Management Control Environment

Control environment refers to the factors which are taken into consideration while establishing performance standards. Control environment defines its boundaries on the basis of objectives of the organization as well as those of its various components including strategies, divisions ,etc.

ASPECTS OF MANAGEMENT CONTROL ENVIRONMENT

TYPES OF STANDARDS PRINCIPLES FOR ESTABLISHING STANDARDS

TYPES OF STANDARDS
STANDARDS

TANGIBLE STANDARDS

INTANGIBLE STANDARDS

TANGIBLE STANDARDS
These standards can be measured in terms of output , revenue , resources and time. Tangible standards can be of four types. (a) cost standards (b) revenue standards (c ) capital standards (d) program standards

INTANGIBLE STANDARDS
These are the standards which cannot be measured quantitatively. Intangible standards are subjective in nature. Examples of Intangible standards: (a) leadership quality (b) ability to develop subordinates (c) creating a healthy work environment

PRINCIPLES FOR ESTABLISHING STANDARDS

Standards should be set for all employees. Standards should be set for strategic activities. Standards should be related to responsibility standards.

PRINCIPLES OF CONTROLLING
Based on objectives and plans. Understandable Flexible Economical Established at strategic points. Timely. Objective. Adjusted to individual differences.

Related to positions. Related to organizational designs. Aim at corrective action. Reviewed periodically.

STRATEGIES OF MANAGEMENT CONTROL

Personal Centralized. Bureaucratic Output Control Cultural Control

PERSONAL CENTRALIZED CONTROL

Centralized decision making Direct supervision Personal leadership based upon ownership or technical expertise. Reward and punishment reinforce confirmity to personal authority.

BUREAUCRATIC CONTROL
Breaking down o tasks into easily definable elements. Formally specified methods , procedures and rules applied to the conduct of tasks. Routine decision making delegated within prescribed limits. Budgetary and standard cost variance accounting controls.

OUTPUT CONTROL
This approach relies upon the ability to identify specific tasks having a measurable output or criterion . Jobs and units designed to be responsible for complete units. Once outputs or criteria for achievement have been identified ,management can specify output standards and targets.

 Use of responsibility accounting systems. Rewards and sanctions can be related to performance levels expressed in output terms.

CULTURAL CONTROL
This approach tends to be exemplified by organizations offering professional services and staffed by professional people. Development of strong identification with management goals. Few formal controls. Rewards oriented towards security of tenure and career progression.