Basics of Management Control System

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The Basics of Management Control Systems

Chapter 1: Management and Control

The Basics of Management Control Systems

Management control
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The process by which management: – ensures that people in the organization carry out organizational objectives and strategies; (Reactive: measure performance and compare it with pre-set standards, take corrective actions, etc.) – encourages, enables, or, sometimes “forces” forces” employees to act in the organization ’s best interest. organization’ (Proactive: direct supervision, hiring standards, planning, etc.) – Management control includes all the devices/mechanisms managers use to ensure that the behavior of employees is consistent with the organization’s objectives and strategies.

The Basics of Management Control Systems

Function and benefit
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Purpose/function
– get done what management wants done; – influence behavior in desirable ways.

– Benefit
– increased probability that the organization’s objectives will be achieved.

The Basics of Management Control Systems

Management and its components
Objective Setting

Strategy Formulation

Management Control

The Basics of Management Control Systems

Objective setting
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Objectives are
» a necessary prerequisite for any purposeful activities.
» Without objectives, it is impossible

» to assess whether the employees’ actions are purposive; » to make claims about an organization’s success. » Objectives can be

» financial versus non-financial; » quantified, explicit versus implicit; » economic, social, environmental, societal.

The Basics of Management Control Systems

Strategy formulation
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An organization must select any of innumerable ways of seeking to attain its objectives.

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Strategies define how organizations should use their resources to meet their objectives. Hence,
strategies put constraints on employees to focus activities on what the organization does best or areas where it has an advantage over competitors.

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The Basics of Management Control Systems

Key questions
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Are our employees likely to behave appropriately? –This is management control. – Do they understand what we expect of them? – Will they work consistently hard and try to do what is expected of them? – Are they capable of doing what is expected of them? – In contrast, is our strategy (still) valid?– is strategic control. – Management control is about strategy execution or strategy implementation.

The Basics of Management Control Systems

The basic control problem
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Management control is about encouraging PEOPLE to take desirable actions, » i.e., it guards against the possibilities that employees will do something the organization does not want them to do, or, fail to do something they should do. » Costs do not control costs, people control costs!

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Hence, management control has a BEHAVIORAL ORIENTATION !

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If all personnel could always be relied on to do what is best for the organization, there would be no need for a management control system.

The Basics of Management Control Systems

Basic control issues
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Three issues:
» Do they understand what we expect of them


Lack of direction

» Will they work consistently hard and try to do what is expected of them �

Lack of motivation

» Are they capable of doing what is expected of them


Personal limitations

The Basics of Management Control Systems

Lack of direction
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Employees do not know what the organization wants from them. When this lack of direction occurs, the likelihood of the desired behaviors occurring is obviously small.

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COMMUNICATION + REINFORCEMENT !

The Basics of Management Control Systems

Motivational problems
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When employees ‘choose’ not to perform as their organization would have them perform. Because – Lack of goal congruence » Individual goals do not coincide with organizational goals. – Self-interested behavior » Generally, individuals are...
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