MANAGEMENT

CONTROL SYSTEM
3rd SESSION
 BEHAVIOR IN
ORGANIZATION
Behavior in Organization

Key elements in organizational behavior

People

Environment Environment

Organization

Structure Technology

Environment
 Behavior in Organization
• Management Control is the process by which
managers influence other members of the
organization to implement the organization’s
strategies.
• Management Control System influence human
behavior.
• Good management control systems influence
behavior in a goal congruent manner.
 Goal Congruence

• Organizations goals versus Individual goals

• Formal system and informal process influence
human behavior in organization , they affect the
degree to which goal congruence can be achieved.
• Formal mechanisms must be consistent with
informal forces, both a key role in achieving goal
congruence.
 Goal Congruence

• In evaluating any management control practice, the

two most important questions to ask :
• What actions does it motivate people to take action in
their own self-interest ?
• Are these actions in the best interest of the organization?
 Informal Factors

External factors
• Work ethic
(Loyal, spirit)

Human
behavior Goals
Internal factors
• Culture
• Management style
• Informal
organization
• Perception &
communication Action Congruenc
e

Management
control
 Culture
• The common beliefs, shared values, norms of behavior , and
assumptions that are implicitly accepted and explicitly
manifested throughout the organization.
• Culture is the most important internal factor in the
organization.
• Organizational culture is also influenced strongly by
personality and policies of the CEO, and by those lower level
managers with respect to the areas they control,.
• The rules and norms accepted by union also have a major
influence on the organization’s culture.
 Formal Control System

• Physical
Control
Management • Manuals
Control • System
safeguard
Formal Control • Task Control
System System

Rules
 Formal Control Process
geGoals & Other
information
strategies
Rules Yes

reward

Report
Strategic Responsibility Performance
Budgeting Actual vs
Planning Center satisfactory
plan
performance

r r
Measurement
e e No
a o
v v
c
i i t
s s u
e e a
l
Feedback/communication
TYPES OF ORGANIZATIONS
 A firms strategy has a major influence on its structure. The type of structure
, influence the design of the organization’s management control system.
• Functional structure
• Each manager is responsible for a specified function such as production or marketing
• Business unit structure
• Business unit managers are responsible for most of the activities of their particular unit and
the business unit functions as semi-independent part of the company
• Matrix structure
• Functional units have dual responsibilities.
• Companies can choose from three basic organization structure. The specific choice of
organizational structure influences the design of management control system.
 TYPES OF ORGANIZATIONS
(Continued)

• Functional organizations
• Advantages
• Manager brings specialized knowledge to bear on decisions related to
specific function.
• Skilled specialist should able to supervise workers in the same function.
• Disadvantages
• Ambiguous way of determining the effectiveness of the separate functional
managers.
• The organization consists of managers in one function who report to
higher-level managers in the same function.
• Inadequate for a firm with diversified products and markets.
TYPES OF ORGANIZATIONS
(Continued)

• Business Unit
• Managers responsible for planning and coordinating the work of the
separate functions.
• Managers exercise broad authority over their units.
• Headquarters is responsible for obtaining funds for the company as the
whole.
• Headquarters approve budget and judges the performance of business unit
managers, sets their compensation.
• Headquarters establishes companywide policies.
• Headquarters staff may assist the business unit such as HR, legal affair,
public relation, controller and treasury.
 TYPE OF ORGANIZATIONS
(Continued)

• Business Unit
• Advantages
• Provides a training ground in general management.
• Business unit is closer to the market and the unit can react
quickly.
• Disadvantage
• The business unit manager is presumably a generalist but
subordinate are functional specialist.
• Disputes between business units personnel and head quarters
staff.
 FUNCTIONS
OF THE CONTROLLER
• Controller is responsible for designing and operating
the management control system .
• The following function usually performs by
Controller :
• Designing and operating information and control system,
• Preparing financial statements and financial report,
• Preparing and analyzing performance report, interpreting
these report and analyzing program and budget proposal and
consolidating as annual budget,
 FUNCTIONS OF THE
CONTROLLER (Cont’d)
• Supervising internal audit and accounting control procedure,
• Developing personnel in the controller organization and participating in the
education of management personnel relating to the controller function.
• The Controllership is staff function, controller does not make management
decisions.
• Controller also play an important role in the preparation of strategic plans and
budget.
• In companies organized into business units, the relationship between the
business unit controller and the corporate controller is always subject to
debate.
• Controller must stay independent of entity’s managers.
 Alternative Controller
Relationship
Corporate Corporate
Controller Controller

Business Unit Business Unit Manager

Manager

Business Unit Business Unit

Controller Controller
THANK YOU
SEE YOU LATER