Management Control Systems

Behavioural Aspects in Management Control Systems

by | Feb 17, 2023

In the realm of Management Control Systems (MCS), one critical but often underestimated factor is the role of human behavior. Understanding the behavioral aspects of MCS is essential for designing effective control systems that not only align with organizational objectives but also consider the human element within the organization. As we continue our journey through MCS, let’s explore the significance of behavioral aspects and their impact on control systems.

Understanding Behavioral Aspects

The Human Element in Control

Behavioral aspects in MCS refer to the influence of human behavior on the design, implementation, and effectiveness of control systems. These aspects recognize that individuals within an organization are not merely passive recipients of controls but active participants who can shape and respond to them.

Key Behavioral Factors in MCS

What Drives Human Behavior in Organizations

  1. Motivation: Understanding what motivates employees to perform well or engage in unethical behavior is crucial in designing incentive structures and control mechanisms.
  2. Trust: Trust is the foundation of any control system. Employees must trust that the system is fair, transparent, and impartial to willingly comply with it.
  3. Resistance to Control: Employees may resist control systems if they perceive them as invasive, unjust, or undermining their autonomy.
  4. Ethical Behavior: Behavioral aspects also involve promoting ethical behavior and preventing fraud or misconduct within the organization.
  5. Perception: How employees perceive control measures, their purpose, and their consequences can significantly impact their response to those measures.

Impact of Behavioral Aspects on MCS

Why Behavioral Considerations Matter

  1. Control Effectiveness: Ignoring behavioral aspects can lead to control systems that are ineffective because they do not resonate with employees or align with their motivations.
  2. Employee Buy-In: Employees are more likely to buy into control systems when they understand the rationale behind them and perceive them as fair.
  3. Ethical Culture: Addressing behavioral aspects can foster an ethical culture within the organization, reducing the likelihood of unethical behavior.
  4. Adaptability: Control systems that consider behavioral aspects are more adaptable and responsive to changing employee attitudes and motivations.

Incorporating Behavioral Aspects in MCS Design

Strategies for Effective Integration

  1. Transparency: Ensure that control mechanisms are transparent, and employees understand how they work and their purpose.
  2. Fairness: Design control systems that are perceived as fair and just, taking into account different perspectives within the organization.
  3. Communication: Communicate the reasons behind control measures and their benefits, addressing employee concerns and questions.
  4. Incentives: Align incentive structures with employee motivations to encourage desired behavior.
  5. Training and Education: Provide training on the ethical and behavioral aspects of MCS to employees at all levels.

Challenges in Addressing Behavioral Aspects

Overcoming Hurdles

  1. Resistance to Change: Employees may resist changes to control systems, especially if they perceive them as intrusive or unfair.
  2. Complexity: Addressing behavioral aspects can add complexity to MCS design and implementation.
  3. Subjectivity: Assessing and responding to behavioral aspects often involves subjective judgments, which can be challenging to standardize.
  4. Resource Allocation: Implementing strategies to address behavioral aspects may require additional resources, including training and communication efforts.

Conclusion

Behavioral aspects play a crucial role in the effectiveness of Management Control Systems (MCS). Ignoring these aspects can lead to control systems that are ineffective, met with resistance, or fail to foster an ethical culture within the organization. On the other hand, addressing behavioral aspects in MCS design can result in systems that align with employee motivations, encourage ethical behavior, and gain employee buy-in, ultimately contributing to organizational success.

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Management Control Systems

1 Management Control Systems: An Introduction

  1. Nature, Definition, and Purpose of Management Control
  2. Basic Concepts and Elements
  3. Characteristics of Management Control System
  4. Objectives of Management Control System
  5. Types of Management Control Systems
  6. Components/Elements of Control Systems
  7. Foreign Ownership, Control, or Influence (FOCI)
  8. Complex Industrial Dynamics, Disaster and Management Control System
  9. Ethics and Management Control Systems
  10. Impact of the Internet on Management Control
  11. General Considerations in Designing Management Control System

2 Strategies and Management Control

  1. Mission and Objectives
  2. Concept of Strategy
  3. Strategy Planning
  4. Strategies and Core Competencies
  5. Corporate-Level Strategies
  6. Business Unit Strategies
  7. Strategies and Management Control: Interface
  8. Radical Performance Improvement and Management Controls
  9. Goal Congruence

3 Designing Management Control Systems

  1. Attributes of MCS
  2. Centralization Vs Decentralization
  3. Cybernetic Paradigm or the Feedback Factor
  4. Meaning and Implications of MIS
  5. Design Considerations in Designing MIS
  6. MIS and Total Knowledge Management (TKM)
  7. Behavioural Aspects

