A.

What is desired and what is likely

The MCS Design and improvement process requires answers to 2 (TWO) basic questions. first is:
what is desired? the role of each individual, from the top leadership to the lowest employee,
must be analyzed to build understanding of the crisis factors that determine success. The second
question is: what is likely to happen. if ‘is it possible’ is different from ‘what is desired’, then
managers must address the basic questions about the design of the MCS: what controls should
be used? and how tightly should each be applied ?.

Designing control systems

 Two basic questions:
1. What is desired ?
2. What is likely to happen ?
 If what is likely is different from what is desired, then two basic MCS-design questions
must be addressed :
1. What controls should be used ?
2. How tightly should each be applied ?

What is desired ?
 Start from objectives and strategies :
1. They should be important guides to the actions that are expected, especially if they
are specific. Example: “Become a leader in the industry  ” vs. “15% ROI and 20% sales
growth.”
 Identify the key actions :
1. Actions that must be performed to provide the greatest probability of success.
 Identify the key results:
1. The few key areas where things must go right for the business to flourish.

What is likely?

 Three questions:
1. Do employees understand what they are expected to do (key actions) or to
accomplish (key results)?
Example: lack of direction (Employees perform poorly because they do not
understand what the organization wants due to lack of supervision by top
management.)
2. Are they properly motivated?
Example: lack of motivation (is a situation where people in an organization don't
want to work as hard as they should)
3. Are they able to fulfil their desired roles?
Example: personal limitations (merupakan hasil dari orang-orang yang
melakukan tugas yang tidak sesuai dengan tugas mereka)
  The discrepancy between what is desired and what is likely will determine the choice and
the tightness of the management control systems.

B. Choice of controls
 The different types of controls (action, results and people controls) are not equally
effective at addressing each of the control problems.

 Start with personnel/cultural controls :

1. Personnel/cultural controls:
- Must always be relied on to a certain extent
- Have relatively few harmful side-effects
- Involve relatively low out-of-pocket costs

2. Advantages and disadvantages of action controls: Action controls also provide

several other advantages. Action controls tend to lead to documentation of the
accumulation of knowledge as to what works best. The documents that are
produced (e.g. policies and procedures) are an efficient way to transfer
knowledge to the employees who are performing the actions.
But action controls have a number of disadvantages. First, there is a severe feasibility
limitation. As we discussed earlier, excellent knowledge of what actions are desirable
exists only for highly routinized jobs.

3. Advantages and disadvantages of results controls: Another advantage of

results controls is that employee behaviors can be influenced even while the
employees are allowed significant autonomy. This is particularly desirable
when creativity is required because autonomy allows room for new and
innovative ways of thinking. But even where creativity is not important,
allowing autonomy has some advantages. Results controls, however, have
some disadvantages or limitations. First, congruence or alignment problems
may arise due to imperfect knowledge of desirable results.

C. Choice of control tightness

1. What are the potential benefits of tight controls?
 In any organization, tight control is most beneficial over the areas most critical to the
organization’s success. The critical success factors vary widely across organizations. For
example, inventory control is critical in retail superstores because carrying heavy inventories
without tight controls amounts to inefficient use of resources without value-added for the
customer experience, where the inventory control also must ensure that stockouts do not erode
customer experience. Tight inventory control can be implemented by focusing on key results if
employees can be trusted to determine how to keep inventory near the required service levels, or
key actions that involve detailed inventory procedures and decision rules.

2. What are the costs?

Some forms of control are costly to implement in tight form. As we discussed earlier,
tight action controls in the form of preaction reviews, for example, can require
considerable top management time to do the reviews. Some other action controls, such as
for compliance purposes, can require a lot of information gathering, checking, and
reporting time, known colorfully as “paper pushing” for those completing and reviewing
the reports.

3. Are any harmful side-effects likely?

All the conditions necessary to make a type of control feasible, such as knowledge about
how the control object relates to the desired ends, may not be present. If so, harmful side
effects are likely if the control is implemented, especially if the control is implemented in
tight form. For example, if the environment is unpredictable and the need for creativity is
high, such as in hi-tech firms, good knowledge does not exist about either the actions that
are needed or the results that should be accomplished.
 SUMMARY
MANAGEMENT CONTROL SYSTEM
CHAPTER 6 DESIGNING AND EVALUATING MANAGEMENT CONTROLS
SYSTEM

Z class
Group 3 :

1. Putri Agustina (2017310031)

2. Rika Kartika (2017310195)
3. Hana Nur Aidah (2019340814)

SEKOLAH TINGGI ILMU EKONOMI PERBANAS SURABAYA

2019/2020