Management Control System & Profitability Analysis: Handy Homes

This report analyzes the management control system of Handy Homes, a family-owned residential care company undergoing significant expansion. It evaluates the company's current closed-end management control system and recommends transitioning to an open-end system to improve feedback mechanisms and operational efficiency. The report identifies various types of management control systems relevant to Handy Homes, including accountability structures, objective setting, task assignment, supervision, monitoring, and policy guidelines. It further discusses the challenges associated with scaling a small business, such as market understanding, planning, funding, and problem-solving skills. A profitability statement is presented, highlighting the impact of employee overtime on the company's finances, and recommendations are made to implement cost management strategies, such as automated access machines, to reduce expenditure and enhance profitability. The report concludes by emphasizing the importance of adapting management control systems to support sustainable growth and competitiveness in the expanding business environment.

Running head: MANAGEMENT CONTROL
Management Control
Name of the Student
Name of the University
Author note

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Answer to question 1
The business scenario in the modern world is changing on a rapid manner and it is the
same case with that of Handy Homes as well. The company is trying to expand its services in
the real estate industry for which controlling the system is very important, which will result in
the smooth operations. The company will be changing from a small to a large scale business,
which needs better level of management so that the functions within the work place can be
carried out in an efficient way (Shaikh et al. 2014). The use of control management system
will allow the business to achieve its goals by taking in to consideration the variations as well
as the mistakes that can be mitigated. This will help the business to be successful and
sustainable for the future as well.
The company used to follow a closed end management control system, where the flow
of information was through the activities that were being performed by the employees. The
effecter was Charlotte who used to assess the feedbacks that were sent by the employees so
that it can result in the entire process to be normal. This results in increasing the network of
communication so that the information can be transferred to the employees, which will
increase the level of functionality within the organization (Palma-Behnke et al. 2013). The
organization needs to upgrade their system to open end management control system so that it
can rely heavily on the mechanism of feedback. The process will be a continuous activity that
will help the receptors in interacting on a constant manner so that the level of operations can
be increased (Jacobs, Chase and Lummus 2014). Charlotte will be the assessor of the
business that will result in accepting the changes that may take place within the organization.
The use of the open process will allow the employees in understanding the faults that may be
present in the functioning of the company, which can be reported back to the assessor. This
will ensure that these faults are rectified, which will result in increasing the level of efficiency
(Miller and Rice 2013).

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There are many types of management control systems such as structures that allows in
being accountable and responsible for the course of actions that are being taken up within the
organization. Another type is known as objectives, which helps the business to set definite
goals and objectives that needs to be met with the help of departments and individuals by
fulfilling their responsibilities with the level of skills. Task assignment is another type of
system that allows the employees to carry out the responsibilities within the organization with
the level of skills that they have so that the productivity level can be increased (Chang 2016).
Another method is known as supervision where the work that is being done by the employees
are supervised by managers so that it can rectify the errors and the final output can be
according to the needs of the prospective clients. This involves the managers in physically
present in the field where the work is being carried out. The process of monitoring is yet
another type of control system that helps the senior managers in monitoring the work that is
being done within the organization (Zsambok and Klein 2014).
The other types of management control system are procedures, policy and principles
that helps in providing a proper guideline for the work that is being done so that it can result
in having a better understanding and the work can be completed within a limited period of
time. The guidelines will also act as a blueprint for the employees so that they can understand
the way in which the work needs to be done (Adams, Tenney and Pew 2017). This will also
result in taking the decisions in a better way so that the organization can function properly.
The level of standards for the organization is yet another type that results in understanding
the level through which the work can be specified and the methods that needs to be used in
order to complete the work in an efficient way. The audit trail and audit is another type of
management control system that is followed by the organization, which results in recording
the accounting details that are taking place within the organization. The details of accounting

