Management Control Systems (MCS): Examples and Tips
A central challenge for many businesses is successfully managing multiple departments that have very different responsibilities. To organize many teams' efforts into one successful product or service, businesses often use management control systems. By having an organized approach to defining goals and measuring results, businesses can create unified and highly productive workplaces. In this article, we define management control systems, understand the parts of one with real-world examples and review tips for making the most of these systems in your company.
What is a management control system?
A management control system (MSC) is a system businesses use to understand how successfully they achieve goals in productivity, profitability or efficiency. They continuously take measurements of a business's performance to predict if a desired outcome is likely. Usually, business software or employee-collected data is used to measure progress in easily understood metrics, such as dollars, hours or units of product.
Businesses often have separately managed departments, each with different responsibilities, that are required for the overall enterprise to succeed. Management control systems are meant to be adaptable to each of these departments. A single company may have several management control systems at once.
A management control system helps managers understand where improvements are necessary in a business's day to day operations. Clear feedback from the system should point to the specific obstacles that are preventing goals from being met and suggest sensible fixes. Ideally, this feedback should help prevent problems rather than diagnose them after the fact.
What to include in a management control system
There are several components that make up a management control system. Here is an example of the various parts as they would work in a smaller business, such as a restaurant:
Clear managerial assignments
The larger a company, the more likely there are managers with different responsibilities. It's important to understand what every department is working toward so that each manager can be held accountable for meeting objectives.
A restaurant owner creates two managerial categories, one for the kitchen and one for the dining room. The executive chef is the kitchen manager, and the service manager is responsible for the dining room. Each has different daily and monthly objectives, oversees different staff and has different budgets, but both need to succeed for the restaurant to be profitable.
Bureaucratic controls are the rules and guidelines of a business operation meant to enhance efficiency and maintain organization. They define the chain of command and delegate responsibilities within each division of an operation. Well-designed bureaucratic controls answer as many questions as possible ahead of time so issues can be resolved in an orderly fashion. In management control systems, it's important that you establish bureaucratic controls early so employees and management can have a shared sense of what the future should look like.
A new server and a new line cook each receive a handbook when they start work. Some information is the same, such as vacation policies, restaurant background and code of conduct. However, much of the information might differ because of the department in which they work. The cook and server may have different managers, work different hours and have different expectations. Because of clear bureaucratic controls, the employees feel well-informed and ready to perform the duties their different managers have assigned them.
Financial controls are the targets a business establishes as necessary for growth and profitability. This could be, for instance, the costs of production or the return from sales. In management control systems, managers closely monitor financials to identify the adjustments needed to remain aligned with the business's goals.
Both the chef and service manager have specific financial goals for their management control systems. The service manager looks to meet average check total and nightly revenue goals while also making sure labor cost is under control. The chef calculates menu prices that keep food cost reasonable and maximize profit without turning away too many people.
Quality controls ensure that a business's product or service meets its own standards. They make sure that the sales taking place are helpful for continued growth by leaving clients and customers satisfied.
The service manager may aim to speak with every table once during a meal and review each server's tip averages to see if guests are receiving good service. The executive chef tastes dishes throughout the evening to be sure that cooks are executing them properly or may look at online reviews to see how guests feel about different preparations.
Related: What Is Quality Control?
Normative controls are behavior-based patterns that unify a team in its approach and attitude toward goals. They are often less formal than other types of controls that use number-based indicators of success. You might not be able to address every aspect of workplace behavior in writing, but you can encourage certain habits by repeating them. There are two types of normative controls to consider:
Team norms: These are norms that divisions of a company use to accomplish goals specific to them.
Organizational culture norms: These are norms that define company culture for all employees and reflect a company's mission statement or sense of purpose.
It may be a team norm that when one cook calls out sick, another cook willingly sacrifices a day off for the team. This might be because it is much harder for one cook to work two stations than it is for one server to take care of additional tables. An organizational culture norm of the restaurant might be that all employees, cooks and servers, clock in for work fifteen minutes early as a way of unifying around a culture of timeliness and exceeding expectations.
Related: Guide To Company Culture
Tips for management control systems
If all the components of a management control system are in place, then your business might meet its goals more often and predict difficulties in advance. Here are tips for making the most of your management control systems:
Make informed comparisons
As you collect information for your financial and quality controls, consider how to make the most of it. Your business may be trying to reach new levels of productivity, rival competitors or focus on producing the same quantity of goods more efficiently. In each instance, you may have to adapt the numbers you target to confirm departments' success.
Understand variation from goals
When you come across a variation from a goal, your first aim should be to identify the cause. You might be falling short of a quota or exceeding sales goals, but in both cases, the purpose of the management control system is to clarify what's driving the difference.
Plan to correct variations
Use your insights from analyzing variations to plan for the future. Perhaps you can aim for more sales or you realize an avoidable lack of supplies affected your productivity. A slight change in planning can lessen mistakes while capitalizing on successes.
Repeat the process
You may have great management control systems that reliably guide your business, but it remains important to continue to engage with them. If prices change on the materials you order or employees start working more overtime, your bottom line might begin to shift. By staying consistent with the systems you implement, you can navigate these changes sooner and better.