Management control systems design

Why do we need management control systems?

To ensure that the behaviours and decisions of employees are consistent with the organisations objectives and strategies

What is the control environment?

The overall attitude, awareness and actions of directors and management regarding the control systems.

What are management control systems?

All the devices or systems managers use to ensure that the behaviours and decisions of their employees are consistent with the organisations objectives and strategies

What are the 3 stages to management control?

1. Objective setting- determine what the organisation wants to achieve

2. Strategy formulation- Define how resources are used to meet objectives

3. Management control- How to influence employees behaviours in desired ways?

Are control losses expected to be smaller or bigger than the cost of implementing more controls?

Smaller than the cost of implementing more controls

What are the causes of management control problems?

1. Lack of direction- do not know what the organisation wants from them

2. Motivational problems- employees act in their own interest at the expense of their organisations interest

3. Personal Limitations- lack of aptitude etc

How can we control problem avoidance?

1. Activity elimination- turns over potential risks and profits of activities the organisation cannot control due to lack of resources or expertise to a 3rd party

2. Automation- e.g. computers,robots, expert systems

3. Centralisation- key decisions are made at top management levels

4. Risk sharing- e.g. insurance,joint venture

What are the 3 controls we must know?

1. Action controls- trying to control action of employees

2. Personnel and cultural controls

3. Result controls

What are action controls?

Ensure employees perform/ do not perform certain actions known to be beneficial/harmful to the organisation

• Most direct form of management control

What are the 4 types of action controls?

1. Behavioural constraints- prevent employees from doing things that should not be done

2. Preaction reviews- scrutiny and approval of action plans before a course of action is undertaken

3. Action accountability- holding employees accountable for their actions

4. Redundancy- Involves assigning more employees to a task than is necessary