What Are Management Control Systems - Essay Example

MANAGEMENT CONTROL SYSTEMS goes here] [Your goes here] [Due the paper] Management Control Systems Introduction Effective management is the key to improved organizational productivity and performance. Companies use management control systems to support organizational objectives, control activities, and drive organizational performance. The aim of this essay is to know the way management control systems (MCS) can be used as packages in a company. We will start by defining management control systems and their usage as packages. Further, we will discuss some of the key challenges and difficulties that companies face while using management control systems as packages. Next, different topologies of management control systems will be compared to come up with the most suitable topology a company can use to control its business processes. 2. What are Management Control Systems? Management control systems refer to the ways a company collects information to manage and control the activities regarding accomplishment of organizational goals and objectives in an effective manner. It is a fact that without proper management, no goal can be achieved in a timely manner as various difficulties can arise in this process which need a proper resolution. A management control system helps management and employees perform their assigned activities in a proper manner using the information stored in it. Management control systems deal with every department and every system of a company, which may include employee benefit programs, accounting methods, performance appraisal, and performance improvement systems. As Lawson (2012, p. 1) states, “management control systems are methods of collecting information that are used to guide and direct the behavior of staff members and management in order to achieve a companys goals”. In a management control system, there are guidelines and techniques regarding everything related to business operating matters of a company. Managers and employees can use those guidelines and techniques to improve their performances and achieve organizational goals in an effective manner. In today’s world of business, a management control system serves the role of the brain for a company. It stores procedures, activities, tasks, goals and objectives, and guidelines regarding every particular department and business process which managers and employees can use to perform their respective activities. For example, when the top management of a company has to hire new employees for any particular department of the company, they refer to the guidelines stored in the management control system which help them perform candidates’ selection and evaluation in a defined manner. It also helps managers assign relevant tasks and duties to new employees. Moreover, they assist top management in performing performance and productivity analyses, as well as in developing employee benefit programs. Today, the business world is changing rapidly because of the changes in technology, nature of competition, and consumer behaviors. Companies need to change their management control systems accordingly to benefit from the ongoing changes instead of leaving behind in the race of competition. Companies need to demonstrate their knowledge regarding change to react positively to the changes in the external environment to maintain the key performance indicators, as well as the levels of productivity and profitability. Managers of companies need to link operational control and strategic planning by using the guidelines of management control systems. As Asel (2009, p. 4) states, “the focus of MCS is not only on one form of control like performance measures but on multiple control systems working together. They can use management control systems to direct all administrative matters, as well as to manage the issues of employees. 3. Management Control Systems as Packages As Sandelin (2008, p. 324) states, “the functionality of a control package depends on internal consistency, specifically on the reciprocal linkages of design and use between a primary mode of control and other control elements”. Every company has different needs and requirements regarding internal controls and functionality of different departments. Proper functionality of any management control package is highly dependent on the internal consistency level of a company, particularly between the links between different internal controls and systems. Considering those links and associations, companies need to design such management control packages that should be able to cover the requirements of all departments and systems. Using management control systems in isolation can lead to various administrative issues and organizational problems because all systems are interrelated and have a relationship between them. Companies need to use management control systems as packages to make the most efficient use of these systems. According to Sandelin (2008, p. 324), the variety and functionality of control package is based on the way management of a company takes care of its functional requirements and demands. This statement shows that control package cannot be same for every company because the internal control requirements of every company are somewhat dissimilar. Companies should design their control packages in accordance with those requirements in order to make a beneficial use of the management control systems package. The use of management control systems as packages help organizations achieve objectives and increase performance. The reason is that no system in an organization can work effectively in isolation. All systems have to deal with each other in order to show enhanced levels of productivity and performance. The correlation and interdependence between those functions and departments give rise to the need of a proper control package which should maintain the relationship between different business processes and controls. For example, employee benefit program has a direct connection with accounts system of a company. A company can never design a proper employee benefit program without knowing the condition of the finances. Employee benefit programs include various elements that need a good amount of money in order to become applicable, such as, increase in salaries, house rent allowance, and car facility. If a company introduces such an employee benefit program without having enough information about the resources, the program can fail that may also lead to employee dissatisfaction. Therefore, companies need to use information for the accounts departments in the preparation of employee benefit program or incentive program. To do this, companies need to use management control system as a package which can provide them with key information and guidelines about the resources, as well as about the use of resources in such a way that no business process gets disturbed. Similarly, marketing strategies have a direct connection with accounts system of a company. A company can never design an effective marketing strategy without having an awareness of the condition of