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Management Control Systems

Notes assigned to them and their outcomes are measured and reported. Actual results are compared
with those in the budget. In case of satisfactory performance, there is feedback to the responsibility
centre in the form of praise or other reward. If not, the feedback leads to corrective action in the
responsibility and possible revision of the plan.
Figure 2.3: The Formal Control Process

Goals and Rules Other
Strategies Information

Reward
Feedback
Strategic Responsibility Was

Planning Budgets Centre Reports act performance
operation vs. Plan satisfactory?

Corrective
Action
Revise Revise Measurement
Communication
Process of management control, it is clear that there are five basic steps:
1. Determination of standards or norms to be used in measuring actual results.

2. Measurement of actual results vis-à-vis planned results in the same lines/same areas as
per standards and norms set earlier.
3. Identification and analysis of the gap between the expected and actual results.

4. Initiating remedial action to correct the shortfall or to provide an acceptable basis for
revising the norms.
5. Recycling the information relating to the actual performance for its use in developing
future plans.
It should be noted that most of the information flowing is stated in monetary terms, therefore,
collectively they are called “financial system”. Other functional managers have primary
responsibility for non-financial system that relates to a certain function such as: the personnel
records of the human resources department or the materials control, production scheduling
system in the factory.

Did u know? The controller’s responsibility for such system is to ensure that system
throughout the organization is efficient and compatible with one another; the one system
provides information for another, that unnecessary duplication is eliminated and the
common terminology is used in all systems.
Furthermore, there are fully important considerations in the installation of effective management
control system:

1. Development of a number of small units, groups or sub-units, which may be called
responsibility centres,
2. Identification of critical variables that constitutes critical success, factors in the overall
performance of the organization, to be able to bring these into sharper focus.

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