Advanced Management Accounting - Example

Advanced Management Accounting s Submitted by s: Contents Contents 2 Introduction 2 2.Challenges in the design and implementation of management control systems 3 2.1.Implementing systems according to objectives of the design 5 2.2.Inappropriate assessment 5 2.3.Inappropriate timing of information 6 2.4.Appropriate standards or limits of control 7 3.Conclusion 7 4.Bibliography 8 1. Introduction Management control systems collect information and use it in the assessment of the performance of various resources of the organization that include physical, financial and human as well as the firm as a whole in consideration of the strategies that it implements (Perry, 2005, p. 19). These systems also influence how the resources of the organization behave in regard to implementation of the organizations strategies (Grösser and Zeier, 2012, p. 144). The management control systems do not necessarily have to be defined as being formal or informal. Management control is considered as the method through which executives inspire the rest of the member of the company in the implementation of the strategies associated with the organizations (Drury, 2007, p. 386). The management control systems can assist the management to steer the organization towards its strategic goals as well as competitive advantages. Management control systems may emphasize on coordination, the allocation of resources, motivation as well as measuring the degree of performance (Ensley, 2014, p. 52). Management controlling and the design of the systems of management control are based on several academic disciplines (Hutzschenreuter, 2009, p. 41). The management control entails broad measurements and thus has a connection with the allocation of decisions and needs contributions from economics particularly the managerial part. Some of the challenges that are associated with management controls originate from productivity, ethics, quality and innovation among others. This essay will consider some challenges that are faced by the top management when designing and implementing management control systems including: 2. Challenges in the design and implementation of management control systems There is no clear way of determining whether the management control systems will be successful in regard to their design or their implementation. These systems may only be able to increase the likelihood of accomplishing the goals of the organization in terms of efficacy, proficiency, precision in financial reporting along with compliance. The management controls are intended to be inherent or incorporated in to the activities associated with the organization. These intrinsic control systems will guide the capacity of the organization to attain its goals and also assist in enhancing its business operations. Management control has five main components including the valuation of risks, controlling the environment, controlling events, data and communication and supervising the control system. Control activities are the policies and processes which are employed in an organization in the provision of practical assurances that the directions and instructions that come from the management are adhered to appropriately. There are different control activities that are dependent on the business setting, the goals of the organization, the degree of intricacy of the business operations, the individuals who deal with the implementation of the activities and the structure and culture of the organization. Conducting meetings assists in the enhancement of decision-making and reduces the time that is required for the process of decision-making. Four forms of meetings serve varying purposes and they include the daily check-in, weekly tactical, monthly strategic and quarterly off-site review. Information systems cannot be effective if the is no proper communication taking place between the various levels of management. Communication is needed in passing on the information as well as creating the required coordination at work and in assignment of responsibilities among other activities. A meticulous plan may be outlined if all the probable variants of inputs could be predicted and if the operation of the system can be forecasted. This form of implementation is not practical, economical nor realistic in regard to majority of the organizational structures. If this was realistic, then planning requirements would be highly intricate to the point that the management control system would be outmoded even before it became operational and this necessitates designing control into systems. 2.1. Implementing systems according to objectives of the design The main aim of the management control system is the performance of specific tasks while the main goal of the organization is to make sure that the specified function has been accomplished (Bhattacharyya, 2007, p. 57). Designing systems that contain elements of control is possible but making it operate strictly according to the goals of the design is a difficult task. Implementing the management control systems according to the plan that has been laid down in the design is not a guarantee for optimum performance (Lewis, 2007, p. 109). For instance, the plan may not utilize the resources such as material and energy in the best way as it may not be designed to operate in a manner that is efficient. A number of the more characteristic challenges associated with the implementation of management control systems are difficulties in quantifying, scheduling of the flows of information as well as developing adequate criterions. In the event that the goals of the organization are not restricted to quantitative outputs, the measurement of the effectiveness of the system is an intricate endeavour and subsequently confounding to assess (Daft, 2001, p. 73). Majority of the attributes associated with output are not linked to quantitative measurement and this can be seen especially when human energy inputs cannot be linked in a direct manner to the output (Stupak and Leitner, 2001, p. 421). A similar scenario occurs in relation to machines and other instruments related to human involvement when the output cannot be considered in particular units. In the evaluation of various systems in the organization, both psychological and sociological dynamics do not certainly mean the outcome will be quantifiable. 