the finances. Marketing campaigns need a good amount off money to be successful. Companies need to use billboards, internet, and direct marketing tools to make public aware of new products and services. Moreover, salaries of sales employees and sales incentive schemes also rely on the capital that a company has in its accounts. If a company launches a marketing campaign without having enough information about the resources, the campaign can fail that may also lead to decreased productivity and profitability. Therefore, companies need to use information for the accounts departments in designing marketing strategies, as well as in launching successful marketing campaigns. To do this, companies need to use management control systems of accounts and marketing departments as a package which can provide them with required information and guidelines about funds in such a way that the campaign does not get short of money at any particular stage. All business processes of a company are usually interdependent. They need an effective management control system for proper functioning. Companies need to design such management control packages which should meet the needs of every department and business process. They can use both accounting and non-accounting controls to improve the level of organizational effectiveness. As Abernethy and Brownell (1997, p. 233) state, “Non-accounting controls, especially personnel forms of control, contribute to organization effectiveness, particularly where task characteristics are not well suited to the use of accounting-based controls”. These are such cases in which task characteristics do not have much concern about the use of accounting systems. However, such tasks are very rare in organizations because every task and every goal that a company sets to achieve has something to do with the accounting system. Therefore, companies should use the systems as a package instead of using them in isolation in order to maintain the interdependence between the business processes, as well as to run them in a systematic manner. 4. Challenges in Applying MCS as Packages Although there are a number of considerable benefits of using management control systems as packages, there also exist some key challenges and difficulties that companies can face before and after implementation of such packages. Some of those challenges include knowing the systems to include in the package, cost of implementing the package in the organization, and employee skills regarding use of the system. Companies need to address all of these challenges properly in order to make the best use of management control system. Let us discuss each of these challenges in some detail. 4.1 Knowing The Systems To Include In The Package One of the main challenges in the implementation of management control package is to know the systems that need to be included in the package. Management of a company should be able to understand the interdependence between different controls and processes in order to overcome this challenge. An accounting-centric package proves to be a good choice for such companies that base all of their processes and activities on the condition of their accounts. Therefore, companies should understand the dependence of different business processes on accounts in order to determine whether they need to develop an accounting-centric package or not. 4.2 Cost Of Implementing The Package In The Organization Cost of implementing the package in the organization is another challenge that most of the companies face while thinking about using MCS as a package. A single management control system is less expensive to implement as compared to a system which is implemented as a package. Companies should understand this concept to design such a system that should not put load on the accounts of the company. 4.3 Employee Skills Regarding Use Of The System Another challenge that a company may face by implementing management control system as a package is regarding the skills of employees. Companies need to hire such employees to manage the system who should have required skills and knowledge to make a proper use of the system. 5. Topologies of MCS Topologies of management control systems as packages that are offered in modern literature are different to those that existed ago. Today, the topologies are based on the requirements of the organizations and are designed specifically to meet the internal control requirements. For example, some topologies are accounts-centric and some are based on other factors, such as, human resource, marketing, and information management. The most suitable topology for a company is one that meets all requirements of the company effectively. For example, if a company’s business processes are focused more on human resources, then a management control package should be designed in accordance with the guidelines of human resource department. Some topologies being used in the modern world are structured around five key groups, which include administrative and cultural controls, cybernetic, rewards and compensations, planning, and managing (Malmi & Brown 2008, p. 287). In today’s world of increasing level of operational complexity, most of the companies design accounting-centric control packages because accounting is the key to every successful business process. Considering all of these aspects, we can say that an accounting-centric control system is a topology that a company can use in order to use MCS as a package. 6. Conclusion Management control systems refer to the way a company collects information to use it to accomplish organizational goals and objectives in an effective manner. A management control system helps employees and management in performing their assigned activities in a proper manner using the information and guidelines stored in the system. Management control systems deal with every system of a company, which may include accounting methods, employee benefit programs, performance appraisal, and performance improvement systems. However, companies need to use management control systems as packages to make the most efficient use of these systems. References Abernethy, M & Brownell, P 1997, ‘Management control systems in research and development organizations: The role of accounting, behavior and personnel controls’, Accounting, Organizations and Society, vol. 22, no. 3-4, pp. 233-248. Asel, J 2009, Risk Management and Management Control - The impact of the financial crisis on the use of Management Control Systems, viewed 17 November 2012, http://www.edamba.eu/userfiles/file/Asel%20Johannes_%20updated.pdf Lawson, S n.d., What Are Management Control Systems?, viewed 17 November 2012, http://www.wisegeek.com/what-are-management-control-systems.htm Malmi, T & Brown, D 2008, ‘Management control systems as a package – Opportunities, challenges and research directions’, Management Accounting Research, vol. 19, no. 4, pp. 287-300. Sandein, M 2008, ‘Operation of management control practices as a package – A case study on control system variety in a growth firm context’, Management Accounting Research, vol. 19, no. 4, pp. 324-343. Read More