Management Control System

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PLANNING AND CYBERNATIC CONTROLS
“Long Range, Action Planning, and Budgets”

By:

Eka Darmadi Lim

3094802

Gerry Geraldo Y

3094806

Reni Handuweni

3104011

Isa Tridjojo

3105802

Class: Y

University of Surabaya
Faculty of Business and Economics
International Class (IBN & PA)
2012

Figure of “Management Control Package”

There are a number of reasons why studying the MCS package phenomenon is important. Firstly, MCS do not operate in isolation. While much of the MCS research considers single themes or practices that are seemingly unconnected from each other and the context in which they operate, these invariably sit within a broader control system.

There are five types of controls in the typology; planning, cybernetic, reward and compensation, administrative and cultural controls.

Planning Controls

Firstly, it sets out the goals of the functional areas of the organization, there by directing effort and behavior. Secondly, it provides the standards to be achieved in relation to the goals, and clarifies the level of effort and behavior expected from organization members.

In relation to planning, there are two broad approaches. The first is action planning, in which the goals and actions for the immediate future, usually a 12-month period or less, are established. This has a tactical focus. The second broad approach is longrange planning, in which the goals and actions for the medium and long run are established. This has a more strategic focus.

Component inside Planning Controls:

1. Action Planning
2. Long Range Planning

Cybernetic

There are five characteristics of cybernetic control (Green and Welsh, 1988). First, there are measures that enable quantification of an underlying phenomenon, activity or system. Second, there are standards of performance or targets to be met. Third, there is a feedback process that enables comparison of the outcome of the activities with the standard. This variance analysis arising from the feedback is the fourth aspect of cybernetic control systems. Fifth is the ability to modify the system’s behavior or underlying activities

Component Inside Cybernetic:
1. Budgets
2. Financial Measurement
3. Non-Financial Measurement
4. Hybrids

Reward / Compensation

Motivating and increasing the performance of individuals and groups through attaching rewards to control effort direction, effort duration, and effort intensity.

Administrative

Administrative control systems are those that direct employee behavior through the organizing of individuals (organization design and structure), the monitoring of behavior and who employees are made accountable to for their behavior (governance); and through the process of specifying how tasks or behaviors are to be performed or not performed (policies and procedures), (Simons, 1987).

Component inside Administrative
1. Organizational design and structure
2. Governance Structures within the firms
3. Procedures and policies

Culture

The values, beliefs and social norms which are established influence employees behavior. (Birnberg and Snodgrass, 1988; Dent, 1991; Pratt and Beaulieu, 1992).

Cybernetic Controls
Cybernetic control as “a process in which a feedback loop is represented by using standards of performance, measuring system performance, comparing that performance to standards, feeding back information about unwanted variances in the systems, and modifying the system’s comportment”

In organizations a cybernetic system can either be an information system or control system contingent upon how it is used. A cybernetic system would be an information and decision-support system if managers themselves detected unwanted variances and modified their underlying behavior or activity that influenced the variance (for example in a production process) without anyone else’s involvement.

Four basic Cybernetic systems in M.C.S
1. Budgets
2. Financial Measurement
3. Non-Financial...
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