MCS Meaning of Management Control System The word Management means the process or art of getting things done.

e. It also refers to the person or group of persons authorized to & responsible for the abovementioned task. A business firm has several resources. It is the task of the management to ensure that all the resources are aligned together suitably in order to achieve the organizational goal. Management is primarily responsible for the decision-making that results in the accomplishment of the organizational objectives. The word Control implies ensuring that any activity is being carried out as per predetermined standards or norms. For this purpose, the process of control requires various role players. There should be sensors or detectors that monitor the situation, the assessors assess or analyze the situation, the decision-makers take relevant decisions, and the effectors carry out the decisions & ensure feedback. Control also requires the existence of a strong communication system. The word System implies existence of a disciplined structure of positions, components & activities designed to carry out a specific activity. Thus the term Management control System implies existence of a predetermined structure or process that will establish norms for controlling the various activities & work areas of a management. The term management does not refer to any specific position or even top management here. In view of MCS, every level, position or employee who is a part of the organizational activity is part of MCS. Features / Characteristics of MCS 1) MCS is unavoidable in every such organization that has decentralized management as it clearly defines the roles to be played by each responsibility center 2) Strategies define the nature of management control system and MCS on the other hand influences strategy formulation. 3) Where business environment is stable, strategies are formed at first, however in case of volatile business environment, MCS may remain stable & strategies may be more experimental 4) MCS has to be flexible enough to adapt to strategic changes & changes in business environment. However it also has to have a certain degree of stability 5) MCS is omnipresent. Its presence is seen in more or less degree in every type of organization & in every scale of organization 6) MCS is a continuous process of evaluation & setting up of new improved standards of performance Evolution of MCS - The management control system of any organization does not get developed overnight. The development of MCS is not a revolutionary process, but an evolutionary process. Control system related to even a task is not standardized easily. & MCS is about controls over total management activities & functions. The evolution takes place both horizontally and vertically. Horizontal evolution implies that, the control system at a level of management is made more and more standardized through different cycles of operations. Every cycle of activities refines

the controls. Vertical evolution means that, changes in top-level management controls filter down to & affect the subsequent management level controls too. In the beginning of a business, if the organization is centralized in control (Sole proprietorship or partnership or HUF), the controls are developed and managed to facilitate centralized decision-making. Here the management levels are few, structure is uncomplicated & therefore the nature of MCS is also simple & focused. However with the corporate development, the evolution of MCS has become a much more complex process. All functions of organization, all levels of management, all responsibility centers & their impact on each other has to be considered while setting up standards, monitoring them & revising them. Evolution of control systems In a STC or partnership, the capitals, management as well as other skills used are contributed by a single person or a group of persons. The vision behind the business organization, its policies & procedures, its scope etc everything is decided by the select persons. The management is mostly centralized with only the routine functions decentralized. As a result, the control system is also completely centralized. All the functions are mainly controlled by the owners & they are themselves the control system focal points In the initial stage of evolution & in the next step from single ownership, an organization is generally functional organizations. In such organization, people with similar skills & interests are brought together under specific functional divisions. The function carried out by such a group as a whole contributes to the working of the organization & towards the achievement of common goal. It may not be possible to determine individual contributions. Within the functions also there are hierarchies depending on the skills of people involved. Therefore the control systems in such organizations should carry following features 1) Careful alignment of individual functions with strategic goals of the organization 2) Clear definition of functional responsibility as whole as well as inter-functional responsibilities 3) Careful integration of functional plans with each other 4) Overall MCS approach by top management After functional organizations, the next step in evolution of business is business unit organizations or Divisions. A single division is responsible for all functions related to a product or a service. The divisional managers get directions about central strategy from the top management but are responsible for planning & cocoordinating work for their own divisions. Within the divisions, the control systems may again be on the lines of functional organizations. They have quite a lot of autonomy in deciding control points but they do not have complete authority. Head quarters reserve the right to decide about central aspects like funds allocation, permitted product lines, total performance parameters etc. The control systems for the division as a whole will have to adhere to these norms. In such organizations, there may be multiplicity of control levels, but it can also lead to duplication of work.

As the last & complete form of evolution of organizations, we have objective based organizations. They still do carry the basic structure same as the functional or business unit organizations. However, the running of the organization is completely common objective based. The top management designs the strategic plans in line with the objectives. There is a common pool of mangers devoted to the task of ensuring compliance with them. Majority of todays corporate houses & diversified industries are of this type. The objectives defined in this case form the base of MCS. They are generic but still comprehensive. For e.g., in case of marketing a) High market visibility & penetration, b) Balanced pricing c) Efficient sales staff, d) efficient distribution network etc. can be the objectives. The control systems in such organization are multi-point, overlapping, quantitative & qualitative. An efficient MIS is of utmost requirement. The main features of control systems in evolving business organizations is increasing degree of decentralization of management & therefore control systems. Relating MCS to organizational objectives Establishment of suitable controls is necessary for the success of every activity & decision being carried out in an organization. In control process standards of performance of an activity are preset. An automatic activity is ensured whereby the actual performance is monitored & compared with the standards. The process also allows for correction & analysis of deviations. Even if a control activity like this is included in MCS, its purpose is not limited to merely establishment of controls. Management of a business has to achieve various functions. Specifically, planning, organization, direction, communication, leadership, motivation, budgeting & decision-making etc. are seen as managerial functions. MCS tries to ensure that control process is applied to all the above functions so that, all strategies & decisions are directed towards such achievement of organizational goals MCS, as seen from above, is an activity combining elements of management & control in order to establish a system. The system provides a framework for taking & implementing management decisions. Its scope therefore includes all management activities given as above. It also includes activities related to control process. (Further Steps in control process given later). Budgeting & budgetary control, audit procedures, transfer pricing & related decisions etc. are also a part of MCS. MCS can include both Formal Control process & Informal control process. Formal control process starts with completion of strategic planning & ends with actual operational control. Informal control process on the other hand, is visible through informal group dynamics, rewards & recognition system & social interactions. Both types of activities require their own infrastructures, management styles, work cultures & methods for coordinating & integrating various activities. All of these aspects are included under MCS.

