Management control systems (MCS) is a system which companies implement that collate and utilize information in order to evaluate the performance of several organizational resources such as human, physical, financial and the entire organization considering the organizational strategies. Such system influences the behaviour of organizational resources to implement organizational strategies. In this current present globalised world, MCS are crucial for the implementation of organizations in order to venture beyond the strategies that concentrate on acquisition of technology and logistics which might not be sufficient for the company to acquire a sustainable competitive edge over its competitors for a long-term period of time. MCS is defined by Anthony (cited by Langfield-smith, 1997) is ‘the process practiced by managers that ensures resources are being used and obtained in an effective and efficient manner with regards to the accomplishment of the organization’s objectives.’ This report will look more into the tools of MCS such as the budgetary control systems in organizations, business performance measurement systems as well as the balance-scorecard with its issues of implementation.
Get your grade
or your money back
using our Essay Writing Service!
Budgetary Control System
The Budgetary control system (BCS) is a process of establishment of budgets concerning several activities analogizing the budgeted figures with the actual performance for achieving at variation. Budgetary control does not come without budgets as it is a system which obtains a means of planning and control using budgets. Browns and Howard defines budgetary control as “a system that keeps costs in check which encompasses the preparation of budgets, differentiate actual performances with the budgeted, collaborating the department plus establishing responsibilities and operating upon results to acquire utmost profitability”.
Objectives of BCS
The BCS aim to assist the management for policy formulation through planning, controlling, co-ordination and communication. Planning is carried out by a budget with the plan of action. That ensures for a business over a period of time. Budgetary control co-ordinates several activities of the entities and connecting collaboration of all concerns towards the common goal. Having control is crucial to ensure the achievements of plans and objectives. Control results in planning and co-ordination. Control performance would not be possible without predetermined standards which makes budgetary control possible by continual measures against predetermined targets. If actual and budgeted performances have shown variation in anyways, it is subjected to analysis and corrective action. Budgetary control influences executives to think and brainstorm as a group. Budgeting is a communication device which could not be achieved without communication. Practising communication allows the management to provide adequate understanding and knowledge of programmes and policies but also the restrictions that the organization must adhere to. For example, maximum amount that are spent on advertising or maintenance could be brought to the knowledge of executives that implements restraint and achieving results.
Advantages of BCS
Like other control methods, companies source out potential from budgets to aid them in reaching their goals.
One major strength that budget possess is Co-ordination. It promotes collaboration between different departments and divisions of the enterprise. Centralised regulations of diversified operations are being facilitated. This budget committee reprise their role as a coordinator of production, sales and other department.
Definite planning is induced under budgeting as well defined plans are the foundation of budgets itself. It allows executives to understand what is expected of them. Such as having the knowledge of entitlement of own expenditure and income that they are expected to earn. This introduces an element of definiteness in planning.
Always on Time
Marked to Standard
This system promotes the most effective way of controlling costs and eliminating wastage. Thus it enhances efficiency of the enterprise.
Budgets are constructed in a way to take ideas and feedbacks from the lower levels of management into consideration. Thus making the organization more decentralised. Providing motivation to other levels by getting them more involved in the discussion. Every department supports its own budget in discussion with the other departmental staff thus fulfilling a two-way communication within the organization.
Budgets enables management by exceptions possible. Weak spots would be identified as soon as the actual and budgeted performances are shown in comparison allowing the management to rectify. Making budgeting a crucial technique of control.
Delegation of authority is being used in budgeting as it repairs the limit within which delegate authority can be implemented. Enables subordinates and executives to carry out initiative and judgement within the budgetary limits.
Budgets provide motivation as it reprises it role as a strong incentives to employees by fixing targets of performance.
This system makes it possible financial manager of the organization to forecast or predict their need for credit and sorting it out in advance.
The centralization of budgetary control over the enterprise aid in upholding a uniform policy without the disadvantages of an authoritarian type of business organization.
