6 Needs for Management Audit are explained below:
Management audit is essentially a review of the performance of various managers. It does not examine whether the procedures have been followed or not or whether all the formalities are completed or not.
It evaluates the actual performances and compares them with the pre-determined targets. It concentrates on results and not on the files. It can be particularly useful in many situations like the following:
1. A progressive management may conduct management audit periodically to assess the performances of various managers- and link a system of incentives with such an assessment. This appraisal may be conducted on the basis of objective and predetermined standards.
2. Such an audit is highly oriented. It does not question whether the procedures have been followed or not. It concerns itself primarily with the results and with the ratios of inputs and outputs.
It measures in quantitative terms, the various inputs that a manager uses in terms of man-hours, wages, materials, overheads, or capital resources. The outputs are measured in terms of quantity, return or performance targets. The performances are evaluated by relating inputs with outputs.
3. In many circumstances an outside agency may be interested in getting a management audit conducted. Thus the government may order a management with a view to examine the efficiency of the management of a particular industrial unit.
4. Similarly, a bank or a financial institution may like to get a management audit conducted before advancing loans or before agreeing to participate in the equity capital of an undertaking.
5. Foreign collaborators may also like to get management audit conducted periodically. This would help them in assessing the management potential of their associates.
6. In case of government organisations also, there is an urgent need to review the methods of audit.
The present system of audit may be replaced by a suitable form of management audit so that the basic outlook of government officials is changed and they become result – oriented rather than procedure- bound. Management audit, if properly undertaken, can be an excellent tool of management control in many situations.