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.
A detector
2. An assessor
3. An effector
4. A communication network

Basic Concepts
A detector or sensor is a device that measure what
is actually happening in the process being controlled.
2. 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.
3. An effector (feedback) is a device that alters
behavior if the assessor indicates the need to do so.
4. A communications network consist of devices that
transmit information between the detector and the
assessor and between the assessor and the effector.
1.

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:
13

Characteristics

Strategy Formulation

Control Management

System design

Unsystematic, Strategic
decision may be made any
time

Rhythmic,
predetermined
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

Distinctions between strategy formulation and

management control:
14

Characteristics

Strategy
Formulation

Control
Management

Number of
involved people

Few people

Many people

Mental activity

Creative and analytic

Administrative and
persuasive

Discipline
Time horizon

Economics
Tend to long-term

Social psychology
Tend to short-term

End products

Goals, strategies

Strategy
implementation

Distinctions between management and task controls:

15

Characteristics

Control
Management

Task Control

Focus of activity

The whole of
operation

Individual task or
transaction

Nature of
information

Integrated, many
financial data

Tailored-made to
individual task, more nonfinancial data

Involved people

Management

Supervisor or none

Mental activity

Administrative and
persuasive

Follow direction or none

End products

Strategy
implementation

Tasks are carried out

effectively and efficiently

Distinctions between management and task

controls:
16

Characteristics

Control
Management

Task Control

Mental activity

Administrative and
persuasive

Follow direction or
none

Discipline

Social psychology

Economics,
physics

Time horizon

Weekly, monthly,
annually

Daily

Type of cost

Discretionary costs

Engineered costs

Examples of decisions in planning and control function:

17

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 Book TV commercials

budget

Decide magnitude and

direction of research

Control of research
organization

Acquire an unrelated
business

Introduce new product Coordinate order entry

or brand within
product line

Run individual
research project

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.