Controls encompass all the methods and procedures that directs employees to achieve the organisational aims and objectives. Such controls are called 'administrative controls', for example: job descriptions, operating manuals, training procedures and budgets.
There are also 'social controls' that are exercised by individuals to other individuals. Examples include procedures used in small groups to regulate performance in accordance with norms. Many researches suggest that procedures are more effective in controlling behaviour then other administrative controls.
Technical Rational Models
Technical rational models of management control are predicted based on the presumption that management decisions will contribute to the achievement of business objectives.
Control activities can be categorised into 3 main types:
* Strategic planning - concerned with setting of corporate strategies and long-term objectives,
* Operational control - ensure that specific activities are carried out,
* Management control - links the strategic planing and operational controls, it coordinates the operational activities to meet the strategic objectives. Management accounting system allows to spot variations and plan for remedial actions if actual performance differs from planned performance.
These set up received much critique from academia. The criticism includes the failure to recognise social, economic and political differences, existence of conflict between individuals and over-emphasis on internal process at the expense of external influences.
Rational Legal Model
Rational-legal models, such as Weber's observation of bureaucracy, emphasise of the importance of internal process in management control. Bureaucracy is seen as the reason for achieving of the highest level of efficacy in the business. Individuals are expected to follow specific rules rather then use personal judgement. Management accounting allows to report on actual performance against the planned performance.
This model also have many critics as it might foster dissatisfaction and hinder motivation. Others think that it ring fairness to the activities. Some researches, however, believe that it has an enabling and coercive functionalities, through enabling employees to master their responsibilities and force to the efforts of compliance.
Human-Relations models
Later on, researches recognised weaknesses of the Technical Rational Models and Rational Legal Models. In the Human-Relations models human interactions are seen as the most critical to drive organisational performance. It is believed that is has a positive on employee behaviour, motivation and satisfaction.
Open System Model
This approach draws links between the internal parts of the system and the whole system and the outside world. It imports resources from its environment, these resources undergo transformation and then leave the system as goods and services.
Contingency Models
Contingency models of Management Control say that the approach to control should reflect the external conditions in which the organisations operate as there is no single 'best' approach of management control. Research has indicated that the variables that need to be considered include the organisational culture, decision making style and the management aspiration for profits and growth. Some activities can be controlled by physical measures and some cannot be controlled in quantitative terms.
Management Accounting Information and Business Decision Making
Managers are involved in the running of the business and they have access to some very confidential information that help them in the day-to-day activities. Senior managers may want to focus on improving the profits through improved sales and cost control and control of assets. This is just one example of a particular focus and management accounting varies from company to company. It is the area that deals with business strategy, planning, control, decision making, resource management, performance improvements, assets, governance and internal controls.
In many organisations management accounting provides the framework by which activities are planned, monitored and controlled. Different industries will have different frameworks and different decision management process.
Planning
Planning is a general term and considers both short term planning and long-term planning. It involves, preparing, evaluating and selecting strategies to achieve objectives. It relates to detailed plans that people working for the organisation are expected to meet. Strategic planning is done by senior management team. Each division and departments will then have their own objectives to contribute to the 'bigger' plan. Business will need a plan for one year, but also longer plans. Sales plans may include which prices to set, which products to sell and which markets to target. Production plans may include labour sources, raw materials sources or the most effective use of capacity. Capital expenditure plans may include expected life of the equipment, potential investments in fixed assets and the level of working capital that the business may need.
Control
Once the decisions have been taken, the management should be able to control the activity and have a view on whether the performance is in line with the plans and objectives. To carry out the control a management system is required.
Dyson (2017) presents a simple model of such system:
Cost accounting
Cost accounting is one of the most important functions of the management accounting. It involves collecting information for the company's ongoing costs and revenues, calculations of the products and services actual costs and therefore, providing the business management with actual information.
Decision making
The manager of a profitable business may have to decide on the manner of implementation of the objectives that may relate to allocating resources for maximisation of profits. Most of the decisions will have to be made in regards to resources: people, services, products, equipment or investments. Management accounting information will help with these decisions.
Financial management
Financial management relates to identification of funds to meet business objectives.
Internal auditing
Internal auditing involves the checking and the verification of the accounting information and the associated reports. Internal audit should assess the effectiveness and the efficacy of the management system.
Information technology in accounting
Information technology plays a key role in management. An Accounting Information System (AIS) keep track of reports and financial information. It collects data in a structured way. It includes data such as:
* Sales orders,
* Billing statements and receivables,
* Inventory Data,
* Purchase orders,
* Supplier invoices and payables,
* Payroll information,
* Tax information.
From the IAS we obtain:
* Financial statements,
* Sales analysis reports,
* Costing reports,
* Budgets and variance reports,
* Cash flow analysis reports.
Accounting Information System (AIS)
An accounting information system is critical for a success of modern organisation. A good system will have the following features:
* It has easy to use user-interface - it should be easy for non-specialist to use. data entry points should be clear, user should be able to generate and read reports without excessive training.
* Compatible information infrastructure - data may be stored on computers on in the cloud based systems. The computers should be compatible with the software and provide specific power to run the software applications. Sufficient internet connection should be in place so data can be transferred quickly.
* Encryption and internal control - to maintain confidentiality, the data should be stored in an encrypted format. Permissions should be put in place so that users have access to data with login details so it is clear which user uses different modules of the system.
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