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 ddas15847@gmail.com
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
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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
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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 - adjustments
Can be quite regulated in many countries
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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
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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?
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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
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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
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12. Issues WRT Service
Organizations
• Produce & deliver intangible products
• Provide services
• Hotels, banks, insurance, R&D, etc.
• Look at peculiarities for this sector
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13. Service Sector
• Agriculture->Industrial-> Services
• Majority manpower employed in
services organization
• In India, 52% of GDP is produced by
the services sector
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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
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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)
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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
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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
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18. Some Special Services
Organizations
• Control issues specific to the
organization type
• Will have specific processes that need
different considerations
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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
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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
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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
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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
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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
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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
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26. Phases of a Project & Control
• Project Planning
• Project Execution
– Trouble reports
– Progress reports
– Financial reports
• Project Closure
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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
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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
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31. Monitoring & Control of
Projects
Social Broad Perspective Beneficiary
objectives objectives planning preference
Specific Annual action Beneficiary
plan
objectives perception
Target form,
Specific Beneficiary
monitoring
schemes acceptance
Monitoring & Program
eval Performance
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32. NGO Evaluation System
• Indicator based monitoring
• Monitoring through beneficiaries
• Through field visits
• By legislators
• By the media
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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
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35. Issues
• Availability of information is crux of
control
• MIS helps coordinate, assimilate and
disburse managerial & business
information
• Realtime accounting
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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