Slide 6.

Chapter 6:
Designing and Evaluating
Management Control
Systems

Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 6.2

Designing control systems

 Two basic questions
» What is desired?
» What is likely to happen?

 If what is likely is different from what is desired, then

two basic MCS-design questions must be addressed

» What controls should be used?

» How tightly should each be applied?

Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 6.3

What is desired?
 Start from objectives and strategies
» They should be important guides to the actions that
are expected, especially if they are specific
 For example, “Become a leader in the industry”

vs. “15% ROI and 20% sales growth”

– Identify the key actions (KA)
» Actions that must be performed to provide the greatest
probability of success
– Identify the key results (KR)
» Key areas where things must go right (or cannot go
wrong) for the business to flourish

Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 6.4

What is likely?
 Three questions
» Do employees understand what they are expected to
do (key actions) or to accomplish (key results)?
 lack of direction

» Are they properly motivated?

 lack of motivation

» Are they able to fulfil their desired roles?

 personal limitations

 The discrepancy between what is desired and what is

likely will determine the choice and the tightness of
the management control systems
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 6.5

Control system change

 As firms grow, their controls evolve usually towards:

» Increased formalization of procedures

 for action accountability purposes

and/or

» Development of more elaborate information

(“accounting”) systems
 for results control purposes

Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012