Esperanza R.

Yumang MBA – 1
Professor: Dr. EDGEL EARL A. ABEAR, CPA, MBA, DBA

What are the characteristics of a good management control?

Management controls are important for organizations because failures in management

controls can lead to large financial losses, reputation damage, and possibly even to
organizational failure.
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.
Good management control stimulates action by spotting the significant variations from the
original plan and highlighting them to check errors in order to take corrective actions.
The characteristics of a good management control are good control, out of control, perfect
control, control loss, and optimal control.
Define Good Control, Out of Control, Perfect Control, Control Loss, and Optimal Control.

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.
What is meant by Control Problem Avoidance?

Control Problem Avoidance means eliminating the possibility that the control problems
will occur. In most situations, managers can avoid some control problems by allowing no
opportunities for improper behavior.
Explain and give situational examples of the four prominent avoidance strategies.

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 or
managers without the means to control certain activities, perhaps because they do not
understand the processes well, can eliminate the associated control problems by turning
over their potential profits and the associated risk to a third party, for example, by
subcontracting or divesting.
Automation
Computers and other means of automation reduce the organization's exposure to control
problems because they can be set to perform appropriately (that is, as the organization
desires), and they will perform more consistently than human beings do. Consequently,
control is improved. Limitations are: feasibility, cost and the replacement of control
problems with others.
Centralization
Centralize decision-making in some areas of their companies at specific points in the
histories to improve control takes a place with very critical decisions at most organization
levels. If a manager makes all the decisions in certain areas, those areas cease to be control
problems in a managerial sense because no other persons are involved.
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 to enter into joint venture agreement. With this, many
companies bond employees in sensitive positions, and in so doing, they reduce the
probability that the employees' behavior will cause significant harm to the firm.