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Management Control Systems

Notes 3.7.2 Decentralised Units – Difficulties and Problems

1. To the extent that decisions are decentralized, top management may loose some control.
Control has to be exercised instead of personal direction through management control
reports.
2. Competent business unit managers may not be available in a functional organisation
because there may not have been sufficient opportunities for them to develop general
management competence.
3. Organisation units that were once co-operating as functional units may now compete with
one another. An increase in one business unit manager’s profits may decrease that of
another’s.
4. Frictions can increase. There may be arguments over the appropriate transfer price, the
assignment of common costs, and the credit for revenues that were generated jointly by
the efforts of two or more business units.
5. There may be too much emphasis or short-run profitability at the expenses of long-run
profitability e.g. business unit manager will postpone R&D, training programme or
maintenance in order to report high current profits.
6. There is no completely satisfactory system of ensuring that each business unit by optimizing
its own profits will optimize company profits.

7. If the head quarters management is more capable or has better information than the
average business unit manager, the quality of some of the decisions may be reduced.
8. Divisionalisation may cause additional costs because it may require additional
management, staff personnel and record keeping.

Self Assessment

Multiple Choice Questions:
7. Which one of the following variables is most concerned with human behaviour?

(a) Environmental variable (b) Structure variable
(c) Process variable (d) Strategic variable
8. The route with alternatives for reaching objectives and goals is referred to as:

(a) Goal (b) Policy
(c) Strategy (d) Objectives

3.8 Management Control Process

The management control process involves three interrelated activities – communication,
motivation and evaluation. First, it involves communication between the superior and the
subordinates. Communication helps the subordinates understand the goals of the organization.
The superior should make sure that the subordinates understand what the organization expects
of them. Second, for the subordinates to put in their best efforts to achieve organizational goals,
they have to be motivated. It is the responsibility of the superior to motivate the subordinates.
Finally, for effective performance, superiors should evaluate the work of the subordinates and
give them feedback periodically. It is essential for the superior to evaluate the performance of
subordinates without any bias.

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