Management control systems jsb 606 part4
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The document discusses management control systems with a focus on multinational corporations (MNCs) and special organizations such as service and project-based entities. It covers key issues like transfer pricing, exchange rate impacts, budgeting, performance evaluation, and the integration of Management Information Systems (MIS) to support decision-making. Additionally, ethical considerations in management control are highlighted, emphasizing the importance of designing systems that promote ethical behavior and comply with laws and organizational standards.
Management control systems jsb 606 part4
- 1. Management Control Systems Part 4 Debasis Das Exemplar Consultancy
- 2. Management Control of Special Organizations Debasis Das JSB 606 2
- 3. Management Control of MNCs Debasis Das JSB 606 3
- 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. 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. 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 Debasis Das JSB 606 6
- 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. 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. 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. 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. Management Control of Service Organizations Debasis Das JSB 606 11
- 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. 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. 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. 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. 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. 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. 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. 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. Management Control of Projects Debasis Das JSB 606 20
- 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. 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. 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. 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. 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. Phases of a Project & Control • Project Planning • Project Execution – Trouble reports – Progress reports – Financial reports • Project Closure Debasis Das JSB 606 26
- 27. Management Control of NGOs & Developmental Programs Debasis Das JSB 606 27
- 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. Special Issues in MCS Debasis Das JSB 606 29
- 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. 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 Debasis Das JSB 606 31
- 32. NGO Evaluation System • Indicator based monitoring • Monitoring through beneficiaries • Through field visits • By legislators • By the media Debasis Das JSB 606 32
- 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. Use of MIS in MCS Debasis Das JSB 606 34
- 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. 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. 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. 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. 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. 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. 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. 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. Ethical & Moral Issues in MCS Debasis Das JSB 606 43
- 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. 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. 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. 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. 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. 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