Carney Company: Control Systems

Introduction

Many organizations are created to perform certain and specific functions. Basically, an organization is a system that is composed of interrelated units working in union with each other in order to realize the organizational goals and those of people involved in the organization. Management becomes an important part of the organization whereby it becomes possible to integrate the human resources, equipment, and other necessary materials into accomplishing the organization’s objectives. Therefore, the role of management is basically to: “plan, organize, integrate, and also interrelate the organizational activities and resources in order to achieve the organization’s objectives, and this role is facilitated through appropriate management control systems and processes” (Reddy, n.d, p.1). According to Merchant and Otley (2007, cited in Asel, 2009, p. 3), “a Management control system is designed to help an organization to adapt to the environment in which it is set and to deliver the key results desired by stakeholder groups.”

Systems are generally characterized by control, where, control aims to check and correct any deviations in a system’s performance from those of the standard that have been specified at a given period. In self-regulating systems, the fundamental ingredient for control process is the feedback, whereby, evaluation of output value is made with the standards and information concerning the degree of deviation and is fed back to other elements in the system’s structure so that preplanned activities may be altered where necessary (Reddy, n.d, p.1).

Control systems in organizations function on the similar basic frame-work as control systems in general, but, a vital feature that differentiates controls in organizations with automatic control systems is the participation of the people. Moreover, “the information about the actual state of the organization is compiled by people, it is compared by people with the desired state, and the desired state is largely decided by the people, and if there is a significant difference, a course of action is recommended by the people and then, action taken by the people, and this is why the process of control is more complex than the automatic control systems” (Reddy, n.d, p.3). Therefore, Management Control System constitutes the process that links strategic planning and operational control, and in many cases it is supposed to provide information which is useful in decision-making, planning and even evaluation (Asel, 2009, p. 4). The focus of MCS does not only centre on one form of control, like performance measures, but rather focuses on numerous control systems that work jointly.

Case-study

Incorporating Accounting control system in the organization (Carney Company)

Carney Company was founded in 1994 in Alexandria, Virginia, with the main objective being to provide professional assistance to people and organizations in order for them to speed up their performance. Today the Company is involved in developing Web-based learning and knowledge management solutions. Currently, the Company has a workforce of 45 individuals, and has largely conducted its activities of delivering performance acceleration by carrying out brand promises based on: Speed, remarkable client experience and quality performance solutions (Carney, n.d).

The Company which prides in developing high quality performance solutions has a wide range of clients in the civilian and military agencies who include; the defense information systems agency (DISA), defense security service academy (DSSA), department of defense (DoD), department of energy (DOE), department of the interior (DOI), department of justice (DOJ), department of state, department of treasury, environmental protection agency (EPA), federal acquisition institute (FAI), federal bureau of investigation (FBI), us NAVY (USN), world health organization (WHO), and more others (Carney, n.d). Carney also works with a range of many partners from diverse fields, enabling the company to give a wide range of solutions to its customers.

In early 2003, Carney Company began a process of evaluating cost accounting and project management solutions in order to restructure its internal processes (Haenni, n.d). In order to realize this, the Company partnered with a Microsoft Certified Business Solutions Partner due to the latter’s vast expertise with the professional services and the project-based organizations. Working together, the two companies implemented a fully-fledged project management and financial solution, which included: minimizing redundancies and streamlining the company processes; increasing communication across the organization; and enabling Carney to improve its client loyalty while pursuing aggressive goals (Haenni, n.d). As a result of these initiatives, the Company in the year 2004 reaped a cost savings in excess of $40,000 and a return on investment (ROI) within 16 months (Haenni, n.d).

Carney’s business needs to be fulfilled

Carney had three separate systems that were operating; project management, cost accounting and timesheet reporting. Due to this, the Company could not share data across the system, hence limiting the Company’s ability to expand, which in turn blocked data storage and productivity. As a result, the Company concluded that its systems had become irrelevant and needed to upgrade its business systems into one functional system (Haenni, n.d). Another constraint to the growth of the business was the Company’s project management program which, due to the three separate systems, individuals involved in a project could not easily access data to update project timelines, notes or information; this led to problems in tracking and monitoring specific projects. Information had to be duplicated, which in turn increased the time that employees spent on administrative tasks (Haenni, n.d). In a more broad strategy, the Company discovered that it had to improve its business systems which would promote client loyalty, and in turn result in stronger relationships and additional business. The Company strategized to continue to develop relationships while at the same time provides superior client services and also to develop excellent products, hence together with its partner, Carney initiated solutions to reduce redundancies, increase communication across the organization, and help the Company to increase its client loyalty while pursuing competitive business goals (Haenni, n.d).

Results

The Company implemented a Microsoft Dynamics SL for accounting functions and Microsoft Project Server 2003 for project management. Through this, Carney has improved its management of expenditures and costs, which has enabled the management to conduct more efficient analysis. The system has also reduced, to a great extent, the operating costs, and enabled easier sharing of data and analysis for the Company (Haenni, n.d). Also, currently, the Company’s employees no longer need to duplicate data and use other programs to cross-reference data from the different applications; this is due to the presence of a single Microsoft SQL Server 2000 which is able to store shared information. The Company has significantly reduced the administrative time spent on data entry and tracking project plans, in addition to phasing out the need to maintain unnecessary data sources (Haenni, n.d).