4 Responsibility Centres

  1. Strategy, Structure and Management Control
  2. Delegation of Authority
  3. Responsibility Accounting
  4. Responsibility Centres
  5. Establishment of Responsibility Centres
  6. Performance Evaluation of Responsibility Centres
  7. Designating unit as Responsibility Centres
  8. Management by Exception
  9. Variances: Their Meaning and Significance
  10. Responsibility Accounting: An Illustration

5 Cost Centres

  1. Type of Cost Centres
  2. Measuring the Performance of Engineered Cost/Expense Centres
  3. Performance Evaluation of Discretionarily Cost/Expense Centre
  4. Balanced Score Card
  5. Activity Based Costing
  6. Some Special Discretionarily Cost Centres
  7. Controllability vs. Non-Controllability of Costs

6 Profit Centres

  1. Profit Centres
  2. Corporate Philosophy and Style and Profit Centre Autonomy
  3. Diversification and Decentralization
  4. Benefits and Limitations of Profit Decentralization
  5. Making Success of Profit Decentralization
  6. Establishing Profit Centres
  7. Boundary Conditions for Profit Centres
  8. Prevalence of Profit Centres
  9. Motivational Value of Profit Centres
  10. Genuine and Artificial Profit Centres
  11. Performance Measurement of Profit Centres
  12. Target Profit, Budgeting and Reports
  13. Analysis of Profit Centre Results
  14. Performance Appraisal

7 Investment Centres

  1. Investment Centres
  2. Objectives of Investment Centres
  3. Overall Performance Measures
  4. Return on Investment (ROI) as a Performance Measure
  5. Precautions While Using ROI
  6. Residual Income (RI) as a Performance Measure
  7. ROI and RI (EVA): A Comparative Analysis
  8. Measuring Investment Base
  9. Allocation of Central Office Assets
  10. Asset Valuation Alternatives
  11. Replacement Costs (Historical vs. Replacement Costs)
  12. Economic Appraisal of Investment Centres
  13. Appraisal of Managerial Performance

8 Transfer Pricing

  1. Methods and Criteria of Transfer Pricing
  2. Categories of Inter-company Transfer
  3. Types of Intangibles
  4. Modes of Transfer of Intangibles
  5. Other Categories of Inter-company Transfer
  6. The Arm’s Length Principle
  7. Application of the Arm’s Length Principle

9 Budgeting and Reporting

  1. Classification of Budgets for different purposes
  2. Building Blocks of Budgets/Budget Setting Process
  3. Flexible Budgeting
  4. Budgetary Control System:
  5. Capital Budgeting and Control
  6. Behavioural and Ethical Aspects in Budgeting and Reporting

10 Performance Measurement

  1. Paradigm about Measurement
  2. Framework for Performance Measurement System
  3. Type of Metrics
  4. Requirement for a Performance Measurement System
  5. Single vs. Multiple Performance Indicators
  6. Key Success Factors

11 Reward and Compensation

  1. Over riding Objectives
  2. Characteristics of Incentive Compensation Plans
  3. Incentives for Corporate Officers and CEO’s
  4. Incentive for Business Unit Managers
  5. Benefits of Performance Dependent Reward
  6. Research Findings on Organisational Incentives

12 Techniques of Management and management Control

  1. Total Quality Management (TQM)
  2. Business Process Reengineering (BPR)
  3. Enterprise Resource Planning (ERP)
  4. Value Added Analysis
  5. Programme and Performance Budgeting (PPB)
  6. Agency Theory Framework
  7. Management by Objective (MBO)
  8. Activity Based Costing (ABC)

13 Service Organisations

  1. Characteristics of Service Organisations
  2. Financial Service Organisations
  3. General Characteristics of Banks
  4. Risk Characteristics of Banks
  5. Insurance Companies
  6. Mutual Funds
  7. Non-Profit Organisations

14 Multinational and Export Organisations

  1. Definition of Multinational Corporation
  2. Differences across Countries
  3. Transfer Pricing
  4. Exchange Rate and Management Control
  5. Control System Design Issues
  6. Special Control Issues in MNCs

15 Management Control of Projects

  1. Nature of Projects
  2. Contrast with Ongoing Operations
  3. The Control Environment
  4. Project Planning
  5. Project Execution
  6. Project Evaluation

16 Other Organisations

  1. Nature of Development Organisations
  2. Management Control System in Development Organisations
  3. Components of Management Control
  4. Limitations of Management Control
  5. Small and Medium Enterprises (SMEs)
  6. Knowledge Organisations