The Nature of Management

Control Systems
ICFAI UNIVERSITY

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 Basic Concepts
Elements of a control system consists of:
1. A detector
2. An assessor
3. An effector
4. A communication network

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1. A detector or sensor is a device that measure
what is actually happening in the process being
controlled.
2. An assessor is a device that determines the
significance of what is actually happening by
comparing it with some standards or expectations
of what should happen.
3. An effector (feedback) is a device that alters
behavior if the assessor indicates the need to do so.
4. A communications network consist of devices
that transmit information between the detector and
the assessor and between the assessor and the
effector.
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 Example: You are driving a car
• Detectors= Your eyes
• Assessor= Your brain
• Effector= Your foot
• Communication network= Your nerves
system

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• Your eyes (detectors) measure actual speed by
observing the speedometer. Your brain (assessor)
compares actual speed with desired speed
(standard: the highest speed is 80 km/hour) to
detect a deviation from standard. Your brain
(assessor) directs your foot (effector) to ease up the
accelerator if actual speed (90 km/hour) is faster
than the standard speed (80 km/hour), press down
the accelerator if the actual speed (70 km/hour) is
slower than standard speed (80 km/hour). And,
your nerves (communication network) form the
communication system that transmits information
from eyes (detectors) to brain (assessor) and brain
(assessor) to foot (effector).
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Boundaries of Management Control
• Strategy formulation is the process of deciding
on the goals of the organization and the strategies
for attaining these goals.
• Management control (Anthony and
Govindarajan, 2004): is the process by which
managers influence other members of organization
to implement the organization’s strategies.
• Task control is the process of ensuring that
specified tasks are carried out effectively and
efficiently.

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 Distinctions between strategy formulation and
management control:
Characteristics Strategy Formulation Control
Management
System design Unsystematic, Strategic Rhythmic,
decision may be made predetermined
any time procedures
Nature of Tailored-made to faced Integrated, more
information problems, more external internal and
and predictive, less historical, more
accurate accurate
Communication Simple Difficult
of information
Involved people Top management and Top management and
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staffs line managers
 Distinctions between strategy formulation and
management control:
Characteristics Strategy Formulation Control
Management
Number of Few people Many people
involved people
Mental activity Creative and analytic Administrative and
persuasive
Discipline Economics Social psychology
Time horizon Tend to long-term Tend to short-term
End products Goals, strategies Strategy
implementation

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 Distinctions between management and task
controls:
Characteristics Control Management Task Control

Focus of The whole of operation Individual task or

activity transaction
Nature of Integrated, many financial Tailored-made to
information data individual task, more
non-financial data
Involved people Management Supervisor or none
Mental activity Administrative and Follow direction or
persuasive none
End products Strategy implementation Tasks are carried out
effectively and
efficiently
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 Distinctions between management and task
controls:
Characteristics Control Management Task Control
Mental activity Administrative and Follow direction or
persuasive none

Discipline Social psychology Economics, physics

Time horizon Weekly, monthly, Daily
annually
Type of cost Discretionary costs Engineered costs

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 Examples of decisions in planning and control
function:
Strategy Management Task Control
Formulation Control
Enter a new business Expand a plant Schedule production
Change debt to Issue new debt Manage cash flows
equity ratio
Add direct mail Determine Book TV
selling advertising budget commercials
Decide magnitude Control of research Run individual
and direction of organization research project
research
Acquire an unrelated Introduce new Coordinate order
business product or brand entry
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 Controlling
• The success of an organisation thus rests on effective controlling. Let us look
at some of the points which show the importance of controlling in an
organisation
• 1. Achieving organisational objectives: Controlling is implemented with the
purpose of taking care of the organisational objectives. Controlling detects any
kind of deviation and accordingly corrective actions are implemented.
• This helps in reducing the gap between expected and actual results and in
this way helps in achieving the organisational objectives.
• 2. Coping with changes: An organisation has to put up with many changes in
the environment, which can be emergence of new products and technologies,
change in government regulations or changes in strategies of the competitors.
• 3. Efficient use of resources: Controlling allows the manager in minimising
the wastage of resources and ensuring proper utilisation of the available
resources that leads to effective performance by the organisation.
• Efficient use of resources: Controlling allows the manager in
minimising the wastage of resources and ensuring proper utilisation of
the available resources that leads to effective performance by the
organisation.
• 4. Determining the accuracy of standards: Managers always
compare the work done with a set of provided standards defined for the
work and determine whether the set of standards are effective or there
is a need for improvement in the standards that will lead to more
accurate determination of process efficiency.
• 5. Helps in decision making: Controlling helps the managers in
determining the gap between thinking and actual implementation. It
leads to better decision making and improves the overall performance
of the organization.
• 6. Motivates employees: In an organisation employees are also aware 13
that their performance is judged using some set of standards.
 Why Internal Controls Are
Important in Any Business
• It establishes the processes
• It improves process performance
• It improves operational efficiency
• It keeps duties separated
• It mitigates business risk
• It organizes information
• It produces timely financial statements
• It reduces errors
• It improves accountability
• It stabilizes operations

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