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COMM414 - CHAPTER 1 Management and Control Results Controls
COMM414 - CHAPTER 1 Management and Control Results Controls
1.1 Introduction
An old narrow view of a MCS is that of a simple cybernetic (regulating) system, involving a
single feedback loop (thermostat). This book takes a broader view and recognizes that
some management controls are proactive rather than reactive. Proactive means that the
controls are designed to prevent problems before the organization suffers any adverse
effects on performance. The benefit of management control is that the probability that
the firm’s goals will be achieved increases.
Product/service
People
development
Objective setting
Money
Operations
Strategy formulation
Machines
Marketing/sales
Management control
Information
Finance
To focus on management control, we must distinguish the concept objective setting and
strategy formulation:
Management controls are necessary to guard against possibilities that people will do
something the organization does not want them to do or fail to do something they should
do (behavioral orientation).
1. Lack of direction
2. Motivational problems
Employee fraud and theft are the most extreme examples of motivational problems.
3. Personal limitations
Good control means that management can be reasonably confident that no major
unpleasant surprises will occur. It must be future driven and objectives driven.
Out of control describes the situation where there is a high probability of poor
performance.
Perfect control would require complete assurance that all physical control systems are
foolproof and all individuals on whom the organization must rely always act in the best
way possible. Control loss is the cost of not having a perfect control system. Optimal
control can be said to have been achieved if the control losses are expected to be
smaller than the cost of implementing more controls. Assessing whether good control has
been achieved must be future oriented (no unpleasant surprises in the future) and
objectives driven (because the goals represent what the organization wants). But still it is
difficult and subjective to determine control as ‘good’.
1.5 Control problem avoidance
There are four avoidance strategies (to eliminate the possibility of control problems):
1. Activity elimination
Managers can sometimes avoid the control problems associated with a particular entity
or activity by turning over the potential risks, and the associated profits to a third party.
Transaction Cost Economics: whether specific activities (transactions) can be controlled
more effectively through markets or internally.
2. Automation
The use of computers, robots, expert systems, and other means of automation to reduce
their organization’s exposure to some control problems. Automation can provide only a
partial control solution at best. Limitations are: feasibility, cost and the replacement of
control problems with others.
3. Centralization
4. Risk sharing
Sharing risks with outside entities can limit the losses that could be incurred by
inappropriate employee behaviors. Risk sharing can involve buying insurance to protect
against certain types of large, potential losses the organization might not be able to
afford. Or share risks with an outside party is to enter into joint venture agreement.