Management control systems jsb 606 part4


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Management Control Systems make management of an organization possible. This set of presentations tells you what they are and how to go about building them. The series is in four parts. If you need to download the presentations mail me at

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Management control systems jsb 606 part4

  1. 1. Management Control Systems Part 4 Debasis Das Exemplar Consultancy
  2. 2. Management Control of Special Organizations Debasis Das JSB 606 2
  3. 3. Management Control of MNCs Debasis Das JSB 606 3
  4. 4. Special Issues• Allowances have to be made for special issues – More than one geographical Locations – Cross-cultural issues – Long and short term legal issues – Different accounting practices – Exchange rates Debasis Das JSB 606 4
  5. 5. Management Control Considerations• Transfer pricing – Profits & costs• Tariffs & rates – Transfer price adjustments necessary• Foreign exchange – Price will be affected, restrictions on FE availability• Funds accumulation• Joint ventures – Tendency to price higher, the country may resist• Legal aspects – Tax laws & pricing• Environmental aspects Debasis Das JSB 606 5
  6. 6. Transfer Pricing Methods (OECD & WTO)• Comparable uncontrolled price method – Price paid in uncontrolled sales + or - adjustments• Resale price method – Transfer price= applicable resale price-appropriate mark up + or - adjustments• Cost-plus method – Cost + appropriate mark up + or - adjustmentsCan be quite regulated in many countries Debasis Das JSB 606 6
  7. 7. Issues of Exchange Rate• Translation exposure – Changes in assets, earnings & liabilities• Transaction Exposure • Receivables, payables, debts & interest payments• Economic Exposure – Operating or competitive exposure, changes in cash flow Debasis Das JSB 606 7
  8. 8. Design issues for MCS in MNCs• Mostly performance evaluation related – Should the subsidiary manager be responsible for impact of exchange rates on the bottom line? – Should home currency or the local one be used for evaluation. If so, starting rate, project ate or the end ate be used? – Should the different types of impacts be distinguished? If so, how? – Should these variations be used to evaluate performance of the subsidiary? Debasis Das JSB 606 8
  9. 9. Management Control in MNCs-1• Role of control in foreign operations – Decide strategy, success factors, autonomy, controls• Analysis of foreign projects – Net present value, political & economic risks• Evaluation of foreign projects – Export domestic control systems with modifications• Transfer pricing of affiliates – Has an impact on taxes, unlike operating in domestic area alone• Budgeting for foreign affiliates – Foreign exchange risks need to be taken into account Debasis Das JSB 606 9
  10. 10. Management Control in MNCs-2• Taxation issues of foreign affiliates – Tax on local income, profit repatriated, tax in the domestic country on profit repatriated• Political & social considerations – Expropriation & other political risks, consider discounted payback period• Economic and exchange rate risks – Exchange rate & inflation risks• Goal congruence issues – Earnings & ROI on investment in home country currency Debasis Das JSB 606 10
  11. 11. Management Control of Service Organizations Debasis Das JSB 606 11
  12. 12. Issues WRT Service Organizations• Produce & deliver intangible products• Provide services• Hotels, banks, insurance, R&D, etc.• Look at peculiarities for this sector Debasis Das JSB 606 12
  13. 13. Service Sector• Agriculture->Industrial-> Services• Majority manpower employed in services organization• In India, 52% of GDP is produced by the services sector Debasis Das JSB 606 13
  14. 14. Characteristics• No inventory buffer – Current capacity with matching demand is a key success factor (occupancy, students enrolled, beds available vs. admissions…..)• Problems of quality control – Focus on processes• Labor intensive – More service delivery needs more people• Multi-unit organization – Operates though multiple units• Quantity to be measured – Measuring amount of service• Difficulty in costing – Cost management also is difficult Debasis Das JSB 606 14
  15. 15. Professional Organizations Characteristics• Specialized services by an individual or a group• CA, Law, Engineering firms, for example• Management control will have to be different from others (manufacturing, for example) Debasis Das JSB 606 15
  16. 16. Pro Organization Issues• Organizational goals – Not just earnings/profits, highly individualistic• Professionals – Capabilities of the professionals involved, combined knowledge, human capital• Output-input measurements – Measuring productivity of individual or the organization• Size of organization – Usually small and influenced by seniors, juniors motivated by seniors• Marketing – MCS around marketing is not possible Debasis Das JSB 606 16