Budgets are based on estimations and prediction of future events. The effectiveness of the budgetary systems relies on how accurate the estimations are made to a great extent.
Once implemented, budgets tend to be rigid thus making it difficult to make changes to suit the changing circumstances. Budgetary limits are concerned as final and little latitude is left for initiative and judgement regarding the part of the subordinate staff. Inflexibility causes budget to become unrealistic and false under changed conditions.
Budgeting is expensive due to the requirement of high expenditure in terms of cash, time and effort. A considerable amount of time is needed for effective budgeting. Overnight results are not achievable through budgeting and great patience is needed on the part of the management. Having high time intensity, management would tend to lose interest and confidence in budgeting as quick results are expected in the organization.
As budget tends to grow from prior instance, it is sometimes used to hide inefficiencies. Many items which are concluded to be irrelevant are continued due to their use in existing budgets.
Budgeting tends to fail when the goals of the department starts to supersede the main objective of the enterprise. Functional budgets may not show the organization’s general goals in their proper perspective. Situation may demand managers to keep budgeting within the limit with regards to the interest of overall business objectives. However, with the enthusiasm portrayed by department managers when limiting budgets, such action may tend to overlook the enterprise goals.
Budgeting does not substitute for efficient management. It only helps in arriving at precise decisions but does not replace management and administration. Someone has to read, interpret and implement it in order for such system to work.
This study shows the impact of budgetary control with regards to the performance of a manufacturing company in Nigeria. The demands are plenty but resources are limited which drives every organization to seek out means in order to get what it wants in contrast with the limited resources as its disposal. Therefore, this company pursue to adopt the concept of budgetary control to satisfy their needs at the minimum cost at the same time fulfill their stewardship obligation to countless shareholders. Descriptive research designs with data assembled across questionnaire distributed to respondents were validated. Hypothesis were analysed on a 5% level of significance to examine the usefulness of budgetary control in helping the company actualising their goals.
A researcher collected data through direct interviews, observations and use of questionnaires as a research method. Direct and indirect analysis was made through some unusual questions to the staff and management of the company. This study emphasises on budgeting and budgetary control of a manufacturing company in Nigeria with referral to Cadbury Nigeria Plc. To ensure an in-depth and comprehensive study is executed, 26 respondents that were cut across from their team of the company and customers were randomly selected. Primary data was involved to collect sources from staff of all cadres. Interviews were conducted with shareholder and customers of the company. The questionnaires consist of two sections. The first section extract demographic information like working experience and gender while the other section comprise of structured items in relation to research questions that entails this research, researchers label this as the instrument. In order to ensure the validity and reliability of this research, specialist in the area of educational management was invited to criticize this instrument conducted by researcher. The reliability was obtained through a constant re-test technique to analyse the data collected.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
With relation to the results shown, with regards to the operation of manufacturing companies, quite a number of employees understand the budgetary system. Ever since the budgetary system has been implemented by the company, a considerable participation of lower level employees has shown to be involved in planning and budgeting. The workforce has been discovered to be more motivated and capable enough to spur the company into greater heights. Lastly, it can be said that with a more dedicated workforce, upgraded technology and valuable policies (the budgetary control system), the company would be able to achieve their goal of fulfilling their stewardship obligations to the shareholders.
The balance scorecard
The balance scorecard (BCS) is a strategic planning and management system that is implemented largely by various organizations worldwide in relation to business and industry, government and non-profit organizations. Such system is applied for the alignment of business activities with the vision and the strategy of the organization, making improvement for internal and external communications and observing organization performance against strategic goals. This systems was originated from Dr. Robert Kaplan (Havard Business School) and David Norton in the early 1990s, which has been assumed and exercised by hundreds of organizations worldwide. The BSC is applied as a performance measurement framework to attach strategic non-financial performance measures to traditional financial metrics to provide executives a more ‘balanced’ perspective of organizational performance.
