Advanced Management Accounting

Chapter 1 – Management and Control

Management

Management control is the back end of the management process.

Objective setting

Knowledge of objectives is a necessary prerequisite for the design of an MCS. In most organizations the objectives are known.

Strategy formulation

Strategies define how organizations should use their resources to meet their objectives. They are constraints that organizations place on their employees so that they will focus their activities on what their organizations do best.

Management control vs. Strategic control

Control systems can be viewed as having 2 basic functions:

1) Strategic control

2) Management control

Strategic control involves managers addressing the question: Is our strategy valid?

Managers addressing strategic control issues have a focus primarily external to the organization ( they examine the industry and their organization’s place in it.

Management control involves addressing the question: Are our employees likely to behave appropriately? Broken down into 3 parts:

1) Do the employees understand what is expected of them?

2) Will the employees work consistently hard and try to do what is expected of them?

3) Are they capable of doing a good job?

4) If any above is no ( how can management solve the problem?

Managers addressing management control issues have primarily an internal focus ( they think about how they can influence employees’ behaviors in desired ways.

Behavioral emphasis

Management control involves managers taking steps to help ensure that the employees do what is best for the organization. It is the people who make things happen.

CAUSES OF MANAGEMENT CONTROL PROBLEMS

The causes of the needs for control can be classified into 3 main categories

1) Lack of direction

2) Motivational problems

3) Personal limitations

Lack of direction

Some employees perform poorly simply because they do not know what the organization wants from them....