Introduction management control is to ensure that the organization achieves its objectives. Once the objectives have been agreed, action plans should be drawn up so that the progress can be directed towards the ends specified in the objectives. Such objectives are used to make comparison with alternatives in decision making & are also the critical elements in evaluating the success or failure of the action plans. One of the most widely used management control systems is the budgetary control & the term “Budget” itself is one of the objectives that is expressed quantitatively in financial value .
Undoubtedly budget is drawn up for control purposes & guiding the organization towards its objectives. The budgeting process is done quite arbitrary by estimating the expenses in the next year or adding a few percentages from last years’ budget. Any contingency & extraordinary dollar spent would be acquired from the miscellaneous item; as long as it is still a positive figure. The main control function of the budget follows the same old rule: no budget, no expenses. The scope of this paper is to explore better control & management in the organization’s financial resources deployed in training & development, especially in avoiding the ineffective use of resources, increasing accountability, streamlining & improving existing procedures, & managing & measuring performance in a systematic & data-oriented approach.
... potential of hindering the implementation of strategies and the organization’s achievement of objectives. General controls – Controls that are present in the environment surrounding the ... work performance Is the management concerned with doing the job without any errors? Emphasis on meeting budget and other goals Is ...
Control & Performance Measurement System Referring to Broadbent & Cullen , management control is the process by which management ensures that the organization carries out its strategies, i. e. resources are obtained & used efficiently & effectively in the accomplishment of the company objectives. As pointed out by Brooks , the role of management accounting is to concern the performance of the organization & the way in which its activities are planned & controlled by its management. Further supported by Bromwich , the major functions of management accounting used by management are to plan, evaluate, & control within an organization & to assure use of & accountability for its resources. Although most literatures reviewed (Jeans & Morrow , Murphy & Braund , Clark & Baxter ) stated that the major use of management accounting control is on manufacturing process, the concept of performance measurement can be widely applicable within the organization.
Management controls are undoubtedly basic good management practices & basic management tool to address fraud, waste & abuse. While most literatures would address the issue in organization level but the success of management controls span the whole gamut of management activities of each department. Management controls assist organizations in deciding what should be done or what should be emphasized. They help organizations to allocate funds, monitor activities, and conduct reviews & provide the information organizations need to make mid-course corrections & evaluate individual performance. Such, controls include not only internal accounting controls but also controls that focus on results. Down to departmental level, management control includes all activities designed to ensure that a department accomplishes its objectives; complies with company policies & uses employees’ time & resources appropriately.
Departments are responsible for setting up, following, & regularly reviewing their management controls. The basic departmental responsibility in management control should be more than ensuring expense within budget; management controls should include both financial controls & non-financial controls. Establishing & maintaining an internal control structure is an important departmental management responsibility. To provide reasonable assurance that an entity’s objectives will be achieved, the internal control structure should be under ongoing supervision by management to determine that it is operating as intended & that it is modified as appropriate for changes in conditions. Department managers are responsible for the management controls in their departments. In addition, to setting up good management control systems, managers should periodically review their systems to ensure they are working.
Human Resource Management - Training & Development The importance of companys investments in its employees professional development can hardly be overestimated. That is, if company deploys a progressive management style. In this case, the professional personnel requirements will guarantee companys commercial efficiency. Yet, these requirements can only remain as a decisive factor in companys ...
A lot of activities within the organization are very often done mostly for the sake of doing them, not for contributing directly to the results of the organization & the department manager is the one who should conduct ongoing review to eliminate or modify such activities. For example my company is under a laboratory accreditation scheme & all employees are required to attend the mandatory “work safety training.” The job of mine in such training is to ensure all new joined employees are attending & then run the video tape. By applying the input-process-output model, the training can be described in Fig. 1: In such open loop system, the only control accomplished is to ensure that all newly joined employees have attended the mandatory training & the resources deployed are only justified by the attending record. Besides of fulfilling the requirement of external audit, the objectives of the training should also include enhancing the work safety of the company. The existing procedures offer no evaluation nor benchmarking for the success or failure of the training; in which largely reduce the efficiency & effectiveness of the resources spent.
