The Nature of

Management Control
Systems
Singgih Wijayana, Ph.D.

Table of Contents

Basic Concepts
Boundaries of Management Control
Road Map for the Reader

Preface

Elements of Management Control

Systems include:
Strategic planning
Budgeting
Resource allocation
Performance measurement
Evaluation and reward
Responsibility center allocation
Transfer pricing

Basic Concepts

Control
Elements of a control system
consists of:
1.
2.
3.
4.

A detector
An assessor
An effector
A communication network

Basic Concepts
1.

2.

3.
4.

A detector or sensor is a device that measure

what is actually happening in the process being
controlled.
An assessor is a device that determines the
significance of what is actually happening by
comparing it with some standards or expectations of
what should happen.
An effector (feedback) is a device that alters
behavior if the assessor indicates the need to do so.
A communications network consist of devices
that transmit information between the detector and
the assessor and between the assessor and the
effector.

Elements of the Control Process

Control
devices

1. Detector.
Information about what
is happening

2. Assessor.
Comparison with
standard

3. Effector.
Behavior alteration,
if needed

Entity being
controlled

Elements of the Control Process

Example: You are driving a car

Detectors = Your eyes
Assessor = Your brain
Effector = Your foot
Communication network = Your nerves

system

Basic Concepts

Management
The management control process is the

process by which managers at all levels

ensure that the people they supervise
implement their intended strategies.

Systems
A system is a prescribed and usually

repetitious way of carrying out an activity or a

set of activities.
If all systems ensured the correct action for all
situations, there would be no need for human
managers.

Boundaries of Management
Control

Strategy formulation is the process of

deciding on the goals of the organization and
the strategies for attaining these goals.
Management control (Anthony and
Govindarajan, 2004): is the process by which
managers influence other members of
organization to implement the organizations
strategies.
Task control is the process of ensuring that
specified tasks are carried out effectively and
efficiently.

General relationships among

planning and control functions
Activity

Nature of End Product

Strategy
Formulation

Goals, strategies, policies

Management
Control

Implementation of strategies

Task
Control

Efficient and
effective
performance of tasks

Management control

Management control involves:

Planning
Coordinating
Communicating
Evaluating
Deciding
Influencing

Goal congruence
The goals of an organizations individual

members should be consistent with the goals

of an the organization itself.

Framework for strategy

implementation
Implementation Mechanism

MCS

Strategy

Structure

HRM

Culture

Performace

Distinctions between strategy

formulation and management control:
Characteristics

Strategy Formulation

Control
Management

System design

Unsystematic, Strategic Rhythmic,

decision may be made
predetermined
any time
procedures

Nature of
information

Tailored-made to faced
problems, more
external and predictive,
less accurate

Integrated, more
internal and
historical, more
accurate

Communication
of information

Simple

Difficult

Involved people

Top management and

staffs

Top management
and line managers
13

Distinctions between strategy

formulation and management
control:
Characteristi
Strategy
cs
Formulation
Number of
Few people
involved
people
Mental activity Creative and
analytic
Discipline
Economics
Time horizon

Tend to long-term

End products

Goals, strategies

Control
Management
Many people

Administrative
and persuasive
Social
psychology
Tend to shortterm
Strategy
implementation

14

Distinctions between management and task

controls:
Characteristi
Control
Task Control
cs
Management
Focus of
The whole of
Individual task or
activity
operation
transaction
Nature of
Integrated,
Tailored-made to
information
many financial
individual task,
data
more non-financial
data
Involved
Management
Supervisor or none
people
Mental activity Administrative
Follow direction or
and persuasive none
End products
Strategy
Tasks are carried
implementation out effectively and

15

Distinctions between management and

task controls:
Characteristi
cs

Control
Management

Mental activity Administrative

and persuasive

Task Control
Follow direction
or none

Discipline

Social psychology Economics,

physics

Time horizon

Weekly, monthly,
annually

Daily

Type of cost

Discretionary
costs

Engineered
costs

16

Examples of decisions in planning and control function:

Strategy
Formulation

Management
Control

Task Control

Enter a new
business

Expand a plant

Schedule
production

Change debt to
equity ratio

Issue new debt

Manage cash flows

Add direct mail

selling

Determine
advertising budget

Book TV
commercials

Decide magnitude
and direction of
research

Control of research
organization

Run individual
research project

Acquire an unrelated Introduce new

business
product or brand
within product line

Coordinate order
entry

17

Boundaries of Management
Control
Impact of the internet on management
control
The internet provides major benefits that the
telephone does not:
Instant acces
Multi-targeted communication
Costless communication
Ability to display images
Shifting power and control to the individual.

But, the internet cannot substitute for the

fundamental processes that are involved in
management control.

Road Map for the Reader

The management control enviroment

(Part 1)
Chapter 2 the generic types of

organization strategies.
Chapter 3 the characteristics of
orgaizations that affect management
control process.
Chapter 4, 5, 6, 7 define and describe
different types of RC, and discuss the
considerations involved in assigning
financial responsibility to various
organizational subunits.

Road Map for the Reader

The management control process

(part 2)
Chapter 8 strategic planning.
Chapter 9 budget preparation.
Chapter 10, 11, 12 performance

measurement, performance evaluation, and

management compensation.

Road Map for the Reader

Variations in management control

(part 3)
Chapter 13 differentiated controls for

differentiated strategies
Chapter 14 service organizations
Chapter 15 multinational organizations
Chapter 16 management control of
projects.

Thank you
Bad habits die hard