Manuel Luis. Ogues MBA-1 JAN.

13, 2019

ASSIGNMENT
MANAGERIAL ACCOUNTING

What are the characteristics of a Good

Management Control?

Characteristics of Good Management Control

Acceptability - Resistance to change is common amongst employees but management shouldsee to

it that their people will fully understand the controls and that it is necessary to accept themso that
mistakes will be avoided.

Accuracy-Accuracy in information is essential for managerial decisions.

Corrective Action- An effective control system not only checks for and identifies deviation butalso
is programmed to suggest solutions to correct such a deviation.

Economic Feasibility-The cost of a control system must be balances against it benefits. Thesystem
must be economically feasible and reasonable to operate.

Emphasis on Exception
A good system of control should work on the exception principle, sothat only important deviations
are brought to the attention of management. This will ensure thatmanagerial attention is directed
towards error and not towards conformity

Flexibility- Nowadays, business environment and technology are changing very fast and thecontrol
system must be dynamic in nature to cope with every change that might happen.

Integration-When controls are consistent with the values, culture and policies of theorganization
and control become integrated in all levels of the organization, surely it becomeseffective.

Strategic Placement- The objective is to apply controls to the essential aspect of a businesswhere a
deviation from the expected standards will do the greatest harm. These control areasinclude
production, sales, finance and customer service.

Timeliness- There are situations and problems that require immediate attention and solutionsthat
reach the target in a timely manner.
Define:
Good control means that management can be reasonably confident that no major unpleasant
surprises will occur. Other terms used to describe a management control system are ‘out of control’
and a ‘perfect control’.

Out of control means when a management control system is in place, but there is still a high
probability of poor performance, either overall or in a specific performance area despite having a
reasonable strategy in place.

A perfect control occurs where there is complete assurance that all the controls put in place by
management are flawless, and all the individuals whom the organization must rely always act in the
best possible way. It is unrealistic because no matter how perfect we strive to be, we are only
humans, and they may be some unknown flaw inherent in the system. So we strive for the next best;
a good management control system. This is because a good management control still allows for
some probability of failure.

Control loss - Loss control is the proactive measures taken to prevent or reduce loss evolving from
accident, injury, illness and property damage. The aim of the loss control is to reduce the frequency
and severity of losses. Loss control is directly related to human resource management, engineering
and risk management practices.

Optimal Control - An optimal control is a set of differential equations describing the paths of the
control variables that minimize the cost function. The optimal control can be derived
using Pontryagin's maximum principle (a necessary condition also known as Pontryagin's minimum
principle or simply Pontryagin's Principle),[2] or by solving the Hamilton–Jacobi–Bellman
equation (a sufficient condition).
What is meant by Control Problem Avoidance?
CONTROL PROBLEM AVOIDANCE

Avoidance of control problems should be taken by management so as to limit exposure to certain types of
problems, and to reduce the maximum potential loss if the problem occurs; this is because a management
control system, no matter how good it is can never avoid all control problems..

Explain and give situational examples of the four prominent

avoidance strategies:
 Activity Elimination: Another way of avoiding control problem is by activity elimination. Managers
can outsource some activities to third parties, and by so doing, they turnover potential risks to these
third parties. Some ways they can outsource activities include: subcontracting, franchising, license
agreements or divestment.

 Automation: Automation is the creation and application of technology to monitor and control the
production and delivery of products and services (according to the International Society of
Automation). In an organization, there may be some processes that require little to no human
intervention. Managers can adopt the use of computers, machines, expert systems, robots etc to
reduce the organization’s exposure to behavioural control problems.

 Centralization: Centralization of decision making is also an avoidance possibility. Centralization

reduces the behavioural problem discussed earlier because decision making is vested in the hands of
a few. Extreme forms of centralization in which all the key decisions are made at the top
management levels is common in small businesses that are run by strong leaders. In most
organizations, due to the diversity of activities, it is difficult to centralize these activities. Other
management control systems then become a necessity.

 Risk sharing: This involves sharing risks with outside entities so as to spread losses in case it arises.
A good way to share risk is by purchasing insurance to protect against certain types of large, potential
losses the organization might not be able to afford.