Page 227 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes A subjective approach is desirable in the following circumstances:
1. When manager’s personal control over a unit’s performance is low.
2. When the business unit manager inherits problem created by a predecessor.
3. When the business unit is highly interdependent with other units and therefore, its
performance is influenced by the decisions and actions of outside individuals.
4. When the strategy requires much greater attention to longer-term concerns (as is the case
in a business unit aggressively building market share).
Self Assessment

Fill in the blanks:
5. Under ………………………., compensation comes first and performance comes later, under
performance-based pay, performance comes first and compensation comes later.
6. In a ………………….., where business units are highly interdependent, the manager’s
bonus is tied primarily to corporate performance, since inter-unit co-operation is critical.

11.6 Criteria for Evaluating Effectiveness of a Formal Management
Control System

Identification can be done in two ways for evaluating the effectiveness of a formal control
system:
1. Based on output criteria and

2. Input-related criteria
11.6.1 Output Criteria

Two very important output criteria have been identified:
1. The extent to which the formal systems are actually used by management to make decisions
in the control process. If the systems are not used, they cannot be effective, no matter how
sophisticated they are. On the other hand, we should never expect formal management
control system to be relied upon exclusively for decision-making. Informal systems are
also used in practice.
2. This criteria is difficult to apply, though it is equally important. It has to do with the
quality of the decisions made in the control process and the influence of the systems on the
quality. The most objective measure here is the extent to which the organisation has been
achieving its objectives and goals over a reasonable period of time.

11.6.2 Input-related Criteria

Four input-related criteria have been identified against which management systems should be
evaluated:
1. The extent to which each part of the formal management system is linked with the other.
There should be reasonably tight connection among the sub-processes of environment
analysis, business planning, programming, budgeting, reporting and analysis. If not, the
formal systems may not be having much influence upon the control process.

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