Page 193 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes constant attention must be given to improving them. Improvement necessarily involves
changes, but desirable changes, if made at an opportune time and adequately presented,
can be accomplished usually with a minimum of confusion. Reports must be kept relevant.
6. Prepared and presented promptly: Consistent with the cost of detailed record keeping and
reporting, performance reports should be available on a timely basis. To achieve a realistic
balance between immediate reporting and the costs of detailed reporting, monthly
performance reports are widely used by industry. When special problem areas are involved,
weekly and even daily reporting may be necessary, at least for a time.

7. Effective management follow-up procedures: Follow up procedures constitute a key aspect
of effective control. Some companies require written explanations of significant variances.
The follow up procedures preferred by other companies involve constructive conferences
where the causes are discussed and correction action is decided upon. Follow-up procedures
should begin at the top management level in the executive committee meeting, for example,
where both unsatisfactory and satisfactory conditions are discussed and analyzed. Decisions
should be made concerning ways and means of correcting unsatisfactory conditions.
Favourable variances should be accorded equivalent study: (1) to determine whether the
goals were realistic and (2) to give recognition to those responsible for high performances,
and (3) possibly to transfer some “know-how” to other subdivisions of the company.
Group and individual conference should be held at various management levels for effective
correction action. Follow-up procedures should embody constructive action to correct
unfavourable conditions rather than punitive action for failures, the results of which
obviously cannot be erased. Another important aspect of follow-up procedure is that the
resulting action is strictly a line responsibility rather than a staff responsibility. The
budget director, controller or other staff officer should not undertake nor be assigned, the
responsibility of enforcing the budget.

The Integrated Performance Report – An Illustration

A comprehensive performance report for Production Department X in S Company is shown
below, from which following features are worth noting:
1. Identification of responsibility

2. Distinction between controllable and non-controllable items
3. Specific time dimensions - month and cumulative to date
4. Method of reporting variances
5. Adjustment of the “planned” amounts to actual output (that is flexible/variable budget
approach).
6. Detail on each category (including service usage in units) and
7. Explanatory comments and suggestions

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