Gartner Group indicates that more than 50% of large U.S firms have taken up the BSC. A large amount of major companies in the U.S, Europe as well as Asia have assumed the BSC approach, with use growing in those areas also in the Middle East and Africa. Bain & Co have conducted a recent study have registered the BSC to derive at the fifth on its top ten most extensively used management tools around the world, a list that incorporate closely-related strategic planning at number one. The editors of Havard Business review has appointed the BSC to be one of the most authoritative business ideas for the past 75 years.
Identifying various weaknesses and imprecise of previous management approaches, the BSC approach delivers a clear prescription as to what organization should consider in order to ‘balance’ the final perspective. The BSC is a management system (not only a measurement system) that empowers organization to make certain of their vision and strategy and translate them into action. It gives feedback around the internal business process and external outcomes to surpass strategic performance and results continuously. When fully deployed, the BSC alters strategic planning from an academic exercise into the nerve center of an enterprise.
The BSC is a conceptual framework for rendering an organization’s strategic intent into a set of performance indicators distributed amongst four perspectives: Customer, learning and growth, financial and internal business processes. Some indicators are sustained to gauge an organization’s progress toward achieving its vision; other indicators are sustained to gauge the long term drivers of success. Through the BSC, the organization observes both its ongoing performance (customer satisfaction, finance and business process results) plus its efforts to enhance processes, inspire and guide employees.
The learning and growth perspective
This perspective encompasses training for the employee corporate culture attitudes which relates to both individual and corporate self-improvement. In a high-educated working organization, people who are the sole individual of knowledge are regarded as the main resource. Due to the current climate of expeditious technological change, it is vital for knowledge workers to be set in the mode of continuous learning. Metrics could be practised to steer managers in focusing training funds where they can assist effectively. In most case, learning and growth establishes essential fundamentals for success in any knowledge-worker organization. Kaplan and Norton stress that ‘learning’ is better than ‘training’. It also includes things like mentors and tutors within the organization, also having that ease of communication among workers enables them to retrieve aid on a problem whenever needed. It also includes technological tools; what the Baldrige criteria call “high performance work systems”.
The business process perspective
It refers to the internal business processes. Metrics established on this perspective grants the managers to understand how efficient their business is performing and whether its products and services adapts to their customers’ demands (the mission). Those who know the processes intimately have to cautiously design the metrics; these are not something that enables outside consultants to develop effortlessly with such unique mission.
The customer perspective
Recent management philosophy has demonstrated a growth in realisation of the significance of customer focus and satisfaction in any business. Such are leading indicators: if a customer is not contented, eventually they would seek other suppliers who could meet their demands. Having poor performance from this perspective is an indicator which would lead to a future declination of business to any companies, even if the current financial picture may look appealing. While developing the metrics for satisfaction, analysing of customers in terms of what kind of customers and the kinds of processes which provides products or services to cater to the different kind of customers the organization is dealing with.
The financial perspective
Kaplan and Norton certainly did not ignore the traditional need for financial data. Managers would always prioritise timely and accurate funding data and would do whatever that is required to provide it. The fact is, there often sufficient processing and handling of financial data. Having corporate database implemented, it is hoped that additional processing could be centralised and automated. But the main focus is that current attention on financials generates to “unbalanced” situation with regards to other perspective. There is possibly a need to involve extra financial-related data, for example, cost-benefit and risk assessment data, in this category.
In conclusion, this report does not disregard the importance of budgetary control as a tool of management control system implemented by various large organizations in the world. Though there are various disadvantages when implementing the BCS, the organization should not be discouraged and acknowledge that the BCS is still a primary means of effective control system when it has proven to improve the performance and helping the organization in realising its goals as shown in the case study. The BSC may not be able to completely replace the BCS but it certainly has identified itself to be an alternative perspective on the directions to improve the budgetary system particularly in the aspect of improving strategic planning and management plus communication. By having a more intimate understanding regarding the BCS, could allow organizations to adapt to adopt newer methodology like the BSC with ease. It is certainly agreeable that BCS calls for greater integrative approach to improve its relevance but not forsaking its relevance in management control.