Course : F0942 Management Control System

Year
: 2013-2014

Designing and Evaluating Management

Control System

Slide 6.3

Chapter 6:
Designing and Evaluating
Management Control Systems

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 6.4

Designing control systems

Two basic questions:

What is desired ?
What is likely to happen ?

If what is likely is different from what is desired, then

two basic MCS-design questions must be addressed:
What controls should be used ?
How tightly should each be applied ?

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 6.5

What is desired ?

Start from objectives and strategies

They should be important guides to the actions that
are expected, especially if they are specific.
e.g., Become a leader in the industry vs.
15% ROI and 20% sales growth.

Identify the key actions (KA)

i.e., actions that must be performed to provide
the greatest probability of success.

Identify the key results (KR)

i.e., the few key areas where things must go
right for the business to flourish.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 6.6

What is likely ?

Three questions:
Do employees understand what they are expected
to do (key actions) or to accomplish (key results)?
lack of direction
Are they properly motivated?
lack of motivation
Are they able to fulfil their desired roles?
personal limitations

The discrepancy between what is desired and what is

likely will determine the choice and the tightness of
the management control systems.
Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007

Slide 6.7

Control system change

As firms grow, their controls evolve usually towards:

Increased formalization of procedures

for action accountability purposes

and/or

Development of more elaborate information

systems

for results control purposes.

Kenneth A. Merchant and Wim A. Van der Stede, Management Control Systems, 2nd Edition Pearson Education Limited 2007