ACC804 LECTURE 2

The Nature of Management Control

Systems
 KEY LEARNING OUTCOMES

Understand the nature of MCS

Critically examine the three concepts in the title management control systems
Identify and explain the main elements of MCS
Evaluate the cybernetics notion of control
Understand the problematics of goal congruence in organisations
 LECTURE OUTLINE

Recap lecture 1
The nature of MCS
Elements of MCS
Basic concepts in the title MCS
The notion of control in some detail
Problematics of goal congruence
New and critical perspectives on management control
 INTRODUCTION

Recap lecture 1
MCS in a complex and uncertain environment
Management accounting and management control
systems
MCS - a broader concept
Management accounting is an integral and very
important part of MCS
Decision making vs. control
 THE NATURE OF MANAGEMENT
CONTROL SYSTEMS

Knowledge and insights essential on how senior executives design and

implement MCS
MCS a must in any organisation
MCS to fit the firms strategy
Stable environment strategy developed through formal and rational process,
dictates MCS
Uncertain environment strategies emerge through experimentation and ad-
hoc processes
Contingency framework
 ELEMENTS OF MCS

Strategic planning, budgeting, resource allocation,

performance measurement, evaluation, rewards systems,
including responsibility centre allocations and transfer pricing
Corporate collapses lapse in controls and/ or self interests
of executives e.g. their compensations
Name some companies that have failed local as well as
international. Why did they fail?
 BASIC CONCEPTS - MANAGEMENT

Firms led by hierarchy of managers, CEO, Vice Presidents and managers of

business units
The executive team decide on goals and strategies to achieve them

Simple view - acquire resources and use them efficiently and effectively

Managing is a complex activity getting things done through people

Human actions and interactions are complex activities

Every manager is a superior as well as a subordinate

 CONTROL

The car you drive keep in control but accidents happen

An organisation needs to be controlled but far more complex than a car

Stable environment - rational control mechanism

Unstable environment social and clan control

Nothing much happens without humans

Ensure devices are in place to achieve strategic intentions

 ELEMENTS OF A CONTROL
SYSTEM

A detector measure what is actually happening

An assessor significance of what is actually happening
An effector a device that alters behaviour if there is a
need to
A communication network devices that transmit
information
 CYBERNETIC CONCEPT OF
CONTROL

Existence of desired objectives

Measurement of process outputs as per objectives
Ability to predict the effects of potential control actions
Ability to act in a way to reduce deviations from the
objectives
 SYSTEMS

A system prescribed and repetitious way of carrying out a set

of activities
Natural, man-made, solar system, an organisation, open/closed
systems
Elements, parts interrelated, change in one causes changes in
others
Input processing - output
Rhythmic, coordinated and recurring series of steps to
accomplish a purpose
 BOUNDARIES OF MANAGEMENT
CONTROL

Management control process by which managers

influence other members to implement the
organisations strategies
MC includes planning, what should be done;
coordinating activities; communicating information;
evaluating information; deciding on actions; influencing
people to change behaviour.
 GOAL CONGRUENCE

Traditional view - goal congruence means to an end

New and critical views challenge mainstream views based on
philosophical assumptions
Whose goals! organisations or peoples goals
Humans complex beings as individuals, part of organisations,
part of human society
Humans design systems, can also defeat systems
Self interest agency theory
Humans capacity to act otherwise
 NEW PERSPECTIVES ON MCS

Multidisciplinary nature of MCS, many disciplines influence MCS

Challenge myths and traditions in MCS design and practice
MCS total organisational control system
Challenge - means to an end myth
Changes in external environment
Environmental impact of organisational activities
Enhance quality of life for everyone
Shift in focus from efficient MCS to effective MCS
Better understanding of MCS in practice
 CRITICAL PERSPECTIVES ON MCS

New and critical perspectives on MCS are critical of mainstream literature

The bulk of the literature on MCS is narrow, has positivist overtones with
technical emphasis
Need to look at social, political and moral conditions and contexts in which
MCS operate
Human emancipation is the focus
Power, authority and domination
Multiple logics in organisations
Contradictions, conflict and tensions in organisational life
So MCS as a means to an end may not be borne out
Balance multiple and conflicting demands
 SUMMARY AND CONCLUSION

Nature of MCS
Basic concepts in the title - MCS
Different notions of control
Contingency framework and MCS
Philosophical assumptions
Goal congruence and problematics of goal congruence
New perspectives on MCS
Critical perspectives on MCS
ANY QUESTIONS?

THANK YOU FOR YOUR ATTENTION