Summary Management Control Systems: Performance Measurement, Evaluation and Incentives, 3rd Edition. Prentice-Hall/Pearson
Management Control Systems
Chapter 1: MANAGEMENT AND CONTROL Management control failures can lead to large financial losses, reputation damage, and possibly even organizational failure. However, adding more controls does not always lead to better control. Some MCSs in common use often stifle initiative, creativity, and innovation. The term “control,” as it applies to a management function, does not have a universally accepted definition. An old, narrow view of an MCS is that of a simple cybernetic system involving a single feedback loop, analogous to a thermostat. Thermostats include a single feedback loop: they measure the temperature, compare those measurements with the desired standard, and, if necessary, take a corrective action (turn on, or off, a furnace or air conditioner). In an MCS feedback loop, managers measure performance, compare that measurement with a preset performance standard, and, if necessary, take corrective actions. This book, however, like many other writings on management control, takes a broader view. It recognizes that many management controls in common use, such as direct supervision, employee-hiring standards, and codes of conduct, do not focus on measured performance. They focus instead on encouraging, enabling, or, sometimes, forcing employees to act in the organization’s best interest. This book also recognizes that some management controls are proactive, rather than reactive. Proactive means that the controls are designed to prevent problems before the organization suffers any adverse effects on performance. Examples of proactive controls include planning processes, required expenditure approvals, computer passwords, and segregation of employees’ duties. Management control, then, includes all the devices or systems managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies. The systems themselves are commonly referred to as the management
Chapter 1: MANAGEMENT AND CONTROL Management control failures can lead to large financial losses, reputation damage, and possibly even organizational failure. However, adding more controls does not always lead to better control. Some MCSs in common use often stifle initiative, creativity, and innovation. The term “control,” as it applies to a management function, does not have a universally accepted definition. An old, narrow view of an MCS is that of a simple cybernetic system involving a single feedback loop, analogous to a thermostat. Thermostats include a single feedback loop: they measure the temperature, compare those measurements with the desired standard, and, if necessary, take a corrective action (turn on, or off, a furnace or air conditioner). In an MCS feedback loop, managers measure performance, compare that measurement with a preset performance standard, and, if necessary, take corrective actions. This book, however, like many other writings on management control, takes a broader view. It recognizes that many management controls in common use, such as direct supervision, employee-hiring standards, and codes of conduct, do not focus on measured performance. They focus instead on encouraging, enabling, or, sometimes, forcing employees to act in the organization’s best interest. This book also recognizes that some management controls are proactive, rather than reactive. Proactive means that the controls are designed to prevent problems before the organization suffers any adverse effects on performance. Examples of proactive controls include planning processes, required expenditure approvals, computer passwords, and segregation of employees’ duties. Management control, then, includes all the devices or systems managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies. The systems themselves are commonly referred to as the management