  17. 17. Issues in MCS• Pricing – Time used, service fee, etc.• Profit centers & transfer pricing – All centers that provide service are profit centers• Budgeting – Quality of manpower is the asset, budgeting revolves around manpower budget• Control of operations – No task level control possible, billable hours, idle hours are control parameters• Reporting progress – Difficult to measure end product• Performance measurement & appraisal – Top level based on goals reached, low level based on tasks set, but middle level it is difficult Debasis Das JSB 606 17
  18. 18. Some Special Services Organizations• Control issues specific to the organization type• Will have specific processes that need different considerations Debasis Das JSB 606 18
  19. 19. Special Services• Financial services – CRM for quick dissemination, star performer, rapid info floe, focus on short term performance, financial performance rather than cost• Insurance organizations – Product pricing, sales performance, Expense control• Non-profit organizations – Goals of the organization, period of reaching goal, costs• Government Organizations – Characteristics • Guided by ruling political party, over exposure to public info, non performance, low motivation – Issues of MCS • Design of program & budgeting, Performance measurement Debasis Das JSB 606 19
  20. 20. Management Control of Projects Debasis Das JSB 606 20
  21. 21. Special Issues• Set of activities carried out for specific end results• It is for a specific period of time• Goes through phase of planning, implementation and evaluation• Commissioned by management to achieve specific purposes for a business Debasis Das JSB 606 21
  22. 22. Key Issues in Project Management• Time, cost & quality of work• Time and cost overruns are major control issues• Trying to crash time can impact quality of work Debasis Das JSB 606 22
  23. 23. Role of Control in Project Management• Set of critical activities that need to be completed in a coordinated manner• Activities are scheduled according to a schedule plan.• Control exercised must achieve as close a performance as possible with planned baseline• A person’s reaction to controls – Nature of goals – Self image of individual – Value assessment of goal – Basic expectations – Tolerance to control Debasis Das JSB 606 23
  24. 24. Types of Control• Cybernetic controls – Close loop control, performance measured against set standard through assessor and detector, control exercised is proportional to variance• Go/no go controls – Periodic and regular interval reviews, or at times decided by management• Post-performance controls – Time, cost quality evaluations are made post completion. Managers need to have the autonomy so that they manage control during execution Debasis Das JSB 606 24
  25. 25. Process Control in Projects• Objectives – Regulation of results through alteration of activities – Appropriate control & usage of assets• Controls – Control of physical assets – Control of human resources – Control of financial resources Debasis Das JSB 606 25
  26. 26. Phases of a Project & Control• Project Planning• Project Execution – Trouble reports – Progress reports – Financial reports• Project Closure Debasis Das JSB 606 26
  27. 27. Management Control ofNGOs & Developmental Programs Debasis Das JSB 606 27
  28. 28. Issues• NGOs supplement Government’s work• Govt. floats developmental programs• NGO aim to maximize the benefits of the target group• Development programs – Self-regulated programs – Administered programs Debasis Das JSB 606 28
  29. 29. Special Issues in MCS Debasis Das JSB 606 29
  30. 30. Key Issues• Core objectives of organizations• Process of implementation• Control must change according to the program• Beneficiaries control self administered programs• Administered programs have more formal controls Debasis Das JSB 606 30
  31. 31. Monitoring & Control of Projects Social Broad Perspective Beneficiaryobjectives objectives planning preference Specific Annual action Beneficiary plan objectives perception Target form, Specific Beneficiary monitoring schemes acceptance Monitoring & Program eval Performance Debasis Das JSB 606 31
  32. 32. NGO Evaluation System• Indicator based monitoring• Monitoring through beneficiaries• Through field visits• By legislators• By the media Debasis Das JSB 606 32
  33. 33. Before & after Approach• Collect information on socio- economic indicators• Compare beneficiary and people not covered• Research method – Participation observation method – Longitudinal research method – Action research method Debasis Das JSB 606 33
  34. 34. Use of MIS in MCSDebasis Das JSB 606 34