To improve the effectiveness of the training, a regulating & evaluation mechanism should be implemented in order to ensure that the objectives of the training are accomplished. The process is modified into a feedback closed loop control system as shown Fig. 2: The output is now not only the attendance record but also to ensure the trainee has learned something from the training. Since the objective is to minimize the frequency of work accident & this factor is also used as the regulator to measure the success of failure of the training. A standard is also required for comparison. For example if the work accident happened then it might imply that the trainees could not successfully acquired the planned knowledge & skill.
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Revise on input has to be done such as to review whether the training material has been out-dated or the media of the training should be bilingual instead of purely English. The major advantage of feedback control system is to ensure that the objective of the system is closely monitored & controlled. Once the output varies from the desired result, a regulating procedure & mechanism is to be carried out so that the system returns to its desired state. However, the major drawback of the feedback control system is that it only reacts to what has happened & adjustment is done after the undesirable output has occurred. Sometimes these undesirable outputs may not be acceptable or affordable by the organization. Take the work safety training as example, very often the work accident in laboratory may result in serious injury to the employees or sometimes the result could be fatal.
To further improve the control process, a feed forward closed loop control system should be adopted & it is shown below in Fig. 3: The major advantage of the feed forward closed loop control system is to be predictive & proactive. Instead of waiting for the undesirable output occurred, corrective action is done to minimize its occurrence. Not only the input will be adjusted but also the output & the process are monitored. Take the work safety training as example again, to achieve feed forward control, a written test is conducted for all trainees immediately after the training, so as to ensure they have acquired the knowledge such as toxic chemical handling & emergency retreating procedures (ERP).
The test result is then compared to the standard.
If the pre-set standard is not met then adjustment can be done on both the input & the process such as adding real life examples of other laboratory accident & practicing the ERP by simulation. The feed forward control is also continuous such as employees may be periodically assigned to sit for the test & may be required to attend the training again in case of failing the test. One of the important points not mentioned in the literature is that who should be held responsible for the control system? There is a common misconception that it is the auditors’ responsibility to suggest & implement management controls. However, referring to the above paragraphs, it is the responsibility of every department manager to set up & maintain an adequate system of internal controls. Senior management may set the right tone but it is every department manager who is accountable for providing policies, guidance & oversight to the control system.
Cost variance is a way of showing the financial performance of a project. It is the mathematical difference between budgeted cost of work performed, and the actual cost of work performed. Both budgeting and forecasting are financial projections. Looking at the differences between forecasting and budgeting, forecasting is broad in scope and part of strategic planning whereas a budget is more ...
The auditors’ purpose is to independently evaluate the adequacy & effectiveness of existing control systems by analyzing & testing controls & then making recommendations to management on how to improve controls. Besides, all employees should be aware of their responsibility to contribute to the management controls such as to communicate upward about problems in operations & non-compliance with policy. Costing Once we have a comprehensive control system to ensure the resources deployed are effectively used in the activity, it is also important to look at how much resources: & i. e. the cost of making this activity happens. Undoubtedly the cost of an activity, often expressed in dollar value, is one of the most important criteria for organization to make decisions.
Very often the attention of management accounting, or costing accounting would be directed towards the manufacturing industry, especially in the classification of the cost such as fixed vs variable ; since the cost of a product or service provided by the company is crucial in various decision making such as pricing or stock valuation . However, it should be remembered that the main theme of management accounting is to provide information for decision making & thus these costing methods should convey message more than classification but also to justify the activity per se. According to Broadbent & Cullen , the term “cost center” refer to managers assume responsibility for cost. It is true that the HR department does not directly generate revenue for the company but providing services to all employees. Whether the cost should be, or how should it be, absorbed by other departments is opened to debate. However, to assist user departments to truly review their operation cost & to imply effective control in the cost spent, appropriate cost apportionment should be done.
The behavioral aspect mainly focuses on people and culture, of which are means of managing the activities and behavior that cause costs. "The Seven Cs Model" is used to manage the cost-generating activities. The seven Cs are: culture, champion, change process, commitment, controls, compensation, and continuous education as illustrated in the exhibit below. Culture. "Corporate culture is the ...
