Management control systems can be described as the methods that have been employed or set aside by a company to track the achievement of the set goals and objectives for a particular period. The London Stock Exchange Group (2003) defines management control system as the information and processes system structured and integrated managers to support the planning and managing tasks in the organization. In any organization, the management control system must allow the top administration in a company to identify any inadequacies that may have occurred within a given period and are detrimental to the economic, financial and equity of the business (Straub, 2013). The purpose of an MCS in an organization is to pre-define activities that will take place during planning and control of information. The parties responsible for MCS are the board of directors, operations manager, internal control committee, the panel of auditors, and the manager responsible for MCS reporting and information instruments in the institution. The proposal discusses MCS in banks concerning Libya and how that system has been of use in helping banks to meet performance demands.
1.1 The Relationship between MCS and Performance Management
Management control system serves crucial purposes in the performance of companies. Therefore, it relates to performance management in different dimensions. According to Willert (2016), executives in organizations use MCS to develop strategy, assess subordinates, set rules and processes, to evaluate the focus on customer relationships during guidance and direction of subordinates. It is confirmed that the usage of MCS in the leadership and evaluation of a business contributes to the development of its financial performance. Siska (2015) also adds that management control system allows steers the organization towards its predetermined goals. Management control system helps in evaluating results in a business by establishing the performance measures to reduce any behavior that is undesirable (Drury, 2012). It also helps in the establishment of performance targets, performance measurement, as well as the provision of rewards and punishment. In their study, Bititci et al. (2012) found out that performance management, performance measurement and management control system have no difference as they serve the same purpose in an organization. Therefore, performance management is a useful subject in management control system as it captures the entire approach towards management and control of performance in organizations (Ferreira & Otley, 2009).
2. Background of Study
Banking as a system has a significant role in a national economy as it is a backbone representation of a well-doing economy (Abulqasem, Aziz, Ibrahim, 2013). The research aims at finding how banks in the Libyan market in implementing MCS and how that approach has influenced their ability to meet performance demands. Customers in the banking industry expect that banking institutions will perform to respond to their needs in fairness, safety and security, transparency, reliability, and control client's finances. Currently, there is a broad gap that exists between management requirements and the performance of banks regarding the control of data and information (Gooneratne & Hoque, 2010). The research will choose Aljumhourya Bank of Libya as the case study to be undertaken. The bank has several ways of providing control of accounting information and works to comply with the confidentiality, safety, and security of customer information. It has been one way the helps the bank in meeting performance demands from clients and the management.
2.1 Management Control System in Banks
Management Control Systems in banks serves a control purpose to ensure there is a reduced risk, provided profitability and growth. Through the utilization of an MCS in banks, banking transactions are monitored including lending, cash flow management and investment among others (Zeman et al. 2013). The role of an MCS in control will depend on the size of the bank. Supported by an appropriate information technology, MCS in banks ensures the accounting systems are properly managed, strategic planning and operations are adequately controlled, and analysis of facts is done appropriately. Using a management control system, executives in banks obtain information provided by the reporting system. It is a useful tool for managing the bank's liquidity hence reducing the possibility of insolvency which threatens the closure of those institutions (Kumar & Yadav, 2013). As such, they can make proper decisions on whether the bank is meeting performance demand or not. Both centralized and non-centralized tasks in banks can be controlled using the management control system.
As a state, Libya is driven on a strategic economy. The government involvement expands the financial segments by means of the regulations put forward to provide the business with company standards. Those changes lead to structuring of an independent finance sector, improving performances, and presenting better management. The Libyan banking sector utilizes management control systems after the application of allied technologies. For commercial banks in Libya, the market is very competitive as the institutions work to retain clients as their top priority. Management control system has been a useful tool for Libyan banks that help the management in steering the organizations towards their strategic goals. It means that the implementation of a proper management control system gives Libyan banks the expected performance in the long-term. An effective application of the management control system enables the banks to increase customers satisfaction through further extension of their services further.
