Page 7 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes 1.1 Meaning of Management Control System

A Management Control System (MCS) is a system. A system can be described as a series of steps
or phases consisting of an input phase, a processing phase, and an output phase. A control
system adds measurement, analysis and reporting phases to the system. Accounting methods
are often implemented and evaluated as part of a management control system. To control
financial activities within a company, the area may be broken down into financial and managerial
accounting. Financial accounting generally focuses on internal issues, such as reporting sales
costs, while managerial accounting may focus on methods for determining product costs.
While both areas cover business accounting issues, their methods of application generally differ,
and separate systems implemented by a management control system may aid in ensuring
reports remain accurate and impartial. Managerial accounting is typically responsible for
providing management with information on controlling costs and improving the production
process. Managerial accountants may also provide cost information on new products, make
pricing decisions and monitor actual and budgetary costs.
General financial accounting within management control systems aims to focus on a company’s
internal accounting issues. Financial accounting typically handles payroll and human resource
issues affecting employees within the company. Accounts in this area may also manage employee
costs and reimbursements under a control system.

Notes An MCS is a set of interrelated communication structures that facilitates the
processing of information for the purpose of assisting managers in co-coordinating the
parts and attaining the purpose of an organization on a continuous basis. All organizations
use control system both formal and informal. A system is an aggregate of machines and
people that work toward a common objective.

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Caution Output is measured, compared against a plan, analyzed if judged significant, and
then reported back to the appropriate earlier phases of the system in the form of positive
or negative reinforcement.
In a management control system, data/information is typically fed back to managers of the
various system phases. Responsible managers will then take appropriate action based on the
data/information provided.

1.2 Nature

The role of the management is to organize, plan, integrate and interrelate organizational activities
to achieve organizational objectives. The achievement of these activities is facilitated by
management control systems. Management control, of course, is a core business function and
exists as a separate, well-established discipline within the management field. Management
Control Systems (MCS) theory is a useful integrative tool for organizing, explaining, and
understanding the jargon and concepts of performance measurement. Management control
systems consist of all organization structures, processes and subsystems designed to elicit behavior
that achieves the strategic objectives of an organization at the highest level of performance with
the least amount of unintended consequences and risk to the organization.

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