BKAM 3033 TOPIC 3

The concept of control and

management control
Types of control
How to design an effective MCS
Control mechanism
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Control
- a policy or procedure that facilitates
organization to ensure that its goal and objectives
are met.

- by setting a standard, received a feedback on

actual performance and take a corrective action
whenever the actual performance deviates
significantly from the planned performance.

BKAM 3033 TOPIC 3

There is the idea of control as domination

(impose our will upon others through power

& authority to achieve our goal & objective)
There is the idea of control which emphasizes the

gathering of information to monitor & regulate

activities
(cost mgmt & cost control)
Control focus:

- strategy implemented as planned

- results produced are those intended
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LEVEL OF CONTROLS
Operational control
The evaluation of operating level employees by
mid-level managers
Focus : detailed, std performance measures
Has an MBE approach i.e variance
Management control
evaluation by upper level managers of the
performance of mid-level manager
focus : long term, strategic issues
MBO approach. Long term objectives are
determined and performance is periodically
measured against orgs goals
BKAM 3033 TOPIC 3

OPERATIONAL CONTROL

Operations / operational control:

- is the process of providing feedback to

employees and their managers about the
efficiency of activities being performed.
- it measures and compares short-term
performance to short-run targets or standards.

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Strategic Planning
Management Control
Operational Control
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MANAGEMENT CONTROL
Anthony (1965)

- the process by which managers assure that

resources are obtained and used effectively &
efficiently in the accomplishment of the
organizations objectives
Lowe (1971)

- A system of organization information seeking

& gathering, accountability and feedback
designed to ensure that the enterprise adapts
to changes in its substantive environment.

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Merchant (1998):
1. Strategic control-external focus (how firm can
compete in the industry)
2.Management control - internal focus (how to

influence employee behavior in desireable

/positive ways as to increase probability of
objectives be achieved)
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DESIGNING MCS
Consider 3 aspects of MC
Who is interested in evaluating the performance

of organization?
What is being evaluated?
When the performance evaluation is done?
Elements of MC :
Planning
Coordinating
Communication
Evaluation
Decision making

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DESIGNING MCS
MCS components:
Formal MCS
rules, procedures, policies, performance measures,
incentive plans; example :
* mgt accounting system
* quality system
* info on costs, revenues, income
* human resource system
* info on recruitment, training, absenteeism
Informal MCS
*aspect such as shared values, loyalties, mutual
commitments among member of organization.
*slogan that reinforce values and loyalties
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EVALUATING MCS
To be effective, MCS should:
be closely aligned to organizations

strategies and goals

be designed to fit organizations
structure and decision making
responsibility of individual
managers.
motivate managers and employee
- HOW ?
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The MCS must:

permit clear links from planned organization
purpose to operational activity.
be able to assist managers both when planning
purpose & when controlling its achievement.
Enable a manager who so wishes to ascertain
exactly what output is expected of him & by
whom

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1. Action (or behavioural) controls

2. Personnel and cultural (or clan and social)
controls
3. Results (or output controls)
Action (or behavioural) controls
Consist of:
Behavioural constraints
Preaction reviews
Action accountability
Focus should be on prevention rather than
detection controls.
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Social, personnel and cultural controls:

Social controls involve selection of people who have been

socialized into adopting particular norms of behaviour.

Personnel controls build on employees natural tendencies to

control themselves (Emphasis is on selection, training and job

design).
Cultural controls represent a set of values, social norms and

beliefs that are shared by members of an organization and that

influence their actions.
In recent years there has been a greater emphasis on cultural

controls in the form of employee empowerment.

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Results or output controls:

The focus is on reporting information about the
outcomes of work effort.
Results controls involve the following stages:
1. Establishing performance measures that
minimize undesirable behaviour.
2. Establishing performance targets.
3. Measuring performance.
4. Providing rewards or punishments.

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 Results controls resemble a cybernetic (mechanical

control system.
Cybernetic systems involve feedback controls (actions
after the events) but ideally control should be based on
control actions before the events.

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TYPES OF CONTROL
2 main types of control used :
Task control
Result control
Management accountant must be

aware of how the balance between

the various controls can be managed.

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 Task control:
- is the process of developing standard procedures

that employees are told to follow.