Boundaries of Management Control System The meaning of the term Management Control System clarifies that it is establishment of a disciplined set of activities in order to bring control over various management functions & activities. The main purpose behind MCS is to ensure that through controls over management activities organizational goals are successfully achieved. It is therefore important to understand the exact place of MCS in the process of goal setting & achievement. The process of deciding about organizational goals & selecting the suitable strategies to achieve them is called as Strategic planning. These goals are then conveyed within the organization to all levels of management suitably. Finally through various tasks & operations the goals are actually achieved. The process of actually ensuring achievement of goals at operational level is called as Task or operational control Management control system comes in to existence on the basis of the strategic plans made by top management. The system tries to understand these plans & convey them to all in such a manner that their implementation is carried out in a systematic & disciplined manner. This ultimately results in task control at junior management level. Thus the role of MCS is to link strategic planning on one hand with actual task control by establishing suitable channels of overall control. Therefore strategic planning & task control can be considered as boundaries defining MCS. a) Strategic Planning - It is a long-range activity. It tries to understand future of business in terms of threats & opportunities likely to occur. Then, an attempt is made to develop future goals & strategies for achieving these goals. The goals visualized under strategic planning are generally not very specific or time bound. They are long term in focus & therefore flexible within a certain limit. However the basic goals adapted by any organization are generally not challenged in the exercise of strategic planning. SP provides the framework for establishing MCS. It is an unsystematic exercise unlike MCS, which is establishment of a disciplined system. As compared to MCS, SP is more flexible. Top management generally carries it out & therefore it involves few people with more creative ideas. It generally relies upon simple lines of communication & does not have many constrains of discipline & organizational behavior. MCS has to be implemented over all the organizational functions. It therefore, involves a large number of people. Establishment of MCS requires complex network of both formal & informal communication as well as consideration of organizational management & behavior principles. b) MCS - As seen before, MCS forms a link, a network that converts strategic plans into actual results through tasks. MCS is established considering the availability of organizational resources. Some of the activities in MCS like budget preparation & auditory procedures can be standardized to the very root level. However, all systems cannot be so rigidly established. MCS must allow for improvement, growth & flexibility. It has to be by nature, an evolutionary process, working towards better

controls. Overall goal achievement is its main aim. Therefore it has to have coordination in all functions. c) Task control Tasks or operations are the actual implementations of plans being carried out. These are seen at the end of the chain of management functions, as a result generally it is seen as a junior management level activity. Individual tasks in organizations require co-ordination of both human & other types of resources. Tasks are required to be specifically defined As compared to MCS, tasks are more clearly defined, scientific & sharply focused. They have less involvement of human element as compared to MCS & can be more easily standardized in respect of expected results. MCS principles are generally the same while applying them to different areas in the organization; however different tasks in different areas require different types of controls.

Purpose of Management control system Establishment of suitable controls is necessary for the success of every activity & decision being carried out in an organization. In control process standards of performance of an activity are preset. An automatic activity is ensured whereby the actual performance is monitored & compared with the standards. The process also allows for correction & analysis of deviations. Even if a control activity like this is included in MCS, its purpose is not limited to merely establishment of controls. Management of a business has to achieve various functions. Specifically, planning, organization, direction, communication, leadership, motivation, budgeting & decision-making etc. are seen as managerial functions. MCS tries to ensure that control process is applied to all the above functions so that, all strategies & decisions are directed towards such achievement of organizational goals Activities Under MCS MCS, as seen from above, is an activity combining elements of management & control in order to establish a system. The system provides a framework for taking & implementing management decisions. Its scope therefore includes all management activities given as above. It also includes activities related to control process. (Steps in control process given later). Budgeting & budgetary control, audit procedures, transfer pricing & related decisions etc. are also a part of MCS. MCS can include both Formal Control process & Informal control process. Formal control process starts with completion of strategic planning & ends with actual operational control. Informal control process on the other hand, is visible through informal group dynamics, rewards & recognition system & social interactions. Both types of activities require their own infrastructures, management styles, work cultures & methods for coordinating & integrating various activities. All of these aspects are included under MCS.

Cybernetic Paradigm of control process Steps in Control process - Control process for any activity generally has the following steps 1) Setting up of goals or standards of performance 2) Monitoring actual activity 3) Measurement of performance 4) Comparison of actual performance with standards 5) Ascertainment of variances 6) Analysis of the cause of variances 7) Carrying out of corrective action to eliminate the variances 8) Follow-up of corrective action 9) Setting up of revised goals & standards. As seen from the above steps, the 1st as well as the last step of control process is setting up of standards. However the standards are not the same. They are better & evolved. While carrying out the allotted responsibilities, each responsibility center of an organization assesses surrounding environment & gets feed back from it. The feedback is formed into perceptions, which helps in achievement of goals. In order to achieve goals, several behaviour choices are examined & one is chosen. The chosen plan is implemented .Its results are compared with pre-set goals. The deviations are analyzed. This whole process takes place at every level of management through the various channels of communication. There are various role players in the process. Sensors, effectors, comparators, all have a role to play. Grissinger calls the process that betters itself while moving through the same evolutions using various role players & communication network as Cybernetic Paradigm.