3. Statement of the Problem
The extensive information systems used by banks require a logical structure of a controlling system that is well as established. The oversupply of banking services has increased due to expanding market economy where domestic banks have experience increased pressure for competition (Zeman et al. 2013). This is a problem because the broadening business services in banks mean greater risk factors for financial institutions. The management in banks needs information from the commercial databases to understand areas that need enhanced control. Here, relevant data and some decision variations will enable the management to evaluate whether the banks are meeting performance demands. The main problem that will be discussed in this study to understand how management control system influences Libyan banks to meet performance requirements. A qualitative approach of the survey will be undertaken while applying a mix research method of both questionnaires and interviews.
Another problem that will be discussed in this study is low level of information about the management control. When viewing different studies that have been undertaken, no study has investigated the scenario of Libyan banks. Goonerate and Hoque (2010) were studying management control research in the banking sector. They found out that little research has been carried out on management controls in banks. In fact, many of the studies done in the past do not inquire more about banking management control issues. They also do not articulate the subject theoretically and methodologically and the influence on performance demands of banks. The gaps evident in research and knowledge provide a reason for undertaking this study on how management control systems affect Libyan banks to meet performance requirements.
The study aims at providing theoretical bases on the discussion of the influence of Management Control System on Libyan Banks to Meet Performance demands. The studies are intended to identify the major obstacles hindering the implementation of Management control System in Libran banks. Finally, to add-on the literature bases of the factors affecting the quality of data produced by the Management Control System.
How does the Management Control System operate in banks and financial system?
What are the factors affecting the quality of information produced by the MCS?
What are the major obstacles that hinder the implementation of MSC in Libran banks?
The is a qualitative research that aims to gather detailed understanding to Management Control System in Libya with accordance to the current control services provided by Libran banks in general. The qualitative methodology used in this research will explore why the adoption of the MCS by Libran banks is slow, and how Libran banks can improve performance demand through the adoption of MSC. To achieve this, mixed methods or questionnaires and interviews will be used to collect primary data.
Structure of the study
The study consists of four parts. Part One presents the introduction which discusses the meaning of Management Control System and its role in an organization. This part consists of one chapter: The relationship between MCS and performance management (Chapter one). Part two presents a discussion of the relevant literature on Management Control System. This part also consists of one chapter: Management Control System in Banks (Chapter two). Part three consist of the statement of the problem (Chapter three). Part four consist of the research which has three chapters: Research questionnaires (Chapter four), Research objective (Chapter five), and research methodology (Chapter six).
Abulqasem, M., Aziz, M., Ibrahim, M. (2013). Implementing Management Information System in Libyan Islamic Financial Institutions. Conference Paper. Research Gate.
Bititci, U., Garengo, P. Dorfler, V., Nudurupati, S. (2012). Performance Measurement: Challenges for Tomorrow. International Journal of Management Reviews, 14, 305-327.
Drury, C. (2012). Management and Cost Accounting. 8th ed. Cengage Learning EMEA, Andover, Hampshire.
Ferreira, A., & Otley, D. (2009). The Design and Use of Performance Management Systems: An Extended Framework for Analysis. Management Accounting Research, 20, 263-282.
Gooneratne, T. & Hoque, Z. (2010). Management control research in the banking sector. A critical review and directions for future research. Qualitative Research in Accounting & Management, 10, (2), 144-171.
Kumar, M., & Yadav, G. (2013). Liquidity Risk Management in Bank: A Conceptual Framework. AIMA Journal of Management & Research, 7(2/4), 1-12.
London Stock Exchange Group. (2003). Management Control System Guide. Listing Guides. Retrieved from https://www.lseg.com/sites/default/files/content/documents/02%20Management%20Control%20System%20Guide%20-%20ENG%20-%20Jul14.pdf
Siska, L. (2015). The Concept of Management Control System and Its Relation to Performance Measurement. Procedia Economics and Finance, 25, 141-147.
Straub, E. (2013). Management control systems: a review. Journal of Management Control, 23(4), 233-268.
Willert, J. (2016). The Use of Management Control Systems: Impact on Companies Performance. Copenhagen Business School. Retrieved from http://www.managementcontrolassociation.ac.uk/wp-content/uploads/main-2016-full/mcafull-Willert.pdf
Zeman, Z., Gacsi, R., Lukacs, J., and Hajos, L. (2013). Management control system in banks. Bank Controlling, 14-17.
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