Management Control System Notes
Subject Overview
Management Control System covers the design and implementation of control systems in organizations — strategic planning and behavioural aspects of control, responsibility centers and transfer pricing, the management control process (budgeting, balanced scorecard, variance analysis, activity-based costing), and management compensation and control in differentiated and multinational settings. A 4-credit core theory paper.
Subject at a glance
4
Units
34
Topics
4
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Management control system basic concepts and boundaries
- formal and informal systems
- understanding strategies
- interrelationship among strategic planning/management control/operational control
- responsibility accounting
- use of IT in control systems
- behavioural aspects — goal congruence
- motivation and morale
- participative management
- Strategic planning
Goals and strategies: top management
- Management control
Implementing strategy: middle management
- Task control
Specific tasks done efficiently: supervisors
Study guide
This unit covers management control concepts and boundaries, formal and informal systems, strategy, the link between strategic planning, management control and operational control, responsibility accounting, IT in control and behavioural aspects such as goal congruence and participation. Understand goal congruence as aligning individual and organisational goals.
- Responsibility centers — revenue
- expense
- administrative/support
- R&D
- marketing and profit centers
- transfer pricing objectives and methods
- arm's length principle
- managing inter-departmental conflicts
- international transfer pricing
- measuring and controlling assets employed (EVA, ROI)
Revenue centre
Sales
Sales branch
Expense centre
Costs
Production or HR department
Profit centre
Revenues and costs
Product division
Investment centre
Profit and capital employed
Subsidiary company
Study guide
You study responsibility centres (revenue, expense, support, R&D, marketing, profit), transfer pricing objectives and methods, the arm's length principle, conflicts, international transfer pricing and measuring assets employed (EVA, ROI). Practise a transfer price calculation.
- Strategic planning and analysis of programmes
- budget preparation process and budgetary control
- balanced scorecard perspectives and implementation
- interactive control and variance analysis
- activity-based costing and management
- ethical dimensions in management control
- management audit
Financial
How do shareholders see us?
Customer
How do customers see us?
Internal processes
What must we excel at?
Learning and growth
Can we keep improving?
Study guide
You study strategic planning, programme analysis, budget preparation and control, the balanced scorecard, interactive control, variance analysis, ABC and ABM, ethics and management audit. Build a balanced scorecard for a business.
- Types and principles of management compensation
- linking rewards to performance
- controls for differentiated strategies
- control in service and non-profit organizations
- management control in multinational and multi-project corporations — cultural differences
- exchange rates
- transfer pricing
- ethical issues
Service firms
Quality hard to measure; people-focused
Non-profits
No profit measure; mission-based
Multinationals
Exchange rates, culture, transfer pricing
Project organisations
Cost, time and scope control
Study guide
You study management compensation, linking rewards to performance, controls for different strategies, control in service and non-profit organisations and in multinational and multi-project corporations. Consider how culture and exchange rates complicate control.
Why Management Control System Matters
Management control systems turn strategy into results, and they matter in finance, operations and consulting roles, as well as for CMA and MBA study.
How to Prepare for Management Control System
- Practise transfer pricing and ROI/EVA problems.
- Build a balanced scorecard for a real organisation.
- Learn behavioural issues in control with examples.
Management Control System: Frequently Asked Questions
What is the balanced scorecard?
The balanced scorecard measures performance across four perspectives: financial, customer, internal processes and learning and growth.