Sunday 16 October 2011

Management Control Systems - a brief note

A management control system (MCS) is a system that gathers and uses information for aiding and coordinating planning and control decision process throughout an organization as well as guiding employee behaviour (Bhimani et al., 2008; Chapter 18). Since it is a control system, you need to have some basic understanding of a control model (also refer to control theory). This is depicted in the following diagram:




Management control information can cover various organizational levels: (a) total organization level, (b) customer/ market level, (c) individual-facility level and (d) individual-activity level.  The distinctive MCS features can be categorized into 6 dimensions (a) action/ results controls, (b) formal/ informal controls, (c) tight/loose controls, and (d) restricted/ flexible, (e) impersonal/ interpersonal controls and (f) financial/ non financial information (Auzair, 2011). The management accounting system is a subsystem of the formal part of an MCS in this case. On studying an MNC, a few key considerations usually are pointed out:

a. Centralization vs decentralization
b. Motivation and goal congruence
c. Responsibility centre choice
d. Transfer pricing concern


There is also a discussion on how MCS can affect the impacts  of using enterprise resource planning systems in enterprises (Kallunki et al., 2011).

The overall concern of the topic on MCS is how to design an effective MCS which is aligned with an organization's strategy and goals.


References
  1. Auzair, S.M. (2011) "The effect of business strategy and external environment on management control systems: a study of Malaysian hotels", International Journal of Business and Social Science Vol 2 (13), pp. 236-244.
  2. Bhimani, A., Horngren,C.T., Datar, S.M. and Foster, G. (2008) Management and Cost Accounting, FT Prentice Hall.
  3. Kallunki, J.P., Laitinen, E.K. and Silvola, H. (2011) "Impact of enterprise resource planning systems on management control systems and firm performance" International Journal of Accounting Information Systems 12, pp. 20-39.

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