Page 35 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Self Assessment

Multiple Choice Questions:
1. Which control style is more participate and attempts to capitalize upon the motivation of
the subordinate?

(a) Mixed control style (b) External control style
(c) Internal control style (d) None of these
2. Which of the following achieves unity through diversity by the use of communications
and coordination in pursuit of short term objectives and long term goals?
(a) Motivation (b) Planning
(c) Control systems (d) None of the above

3.3 Informal Organizations

The lines/boxes on an organisation chart depict the formal relationships i.e. the official authority
and responsibility of each manager. The chart may shows that production manager of Division
X reports to the General Manager of that division. But while fulfilling his responsibilities the
production manager of Division X has to communicate with other people in the organisation as
well as with other managers, support units, the corporate office staff and people who are friends
and acquaintances. In extreme situation, the production manager may not give adequate attention
to messages received from the General Manager if he is evaluated in production efficiency
rather than on an overall performance. The realities of the management control process cannot
be understood without recognizing the importance of relationships that constitute the informal
organisation.
Perception and communication: In working towards the goals of the organisation, operating
managers must know in clear terms what these goals are and what actions are needed to achieve
them. Managers receive the information through various channels both formal (e.g. budgets
and other official documents) and informal (e.g. conversation). Despite these channels, the
managers are not very clear “what the senior management wants. In reality sometimes, messages
received from different sources may conflict with each other. For example, the budget document
may aim that managers are supposed to aim for the highest profits possible in a given year
whereas the senior management does not want them to skip on maintenance or employee
training since such actions may increase current profits but will have adverse long term effect.

3.4 Formal Control System

The Formal Control Systems have a major influence on the effectiveness of an organisation’s
management control. These systems can be classified as (1) The management control system
itself and (2) rules.
Rules: The word rules denote all type of formal instructions and controls including standing
instructions, job descriptions, standard operating procedures, manuals and ethical guidelines.
Rules range from most trivial like requisitions to the most important (e.g. capital expenditure
over `5 crores must be approved by the Board of Directors).

Unlike the directives implicit in budget numbers, which may change from month to month,
most rules once laid down, are in force indefinitely unless they are changed/modified.

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