As Cave & Mills  stated that costs that cannot be directly assigned are called common cost & should be shared out in an equitable manner on the basis of the estimated benefits received by the cost centers. Although cost apportionment is a subjective exercise, using a relevant & consistent apportioning basis can largely assist the process. Take the “work safety training” as example again, the major cost involved are the training materials & the cost of the trainer. The cost can be apportioned to individual department according to the number of attending employees of that department since all attending employees are assumed to receive the same benefits from the training lesson. Besides, when appropriate cost apportionment is done, user department tends to become more concern about the efficiency & effectiveness of these “service-to-all” activities. For example when no cost is charged to the departments, they will simply ask the employees to attending the training again in case their employees fail the test.
However, if such training lesson is presented in dollar amount, failure the test means that a certain amount of dollar is wasted & another amount of dollar have to be spent again. In return the training lesson receive more focus & more serious attention. It can remind the department that should they take up the accountability of the cost & thus impose tighter measure to ensure their employees achieve the objectives of the training. Budgeting Whereas financial accounting looks backwards & inwards, management accounting reflects the direction of manager’s vision & the main tools to look forwards & outwards is budgetary control . As mentioned in previous paragraph, a budget is the “financial picture” or a translation of business plan into ‘numbers.’ In its simplest form, a budget is a detailed plan of future receipts & expenditures – a projected profit and loss statement by estimating the cost of the activities & when will such cost incurred; so as to prevent unexpected surprises that may lead to financial problems. The budget is one of the most effective management tools for control but as Jones  stated that too often control has become constraint.
... a technique of cost accounting with the twin objectives of facilitating planning and ensuring controlling. Various aspects of budgets and budgetary control, the types of ... levels of management in preparation of the same. III. Any budget cannot be prepared in isolation and therefore coordination among various departments is ...
During the budgeting process, too much attention has been focused on the numbers, instead of the direction or strategies of the company. The budgeting process per se is forecasting & estimating, i. e. if without accurate information, budgeting is not far away from wild guessing. As described by Newing , the traditional budgeting process is done on the basis of an extrapolation of last year’s costs & year to date actual’s “plus a bit”; & then reduced by across-the-board management cuts. Instead of looking at the strategic direction of the company, budget allocation depends on the budget holder’s negotiating skills.
The current budgeting process of my department falls into the above category. Inevitably last year’s expense is a good reference point but it should not be the only reliable factor. Other areas like changes in labor markets, salary index & compensation benefits trends should also be under considered so as to make sure that all the planned goals & activities are addressed. Another useful information could be consolidated into the budgeting process is the manpower forecast. Since HR department is providing services to employees, the number of employees forecasted in the next year should be one of the best cost-driver in determining the level of spending. Besides, the budget can only achieve its control property if periodic feedback & variance analysis is enforced.
Actual results should be compared to the budget on a regular basis & it is this “measurable” property that makes the budget an important tool of management control. Although theoretically any variance from the budget should be closely analyzed & then be explained like change of market & technologies , whether the company accept such variance, especially when “over-budget”, is largely depending on the company culture & management philosophy. For example in my company, very often “over-budget” is being translated into “poor planning” or “spending more than you should”, only two but both are undesirable outcomes are resulted: the managers only perform activities that are budgeted, or purposely prepare the budget amount more than it requires. To be frank it makes our lives easier to budget in this way but to contribute to the overall success of the company, managers should prepare budget to the closet of the reality & take up the accountability to explain any variance from actual spending.
Only carrying this attitude that can make budgeting a management tool of control instead of a set of constraints in numbers. Conclusion & Recommendations The main components of management control should integrate objectives setting, management accountability systems, & performance measurements. In this way, a performance framework ensures that an organization clearly communicates what it wants to accomplish, keeps it on track, & determines the extent to which it is reaching its goals. The control objectives are the foundation of a management control system by stating both the positive effect management wants to attain & the adverse effects that management wants to avoid. The management accountability systems concentrate in the control procedures, i. e.
the specific steps which management has established to provide reasonable assurance of achieving control objectives. The major contribution of performance contribution is its focus on achieving results by reminding us that being busy is not the same as producing results & it redirects the efforts away from busyness toward effectiveness. Moreover, the performance measurement system also justifies the control objectives & procedures since both results & accomplishments cannot be focused or managed unless we know that where we want to go (objectives) & by what means we are going there (procedures).
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