Management Control System
(i)Like ROI it is difficult to have satisfactory definitions of ‘divisional profits’ and‘divisional investment’.(ii)It may be difficult to calculate an accurate cost of capital. Also, decision has to betaken whether to use the company’s cost of capital or a specific divisional cost of capital. The former enhances divisional goal congruency and the latter reflectseach division’s level of risk.(iii)Identifying controllable and uncontrollable factors at the divisional level may bedifficult.
Q. 2 Discuss the significance of human behavioral pattern in management control?Ans.
Management control system influence human behavior same as human behavior influences management control system. Human behavior helps in performing a goodmanagement control system by goal congruent manner. Thus following are the ways in whichthe human behavior influences the management control system.
Senior management wants the organization to attain the organization’s goal. But theindividual members of the organization have their own personal goals, and they are notnecessarily consistent with those of the organization. The central purpose of a managementcontrol system, then, is to ensure a high level of what is called “goal congruence”. In a goalcongruence process, the actions people are led to take in accordance with their perceived self-interest are also in the best interest of the organization.Obviously in our imperfect world, perfect congruence between individual goals andorganizational goals does not exists – if for no other reason than that individual participantsusually want as much compensation as they get while the organization maintains that salariescan go only so high without adversely affecting profits.Thus an individual should always think on how he can improvise his organizationsgoal along with his own goal.
There are some external factors that influence the desirable behavior that exists in thesociety of which organization is a part. These norms or factors include a set of attitudes, oftencollectively known as the work ethic, which is manifested in employees’ loyalty to theorganization, their diligence, their spirit, and their pride in doing a good job (rather than just putting in time). Some of these attitudes are local- that is, specific to the city or region inwhich the organization does its work.
This is the most important internal factor – is the organization’s own culture and howis the individual of the organization are understanding and maintaining the culture. Theculture consists of – the common beliefs, shared values, norms of behavior, and assumptionsthat are implicitly accepted and explicitly manifested throughout the organization. Culturalnorms are extremely important since they explain why two organizations, with identicalformal management control systems, may vary in terms of actual control.A company’s culture usually exists unchanged for many years. Certain practices become rituals because “this is the way things are done here”. Organizational culture is alsoinfluenced strongly by the personality and policies of the CEO, and by those of lower levelmanagers with respect to the areas they control. If the organization is unionised, the rules and