The Dysfunctional of Management control systems

The overall impact of MCS has to a great extent led to positively reorganization of the Company and resulting into Positive results. But again the control systems have led to some undesired impacts to the organization. Soobaroyen (2006, p. 9) states that “the extend to which the control systems are perceived to impact on performance, evaluation and the ultimate rewards, is also viewed as having an impact on managerial stress and tension, thus leading to potential acts of dysfunctional behavior.” According to Jaworski and Young (1992, cited in Soobaroyen, 2006, p. 9), dysfunctional behavior generally translate to “actions in which a subordinate [purposefully] attempts to manipulate elements of an established control system for own individuals own purposes.”

Various types of dysfunctional behavior may occur in a company, which always have the aim of using the set rules and outlined procedures to one’s advantage. Hirst (1983, cited in Soobaroyen, 2006, p. 10) considers dysfunctional behaviors to be “rigid bureaucratic behavior, strategic behavior, resistance and invalid data reporting.” However, a more thoughtful description of dysfunctional behavior is given by Birnberg et al (1983, cited in Soobaroyen, 2006, p. 10) who list the behaviors as:

Smoothing: The junior officer utilizes the information system for personal benefits by changing the pre-planned free flow of data without changing the actual activities of the organization.

Biasing and focusing: this is the situation in which the manager has flexibility over the different indicators or types of information and which the manager does not account. With biasing, the manager selects only the indicators that suit the circumstance and which are favorable to the manager.

Filtering: According to Read (1962, cited in Soobaroyen, 2006, p. 11), it occurs “when information is withheld because the junior officer thinks that by disclosing the information, the management may hinder the junior’s personal goals in career progress.”

Illegal actions of falsification: in which forgery of documents and reports of the existing information is changed deliberately to gratify required norms and variances.

Developing and evaluating control systems

Despite the importance of companies being required to embrace and utilize control systems in their enterprises, there is a need for the companies to effectively ascertain the appropriate control indicators they can adopt and realize positive results. Therefore, to develop and evaluate control systems for companies is necessary and the following characteristics lead to effective development of control systems. First, the company needs to define its goals and objectives that should be separated from the individual goals of the management team (Lowe, 2007). Secondly, the managers of the various units of the company need to be hesitant in pursuing their personal goals that may conflict those of the company and they should have guidelines to direct them in formulating their part to the company’s plan of achieving its objectives. Third, the Company needs to be aware that the overall business situation and general environment, and also the people behaviors are characterized by uncertainty both internally and externally (Lowe, 2007). Fourth, the Company needs to prioritize the essential and much needed control system. This ensures the Company allocates resources only to beneficial and profitable systems. At each level the Company should be economical (Lowe, 2007).

Evaluation of the control systems can be done through supervisors adopting a number of approaches; the supervisors may review the internal auditing work papers that may include the risk assessment (Bank for International Settlement-BIS, n.d). Also, supervisors may use self-assessment processes, for example, by reviewing internal controls on a business-by- business basis, employing periodic external audits of the Company’s key areas. Moreover, supervisors can undertake on-site reviews and systematic examinations of the internal controls (Bank for International Settlement-BIS, n.d).

Quality management

Hoyle (2007, p. 21) defines quality management to be “a set of coordinated activities that direct and control an organization with regard to quality.” The activities are recognized as quality planning, quality control, quality improvement and also quality assurance. Specific techniques that centers on quality management include: Advanced Product Quality Planning; quality costs; Just-in-time; quality circles; statistical process control; Design of experiments (DOE); Measurement Systems Analysis (MSA) and also the risk assessment techniques such as the Failure Mode and Effects Analysis (MSA) and the Hazard Analysis and Critical Control Points (Hoyle, 2007, p. 22).

Conclusion

Companies functioning in 21st century are experiencing the impacts of globalization and the complexity of global competition. Today the operational environment is increasingly becoming dynamic and uncertain, forcing organizations to be more strategic both internally and externally. The consumers on the other hand are confronted with various alternatives of choices. All these have forced companies to embark on vigorous reorganizations that intend to see their competitive levels in the market remain relevant and current. To aid their strategies and objectives, Companies need to adopt the various control systems that suit their operations. The control systems should align with the companies broader objectives and accelerate the companies towards realizing profitable results. Moreover, control systems not only enhance safeguarding of the organization’s resources, but also ensure that all the operations are coordinated.

References

  1. Asel, J. A. (2009). Risk Management and Management Control: The impact of the financial crisis on the use of management control system.
  2. Bank for International Settlement-BIS. (N.d). Framework for the Evaluation of Internal Control System. Journal of International Financial Risk Institute. Web.
  3. Carney. (n.d). Performance Acceleration for the Federal Government.
  4. Haenni. B. (n.d). Professional Services Company Streamlines Accounting Systems and Increases Client Loyalty. Carney Company Article.
  5. Hoyle. D. (2007). Quality Management Essentials. MA, Butterworth-Heinemann. Web.
  6. Lowe, E. A. (2007). On the idea of a management control system: Integrating accounting and management control. Journal of Management Studies.
  7. Reddy, R. J. (n.d). Management Control Systems. New Delhi, APH Publishing. Web.
  8. Soobaroyen, T. (N.d). Management Control Systems and Dysfunctional Behavior: An empirical investigation. Aberystwyth, University of Wales.