The elements of a Management Control System consist of strategic planning (Strategic Planning), Budgeting (Budgeting); Resource Allocation (Resource Allocation); Measurement of performance (Performance Measurement), evaluation (Evaluation), rewards (reward); Allocation of Responsibility (Responsibility Center Allocation) and Transfer Pricing.
There are two views about the relationship between the management control systems with corporate strategy.
- The first opinion stating that Management control systems should be in line with the corporate strategy. Thus the first thing that is done is preparation of corporate strategy through a process that is formal and rational. Base on the strategy that has been compose of a Management Control System were underway.
- Other accounts state that the strategy emerge through processes that are affect by the Management control systems. In other words, the management control systems affect the process of the preparation of the strategy of the company.
The first opinion is applicable to companies where environmental changes are predictable, but in the latest moment where change is happening very quickly and it is difficult to predict it will be difficult to first do the drafting strategy and subsequently form the strategies base on Management control systems. In such a situation the most allow is the preparation of strategies through a process which is significantly influence by the Management control systems.
The Basic Concept
Controller (Control) Each system has at least 4 control elements, namely:
- Detector or Sensor-mount Device to detect what is really happening on the object is examine.
- assessor -a device that determines the effects of what happen to compare it with existing standards or with the expect results.
- Effector (call also with feedback (feedback))-devices that change the behavior when assessor indicates it.
- Communication network-devices that transmit information between detector and assessor and also between the assessor and effector.
Management
An organization compose of a group of people working together to achieve a particular goal. The organization is led by a CEO (Chief Executive officer) and aid by some Manager or head of a Department or business unit. Senior manager CEO or another determine the strategy of the Organization so that the organization can achieve the goal. Managers or business units then leaders formulate strategy from each department or business unit to support the strategy that has been establish at the level of the organization. Management control process is a process in which every manager at every level making sure all those who are under the supervision of applying the strategies that have been set.
System
The system is the way that has been determine and is usually perform repeatedly to carry out or perform one or a series of activities.
The limits of Control Management
The system contain in an enterprise can be distinguish into three types, namely: Formulation strategy (Strategy Formulation), Management Control (Management Control) and Control tasks (Task Control).
Among the above three systems, the formulation of the strategy is the least systematic and control Task is the most systematic system. Management control is set between the two systems. The formulation of a strategy to focus on long term programs and control Task focus to short-term activities. Control management have focus on both.
The formulation of the strategy of using a rough estimate of what will happen in the future while the control Tasks using the most recent data are accurate. Management control using a combination of both these data.
The above three systems each having activity Planning (planning) as well as control (control). The planning process has a very important role in the formulation of the strategy, while the control has a more important role in the control of tasks. On the control of management, planning and control have the same importance.
Control Management
The Management control is a process by which managers influence the members of the Organization to implement the strategies of the organization.
Management Control Activities
Management control involves several activities that include:
- Planning activities that should be undertaken by the Organization.
- Do is coordinate some activities are different in
- Communicate information
- Do the evaluation of the information?
- Specify the actions that should be taken
- Influence people to change behavior.
Management control is by no means all the activities must be related to a predetermine plan, such as the budget. These plans are base upon the conditions believe to exist at the time the plan is formulate. If at the time of implementation changes the condition, then the activities that is base on such a plan is not appropriate. management should be able to control the condition- condition to come to ensure the achievement of business goals of the company. When the Manager found a better approach, management control should not interfere with the course of the implementation process.
Goal Alignment
The alignment of the goal means that as much as possible the goals of every individual in the Organization should be align and consistent with the purposes of the organization. Management control systems should be design and operate in accordance with the principle of alignment of objectives.
Devices for Applying Strategies
Management control is the only AIDS that can be use by the Manager at the time of implementation of the strategy. The strategy is also implement through the organizational structure, human resource management and also the culture of the company.
Organizational structure defines the roles, responsibilities and reporting relationships that determine the process of decision making within an organization. Human resource management related to the selection process, training, evaluation, promotion and termination works as an attempt to improve the knowledge and skills require to perform an execution of corporate strategy.
The emphasis on the financial and Non-Financial Aspects
Management control systems include good performance reach measure Financial and non-financial. The financial aspects include the net income, return on equity and so on while the non-financial goals include product quality, market share, customer satisfaction, timely delivery and employee morale.
Aids in The Formation of a New Strategy
The primary function of management control is to convince an execution strategy that has been select. But in the current state where changes occur very quickly the information obtain from the management control especially for non-financial factors can be use as a basis for consideration of the new strategy.
Strategy Formulation
The formulation of the strategy is the process of determining the objective (goal) Organization as well as the strategies to achieve those goals.
Objective (goal) do not have time constraints. They remain there until it does change. many companies that set the rate of Return on Investment (ROI) that satisfy as a goal (goal) of the Organization but also many companies that set the achievement of a large market share as the goals of the organization.The strategy is an important planning that shows the direction of the desire by the Organization's senior management.
Need for strategy formulation are usually arise in response to the presence of a threat (threat), opportunity (opportunity).
Strategies to deal with the threat or opportunity can arise from all parts of the Organization and has no time restrictions. New ideas are not simply emerging from research and development or part of the staff of the Central Office. Basically everyone can contribute their best ideas after experiencing a process of discussion and analysis can be the Foundation of a new strategy.
The responsibility for making the strategy formulation should not be charge to the person or an organizational unit.
The difference between the formulation of strategy and Management Control.
The formulation of the strategy is a process to determine or decide the new strategies, while Management Control is the process of the implementation of those strategies have been determine.
Glasses of system design, strategy formulation process is a process that is fundamentally not systematic, while management control is the process of a more systematic basis. Threats, opportunities and new ideas do not occur during a specify time interval so that the decisions of strategic management can occur at any time.
Analysis of an invitation strategy usually only involve some staff, while management control involves all elements of his staff and managers at all levels of Office.
Control Tasks (Task Control)
Control tasks (Task Control) is a process to ensure that tasks are done running effectively and efficiently.
Controlling the task relating to the performance of the individual carrying out the task in accordance with the rules set out in the management control process.
Relaxation task is often a process of monitoring to be sure to follow the rules that have been set, the function is sometimes require no human presence. This function is perform by auxiliary devices such as computer systems, robot or other device.
Many of the activities of control task is an activity that scientific meaning optimal decisions or appropriate actions to undertake control measures can be estimate within acceptable limits.
Almost all of the information contain in an organization is information-control tasks. The number of order goods by the customer, the amount of materials use in the production process, the number of working hours of employees, and the amount of spending cash. Then the main activities of an organization like procurement, scheduling, order intake, logistics, quality control and cash management is an example of system control tasks. Some of these activities is an activity that is difficult and complicate.
The difference between the control tasks (Task Control) and control management (Management Control).
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