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will result in verifying the financial transactions at the end of the financial year so that the
profit or loss levels can be measured as well (Jacobs, Chase and Lummus 2014).
Handy Homes follow most of the different types of control system so that it can help
them in expanding from a smaller to bigger level of business. The company has its objectives
set so that it can be achieved, which will lead to the efficient functioning of the employees
and keep them motivated as well within the work floor. The employees are assigned the work
according to their level of skills so that it can be completed within the shortest span of time
and managers are appointed so that they can look after the overall functioning in the
respective departments (Shaikh et al. 2014). The new employees who will be hired in to the
system due to its expansion will be provided with guidelines and framework, which they need
to follow so that the work that are assigned to them can be completed in a proper manner.
The guidelines will also help them in understanding the level of skills that will be required to
carry out the functions within the company so that it can result in increasing the level of
efficiency. Charlotte also needs to maintain its accounts in a proper manner since the business
will be expanding. This will help in keeping a record of the transactions that are taking place
so that the level of profits or loss can be assessed by the end of the year (Palma-Behnke et al.
2013).
There are various challenges that small companies face while turning their business in
to bigger ones. The major challenge is to understand the market in a more intensive manner.
The company needs to research about the needs and demands of the market in a new manner,
as they have to cater to a large number of clients. This will result in being noticed by the
competitors who are present, which will try to hamper the production levels as well as its
efficiency. This hampers the level of sales as well as the profits of the company (Ward 2016).
Another challenge is the planning that needs to be done. Proper planning needs to be done so
that it can help the business to launch itself in a new manner within the market that will

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enable them in attracting more number of clients. There are also many levels of risks that are
associated with it since the company will be diversifying its level of activities (Hermann and
Hermann-Nehdi 2015).
The other challenges that the company faces is the risk of funds shortages. Due to its
expansion, there may be a shortage of funds that may lead to the expansion being fatal in
nature. The finances of the company has to be set up in a proper manner so that it can ensure
that all the risks that are present in the market can be handled and ensure that the company
can survive in the competitive environment (Gupta, Guha and Krishnaswami 2013). The
change of the business to a larger scale will result in reducing the delivery cycles among the
suppliers, which indicates that the resources need to be present so that the level of efficiency
can be increased. Another major challenge is with respect to the problem solving skills that is
present within the management of the company. The growth of the business will attract new
problems that needs to be prioritized and solved within a shorter span of time. This will
ensure that the company survives the competition that is present (Christensen and Raynor
2013). The company also needs to do intensive marketing campaigns so that it can result in
increasing the utilization of the resources that will help in developing the image of the brand
in the market. The growth of the business also results in the intellectual property of the
organization to be tampered, which may lead to the leak of data that are confidential. This
needs to be protected so that rival firms do not get any knowledge regarding the happenings
of the organization. Lastly, the skills and attitudes of the employees needs to be assessed so
that the best people can be hired within the organization. This will ensure that the level of
efficiency of the organization will increase to a great extent (Ward 2016).
Answer 2:
The profitability statement of Handy Homes shows that at present the firm earns
a profit of GBO 65550. The case study mentions that the weekly pricing mix for normal stay

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ranges from GBP 620 to 800. It has been assumed that the weekly rate is GBP 800 for
estimation purpose. The respite care pricing mix ranges from GBP 680 to 900. The upper
limit, GBP 900 has been assumed for profitability consideration. The case study does not
mention specifically any amount for expenses towards employee salary and hence have been
taken as a part of direct costs. The overheads and direct costs have been assumed to be annual
in nature and have been calculated monthly.
Profitability statement of Handy Homes (in GBP)
Income
No of
heads
Per
unit
costs
Total
weekly
income
Total
monthly
income Expenditure
Yearly
cost
Total
monthly
income
For normal
residences(weekly) 28 800 22400 89600 Overheads 250000 20833
Respite care for per
week for three
weeks(680-900) 2 900 1800 7200 Direct costs 125000 10417
Profit 65550
Total 30 96800 Total 96800
Handy Homes can reduce this expenditure by exercising control over the staff
members deployed at the homes. Trigeorgis and Reuer (2017) mention that cost
management theory aims to manage costs so as to ensure smooth operations and reduce
expenditure, thus earning more profit. It can be pointed out considering the case study that
management of Handy Homes has failed to adopt cost management and should implement in
promptly to ensure sustainability and cost reduction. The case study mentions that the staff
used to report their hours worked wrongly by intention in order to earn high over time salary
which ranged upto 50 percent of their salaries. In other words, an employee earned a salary of
a hundred and fifty percent. This huge expenditure eroded the revenue generation of Handy
Homes. The management should adopt to measure and record the working hours of
employees more accurately to as to pay them legitimate salary and reduce direct costs. As
shown by the profitability sheet that by not paying illegitimate amount of 50 percent, the

