Management control

MANAGEMENT CONTROL

“Management is to be responsible for obtaining results through the actions of other people”

“Managers are people who get things done by working with other people”

“Management control is the process by which managers influence other members of the organization to implement the organization’s strategies”

• “control” = to check, to master, to have the right, to reduce, to guide, to regulate…

• A manager must obtain results and must prepare the future: anticipate and coordinate (technical aspects); and through the actions of others, put the structure into action: rally, marshall, and motivate.

• The management process in organizations, each step has top be reliable and effective to have real control

FINALIZE: Where should you arrive ? What must be achieved ?

Missions, means, measurement criteria

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STEER: What is ahead on the road ? How to reach the target ?

Actions, monitoring, follow up, corrections

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POST-EVALUTATE: Where have you arrived ? Is it good or bad ?

Report, assessment, judgment, learning

• Management control functions:

- orient the actions and behaviors of autonomous actors (Objectives and Involvement)

- interconnect strategy and daily operations (Plans)

- model ends-resources relationships (Activity Model and Management Accounting = Business Model)

• Link between Management Control & Strategy:

- Management control aims at implementing the organization’s strategies

- Management control relies on strategy (and structures)

- Management control can help adjust or redefine the organization’s strategy, that’s organizational learning (=learning loop)

A cost is not a price nor an investment ! It’s a regrouping of resources consumptions relevant to use for decision making purposes.

A cost calculation applies to a cost object: any element for which it’s useful to calculate the specific cost. There are different costs for different purposes.

- Fixed costs (FC): do not vary according to the level of activity, for a relevant range of activity & a given time horizon

- Variable Costs (VC): vary according to the level of activity

- VC is a SR opportunity cost (OC): what you must sacrifice in order to benefit from a specific opportunity

- Sunk or irreversible costs: are related to post decisions which won’t change with future decisions

BEP is the level of activity for which profit margin equals to zero. Beyond the BEP, companies start making profits.

FORMULAS

•         Profit Margin (Operating Income) = TO (Total Turnover) – TC (Total Costs)  /  TC = VC + FC

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PM = TO – VC – FC

•         TO = Q x SP ; VC = Q x uVC

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PM = Q x SP – Q x uVC – FC

PM = (SP – uVC) x Q – FC

(Cost-Volume-Profit Model, used for price setting & profitability analyses and forecasts,
Q is not constant, it’s the performance driver and the only one that affect PM)

•        TO – VC = Contribution Margin (CM)

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