Management control systems L1

    Cards (24)

    • Management control systems
      • Types of controls
      • Management accounting control systems
    • "Control is the process of ensuring that a firms activities conform to its plan and that its objectives are achieved" (Drury, 2004, p.643)
    • Controls
      Concerned with measurement and providing information to assist in determining the control action
    • Control
      The action taken to ensure that work is done the original intention
    • 3 categories of controls
      • Action (or behavioural) controls
      • Personnel and cultural (or clan and social) controls
      • Results (or output) controls
    • Action (or behavioural) controls

      Involve ensuring that employees perform certain actions known to be beneficial to the organisation
    • Personnel & Cultural (or clan and social) controls
      Ensure that employees will control their own behaviours or that they will control each others' behaviours
    • Social control
      Can involve selecting people who seem to adopt particular norms
    • Personnel controls
      Help employees to do a good job, they build on employees' natural tendencies to control themselves
    • 3 methods of implementing personnel controls
      1. Selection & placement
      2. Job design & provision of necessary resources
      3. Training
    • Cultural controls
      Designed to encourage mutual monitoring
    • Cultural control mechanisms
      • Codes of conduct
      • Group-based rewards
      • Intra-organisational transfers
      • Physical and social arrangements
      • Tone at the top
    • Results (or output) controls
      The focus is on reporting information about the outcomes of work effort
    • Results controls involve
      1. Establishing performance measures that minimize undesirable behaviour
      2. Establishing performance targets
      3. Measuring performance
      4. Providing rewards or punishments
    • Cybernetic control systems
      Resemble a cybernetic (mechanical) control system, involving feedback controls (actions after the events) but ideally control should be based on control actions before the events
    • Feedback and Feed-Forward Controls
      • Feedback Controls: Monitoring outputs against desired results or budgets, Investigate if differences found, Take corrective action if necessary
      • Feed-Forward controls: Predictions made of expected outputs, Predicted outputs compared to required outputs, Corrective action may be taken to minimize any differences
    • Costs of control
      • Direct costs: Cash bonuses (results control), Internal audit (action controls)
      • Indirect costs: Behavioural displacement, Gamemanship, Operating delays, Negative attitudes
    • Gamemanship
      Occurs when employees try to improve performance indicators, without any real effective improvement in their performance
    • Examples of gamemanship
      • Creation of slack resources in budgeting
      • Data manipulation (e.g. including sales in a different period)
    • Operational delays
      e.g. in the case of preaction reviews
    • Advantages and disadvantages of different types of controls
      • Personnel/cultural controls: Few harmful side-effects, Inexpensive to operate, Appropriate only in certain circumstances, Group based rewards may be appropriate only in collectivist cultures etc.
      • 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, 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).
    • Management accounting control systems (MACS)
      Output controls are predominantly accounting controls
    • Accounting controls tend to be the predominant controls in most organizations because: Monetary measure provides a means of aggregating results from dissimilar activities, Profitability and liquidity are essential for company survival, Financial measures enable a common decision rule to be applied, Measuring results in financial terms enables managers to be given more autonomy, Financial results indicate whether an action is beneficial to the organisation
    • Think about control systems you have encountered: At school, At home, At university, In workplace, In clubs/societies