Management Control Systems

Question 1

FOUR GOLDEN RULES: The organisation’s ethical code of values must be embedded into…

Answer 1

The MACS

Question 2

Performance measures should be composed of…

Answer 2

a mix of long and short-term, quantitative and qualitative.

THE BALANCED SCORECARD COULD EASILY FULFIL THIS REQUIREMENT.

Question 3

FOUR GOLDEN RULES: Employees must be included in…

Answer 3

MACS design and must feel confident to broach concerns about any managerial breaches of ethics.

Question 4

The incentive/compensation system must be designed to…

Answer 4

reward compliance with organisational goals whilst preventing rewards from unethical behaviour.

Question 5

TAYLORISM AND FORDISM

Answer 5

Idea that work is unpleasant, humans are lazy and the only incentive for working is money. Front line staff should not use initiative.

There should be close control and monitoring of workers, and work should be easily checked and compared.

NATURE OF WORK HAS CHANGED
Still exist, but ideas have been negated.

Question 6

THE HUMAN RESOURCE MODEL OF MOTIVATION (Key Points)

Answer 6

• Humans enjoy a sense of belonging and want to participate. They want a say in setting their goals.
• Involves a system of beliefs on value, purposes and direction of the organisation
• The assumption is that people are creative, ethical and responsible.

Question 7

ETHICAL FRAMEWORK

Answer 7

-If clear guidelines are embedded into company policy (MACS in particular) at the beginning, ethical problems are less likely to occur.

Question 8

What causes managers to stray from ethical framework?

Answer 8

1. Tailor information to favour or disfavour individuals or groups.
2. Falsify reports or test results.
3. Provide confidential information.
4. Ignore a questionable practice.

Question 9

How are ethical dilemmas avoided?

Answer 9

• By having a comprehensive ethical code which is provided to everyone.
• There must be organisation wide understanding and compliance with the code. Appropriate safeguards in place to discourage and prevent unethical behaviour.
• Employees must be confident that if they were to report an event of ethical misconduct it would not impact them negatively.

Question 10

HIERARCHY OF ETHICAL AUTHORITY

Answer 10

1. National laws
2. Societal norms
3. Professional memberships
4. Organisational/group norms
5. Personal norms

Question 11

What are the problems with the ethical hierarchy?

Answer 11

• It is ideal as a framework, however it would never cope with “grey-areas”.
• It ranks substance over form.
• Hint of utilitarianism (actions are right if they are useful or for the benefits of the majority). Group over individual.

Question 12

What is the key to success for employees?

Answer 12

PARTICIPATION - Improves job satisfaction and morale.

Question 13

INTRINSIC EMPLOYEE REWARDS

Answer 13

This type of reward comes from doing the job.
Repetitive jobs typically have less job satisfaction.

Difficult for top management to design intrinsic rewards in - How do you cost it?

Question 14

EXTRINSIC EMPLOYEE REWARDS

Answer 14

This is much easier for management but can be a clumsy solution.

If done effectively, intrinsic rewards should prove to be just as effective as extrinsic.

E.g. bonuses, prizes.

Question 15

INTRINSIC VS. EXTRINSIC

Answer 15

Some occupations are high status but low financial reward.

Some occupations offer much higher rewards but lower status.

Some argue that extrinsic rewards are needed as they are a tangible display of superior performance.

Question 16

What helps the difficulty of making a decision on reward?

Answer 16

Transparent criteria for rewards.

Question 17

ABSOLUTE PERFORMANCE MEASURES

Answer 17

• Reward based on gross profit/net profit.
• Reward based in quality, delivery, etc.
• Reward based on share price performance.

Question 18

RELATIVE PERFORMANCE MEASURES

Answer 18

• Meeting a performance target. E.g. coming under budget for a specific task.
• Exceeding an average performance measure; the measure could be in terms of either inputs or outputs.
• Whether a measure is relative or absolute, it must relate to an employee’s task(s).

Question 19

Where do reward systems work?

Answer 19

it is believed that such schemes work best in areas where employees are empowered to make decisions to cope with changing circumstances.
Where employees are subject to significant degrees of control, these systems may prove inadequate.

Some reward systems, such as share options, almost bond an individual (typically a director or senior manager) to a company).

Question 20

Hazards of top down budgeting?

Answer 20

• Budget slack
• Spending to the budget
• Passing expenditures from one divisions to another, and
• Budget constrained approaches to control systems.

These don’t just occur in isolation, there is always a good reason for them.
Sometimes it’s more of a system failure, e.g. spending to the budget - on other occasions, e.g. budget slack, it’s down to lack of goal congruence.

Question 21

What are the two key stages of the budget?

Answer 21

1. Designing the budget process.

2. Influencing the budget process.

Question 22

Behavioural influences in designing the budget process?

Answer 22

Where does top management get figures for the budget from?

Consider three models?:

1. Authoritative
2. Participative
3. Consultive

Question 23

AUTHORITATIVE BUDGETING

Answer 23

No input from budget holder (“you will”).
Quick, easy, efficient, allows for good coordination.
Fine for a small business where the proprietor has a superior knowledge of the business and its context, however, for larger businesses and where professional or skilled people are employed, it can be disastrous.

Question 24

Why does authoritative budgeting not work in bigger businesses?

Answer 24

Highly specialised, the authoritarian figure cannot know everything about every part of their business.
Lack of participation leads to poor motivation and less employee commitment.

Question 25

STRETCH BUDGETING

Answer 25

Pioneered by GE and Boeing.
By stretching targets beyond normal increments, employees should provide better performance.
Short term gains. Humans cannot provide a sustained level of effort needed for these stretch budgets.
Some employees welcome the stress - others will move elsewhere.

Question 26

PARTICIPATIVE BUDGETING

Answer 26

Collegiate, consensual, joint decision making process.
Excellent benefits from job satisfaction, innovation, workplace ambience, empowerment and morale.
However, it can be unwieldy and slow.

Question 27

What is participative budgeting recommended for?

Answer 27

Highly skilled or professional environments, or for highly competitive and dynamic environments.

Question 28

CONSULTATIVE BUDGETING

Answer 28

Hybrid between participative and authoritative.
A senior manager will prepare the budget, but s/he will consult with juniors first.
Faster than participative, but more morale boosting than authoritative. Ideal for very bug businesses where participative approaches would be too unwieldy.

Question 29

What is the problem with consultative budgeting?

Answer 29

The risk of pseudo participation.

If employees find out that their ideas have been completely ignored then the senior’s reputation will be affected.

Question 30

What can participation lead to (negative)?

Answer 30

Lead to budget slack
A number of budget games may be noted
It is dangerous to generalise, but elements of all these behaviours might be seen.

Question 31

Examples of budget gaming.

Answer 31

EMPIRE BUILDERS - create such a complex web and network that it becomes virtually impossible to cut their budgets.

Some people will use “decoys” to distract attention from areas of their operation which are growing uncontrollably.

Others will take on a “Dogbert” approach - impressive graphs, charts, Powerpoints, etc. Management might be reluctant to challenge such overt entrepreneurialism.

Blackmail may be used.

Hyperbole is quite common.