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Types of control and how to use them

Management Accounting Team 5
by

Cornel Ionita

on 24 November 2010

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Transcript of Types of control and how to use them

Types of control and when and how to use them Presentation team 5

Cornel Ionita 2052881
Jennifer Lugay 1163760
Shane Coughlan 2046016
Christine Rollmann 2000316
Chiara Carmellini 2046849

November 24th, 2010 Management Control System consists of techniques and processes used to direct employees’ activities and behavior in order to achieve goal congruence MCS package different systems are introduced interest groups times Malmi and Brown (2008) propose an MCS package: 5 types of control Planning Characteristics:
sets out goals
provides standards Approaches:
Action planning
Long-range planning
Types:
Financial
Strategic
Operational
Cybernetic (in which a feedback loop is represented) Types (integrating processes and resource allocation) (ROI, economic value added) Non-financial measures (TQM) (MBO, BSC) Reward and
compensation can impact performance in 3 ways:
a) Effort direction
b) Effort duration
c) Effort intensity
Administrative There are 3 groups:
a) Organization design and structure
b) Governance structure within the firm
c) Procedures and policies Cultural There are 3 types of cultural control:
a) Value-based
b) Symbol-based
c) Clan controls
Budget Financial measures Hybrid Merchant and Van der Stede
used other typologies. Results controls Rewarding employees for generating good results.
e.g. pay for performance, promotions, autonomy, recognition and/or job security. Benefits:
employee empowerment approach
creates meritocracies
encourages employees to discover and develop their talents
It is used for
organizations that are decentralized
in franchising
Steps for implementation:
1) Defining performance dimensions
2) Measuring performance
3) Setting performance targets
4) Providing rewards
Conditions determining the effectiveness of Results Control:
•Knowledge of desired results (in areas being controlled) (by organization)
•Ability to influence desired results (controllability)( by employees)
•Ability to measure controllable results effectively ( by the organization) Action controls most direct form of management Behavioural constraints:
Physical constraints
(locks on desks, passwords)
Administrative constraints
(limits employees abilities)
Preaction reviews
The scrutiny of the action plans of employees are being controlled.
Reviewers can approve or disapprove the proposed actions, ask for modifications before granting final approval
Action accountability
Implementation
1. Define what actions acceptable or unacceptable.
2. Communicating these definitions to employees.
3. Observing or tracking what happens.
4. Rewarding good actions or punishing bad actions.
Redundancy
assigning more employees (or machines) to a task than is strictly necessary, to increase probability that a task will be satisfactorily accomplished. Personnel controls build on employees natural tendencies to control and/or motivate themselves. Three ways of implementing:
1. Selection and placement
2. Training
3. Job design
Cultural controls are designed to encourage mutual monitoring provide rewards based on collective achievement.
e.g. bonuses,
profit-sharing plans Group rewards encourage teamwork, on-the-job training of new workers by more experienced ones and the creation of peer pressure on individual employees to exert themselves for the good of the group. Ouchi, W. (1979): Design of
organizational control mechanisms Market Bureaucratic Clan Social and informational peresquisites of control Designing control mechanisms: costs and benefits Loose coupling and the clan as a form of control Bonnera, S., Sprinkle, G., 2002, The effects of monetary incentives on effort and task performance: theories, evidence, and a framework for research, Accounting, Organizations and Society, 27, 303–345 Performance typically is better under budget-based schemes when goals are moderate, but worse when goals are difficult. PRO’S:
The goals contained in budgets frequently are used as benchmarks in evaluating the performance of, and therefore to motivate, the employees.
• (Goals are positively correlated with effort intensity and effort duration). More difficult goals may set a higher standard for people’s satisfaction with their performance; this standard may contribute to or explain the effects of difficult goals on effort intensity and duration.
•Specific difficult goals lead to higher effort and performance than vague difficult goals such as “do your best” or than no assigned goals, which often are assumed to be implicit “do your best” goals.
•Assigned goals and performance targets positively influence effort direction, duration and intensity, and therefore improve performance.
CON’S:
What this statement does not tell us is:
•Whether incentive schemes that embed goals (e.g. budget-based schemes) are superior to situations in which employees are provided with explicit goals and performance contingent incentives that are not explicitly linked to achieving these goals.
•The dimensions of assigned goals that may create or alter any observed interactions between goals and incentives, such as their level of difficulty.
•The cognitive and motivational mechanisms by which this result occurs.
Alvesson, M., Karreman, D., 2004, Interfaces of control. Technocratic and socio-ideological control in a global management consultancy firm, Accounting, Organizations and Society, 29, 423–444 Researches having conducted in depth case studies emphasize a dominating form either focusing on structure and behavior or corporate culture, ideology and identity. (c.f. Kunda, 1992; Martin, 1992; Alvesson, 1995). Question: Is this still true today? Pro’s and Con’s:
When control is exercised by so many ways, from so many different directions and so many different levels, control systems, taken together, sometimes created situations where individuals find themselves with conflicting sets of instructions. E.g. Evaluation system for performance is in place, the side effect is that people want to look good and effective and therefore fake the reporting of their working hours. Lower reported working hours have also a positive effect the project margin (financial control).
People’s ideas and norms lead to the construction of rules enacted in a bureaucratic way
Technocratic control helps to deliver results on time, provide high margins on projects and avoid making customers dissatisfied
Socio-ideological control creates values and contribute to a high level of responsiveness to demands
Socio-ideological and technocratic control go together, rather than assuming that these exist in pure forms, the interfaces of control forms need to be emphasized
Thank you!
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