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profit can be GBP 70758 while including overtime, the profit is as low as GBP 65550. Thus,
in other words the family should use cost management theory to boost profit and reduce
inappropriate employee salary as shown below.
Profitability statement of Handy Homes (in GBP)
Income
No of
heads
Per
unit
costs
Total
weekly
income
Total
monthly
income Expenditure
Yearly
cost
Total
monthly
income
For normal
residences(weekly) 28 800 22400 89600 Overheads 250000 20833
Respite care for per
week for three
weeks(680-900) 2 900 1800 7200 Direct costs 125000 10417
Less:
Overtime 5208
Profit
exclusing 50
% overtime 70758
Profit
including 50
% overtime 65550
Total 30 96800 Total 96800
The management of Handy Homes in order to reduce expenditure towards salaries of
employees should install automatic access machines. The staff should be given identity cards
containing chips which the access machines can read. The employees would be required to
access at the doors using their access machines. Tail accessing would not be accepted. The
second employee management way which the management of the Handy Homes can adopt is
installation of camera over each doorway. This would allow the management to monitor the
actual number of staff on duty and as a result decide the actual amount of hours worked while
calculating the salaries. Adoption of these two ways would reduce the salary expenditure, 50
percent of which is paid in excess and bring down the direct costs. The outcome of these two
steps would be reduction of costs and increase in profit.

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Answer 3:
An analysis of the case study reveals that cost control alone would is insufficient in
solving the issue which Handy Homes. The issue the house is facing pertains to the fact that
most of the employees show overtime hours worked in order to earn higher salaries. The
management should provide ethical training to the working staff in order to make them aware
of the consequences of inappropriate attendance reporting to the organisation which is
leading to high expenditure (Nyberg and Wright 2016). Waddock et al.(2015) mention that in
order to curtail costs organisations have to restructure their entire modus operandi which
leads to drastic changes in the organisations. The case study mentions that the staff members
misrepresented their hours of work to earn high salary. It can also be assumed here that the
individual employees did not report their attendances directly to the management. The team
of carers worked under the supervision of team leaders. It can also be assumed in this light
that the team leaders were responsible for recording and reporting attendance of the
employees they supervise. Thus. in this light it can be pointed out that the team leaders
indulged in the inappropriate attendance reporting of the employees. The case study also
mentions that Handy Homes aimed to expand its business to emerge into a large scale firm.
This means that the management of the firm could no longer rely on manual attendance
recording considering the prevailing unethical attendance reporting and the need to control
larger number of employees post business expansion period. This means that the management
should have access and electronic attendance recording set-ups to be able to record the
attendance of the increasing number of staff. The present managers could view this as a
challenge to their authorities and resist the change. Moreover, the employees would also
resent this change since they would not able to earn higher salary by reporting overrated
working hours. The situation would lead to high employee turnover and impede the smooth

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functioning of homes under the ownership of Handy Homes. The lack of employees would
also cause problem the inmates of the homes. Thus, it can be clearly pointed out that
management should manage the change by forming an efficient change management strategy.
The managers and the employees should be counselled and mentor to deal with their
resentment and insecurities. Black (2018) mentions that counselling and mentoring enable
management in dealing with possible employee conflict which may arise during change
enforcement. Thus, it is evident that profit alone is sufficient in dealing with the issue of high
salary cost due to overrated employee attendance reporting.
The next strategy which the management of Handy Homes can adopt is using a
balance score card. The balance score card of Handy Homes shown below shows that the
entire business should be viewed in the light of the mission and vision of the organisation. It
can be pointed out that the mission of Handy Homes is to generate higher profits while its
vision is to expand to emerge as a large scale firm.

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Vision and mission
of Handy Homes
Financial performance
and stewardship
Inmates (customers)
Organisational
capability and KMS
Internal business
process
Strategic business develop
and higher profits
Figure 1. Balance score card of Handy Homes
(Source: Author)
The first block of the balance score card is financial stewardship of the finance
department. The finance department should analyse the costs against the actual business
requires so as to remove unwanted costs and minimise the expenditures in certain areas to the
extent possible. The inmates of Handy Homes are the customers which the company is
serving and generate revenue. The revenue generation of the firm should be monitored by the
finance department. The entire business performance would rest on the shoulders of the
departmental heads and the HR department (Akkermans and Van Oorschot 2018). The
departmental managers and the HR department should recognise the training needs of the
employees and provide them with training to boost their capabilities. This would boost the
internal business processes. This would lead to higher level of organisational capability. The

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departments should acquire and manage knowledge using a strong knowledge management
system or KMS. The outcome of the high performance of all the quadrants would higher
profit and strong business strategy delivery (Gibbons and Kaplan 2015).

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