Management Control and

Information Systems
Management Control System : Structure and Process

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

1
School (IBS) Hyderabad
Management Control System

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

2
School (IBS) Hyderabad
Management Control System
Structure:
Structure can be discussed in terms of elements (units and
subunits) of the organization through which information flows
and is headed by a responsible manager who us accountable
for the activities and results. Thus each unit or subunit is a
responsibility centre.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

3
School (IBS) Hyderabad
Management Control System
Process:
What the manager does with the information
It involves communication of information and interaction
arising out of them. It is essential to have a well-nit
organization structure so that an effective control system can
be installed

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

4
School (IBS) Hyderabad
Management Control System

Structure:
Organization structure provides the management with
control environment.
Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business
5
School (IBS) Hyderabad
 Management Control System

• Technical Director – Manufacturing Activities

• Marketing Director – Selling and distribution activities

• Finance Director- Finance and accounting

• Secretary – Corporate, Legal and Administrative Functions

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

6
School (IBS) Hyderabad
Responsibility Centre
• The structure of management control system consists of a
number of responsibility centers

• The entire organization from top management to the shop

floor is divided into several responsible centers

• Each manager is responsible for resources used and the

results obtained

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

7
School (IBS) Hyderabad
Responsibility Centre
• Authority flows from top to bottom while accounting for
resources used and results obtained moves from bottom to
top

• In control systems, a responsibility center is usually built

around financial responsibility
• Cost
• Revenue
• Profit and
• Investment
Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business
8
School (IBS) Hyderabad
Responsibility Centers

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

9
School (IBS) Hyderabad
 Revenue Center
Outputs are measured in monetary terms, but
inputs are not measured in monetary terms.

Revenue centers are found primarily in marketing

organizations

Budgets or Sales quotas are compared with actual

sales or orders
Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business
10
School (IBS) Hyderabad
 Expense Center
Measures the inputs in monetary terms, but does
not measure the out puts in monetary terms

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

11
School (IBS) Hyderabad
Expense Center

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

12
School (IBS) Hyderabad
Profit Center

Measures both inputs and outputs in monetary

terms.

Inputs are measured in terms of cost and outputs

in terms of revenue.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

13
School (IBS) Hyderabad
 Investment Center
Measures not only the inputs and outputs in
monetary terms, but it also measures the
investment that is employed in the responsibility
center.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

14
School (IBS) Hyderabad
Investment Center
Measures not only the inputs and outputs in
monetary terms, but it also measures the
investment that is employed in the responsibility
center.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

15
School (IBS) Hyderabad
Investment Center
The performance of investment centers are
measured by Return on Investment (ROI) or
Return on Capital Employed (ROCE) and Economic
Value Added (EVA)

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

16
School (IBS) Hyderabad
Investment Center
Return on Investment (ROI) :

ROI compares the profits of an investment

compared to the cost of the investment to
determine gains.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

17
School (IBS) Hyderabad
Investment Center
Return on Capital Employed (ROCE):

ROCE looks at earnings before interest and taxes

(EBIT) compared to capital employed to
determine how efficiently a firm uses capital to
generate earnings.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

18
School (IBS) Hyderabad
Investment Center
Economic Value Added (EVA):

Economic value added (EVA) calculates the profits

that remain after deducting a company's cost of
capital.

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

19
School (IBS) Hyderabad
Investment Center
Economic Value Added (EVA):

EVA = NOPAT – (WACC*TC)

Net operating profit after tax (NOPAT)

Weighted average cost of capital (WACC)
Total invested capital (TC)

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

20
School (IBS) Hyderabad
Management Control System : Structure and Process

Thank You

Dr. Ajay Prasad Adepu, Assistant Professor ICFAI Business

21
School (IBS) Hyderabad