Management Control System
A management control system (MCS) is a framework of processes and procedures that an organization uses to ensure its strategies and objectives are being effectively implemented and accomplished. It involves collecting and interpreting information to assess performance and guide decision-making.
Management control systems often encompass the following elements:
- Planning: The organization sets its objectives and devises strategies to achieve these objectives. This could include setting budgets, sales targets, or performance goals.
- Information Gathering: Data and information are collected to measure performance and progress towards objectives. This can involve financial information such as sales or profit data, as well as non-financial information such as customer satisfaction levels or employee performance metrics.
- Evaluation: The collected information is analyzed and compared against the set plans or benchmarks. This allows the organization to assess whether it’s on track to achieving its objectives, or if there are any areas of concern that need addressing.
- Decision Making: Based on the evaluation, decisions are made to steer the organization towards its objectives. This could involve taking corrective action to address any identified issues, or adjusting the objectives or strategies if they’re found to be unrealistic or unachievable.
- Feedback and Learning: The control system should facilitate feedback and learning, allowing the organization to adapt and improve its strategies over time.
The specifics of a management control system can vary greatly depending on the organization. They can be formal or informal, rigid or flexible, and can focus on financial controls, operational controls, or a mixture of both. Effective control systems are typically well-aligned with the organization’s strategy and culture, and are flexible enough to adapt to changes in the business environment.
Example of a Management Control System
Let’s consider a simplified example of a management control system (MCS) for a hypothetical manufacturing company.
Planning: The company sets the objective of increasing sales by 15% over the next fiscal year. The strategy involves launching a new product line and expanding into two new regional markets.
Information Gathering: The company establishes key performance indicators (KPIs) to track progress towards these objectives. These KPIs include monthly sales numbers, the number of units produced, customer feedback scores, market share in the new regions, and the progress of the new product development.
Evaluation: At the end of each month, the company’s management team reviews the data collected. They compare actual performance against the targets set in their plan. For instance, if the target was to sell 1,000 units of the new product in the first month after launch but only 800 were sold, the management team would identify this as an area of concern.
Decision Making: Based on the evaluation, the management team makes decisions to ensure the company stays on track to meet its objectives. For example, if the new product isn’t selling as well as expected, they might decide to increase marketing efforts or adjust the product pricing. If production isn’t keeping up with sales, they might decide to invest in new machinery or hire more staff.
Feedback and Learning: Over time, the company learns from the outcomes of these decisions. For instance, they might find that their sales targets were too ambitious, or that the new markets are more competitive than expected. They use these learnings to refine their strategies and make better decisions in the future.
This is a basic example of a management control system. In a real-world setting, a company’s MCS would likely be more complex, involving many different KPIs and decision-making processes. But it illustrates the core components of planning, information gathering, evaluation, decision making, and feedback that are typical of most management control systems.