  35. 35. Issues• Availability of information is crux of control• MIS helps coordinate, assimilate and disburse managerial & business information• Realtime accounting Debasis Das JSB 606 35
  36. 36. What is MIS• Automated, computerized system• Assimilation, storage and disbursement of management and business information• Made available to managers needing to take decisions• Different levels – Strategic – Middle level – Lowest level Debasis Das JSB 606 36
  37. 37. Designing a Good MIS• Information from all areas of business reaches managers• Top to bottom and reverse flow of information• Horizontal, cross-functional flow• Cost of data processing & collection should be considered & optimized• History is important Debasis Das JSB 606 37
  38. 38. Effective MIS Features• Linked to all responsibility centers• Financial as well as non-financial information• Collects information in key areas• Takes care of required reporting frequency• Regular upgrade of database required• Information reports and control reports• Consider the complete business as one system• Relevant information with needed precision Debasis Das JSB 606 38
  39. 39. Types of MIS• External IS – Information on external environment, competition, etc.• Continuous IS – Sufficiently long period of time to bring out trends• Systematic IS – Make sure decisions are made under proper assumptions• Social IS – Information on social indicators on a continuous basis, cross checks & cross reference of data Debasis Das JSB 606 39
  40. 40. MIS in functional areas• In Marketing – Planning & controlling marketing efforts, forecasting demand and sales in future period• In Finance – Collect financial data, working capital need through data analysis & ERP, computerized decision support system and BI• In human resources – Resource allocation, resource availability, competency maps• In control – Setting performance standards, lay down bench marks, measure performance, suggesting corrective actions – Should support both open and closed loop systems – MIS helps in feedback and feed forward system Debasis Das JSB 606 40
  41. 41. Implementing MIS• Acquire hardware platform• Schedule project planning• Resource allocation• Development & testing• Freeze-unfreeze technique – Unfreeze: required modifications to procedures & practices are identified, – Change phase: changes are made, modifications communicated – Freeze: implement (no more change) Debasis Das JSB 606 41
  42. 42. Evaluating an MIS• Technical review – Hardware, software tool, designs, structures, OS features, security & built in checks & control• Utility review – Information collection & usage• Economic review – Costs & benefits compared to budgeted ones. Overruns, if any Debasis Das JSB 606 42
  43. 43. Ethical & Moral Issues in MCS Debasis Das JSB 606 43
  44. 44. Introduction• Opinion-> beliefs-> values• Ethics in business – Conducting business such that it is conducive to society and does not create moral, legal or social problems for individuals & society at large Debasis Das JSB 606 44
  45. 45. Role of Ethics in Business• Business is a social activity• Law of the land derives from natural justice• Business is conducted by individuals, ethical approach brings goodwill• Fairness in decisions is essential, particularly when executing it• Thus ethics a natural part of business Debasis Das JSB 606 45
  46. 46. Role of Ethics in Control• Ethical parameters as set in the organization decide the behavior & interaction between individuals• Sets up min standard of behavior• Control system needs to consider – Rationality, creativity, mastery, morality, and human association – All are linked to moral & ethical issues Debasis Das JSB 606 46
  47. 47. Ethical Misgivings in Organizations• Tremendous pressure to perform and achieve goals• Practices of competitors• Corporate failings in meeting financial needs can lead to bribery & stealing• Incompetent recruits can lead to unfair practices• HR practices need to be fair Debasis Das JSB 606 47
  48. 48. Designing Control Systems Supporting Ethical Behavior• Step 1: control system complies with all laws, ethical codes & policies• Step 2:Sensitize managers, employees about proper behavior• Step 3: Audit employee behavior with all stakeholders• Step 4: Report significant deviations• Step 5:investigate violations• Step 6:implement regulations to ensure ethical behavior Debasis Das JSB 606 48
  49. 49. Ethical Principle in Designing Control Systems• A goal congruent system requires environment conducive to ethical behavior, business objectives and stakeholder objectives• Unfair environment increases mistrust• Must extend to all employees to be effective• Suppliers need to be taken into confidence for all major decisions. They are a vital link Debasis Das JSB 606 49