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Management Control Systems

Notes Introduction

People are important assets for an organization. Without the cooperation of the employees,
managers cannot implement their decisions. To manage people effectively, control systems are
required for the following three reasons – lack of direction, motivational problems and personal
limitations.
Poor performance in organizations can be attributed to lack of direction among employees.
Giving employees the required support and direction to accomplish organizational goals is one
of the important functions of management control systems. Management Control System
influences human behaviour good management control systems influence behaviour in a goal
congruent manner that is, they ensure that individual actions taken to achieve personal goals
also help to achieve the organisation’s goals.
Motivation is important to help employees perform to their full potential. Most of the
organization’s problems occur because individual goals and organizational goals do not match.
This results in de-motivated performance by the employees. At the managerial level too, lack of
motivation will result in employees taking decisions that are harmful to the organization. The
decisions may be made in order to advance the personal interests of the employees involved. In
extreme cases, this could lead to employee fraud and theft. In IT companies, computer-related
crime can result in huge losses for the organization. Hence, there is a need to control such
behavior in an organization.
Another behavioral problem that can have serious consequences for an organization is personal
limitations. In spite of high motivation to perform, certain employees may be unable to perform
because of their personal limitations. These limitations are specific to individuals, and could
also be because of inadequate training, lack of knowledge or information, and inexperience. Job
design also plays an important role in performance. Some jobs are designed in a manner that
creates stress. This can lead to accidents and errors in decision-making. Training plays an
important role in reducing the severity of limitations at the individual level. Finding effective
tools for control of such limitations is an important part of control systems.

3.1 Goal Congruence

Senior management wants the organization to attain the organisation’s goals but the individual
members of the organizations have their own personal goals and they may not necessarily be
consistent with those of the organization. The central purpose of a management control system
is to ensure in so far as is feasible a high level of goal congruence.

Notes Goal congruence means that as far as feasible, the goals of organization individual
members should be consistent with the goals of the organization itself.
In evaluating any management control practice, the two most important questions to ask are:
1. What actions does it motivate people to take in their own self-interest?
2. Are these actions in the best interests of the organization?

Informal Factors that Influence Goal Congruence
Both formal systems and informal processes influence human behaviour in organisation,
consequently they affect the extent of achievement of goal congruence. Formal systems include
strategic plans, budgets and reports. Informal process takes into account work ethic, management
style and culture, which are again external and internal to the organisation.

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