Singgih Wijayana, Ph.D.

 BasicConcepts
 Boundaries of Management Control
 Road Map for the Reader
 Elementsof Management Control
Systems include:
• Strategic planning
• Budgeting
• Resource allocation
• Performance measurement
• Evaluation and reward
• Responsibility center allocation
• Transfer pricing
 Control
Elements of a control system consists
of:
1. A detector
2. An assessor
3. An effector
4. A communication network
1. A detector or sensor is a device that measure
what is actually happening in the process being
controlled.
2. An assessor is a device that determines the
significance of what is actually happening by
comparing it with some standards or
expectations of what should happen.
3. An effector (feedback) is a device that alters
behavior if the assessor indicates the need to
do so.
4. A communications network consist of devices
that transmit information between the detector
and the assessor and between the assessor and
the effector.
 2. Assessor.
Control
Comparison with
devices
standard

1. Detector. Information 3. Effector. Behavior

about what is happening alteration, if needed

Entity being
controlled
 Example: You are driving a car
• Detectors = Your eyes
• Assessor = Your brain
• Effector = Your foot
• Communication network = Your nerves system
 Management
• The management control process is the process
by which managers at all levels ensure that the
people they supervise implement their intended
strategies.
 Systems
• A system is a prescribed and usually repetitious
way of carrying out an activity or a set of
activities.
• If all systems ensured the correct action for all
situations, there would be no need for human
managers.
 Strategy formulation is the process of
deciding on the goals of the organization
and the strategies for attaining these goals.
 Management control (Anthony and
Govindarajan, 2004): is the process by
which managers influence other members
of organization to implement the
organization’s strategies.
 Task control is the process of ensuring that
specified tasks are carried out effectively
and efficiently.
 Activity Nature of End Product

Strategy
Formulation Goals, strategies, policies

Management
Control Implementation of strategies

Task Efficient and effective

Control performance of tasks
 Management control involves:
• Planning
• Coordinating
• Communicating
• Evaluating
• Deciding
• Influencing
 Goal congruence
• The goals of an organization’s individual
members should be consistent with the goals of
an the organization itself.
 Implementation Mechanism

MCS

Strategy Structure HRM Performace

Culture
Characteristics Strategy Formulation Control Management

System design Unsystematic, Strategic Rhythmic,

decision may be made predetermined
any time procedures

Nature of Tailored-made to faced Integrated, more

information problems, more external internal and historical,
and predictive, less more accurate
accurate

Communication of Simple Difficult

information

Involved people Top management and Top management and

staffs line managers
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Characteristics Strategy Control
Formulation Management
Number of Few people Many people
involved people
Mental activity Creative and analytic Administrative and
persuasive
Discipline Economics Social psychology
Time horizon Tend to long-term Tend to short-term
End products Goals, strategies Strategy
implementation

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Characteristics Control Task Control
Management
Focus of activity The whole of Individual task or
operation transaction
Nature of Integrated, many Tailored-made to
information financial data individual task, more
non-financial data
Involved people Management Supervisor or none
Mental activity Administrative Follow direction or
and persuasive none
End products Strategy Tasks are carried out
implementation effectively and
efficiently
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Characteristics Control Task Control
Management
Mental activity Administrative and Follow direction
persuasive or none

Discipline Social psychology Economics,

physics
Time horizon Weekly, monthly, Daily
annually
Type of cost Discretionary costs Engineered costs

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Strategy Formulation Management Task Control
Control
Enter a new business Expand a plant Schedule production
Change debt to equity Issue new debt Manage cash flows
ratio
Add direct mail selling Determine Book TV commercials
advertising budget
Decide magnitude and Control of research Run individual
direction of research organization research project

Acquire an unrelated Introduce new Coordinate order

business product or brand entry
within product line

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Impact of the internet on management
control
 The internet provides major benefits that
the telephone does not:
• Instant acces
• Multi-targeted communication
• Costless communication
• Ability to display images
• Shifting power and control to the individual.
 But, the
internet cannot substitute for the
fundamental processes that are involved in
management control.
 Themanagement control enviroment
(Part 1)
• Chapter 2  the generic types of organization
strategies.
• Chapter 3  the characteristics of orgaizations
that affect management control process.
• Chapter 4, 5, 6, 7  define and describe
different types of RC, and discuss the
considerations involved in assigning financial
responsibility to various organizational subunits.
 The management control process (part 2)
• Chapter 8  strategic planning.
• Chapter 9  budget preparation.
• Chapter 10, 11, 12  performance measurement,
performance evaluation, and management
compensation.
 Variations in management control (part
3)
• Chapter 13  differentiated controls for
differentiated strategies
• Chapter 14  service organizations
• Chapter 15  multinational organizations
• Chapter 16  management control of projects.
“Bad habits die hard”