-financial) -/budgeting -Accounting Systems -Incentive systems -Information systems

ROI =

(Net Profi/Cost of investments)*100

Operational Management Control

-Assessing the efficiency of the plans and methods used in order to ensure that the various individual tasks are carried out effectively and efficiently. -Objectives are more concrete and tangible.

Tactical Level

-Emphasizes the current operations of various parts of the organization. -Usually developed in the areas of production, marketing, personnel, finance, and plant facilities.

Operational Level

-Linking strategic goals and objectives to tactical goals and objectives. It describes milestones, conditions for success and explains how, or what portion of, a strategic plan will be put into operation during a given operational period. -Defined in the short term. -Objectives very specific and quantitative.

Strategic Management Control deals with resource maximization: the company checks the overall performance to see whether is is utilizing its opportunities and resources to the fullest.

-Normally done by top management -It is the process of evaluating strategy, both after the strategy is formulated and after it is implemented. -It includes tangible and intangible objectives.

Which objectives do we need to control?

A. Strategic Level B. Tactical / Management Level C. Operational Level

Financial Accounting

Analysis and reporting of financial transaction within a given period

Efficiency

Assessed taking into consideration the relation between inputs and output

Cost Center

Business unit that is only responsible for the costs that it incurs. The manager of a cost center is not responsible for revenue generation.

To inform

Communicate to the whole organization the objectives, the standards and the degree of achievement expected of the company

Revenue Center

Control over the sales. Manager can decide the final price of the product thus they can have an impact on the net revenue.

Clan Control

Defined as control of the employees through shared values, belief structures and corporate culture to regulate employee behaviors and facilitate the reaching of organizational goals (opposite of bureaucratic control). Eg: codes of conduct, recognition of achievement, etc. Organizations using a clan control strategy allow employees to have common goals and behavioral expectations to produce desired strategic outcomes. It requires trust among employees. Given minimal direction and standards, employees are assumed to perform well (they participate in setting standards and designing control systems)

To act

Design and implement corrective actions,.

EBITDA=

EBIT + depreciation + amortization

3 Dimensions of CSR

Economic, Social, Environmental

Analytical Accounting

Financial data to make determinations about how, when, and why a business spends and receives money.

Formal Control

Include explicit rules, procedures, performance measures, and thus are systematic, periodically run, and well organized.

External Auditing

Independent objective assurance and consulting activity designed to add value and improve an organization's operations run by external experts

Internal Auditing

Independent objective assurance and consulting activity designed to add value and improve an organization's operations run by the company.

To motivate

Involve all the members of the organization in the achievement of the objectives

Controllers

May be organized in separate departments or grouped together with other functions in a company.

Discretionary Cost Center

Outputs are not measurable in financial terms. (HR) So there is no way to measure efficiency.

Responsibility Center

Part of subunit of a company for which a manager has authority and responsibility. The company's detailed organization chart is a logical source for determining responsibility centers

Control System uses

Quantitative indicators, efficiency indicators, and qualitative indicators.

Procedures Manual

Reference manual which includes definition of functions, roles and responsibilities, internal policies, etc

Effectiveness

Related with the degree of achievement of the planned production, given quality and time standards.

Four Steps of Management Control: 1. Systematic Effort to set performance standards 2. Measure Performance 3. Compare Performance to Standards 4. Take corrective action(s)

Required to assure all corporate resources are being used Ain the most effective and efficient way possible in achieving objectives.

Profit Center

This group is responsible for both revenues and expenses, which result in profit and loss. A typical profit center is a product line, for which a product manager is responsible.

Investment Center

This group is responsible not only for profits, but also for the return on funds invested in the group's operations.

Management Control is the process of monitoring activities to ensure that objectives are being accomplished as planned.

True

Management control cannot be reduced to a simple "verification" because then we would be operating just after the fact. The planning phase is crucial: prepare the action, organize it, anticipate consequences.

True

Management control is broadly concerned with the attainment of goals and implementation of strategy.`

True

Management control is the process by which managers influence other members of the organization to implement the organization's strategies.

True

Management control systems are useful in fulfilling the needs of effectiveness, efficiency and adaptive learning.

True

Informal Control

Unwritten norms, more spontaneous and doesn't have an established format (i.e.. Suggestion box)


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