2.2. Inappropriate assessment Independent inputs may be transferred into numerical data but there is a risk of an inappropriate assessment and transfer, as well as the danger that the analyst will make an assumption of unwarranted confidence in this form of data after it has been quantified. Presuming the decisions that have been made by a particular manager are rated between one and ten with ten being the perfect decision, after a determination of the ranking of each decision, the mean ranking would demonstrate the score of a specific executive in his decision-making. Based on this score, conclusions, that may be erroneous, might be arrived at concerning his efficacy in making decisions. The executive that scores seven might be perceived to be more effective than another who scores 6.5 yet the two managers had to make decisions and varying settings and situations. The external factors, which cannot be controlled by the managers, may have had an impact on the difference in efficacy. Quantification of human behaviours regardless of their extreme complexity, partiality and impression in regard to the assessment of physical attributes is most widespread and vital measurement that is made in the large systems. The best solution to this is observing the manner in which the people behave, which determines the success or failure of all the man-made systems such as the management control system (Madachy, 2008, p. 129). 2.3. Inappropriate timing of information Another challenge of the management control system is the inappropriate timing of information that is introduced into the feedback channel and this can take place in the computerized and human control systems through errors in measurements or judgments. When the system responds to an error indication in a rapid manner, there is increased likelihood that the system may over-adjust (Labovitz and Rosansky, 2012, p. 3). Nonetheless, there is a need for quick action as any delays in the provision of corrective inputs may be critical (Windt and Hülsmann, 2007, p. 368). A system that produces feedback, which is not consistent with the prevailing, needs has a propensity to fluctuate and will not be able to make adjustments in the preferred manner (Martin, 2007, p. 131). 2.4. Appropriate standards or limits of control Setting of appropriate standards or limits of control are a challenge to many management control systems and managers face difficulties in instituting the standards that will be suitable to the workers (Ghuman and Aswathappa, 2010, p. 448). There have been recommendations by some theorists that employees should be permitted to create their own standards, on the supposition that when people identify their own objectives, they are more likely to accept and accomplish them. Standards are supposed to be accurate and shared with all the individuals who are concerned and additionally, communication alone is not sufficient because understanding is also essential. In the human systems, standards are usually demarcated below par and the permissible range of deviation from these standards is also not defined (Mosley, Megginson and Pietri, 2014, p. 413). Therefore, preference and individual judgment plays an integral part of this kind of system in determining if the counteractive action should be instigated. 3. Conclusion Majority of the challenges that are associated with management control systems relate to design (Xia and Sun, 2008, p. 26). Therefore, to solve these problems, the solutions must begin at the design phase. Control systems that are automatic might be the best for dealing with these challenges as long as human interventions are possible in dealing with exceptions. Nonetheless, there is a risk of measuring attributes that do not characterize effective performance. It is important to carefully observe the control system to confirm if it actually motivates the management and the workers to work towards the success of the organization so that the required corrective actions may be instigated in designing and implementing them. 4. Bibliography Bhattacharyya, H. 2007, Total management by ratios, Sage Publications, New Delhi. Daft, R. 2001, Organization theory and design, South-Western College Pub, Cincinnati, Ohio. Drury, C. 2007 Management and cost accounting, Chapman & Hall, London: Ensley, M. 2014, Entrepreneurial Teams as Determinants of of New Venture Performance, Taylor and Francis, Hoboken. Ghuman, K. and Aswathappa, K. 2010, Management. Tata McGraw Hill, New Delhi. Grösser, S. and Zeier, R. 2012, Systemic Management for Intelligent Organizations, Springer Berlin Heidelberg, Berlin, Heidelberg. Hutzschenreuter, J. 2009, Management control in small and medium-sized enterprises, Gabler, Wiesbaden. Labovitz, G. and Rosansky, V. 2012, Rapid realignment, McGraw-Hill, New York. Lewis, P. 2007, Management, Thomson/South-Western, Mason, OH. Madachy, R. 2008, Software Process Dynamics, John Wiley & Sons, New York, NY. Martin, D. 2007, Principles and Practices of Case Management in Rehabilitation Counseling, Charles C Thomas Publisher, LTD, Springfield. Mosley, D., Megginson, L. and Pietri, P. 2014, Supervisory management, South-Western Pub. Co, Cincinnati. Perry, B. 2005, Organisational management and information systems, CIMA Publishing/Elsevier, Oxford, U.K. Stupak, R. and Leitner, P. 2001, Handbook of public quality management, Marcel Dekker, New York. Windt, K. and Hülsmann, M. 2007, Understanding autonomous cooperation and control in logistics, Springer, Berlin. Xia, F. and Sun, Y. 2008, Control and scheduling codesign, Springer, Berlin. Read More