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MBA-Fourth Semester-Management Control System - Organisation Structure

The document discusses various management control concepts including organization structure, contingency theory, organizational climate, the management control process, budgetary control and types of budgets, flexible budgeting, zero based budgeting, performance budgeting, variance analysis, and internal auditing. It provides details on each concept.

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Madhu Raksha
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93 views14 pages

MBA-Fourth Semester-Management Control System - Organisation Structure

The document discusses various management control concepts including organization structure, contingency theory, organizational climate, the management control process, budgetary control and types of budgets, flexible budgeting, zero based budgeting, performance budgeting, variance analysis, and internal auditing. It provides details on each concept.

Uploaded by

Madhu Raksha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Management Control System

Module 2:
Organization Structure

Asst Prof. Ramesh Chandrahas


BE (E&C), MBA, Ph.D
Davangere University, Davangere
Contingency Theory
• Contingency theory is that the structure of an
organization depends on the company’s technology and
environment and the effectiveness of the management
accounting system is contingent on the organization’s
structure.
Organizational climate
Organizational climate, generally refers to the degree to which an
organization focuses on and emphasizes:
• Innovation
• Flexibility
• Appreciation and recognition
• Concern for employee well-being
• Learning and development
• Citizenship and ethics
• Quality performance
• Involvement and empowerment
• Leadership
Management Control Process
• The management control process contains the following basic steps.
• The manager first of all establishes performance standards which can be
used as a yard stick to measure and compare the actual with the standards.
• The end result of comparison is the spotting out deviations. Then corrective
actions are designed to correct errors and also avoid their reoccurrence.
• Generally, the steps involved in the management control process are listed
below:

1. Establish Standards
2. Measuring Actual Performance
3. Comparison of Actual with the Standard
4. Taking Corrective Actions.
Budgetary control
Meaning : Budgetary control refers to the principles, Procedures and Practice
of achieving given objectives through budgets and budget reports.
• Budgetary control is an essential tool of management for controlling cost
and maximizing profit.
• It is a useful management tool for comparing the current performance with
pre-planned performance with a view to attain equilibrium between ends
and means, output and effort.
• It uncovers uneconomies in operations, weakness in the organization
structure and minimizes wasteful spending.
Budgetary control involves the following
1. Establishment of budgets
2. Continuous comparison of actual with Budget for achievement of budgeted
figures.
3. Revision of Budgets in the light of changed circumstances.
Budget And Its Types
• Budgets are an important tool for effective
short term planning and control in
organizations.
• Types of budgets are:
1. Flexible budget
2. Zero based budget
3. Performance budget
Flexible Budgeting
• A Flexible Budget is a dynamic budget which is designed to change
in accordance with the level of activity. It is also called as variable
budget or Sliding scale budget. A budget prepared in a manner so as
to give the budgeted cost for any level of activity is known as
Flexible Budget.
• There are two ways using which flexible budget can be prepared
they are (a) Formula Method. (b) Multi activity or Tabular Method.
• Generally following steps are followed in the preparation of flexible
budget:
1. Decide the range of activity to develop a flexible budget.
2. Determine the cost behaviour- fixed, variable and semi variable to each element
of cost.
3. Select the activity level (generally in terms of output).
4. Prepare a budget at each activity level.
Zero Based Budgeting
• Generally while constructing a functional budget, the
previous year’s budget figures will be taken as the base. This
is so because previous year’s figures are adjusted for the
impact of inflation and for the proposed increase or decrease
in the level of activity of the business then are used in the
construction of budget for the current year. This practice
brings in the inefficiencies of the previous year to the current
year hence to streamline the allocation of funds and to control
cost a new technique called Zero Base Budgeting came in to
existence.
Basic Principles underlying the preparation of
ZBB
• 1. Every budget starts with a Zero base
• 2. No previous year figure need to be taken as
base for adjustments.
• 3. Fresh examination of each activity.
• 4. Justification of every allocation in the light
of anticipated circumstances.
• 5. Give due consideration to alternatives.
Performance Budgeting
• The National Institute of Bank Management define the
Performance budgeting as “The process of Analysing,
identifying, simplifying ad crystallizing specific performance
objectives of a job to be achieved over a period in the frame
work of organizational objectives, the purpose and the
objective of the job”.
• The purpose of this report is to inform promptly about the
deviations in actual and budgeted activity so that the person in
charge will take needed actions to correct the deviations.
Analysis of Variances
• The main aim of any control process is to identify the
variation between the actual performance and the standard
fixed. In case any deviation is identified between the
actual and the standard then it calls for analysis of such
variation in order to find the cause for such variation and
to suggest some measures for remedial action. Hence
variance analysis is a process of analysing variance by
fragmenting the total variance in to smaller identity.
• A variance can be either Price variance or volume
variance.
Accounting aspect of control including
Internal audit
Internal audit involves examination and evaluation of the acceptability and
effectiveness of the organization’s internal control system and the quality of
performance in carrying out assigned responsibilities.
Internal Auditing involves the review of the following aspects of business
operations:
1. Evaluation of internal control: This should test the adequacy of accounting
system from the following viewpoints:
a. Information is adequate and accurate.
b. Resources of business are protected against losses resulting from Theft,
Embezzlement, or Carelessness.
2. Review of accounting efficiency: This should cover the following aspects
to ensure that:
a. Procedures are effective.
b. Mechanical and electronic equipment is used.
c. Space is fully utilized.
d. Staffs are adequate.
3. Appraisal of performance of organization: This includes the following aspects:
• Implementation.
• Compliance with procedures.
• Review of individual performance.
• Checking up of plan of organization.

4. Place of an internal auditor in the organization: Internal auditor carries out a staff
function rather than a line one. Hence, an internal auditor cannot exercise direct
authority over other persons. However, he is free to appraise and review policies, plans,
procedures and records

5. Internal audit report: The main work of internal auditor is to prepare reports on his
findings and give recommendations. The report prepared should focus on the following
aspects:.
• It should be designed to draw and hold the attention of the person to whom it is
presented.
• Conclusions and recommendations must be clearly and briefly written.
• Main ideas are to be stated in the body of the report and supporting details can be
shown as exhibits.
• Rough draft of the report may be reviewed and discussed before final submission.
• The report should high light Specific improvements need to be made
Thank
You

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