Management control system facts for kids

Management control as an interdisciplinary subject

A management control system (often called MCS) is like a special tool. It helps gather and use information to see how well different parts of an organization are doing. This includes people, equipment, money, and even the whole organization. It checks if they are working towards the organization's main goals and plans.

These systems help guide how people and resources act. This makes sure everyone is working to achieve the organization's strategies. Management control systems can be formal, like written rules, or informal, like how people naturally work together.

What is a Management Control System?

Management control systems are important tools for leaders. They help guide an organization towards its main goals and give it an advantage over others. These controls are just one part of how managers put their plans into action. Other parts include how the organization is set up, how people are managed, and the company's culture.

A researcher named Simons (1995) said that these systems are formal ways of using information. They are like routines and steps managers use to keep things going or change how the organization works.

Another way to think about it, from Anthony & Young (1999), is like a "black box." This means you can see what goes in and what comes out, but the exact details of how it works inside might not be clear.

The History of Management Control

One of the first people to talk about management control systems was Ernest Anthony Lowe. He was a professor who wrote about it in 1971. He explained why businesses need a system to plan and control things.

Here are four main reasons he gave:

• First, a business has its own goals. These are different from the personal goals of the people who work there.
• Second, managers of different teams have their own goals too. They also have a lot of freedom in how they do their work. They need to decide how to help reach the company's main goals.
• Third, business situations are often uncertain. Things can change inside or outside the company.
• Fourth, businesses need to be smart with their resources. They must use effort and money wisely to reach their goals.

The idea of "management control" as we know it today was largely shaped by Robert N. Anthony.

How Management Control Systems Work

Understanding Management Control

Management control is about many things. It helps with teamwork, deciding how to use resources, keeping people motivated, and checking performance. The way management control works uses ideas from different school subjects.

• It involves a lot of measuring things. So, it uses ideas from accounting, especially management accounting.
• It also involves making choices about how to use resources. This means it uses ideas from economics, especially how businesses make decisions.
• Finally, it's about talking to people and helping them stay motivated. This means it uses ideas from social psychology, especially how people behave in organizations.

Anthony and Govindajaran (2007) said that management control is how managers help other people in the organization follow the company's plans. Kaplan added that managers use information to put these controls into action.

Management Accounting and Its Systems

Management accounting is a big part of management control. Anthony & Young (1999) explained that management accounting has three main parts:

• Full cost accounting: This looks at all the costs involved in making something.
• Differential accounting: This helps compare different choices and their costs.
• Management control or responsibility accounting: This focuses on how different parts of the organization are doing.

Sometimes, terms like management accounting (MA), management accounting systems (MAS), and management control systems (MCS) are used to mean the same thing. Management accounting can refer to practices like creating budgets or figuring out product costs. Organizational controls are sometimes used for controls built into daily activities, like checking quality or managing inventory.

Money-Focused vs. Operations-Focused Control

Historically, most ways to measure performance in management control systems were about money. They used numbers from accounting, like costs or profits. But focusing only on money can make people forget about other important things. These include how happy customers are or the quality of products. Also, non-financial measures can sometimes predict long-term success better.

So, a good management control system should look at many different things. It should include both financial (money) and non-financial (non-money) measures. Including non-financial measures is now a key part of modern management control systems. It even helps tell different systems apart.

Depending on how much they focus on money versus other things, systems can be called "finance-oriented" or "operations-oriented."

• Finance-oriented systems mainly use financial data. This includes things like costs, earnings, or how profitable something is.
• Operations-oriented systems mainly use non-financial data. This focuses on how well things are working. Examples include how many services are provided, how many employees leave, or how many customer complaints there are.

Techniques Used in Management Control Systems

According to Horngren et al. (2005), a management control system is a way to collect and use information. It helps motivate employees and check how well they are doing.

Many different techniques are used in management control systems, such as:

• Activity-based costing: This helps figure out the cost of activities.
• Balanced scorecard: A tool that looks at performance from different angles.
• Benchmarking: Comparing your performance to the best in the industry.
• Budgeting: Planning how to use money for the future.
• Capital budgeting: Deciding on big investments, like new buildings.
• JIT (Just-in-Time): Making things only when they are needed.
• Kaizen: A Japanese word for continuous improvement.
• Program management: Organizing and guiding many related projects.
• Target costing: Setting a cost goal for a product based on its selling price.
• Total quality management (TQM): A system focused on making sure everything is high quality.
• Incentive system: Giving rewards to encourage certain behaviors.

See also

In Spanish: Control de gestión para niños

• Management
• Control (management)
• Health management system
• Management accounting in supply chains