ACC3602

Managerial Planning and Control

Semester II, AY 2014/15
Instructor:Dr.ZhuZinan
Email:bizzz@nus.edu.sg
Office:BIZ1#724

Lecture 1(2)
Management control alternatives and their effects
RelevantChapters:

MerchantandVanderStede,ManagementControlSystems:
PerformanceMeasurement,Evaluation,andIncentives,
Chapters36
LearningObjectives:
1.
Resultscontrols
2.
Othercontrols(actionandpeople)
3.
MCtightness
4.
CostsassociatedwithMC
5.
DesignandevaluateMCS

1. Results controls

Whatisit?
Involvesrewardingindividualsforgeneratinggood
results(orpunishingthemforpoorresults)
E.g.,bonuses

Itinfluencesactionsbecauseitcausesemployeesto
beconcernedabouttheconsequencesoftheactions
theytake.
Theorganizationdoesnotdictatetoemployeeswhatactions
ordecisionstheyshouldtake;(actionsarenotconstrained)
Insteademployeesareempoweredtotakethoseactionsor
decisionstheybelievewillbestproducethedesiredresults.

1. Results controls

Decentralization
Delegatedecisionmakingauthoritytoentity
managersandassignspecificresponsibilities

Decentralizationandincentivesystemstomotivate
thesemanagerstogeneratedesiredresultsaretwo
criticalorganizationaldesignchoicesinaresult
controlcontext.(consideredjointly)
Resultscontrolsarecommonlyusedforcontrolling
thebehaviorsofemployeesatmanyorganizational
levels.

1. Results controls
Definingtheperformancedimensions
Maximizeshareholdervalue,pursueinnovation,etc.
Measuringperformanceonthesedimensions
Whatyoumeasureiswhatyouget;hence,measuremustbe
congruentoralignedwiththeorganizationsobjectives.Otherwise,
thecontrolswillactuallyencourageemployeestodothewrong
things!E.g.,patentfiled
Objective:financial(marketbased,accountingbased),nonfinancial
(marketshare,customersatisfaction);Subjective:beingateamplayer,
leadership

Settingperformancetargets:Motivationaleffects
Providingrewards(orpunishments):Incentives monetaryand
nonmonetary

1. Results controls

Resultscontrolsworkbestonlywhenallofthe
followingconditionsarepresent:
Knowledgeofdesiredresults:e.g.,purchasing
manager
Abilitytoinfluencedesiredresults(controllability)
Abilitytomeasureresultseffectively,e.g.,precise,
objective,timely,understandable,andcost
efficient.

1. Results controls

Tosummarize,
Resultscontrolsareanindirectformofcontrolbecause
theydonotfocusexplicitlyontheemployeesactionsor
decisions.
However,thisindirectnessprovidessomeimportant
advantages.Resultscontrolscanoftenbeeffectivewhen
itisnotclearwhatbehaviorsaremostdesirable.
Inaddition,resultscontrolscanyieldgoodcontrolwhile
allowingtheemployeeshighautonomy.Manypeople,
particularlythosehigherintheorganizationalhierarchy,
valuehighautonomyandrespondwelltoit.
7

2. Other controls: Action controls

Actioncontrols
Ensurethatemployeesperform(donotperform)certain
actionsknowntobebeneficial(harmful)tothe
organization.
Arethemostdirectformofcontrol.
Mostactioncontrolsareaimedatpreventingundesirable
behaviors;makeitimpossible,oratleastmoredifficult,for
employeestodothingsthatshouldnotbedone.
E.g.,locksonvaluableassets,computerpasswords,
scrutinyofbudgetsandinvestmentproposals,etc.

2. Other controls: People controls

Personnelcontrols
Aredesignedtomakeitmorelikelythatemployeeswill
performthedesiredtaskssatisfactorilyontheirown
becausetheemployeesareexperienced,honest,andhard
working,andderiveasenseofselfrealizationand
satisfactionfromperformingtaskswell.
Selfmonitoring

Culturalcontrols
Existtoshapeorganizationalbehavioralnormsandto
encourageemployeestomonitorandinfluenceeach
othersbehaviors.
Mutualmonitoring
9

2. Other controls: Personnel controls

Generally,itisabout
findingtherightpeople,givingthemagoodwork
environmentandthenecessaryresources

Selectionandplacement:findingtherightpeople
todoaparticularjob
Training
Jobdesignandresourcing:givingthembotha
goodworkenvironmentandthenecessary
resources

10

2. Other controls: Cultural controls

Culturalcontrols
Aredesignedtoencouragemutualmonitoring;apowerful
formofgrouppressureonindividualswhodeviatefrom
groupnormsandvalues.

Culturalcontrolsareeffectivebecausemembersofa
grouphaveemotionaltiesandasenseof
responsibilitytooneanother.
Organizationalculturecanbeshapedinmanyways,
e.g.,codesofconduct

Personnelandculturalcontrolsaresometimes
referredtoassoft controls.
11

3. MC tightness

Goodcontrolissaidtotakeplacewhenthereis
ahighprobabilitythatthefirmsobjectiveswillbe
achieved
alowprobabilitythatmajorunpleasantsurpriseswill
occur

Inthisrespect,tightcontrolisgoodbecauseit
providesahighdegreeofcertaintythatpeoplewill
actastheorganizationwishes.

12

4. Benefits and costs associated with MC

Benefits
Ahigherprobabilitythatpeoplewillbothworkhardand
directtheirenergiestoservetheorganizationsinterests

Directcosts
MonetarycostsrequiredtodesignandimplementtheMC
E.g.,costsofpayingcashbonus,costsofmaintaining
internalauditstaff

Indirectcosts
Harmfulsideeffects
E.g.,managerialshorttermism,datamanipulation

13

5. Design and evaluation MCS

Twobasicquestions
Whatisdesired?
Whatislikelytohappen?

Ifwhatislikelyisdifferentfromwhatisdesired,
thentwobasicMCSdesignquestionsmustbe
addressed
Whatcontrolsshouldbeused?
Howtightlyshouldeachbeapplied?

14

5. Design and evaluation MCS

Generalrule
CompareCostsvs.benefitsandgowiththosethatwillprovide
thegreatestnetbenefits(i.e.,benefitslesscosts)
Indecidingamongthemanymanagementcontrolalternatives,
managersshouldstartbyconsideringwhetherpersonnelor
culturalcontrolswillbesufficient.However,itisrarethatpeople
controlswillbesufficient;hence,inmostcases,itisnecessary
tosupplementthemwithactionandresultscontrols.
Choicesamongvariousactionandresultscontrolsshould
dependontheparticularadvantagesanddisadvantageseach
hasinthespecificsettinginquestion.

15

5. Design and evaluation MCS

Tosummarize,keepabehavioralfocus
Thereisnoonebestformofcontrol.Whatworksbestin
onecompany(orareawithinacompany),maynotworkin
another.
Itisimportanttokeepthefocusonthepeopleinvolved,
becauseitistheirresponsethatwilldeterminethesuccess
orfailureofthecontrolsystem.
Thebenefitsofcontrolsarederivedfromtheirimpactson
behaviors.

16

EndofLecture1(2)

17