Result control:
- is the process of hiring qualified people to do

whatever they think best to help the organization

achieve its objectives, and using the control
system to evaluate the resulting performance
- Tie/link reward/punishment to success/failure
- To motivate desirable behavior thus measures
must be precise, objective, timely, and
understandable
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1. Occurs when controls motivate employees to engage in

behaviour that is not organizationally desirable (i.e.system leads
to a lack of goal congruence).
2. Results controls:
Encourages individuals to focus only on what is measured,
regardless of whether it is organizationally desirable
Focuses mainly on quantifiable and easily measurable items.
Subject to data manipulation.
Can lead to negative attitudes towards the control system.
3. Action controls:
May discourage creativity
4.Cultural controls:
Lack of goal congruence where group goals do not coincide with
firm goals resulted in desirable result

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Advantages and disadvantages of controls:

Personnel/cultural controls
Few harmful side-effects
Inexpensive to operate
Appropriate only in certain circumstances
Action controls
Direct link between control mechanism and the action.
Measurement problems do not apply.
Not feasible where cause-and-effect relationships are not
well understood or easily observable.
Best suited to stable situations.
Results controls
Can be applied where knowledge of what actions are
desirable is lacking.
Focus is on outcomes (individual autonomy is not restricted).
Subject to limitations described on sheet 16.3.

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CONTROL MECHANISM
1.

Culture
- informal social mechanism.
control is achieved through shared and
inculcate beliefs. People of the same
profession or culture are encouraged to
pursue the same objectives and hold
same
ethics.
will have same goal congruence and
less supervision from the superiors.
everybody knew what to do without being
told consistently.
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2.

Bureaucracy
- there is specialization of authorities
and hierarchy.
formal route of information and flow
of power.
a lot of sequential supervision and
consequently expense for proper
controls to be implemented.

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3.

Market
- control is carried out by way of
market mechanism.
decision making is based on market
price information.
less supervision compared to
bureaucracy.

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A major role for control systems is to motivate

behavior congruent with the desires of the

organization since human interests and
motivation can vary significantly
MCS includes MACS and others
MACS collection of practices such as
budgeting, std costing, periodic performance
reporting, balance scorecard result controls

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Embedding the organizations ethical code of

conduct into MCS design

Using a mix of short and long-term qualitative
and quantitative performance measures
Empowering employees to be involved in
decision making and MCS design
Developing an appropriate incentive system
to reward performance

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Many managers try to implement

new systems without considering the

behavioral implications and
consequences of a MCS
Negative consequences:
Goal congruence may not occur
Motivation could be low
Employees may be encouraged to
engage in dysfunctional behavior
Eg: data manipulation, gaming,

budget slack etc

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A set of ethical principles is at the center of

many boundary systems

MCS should incorporate the principles of an
organizations code of ethical conduct
MCS that incorporates ethical principles can
provide decision makers with guidance as they
face ethical dilemmas

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Managers are often subject to intense

pressures from their job circumstances and

from other influential organizational members
to suspend their ethical judgment in certain
situations
These pressures include the following
requests:
to tailor information to favor particular

individuals or groups
to falsify reports or test results
for confidential information
to ignore questionable or unethical practices
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Management accountants are guided by the

organizations code of ethical conduct and

the ethical standards of their professional
associations
Management accountants often play a
significant role in MCS design, which should
reflect their professional standards

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In addition to fostering ethical behavior, a

central issue in MCS design is how to

motivate appropriate behavior at work
When designing jobs and specific tasks,
system designers should consider the
following three dimensions of motivation:
Direction

Intensity
Persistence

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Goal congruence - the organization

and its employees align their respective

goals
The alignment of goals occurs as
employees:
Perform their jobs well and are helping
to achieve organizational objectives,
and
Are attaining their individual goals at
the same time
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Even if goals are aligned, different types of

tasks require different levels of skill,

precision, responsibility, initiative, and
uncertainty
In most situations, managers try to establish
systems that they do not have to personally
monitor on a regular basis
These are called diagnostic control
systems

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If there is a large degree of strategic

uncertainty, managers spend much more time

monitoring the decisions and actions of their
subordinates
These are called interactive control
systems
At the core of both systems are two common
methods of control: task and results control

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