What are Management Control Systems?

Broadly speaking, management control systems are methods that businesses use to collect information that will later guide and direct the behavior of corporate officers and managers, usually in order to achieve some specific goal. Many of these sorts of methods deal with accounting; some of the most popular control systems are focused on either financial or managerial accounting, which is to say money that is spent by the company as a whole as compared to money that is spent by separate divisions or individual managers. Methods of incentivizing employee productivity or compliance can also be part of this sort of system, as can performance evaluation rubrics. In most cases the goal of any control system is to set a uniform standard that is easy to identify and, hopefully, easy to follow in order to ensure common results across a company.

Almost any business can benefit from management control systems, though they do tend to the be most common in large corporations — particularly companies that incorporate many divisions, offices, and locations. A uniform set of standards and rules can keep all departments in line with each other and working towards the same goals, and they also streamline may of the processes. It can be very difficult for executives to get a good grasp of corporate spending, for instance, if every department has a slightly different accounting system. Similarly, it can be hard to know how well certain employees are doing or how different divisions are performing when it comes to generating new products or ideas without a standard means of measuring and reporting success. Control systems are usually intended to add this bit of stability and predictability to a range of different processes across corporate spaces.

Some of the most commonly adopted systems involve accounting. Actually controlling the spending activities within a company is a complex endeavor in most cases, and as such the area is often broken down into the related sections of financial and managerial accounting. Financial accounting generally focuses on internal issues, such as reporting sales costs, while managerial accounting may focus on broader things like determining product costs.

While both areas cover business accounting issues, their methods of application generally differ, and separate systems implemented by a management control system may help executives and corporate officers make sure that reports stay accurate and impartial no matter where they’re coming from or who’s writing them. Managerial accounting is typically responsible for providing management with information on controlling costs and improving the production process. Managerial accountants may also provide cost information on new products, make pricing decisions, and monitor actual and spending.

General financial accounting, on the other hand, more commonly focuses on a company's internal accounting issues. This branch is frequently concerned with payroll and human resource issues that impact employees within the company, including how much is being paid in salaries and bonuses. Accounts in this area may also manage employee costs and reimbursements for things like travel and related expenses.

Many of the most direct employee benefits and incentives are financial, often in the form of raises and salary bonuses, but not all are. Control systems can help streamline these non-monetary structures, too. Directors often are responsible for coordinating activities with human resources to create employee incentives for work well done and to hire upper-level managers. When they’re driven by set guidelines and best practices, directors can better analyze production progress, provide appropriate job assignments, and more effectively communicate with all company employees. Executives can also be more confident that everyone in all divisions is using roughly the same standards, which ideally should lead to coherence between departments and employees no matter their area of expertise.

Complete and accurate performance evaluations may be one of the most important methods of determining an employee's strengths and retaining the most competitive and efficient employees. Management control systems allow for flexibility and outside factors to affect the evaluation process. For example, if external extenuating circumstances negatively affect sales or productivity, an evaluation may account for this factor and include it as part of the evaluation process.