Management control system notes

Topics: Control theory, Cost, Management Pages: 33 (9987 words) Published: March 25, 2014
Chapter 1 - Management and control


MCS has the same meaning as the terms execution and strategy implementation Objective setting: In any organization employees must have a basic understanding of what the organization is trying to accomplish. Strategy formulation: Strategies define how organizations should use their resources to meet these objectives. A well-conceived strategy guides employees in successfully pursuing the organization objectives.

Management control versus strategic control

Control systems can be viewed upon as having two functions: Strategic control and management control. Strategic control involves managers addressing the question of “ is our strategy valid? Whereas management control focuses in execution and it involves addressing the general question: “ Are our employees likely to behave in line with the strategy. Strategic control primarily have a external focus dealing with the company’s swot. Management control have a internal focus. How can we influence employees behaviour in a desired way.

Behavioural emphasis

Management control involves managers taking steps to help ensure that the employees do what is best for the organization

Causes of management control problems
Lack of direction: Employees do not know what is expected from them: Management control function involves informing employees as to how they can direct their contribution Motivational problems: Employees sometimes act in their own self-interst on the expense of the company Personal limitations. Some employees know what is expected from them, they are also motivated but they have personal limitation for instances. Some can be person-specific others can be lack of training or knowledge.

Characteristics of good management control
Good control means that management can be reasonably confident that no major unpleasant surprise will occur – good management also recognises that failure can occur, because perfect management does not excist. More or better MCS should be implemented, only if the benefits of the system exceeds the costs. Optimal control can be said to have been achieved if the control losses are expected to be smaller than the costs of implementing more controls Control problem avoidance

Avoidance means eliminating the possibility that the control problems will occur. Activity elimination: managers can avoid problems associated with a particular activity by turning over the potential risk to a third party such as licensing agreements, subcontracts. I.e. cloud computing where companies obtain computer resources from outside the company and pay third party to handle it Automation: By using computer robots, expert system managers can avoid problems. They usually perform more consistently than humans. Downside of automation Is feasibility, Humans have many talents. Computer systems do not. Centralization: All key decisions are made on the top. Typically found in smaller businesses or in businesses where the manager is a control freak. Risk sharing; Can involve buying insurance to protect against certain types of potentially large losses the organization might not be able to afford. Many companys buy fidelity bonds on employees in sensitive positions such as bank tellers. Joint venture can also be an example of risk sharing. See examples of controls used in a manufacturing firm: Page 16 See examples of controls used in a computer facility : page 17

Chapter 2 results control
Performance measurement is about learning how to motivate people – how to link those performance measures to rewards. Pay for performance is a prominent example of a type of control that can be called results control because it involves rewarding employees for generating good results During the financial crisis, pay for performance systems were said to breed bonus cultures with greed and short-termism. US treasury secretary Tim Geithner said Compensation...
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