ACC20014: Management Decision Making - Assessment Answer

Management Decision Making Assignment

Assignment Task

• Explain how an organization’s Management Control System (MCS) could be employed in an organization’s decision making processes.
• Discuss the implications of the relationship between the MCS and decision-making for an organization’s performance.

In the 1972 Antony Lowe a professor in accounting and financial management come up with the idea of management control system where he analysed the need for planning and controlling organisational system (Stirling, 2014 p 20). He defined MCS regarding planning, evaluation and decision-making and categorised it into understanding the organisational objectives as a whole and individual members who create the managerial coalition. The managers of every sub-unit of the organisation through personal goals and evaluations, their behaviour and how those aspects are important in formulating the organisational objectives. He also analysed the importance of business situations and uncertainty both internally and externally. Finally the importance of economising the employees to achieve the set targets and goals. However, he emphasises the importance of the organisation to understand the managerial and staff strengths to maximise the concept of MCS.

According to Elder (2014 p 14) apart from Management control system gathering information from different levels of organisation also provides financial and non-financial information needed by the organisation. It is important for managers to have financial data like the labour cost, material cost, profits and the investments made. Non-financial information like machine hours, work hours, production per worker and customers’ orders. Some of the information which is gathered in MCS may be collected from internal sources or external sources of the organisation.

Management control system can be used differently in organisation decision-making processes because they play a vital role and act as an instrument to survive the environment. For a continuous change of the organisations the management is pressured to adapt itself continuously because it requires the active role of its participants meaning the lower levels have to be empowered. Therefore MCS is used to control each work groups by giving the lower levels the ability of authority and responsibility and giving room to the lower levels to take any necessary action in achieving the organisational desired goals. According to Wernz (2014, p. 56), Performance measurement integrates both financial and non-financial methods in achieving the desired organisational objects. MCC, therefore, includes constraints, accountability, empowerments and involvement of all managers in achieving the set goals.

Formal and informal management control system

In management control system, there are the formal and informal aspects of the system. The formal control systems require the organisation to set clear rules, guidelines and procedures which may relate to the organisational objectives. However, the informal control systems are set and written because they act as a benchmark for decisions and setting of strategies meaning they are guidelines for the employees which need to be followed to the latter and are evaluated in evaluation performance (Baglieri 2014, p 45). Therefore MCS is more efficient when they create an evaluation criterion that shapes the organisation incongruent goal activities which employers have to the employees to trust their reports and performances.

A study done by Meara, (2014 p. 15) shows how managers use MCS in controlling strategies through external and internal changes. MCS allows practices of wider of socio-economic and political context with four control systems and analysis relevant to an average firm. The controls systems are believed systems, diagnostic systems, boundary systems, and interactive systems Diagnostic Systems

This is the formal information systems which are used to monitor organisational outcomes and detects variations from the objectives set. Diagnostic systems functions as tools which managers use to evaluating the business results, they are budgets and plans. However, evaluations of the business processes and results are used to benchmark and set the business results. It is evident that through evaluation of business processes improves the results and allocation of resources, therefore, resulting in managerial motivation (Elder 2014 p 89). The information collected through the diagnostic systems is always accurate therefore it is used to measure the output variables, performance levels and the strategies which are adopted by the organisation. The data collected is based on efficiency and effectiveness of the organisation and also performance variables even though this variable are likely to change when the company alters their strategies, therefore, maximising the use of managerial control systems.

The beliefs systems

Top Managers use belief systems to communicate, and strengthen the fundamental organisation values, direction and purpose. Belief systems are used to state the intermediate organisation core values, the level of performance which is desired and the manner in which the employees are supposed to handle relationships both internally and externally. However this systems are conveyed through documents like the mission statements, credos and formal documents. The primary use of belief system is setting the directions for strategic change through energising and motivating the employees for the organisational growth (Wernz 2014, p. 100). In MCS belief systems are used to stimulate, empower and have the total commitment of every employee towards the objectives of the organisation.

Boundary systems

Boundary systems are systems part of the MCS which are predefined by the organisational risks but are used to set limits to an opportunity-seeking behaviour. However, they are used to set boundaries of both business conduct and strategic choice. An example of boundary systems is when the environmental uncertainty is either small, or the private trust is little within the senior managers, therefore, resulting in taking measures to define the business conduct on the systems. Boundary systems limit the level of manager’s freedom leading to more creativity in their fields (Meara, 2014 p 20). However boundary systems are stated in negative terms like the sanctions, but again they act as components of curtailing high cost which may allow managers to delegate decision making. If boundaries are not properly managed, they can hinder adaptation of changing the market, product, and some environmental and technological conditions.

Interactive systems

Interactive systems are part of MCS which formal information systems managers use to engage into subordinates decision making. The information which is collected is supplied into each manager in the organisation in a recurring sequence. However, this information and controls are used to focus the attention on the main issues affecting the organisation and stimulating of responses. Interactive systems give room for new strategies and ideas which help in responding to new opportunities and threats in the competitive markets. However for interactive systems to be efficient, it requires a climate of openness which is open for criticism and debates. The use of interactive systems is very useful in circumstances of strategic uncertainties in cases of interactive changes. There are several examples of interactive changes like strategic possibilities changes of technologies, government regulations, industrial competition and customer’s tastes (Gebert 2014 p 58). However, the designs of interactive systems are based on analysis of certain uncertainties which helps in facilitating proactive decision making in MCS.

