chapter 2
DESCRIPTION
Chapter 2TRANSCRIPT
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- 1 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.1
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.1
Chapter 2:
Results Controls
- 2 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.2
Results controls
� Involves rewarding individuals for generating good results (or punishing them for poor results)
» Results accountability
� It influences actions because it causes employees to be concerned about the consequences of the actions they take
» However, employees’ actions are not constrained
» On the contrary, employees are empowered to take whatever actions they believe will best produce the desired results
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- 3 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.3
Key results control elements
� Defining the performance dimensions» What you measure is what you get; hence,
» If not congruent with the organization’s objectives, the controls will actually encourage employees to do the wrong things!
� Measuring performance on these dimensions» Objective > financial > market-based: for example, stock price» > accounting-based: for example, return on assets» > non-financial: for example, market share, customer satisfaction» Subjective: for example, managerial characteristics (“being a team player”)
� Setting performance targets» Motivational effects
� Providing rewards (or punishments)» “Incentives” – monetary and non-monetary
- 4 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.4
� Results controls work best only when all of
the following three conditions are present:
– Superiors/managers must know what results are desired in the areas being controlled
– The individuals whose behaviors are being controlled must have significant influence on the results in the desired performance dimensions
– Superiors/managers must be able to measure the results effectively
Conditions for effective results control
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- 5 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.5
� The person whose behaviors are controlled must be able to affect the results in a material way in a given
time span
» Controllability principle
� Results controls are useful only to the extent that
they provide information about the desirability of
the actions that were taken
» If the results are uncontrollable, the controls tell us little
about the actions that were taken:
� Good actions will not necessarily produce good results
� Bad actions may similarly be obscured
Ability to influence results
- 6 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.6
� The effectiveness of results measures must be
judged by their ...
» Ability to evoke the desired behaviors
� Measurement properties
» Congruence
» Controllability
» Precision
» Objectivity
» Timeliness
» Understandability
» Cost efficiency
Ability to measure results effectively
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- 7 -Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, © Pearson Education Limited 2012
Slide 2.7
� Behavior can be influenced
while allowing significant
autonomy
� They yield greater employee
commitment and motivation
� They are often “inexpensive”
– For example, performance measures are often already collected for reasons not directly related to managementcontrol (e.g., financial reporting)
� Often less-than-perfect indicators
of whether good actions have been
taken
� They shift risk to employees (due
to uncontrollable factors); hence,
they often require a risk premium
for risk averse employees
� Sometimes conflicting functions:
– Motivation to achieve
» targets should be “challenging”
– Communication among entities
» targets should be slightly conservative
Pros and cons of results controls
PRO CON