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Management Control for A&C summary
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Management Control for A&CFaculty Economics and Business
Year 20/21
Course code EBB102B05
Course name Management Control for A&C
Period Semester IB
Credits (ECTS) 5
Compulsory literature Management Control Systems, Mc Graw Hill; London etc., first
European edition 2014. (ISBN13:9780077133269)
It becomes crucial to orient, influence, and check the decisions and actions employees make based
on the resources entrusted to them to ensure an effective and efficient use of scarce resources. This
is fundamentally the purpose of management control systems (MCS).
Content of the course
The course Management Control (MC) discusses various instruments and systems in the field of
management accounting (MA) and MC. These instruments and systems can help managers to
increase the sharing of goals between the employees, as well as their cooperation, so that the
attainment of organizational goals is facilitated. They can also supply information for decision making
and control in organizations. Of greater importance are problems of choosing the most appropriate
instruments and systems in a specific situation and the issue how general management can use the
accounting information and other information in their tasks of decision making and planning &
control. Different factors can influence the role and function of MA and MC in organizations. Control
instruments and their organizational context are discussed.
In this course; no universal or total solution. Sees what’s best serves the interest!
You really need to understand in which situation you are and weight the pros and cons of every
option. The purpose of this course is to give you all the options in terms of MC mechanisms or tools
that you can rely on and give you the reasoning to see which options are the best regarding the
situation you are in.
Keep in mind: reasoning process is more important than the details!
Learning goals of the course:
1. Critically discuss the most important concepts in the field of MC.
2. Identify purposes of quantitative and qualitative MA and MC instruments and techniques and
how they can help to control organizations.
3. Combine quantitative and qualitative instruments and means to advise on the daily practice
of MC of organizations.
4. Analyse academic papers on MA and MC critically.
5. Interpret problem descriptions and case situations to decide which technique or instrument
to use to support decision making by managers and to solve accounting and control
problems in the organization.
6. Present and discuss academic papers or cases about specific MC issues to an audience of
peers.
Exam
Case component in the exam. 30% to the first cases that Dr. Firk discussed. 30% regarding the cases
and 30% Dr. Mangin discussed. 40% questions about the topics in the lectures and the book.
,Chapter 1: Introduction to MC
There is no organization without management control. Management control and MCS are centred in
every organizations. This is a major lever on why some organization are more successful than others.
Management control is never the same: each organization have different strategic goals, serve
different market, and have different value creation processes. Management control is crucial for the
organization’s well-being as soon as the organization grows and starts to decentralize.
The book views management control as the interaction between the managers in the organization
and the structures and process that help them execute control. These two perspectives form the
basis for understanding, evaluating, and designing effective management control systems.
What is management control?
Spies and monitors who control tasks of employees are no examples of MC. This is rather related to
management accounting. Management control is rather related to steering. Steering is a synonym for
management control. Managers are considered as holding the wheel and giving instructions to
‘lower-level managers’ or employees in such a way that the organization reach its goal and strategies.
Therefore, management control is very closely related to strategy. MC also relates to delegating
decisions. If you have an organization with many employees, you cannot give every employee
detailed instruction. Therefore, delegating is important.
Chapter 2: Designing MCS
The system used by managers to control the activities of an organization is called the MCS. MC,
strategy formulation, and task control are three functions which are expressed in almost every
organization.
Chapter 3: Organizations and their environment
Why do MCS differ? Organizations are highly dependent on the world around them (stakeholders).
It is crucial to understand the environment and the strategy of the organization. They are both
likely to have a significant impact on the MCS!
Strategy and MCS
Corporate and business unit level
The first distinction concerning strategy we have discussed is the one between group- and business-
unit levels. Just like strategy, the MCS normally differs between group- and business-unit levels. This
is discussed later in the book but for now we can illustrate this with a model called ‘the hinge’ (see
Exhibit 4.8, p. 155).
What the model illustrates is that the types of measure mainly used normally differ between the
corporate level and a level closer to operations. While the head office is mainly, but not only,
concerned with profitability, revenues and costs, lower levels of the organization are mainly, but not
only, interested in non-financial measures. The non-financial measures might, for example, include
volumes sold, productivity, quality, and lead times.
The hinge is a manager or controller who understand both the operational and financial measures.
But this person can also translate the financial language from the hierarchy into an operational
language and vice versa and works like an interpreter between the two levels.
Always ask yourself: is there a fit between the generic distinction MCS design and the generic
strategy?
, Corporate governance and corporate social responsibility (CSR)
Corporate governance deals with how owners, directly or indirectly, influence top managers to act in
line with the interest of the owners. When it comes to the demands placed on the organization, two
major current trends can be identified: 1) corporate governance, and 2) CSR.
Shareholder view (corporate governance)
In the UK and the USA there is a very strong focus on the shareholders and keeping up the share
price is usually a top priority for management. One possible explanation for this is that a low share
price creates a higher risk for a hostile takeover, something that managers want to avoid. In Germany
and Japan, where the risk for hostile takeover is considerably lower, there is a higher focus on other
stakeholders, especially customers and employees. This also seems to have implications for
management control in the different countries.
There is no one most important stakeholder. Some argue that the most important stakeholder is that
one that has most contributed to the organization.
In financial theory the goal is often stated as maximizing profit. However, there are at least two
reasons why maximizing the profit is not such an appropriate goal for companies and why achieving
satisfactory profit is a better way of stating a corporation’s goal because 1) it can discharge any other
responsibilities and manager do not know when the maximum is reached.
Corporate governance involves many different means that can be used by the owners or by others in
the interest of the owners to govern the company. A very interesting question is how corporate
governance discussed here influences the management control and internal affairs of organizations.
There is also an extremely lively debate on this and while some claim that corporate governance
makes organizations more effective, others claim that it instead makes them so short term in focus
that it destroys value in the long run. Unfortunately, research does not have much to offer here to
clarify the situation because we know far too little about the topic. Still, some things that we can say
something about is that managers in countries where the stock exchange dominates, such as the UK
and the USA, do seem to be more short term in outlook and that financial incentives can encourage
creativity when it comes to earnings management and manipulation of accounting numbers. But we
know less about whether these effects, in turn, will hurt the long-term performance of the
organizations or not.
The critics of the shareholder view and the shareholder value movements often claim that if we focus
too much on the shareholders and create shareholder value, we might miss other aspects that are
important.
Stakeholders view (CSR)
The purpose of the SOX is to give better protection to stock owners by strengthening the corporate
governance, financial reporting, auditor independence and internal control in companies. This
increases the regulatory on companies. As a result of this, we have seen companies leave the NYSE.
NGOs became key drives in the CSR development, often acting like a type of auditor evaluating
companies’ behaviour in this respect. In practice the CSR work in organizations often includes several
formal and informal tools which are summed on p. 86, such as codes of conduct and sustainability
reporting.
Contingency theory
Another aspect discussed in this chapter is contingency theory that deals with how factors in the
environment such as stability, certainty, complexity, and national culture may influence the MCS.
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