How MCS could impede and improve the organisational performance

Organisational control

The primary objective of any organisation is to make profits, meet its set goals and grow to higher heights. However to achieve this targets the organisation has to create effective management controls which should include strategies, policies and employees guidelines which should direct than limiting the employee's performances. The importance of MCS is that it will provide accurate information which will be required in the efficient decision process. Therefore apart from controlling which helps in producing better results it also improves the business by the elimination of obstacles which may hinder business progress. MCS detects any immediate problems which may course the loss of business (Baglieri, 2014 p 78) Therefore MCS is not limited to the progress of the plans but also detects variations that need corrective actions giving full organisational control. Organisational controls also include setting of rules for better financial transactions and some specific behaviours of individual departments. MCS helps in organisational controls were it minimises the risks through protecting of assets integrity and evading any internal threats and out of controls situations by:

• Conducting secure audits of financial management and quality management systems.
• Defining more consistent rules and procedures throughout the organisations.
• Avoiding situations which may be out of control which would affect the organisation's progress
• Regular checking of inventory levels
• Avoids information inconsistencies

Therefore MCS improves the organisational controls and works to the advantage of the organisation.

Financial stability.

According to Nilsson and Stockenstrand (2015), MCS is deployed by organisations to minimise cost through cost controls, improvement of operation through resource allocation achieving financial targets through comparing the actual goals. However, the importance of MCS is regulating the financial procedures which wold allow managers to benchmark their efforts in meeting annual financial goals hence reducing fraudulent activities. The controls include monitoring and appraisal of every department budgets, setting particular people who are supposed to handle cheques, the importance of big purchases to be re-approved by the management and performing budget analysis to spot potential risk. Financial controls also include analysis of important reports like the cash flows, profits and losses statements. Through analysis of financial controls the organisation will be able to know:

• Understand and control of employees spending
• Define financial goals
• Learn how to react to contingencies
• Assist in better forecasting of economic scenarios
• Properly manage the inventory
• Motivate employees to work even better.

The use of MCS in financial management benefits the organisation having in mind that the main course of organisations is increasing of financial profitability.

Increase of productivity and efficiency

One of the organisational goals is to create a comfortable workplace for every employee and meet customers’ needs and demands. The use of MCS in an organisation is creating proper communication procedures internally amongst the employees and management and externally to the clients and suppliers. However good relationship in the organisation courses efficiency and productivity throughout the organisation. The use of MCS will lead to proper responding to customers and offering assistance where it need be hence supporting faster growth of the organisation and satisfied customers hence creating customers confidence and a culture that leads to developmental growth (Lam p. 59). When the company employs MCS, it becomes easy for them to understand the hierarchy of leadership which the employees need to report to in case of an issue and set procedures on how to handle issues.

Brand management

Management controls system also maximises organisation sales into a satisfied customer base due to the consistent messages of its products and services. The use of brand management is sending consistent information to create awareness of the goods to increase the sales and profitability. The use of MCS will assist the managers in setting the targets and analysing how effective the information is to the customers and how it is making an impact on the sales. The controls should have information on how the products are faring over the competitors’ products, what can be done to outdo the competitors and the strategy which need to be employed to create more awareness. Organisational controls will require information regarding the pricing, promotion and distribution to first be approved by the marketing departments (Peljhan, 2013 p. 49). This type of controls will assist in the prevention of inconsistent brand information and create a stable image to the market because using strategic image control it will be much easy to know if the strategy has hit the target set accurately or not. However, image monitoring systems have to revise its standards over and over to match with the environmental changes and modifications of the competitors.

Factors influencing management control systems.

Types of responsibility centres

Departments are different therefore they're different controls system, in managing different subsystems in the organisation. Some departments and management are measured regarding expenses while others are measured regarding profitability (Lam p. 79). An organisation with various branches may prefer to have different control systems in its different departments. Therefore management controls systems should be flexible to cater for different subunits.

Different management styles and their perceptions

An organisation consists of different people who have different opinions of management control system by their job satisfaction, job security and perceptions (Meara 2015 p. 120). Therefore this factors will significantly influence the nature of MCS employed in organisations, and it is an important to factor while considering MCS.

Management control system is a costly affair

MCS requires a lot of time, effort and a lot of attention employed to monitor the performance of the employees. To create and effective control system the organisation will have to spend heftily therefore before developing an MCS the organisation has to analyse the benefits of the system and the cost used to establish the system. However, the benefits have to be more than the cost which will be incurred otherwise it may lead to cost inefficiency (Styhre 2014 p. 79). For small organisations, they can develop a small MCS while bigger organisations may develop the larger system.

Resistance from employees

Most employees don’t like to be controlled they feel they are being manned and feel that they a being taught what they already know therefore they feel their freedom is being tempered with. While some employees work effectively when they are not controlled by anyone this may affect MCS from being fully effective because of resistance and rebellion from employees which may significantly influence the performance of the organisation (Nilsson and Stockenstrand 2015). However, it is important to explain to each and every employee about Management control system and its importance to the organisation.

Conclusion

According to Peljhan, D (2013 p. 54) the external and internal business environments are immensely changing such that organisations have to make MCS necessary for their development and growth. The design and proper updating of this systems have stimulated the introduction of new practices and advanced technologies equipping organisations with more efficient systems to give a firm performance hence gaining competitive advantage. According to this essay, it has dealt with the internal change drivers which create new development in the MCS. Therefore improvements of MCS will lead to organisational improvements. In the definition of MCS, it shows the importance of employee’s involvement in making MCS useful and their role in corporate success. However, if the employee is given more exposure, influence and incentives such as motivation, training and other benefits their job satisfaction will increase tremendously due to the high motivation they will have to their work (Styhre 2014 p 100). They will reflect their motivation in the activities which they perform which in turn will create a customer oriented approach hence improving the company’s productivity and profitability. It is also important for organisations to conduct MCS for better improvement of their activities and profitability.