Management audit refers to the efficient evaluation of the general performance of the management of an organization. The purpose is to review the efficiency and effectiveness of management and to develop its performance in future periods. It is helpful in identifying the deficiencies in the performance of management functions.
Thus, management audit may be defined as the evaluation of the functioning, performance, and effectiveness of management of an organization. This audit is an audit of the management. However, this audit concentrates more on the inefficiencies and weaknesses of the management.
The main advantages of management audit are as follows.
- Management audit helps the management to take different decisions such as make or buy, sell or procedure further, particular order, drop or continue decision, etc.
- This audit suggests ways to develop the resources of the organization effectively. It helps to locate present and potential deficiencies in the performance of management functions. It helps in appropriate exploitation of organizational resources to attain prearranged goals and objectives.
- It helps to improve the control system of an organization by continuously monitoring the performance of management. It also helps in assessing the competence of the executives. After reviewing the defects and deficiencies, it provides suitable suggestions which help to augment management effectiveness.
- This audit helps in the rehabilitation of sick units. So, it helps to develop executive formation according to the plans and policies of the firm. It improves coordination in the functioning of various departments so that they work together effectively towards the achievement of organizational objectives.
- This audit helps to boost the productivity of the firm by minimizing expenditure and by utilizing resources correctly. It ensures updating of existing managerial policies and strategies in the light of environmental changes. It helps the management providing suggestions to accomplish the goal of an organization.
Conducting this audit may sometimes pose a problem as there are no standard techniques of management audit. Also, a management audit is not compulsory under any law.
Disadvantages of Management Audit
- Management audit involves high cost and it is appropriate only to large organizations. So, it is not fitting for little firms having limited resources.
- This audit may create fear in the minds of the executives and may curb their initiative and innovation. It provides only theoretical suggestions to the management which are not appropriate or applicable to solve practical problems.
- The management auditor may lack sovereignty and may merely take instructions from the top management. It may generate difficulty in authority-responsibility relationships.
- Management Audit does not have a well-defined scope. It lacks fixed methods and techniques of auditing. So, it is not well defined.
- Management may object fervently the serious assessment of its policies and actions. Management auditor cannot recognize realistic problems.
However, an organization can utilize a management audit effectively to improve its various functional areas.