Object of Control Framework

Question 1

What is Management Control

Answer 1

• Ensuring that employee’s behaviour is aligned with organisational goals
• Use of financial and non-financial information and monitoring mechanisms.
• Influencing behaviours in desirable ways
• MC is internally focused vs. strategic control in more concerned with the external positioning of the firm.
• UBS fined £29.7million by FSA over rogue trader. Lack of controls meant unauthorised trading and substantial loss Reputation as a “most valuable asset”.

Question 2

Under the broad area of management what are the three processes discussed?

Answer 2

•Objective setting – the prerequisite for any purposeful activity and MCS, important in determining success.
•Strategy formulation – define how organisations will use their resources in order to meet their objectives
•Management control – focuses on execution. Are our employees likely to behave appropriately?
1. Understand Expectations
2. Pursue objectives in line with strategy
3. Capability

Question 3

What problems should management controls address?

Answer 3

• Lack of direction – 81% of senior managers understands the value drivers of their business strategy and 13% believe non-management understand them. Employees set goals based on their own views rather than direction from leadership.
• Motivational problems – occurs because the individual vs firm objective do not coincide (individual self-interest). Frederick Taylor’s scientific management says individuals work slowly on purpose. Motivation should be the primary focus of MCSs
• Personal limitations – occurs when a person lacks aptitude, training, stamina, experience or knowledge of the tasks at hand. Promotions to positions above competence. Poor job design. Limits in facing new problems, remembering facts and processing information properly.

Question 4

What are the mechanisms for control problem avoidance?

Answer 4

• Activity avoidance – Subcontracting, licensing and divestment. Nestle divesting its skin care unit which includes Loreal)
• Automation – the use of computers, robots and expert systems to rid human problems of dishonesty, disloyalty, inaccuracy and lack of motivation. Bank trading digital lower risk. Limitations of feasibility and cost. Exposed to programme errors and fraud. Self-serve kiosks in all super markets.
• Centralisation - lower level employees making bad decisions “McDonaldization of things”. Not fashionable and creates “red tape”
• Risk sharing – Insurance!