MCS 4 &5

Designing the Control Process and

Managerial Controls
• Introduction
• Classification of management controls
• Schools of thoughts in controls
• Designing managerial controls
• - The Control Process Hierarchy
• - Communication and reporting structures in
the control system
Management Classification Schemes
Controls
Classification Basis Classifications
Object of Controls Action Controls
 Behavioral Restrictions
 Pre-action appraisals
 Action accountability
Results Controls
Personnel / cultural controls
Extent of formalization of Formal Controls
controls Informal controls

Time of Implementation of Open loop control

Controls Closed loop
 Feed forward control
 Feedback control
 Schools of thoughts in controls
• Contingency Approach:
• Contingency theory is based on the premises that the design
and use of control systems is based upon the particular
context of the organizational setting in which controls operate
• Contrary to universalistic approach –there is an optimal
scheme of design which is applicable in all settings and firms
• The term ‘ contingency’ implies that the structure and process
are contingent on various external and internal factors.
• Contingency theory focuses on the interaction between the
organization and its environment
• The need for the contingency approach:
• Factors –technology, organizational structure and the
environment have led to the emergence of contingency
formulations in control systems
• Fisher( 1998) developed an approach to contingency theory
and identified five contingent control variable:
• Uncertainty
• Technology and interdependence
• Industry, firm and unit variables
• Competitive strategy
• Mission and observability factors
 Cybernetic approach
• Cybernetics has its origin in the Greek word’ Kybernetics’ which
means ‘steersman’ . A steersman is a person who directs the
movement of ship along with the planned course of direction.
• Norbert Weiner coined the term cybernetics.
• It the study of “ the entire field of control and communication
theory, whether in the machine or the animal.
• Radar, artificial intelligence, animal genetics, robots
• The essential elements are:
• Set goal and performance measures
• Measure achievements
• Compare achievements with goals
• Compute the variables as a result of preceding comparison
• Report the variance
• Determine causes of variances
• Take actions to eliminate variances
• Follow up to ensure that the goals are met
 The Control Process Hierarchy
• An organization consists of many responsibility centers.
• A responsibility center is an organization unit that is headed
by a manager who is responsible for its activities.
• Control process to include superior- subordinate behavior as
Means-end chain relationships
• The superior communicates goals of the organization to the
subordinates, who in turn devises strategies to achieve those
ends.
• The goals of subordinates should be congruent to the goals of
superior.
• Congruency in goals can be achieved through negotiation
depending on the style of the management and the
communication process in the organization.
• Decentralization

• Organizational Slack
• Cyert and March define organizational slack as “ the disparity between the
recourses available to the organization and the payments required to
maintain coalition.”
• In other words organizational slack refers to that capacity which is surplus
of what is required for the normal operation.
• Organizational slack occurs when an organization under-exploits its
environment. This results in higher salaries, wages and perquisites than
necessary to carry out the goals and objectives of the firm.
• Setting targets lower than expected performance, pricing products lower
than is necessary for retaining customers.
• Higher dividends than necessary to maintain the confidence of
Shareholders.
• If it is the part budgeting activity, is called budgetary slack- amount
budgeted in excess of the actual requirement.
• Stakeholder controls-identify all the stakeholders and
analyze crucial stakeholder variables.
Communication structures in support
of the control process
Cybernetic model of the control process is an information-processing or
communications models
1. Formal and informal process that scans the environment facing the
organizational sub-units. Environmental scanning of subunits and providing
data required for formulating goals plans and decisions
2. Planning process where goals, objectives and performance measures are set.
• Strategic planning-developing and sustaining the organization’s competitive
advantage
• Business planning- resource allocation decisions
• Programming-long-range planning
• Operating budgeting-upcoming period’s operating and profit plans
3. Feedback comes from environmental scanning and internal from
performance measurement system( from the internal accounting systems).
Key performance measures and reports.
4. Decision making procedures- standard operating procedures are used to solve
various problems. Cost –benefit analysis for alternatives and monitoring the
implementation of decisions.