STAN

SISTEM PENGENDALIAN
MANAJEMEN
(Management Control Systems)
PROGRAM DIPLOMA IV AKUNTANSI
SEMESTER VIII TAHUN AKADEMIK 2014/2015

STAN

INTRODUCTION TO MANAGEMENT
CONTROL SYSTEMS
Course Plan
An Introduction to Management Control Systems

STAN

COURSE PLAN
Topics, Approach/Methodology,
Objectives/Outcomes, and Activity
3

STAN REFERENCES

Main Texbook

Merchant, K.A. & W.A. Van der Stede (2009), Management Control
Systems: Performnace Measurement, Evaluation and Incentives, 3rd
ed., Harlow: Pearson Education/Prentice-Hall.

Additional Textbooks
Anthony, R.N. & V. Govindarajan (2007), Management Control
Systems, 12th ed., Homewood: Irwin.
Anthony, R.N. & David W. Young (2007), Management Control in
Nonprofit Organizations, 7th ed., Homewood: McGraw-Hill.

Readings (journal articles)

Will be anounced/informed before classes.

STAN The TextbookMain Reference

Management Control Systems: Performance Measurement, Evaluation and Incentives

Kenneth A. Merchant and Wim A. Van der Stede
5

STAN

1st edition

Topics (Materials)
PART I: THE CONTROL FUNCTION OF MANAGEMENT
1
Management and Control
PART II: Management Control Alternatives and Their Effects
2
Results Controls
3
Action, Personnel, and Cultural Controls
PART I
4
Control Tightness (or Looseness)
(MID-TERM)
5
Direct and Indirect Control System Costs
6
Designing and Evaluating Management Control Systems
PART III: FINANCIAL RESULTS CONTROL SYSTEMS
7
Financial Responsibility Centers
8
Planning and Budgeting
9
Financial Performance Targets
PART IV: PERFORMANCE MEASUREMENT ISSUES AND THEIR EFFECTS
10 Performance-dependent Rewards (and Punishments)
11 Accounting Performance Measures and Their Effects
12 Combinations of Measures and Other Remedies to the Myopia Problem
PART II
13 Using Financial Results Control in the Presence of Uncontrollable Factors
PART V: CORPORATE GOVERNANCE, IMPORTANT CONTROL-RELATED ROLES AND ETHICS (FINAL-TERM)
14 Controllers , Auditors and Boards of Directors
15 Management Control-Related Ethical Issues and Analyses
PART VI: SIGNIFICANT SITUATIONAL INFLUENCES ON MANAGEMENT CONTROL SYSTEMS
16 The Effects of Environmental Uncertainty, Organizational Strategy, and
Multinationality on Management Control Systems
Area of study
17 Management Control in Non-Profit Organizations
(Application)

STAN

2nd edition

Topics (Materials)
PART I: THE CONTROL FUNCTION OF MANAGEMENT
1
Management and Control
PART II: Management Control Alternatives and Their Effects
2
Results Controls
3
Action, Personnel, and Cultural Controls
PART I
4
Control System Tightness
(MID-TERM)
5
Control System Costs
6
Designing and Evaluating Management Control Systems
PART III: FINANCIAL RESULTS CONTROL SYSTEMS
7
Financial Responsibility Centers
8
Planning and Budgeting
9
Incentive Compensation Systems
PART IV: PERFORMANCE MEASUREMENT ISSUES AND THEIR EFFECTS
10 Financial Performance Measures and Their Effects
11 Combinations of Measures and Other Remedies to the Myopia Problem
12 Using Financial Results Control in the Presence of Uncontrollable Factors
PART II
PART V: CORPORATE GOVERNANCE, IMPORTANT CONTROL-RELATED ROLES AND ETHICS
(FINAL-TERM)
13 Corporate Governance and Boards of Directors
14 Controllers and Auditors
15 Management Control-Related Ethical Issues and Analyses
PART VI: SIGNIFICANT SITUATIONAL INFLUENCES ON MANAGEMENT CONTROL SYSTEMS
16 The Effects of Environmental Uncertainty, Organizational Strategy, and
Multinationality on Management Control Systems
Area of study
17 Management Control in Non-Profit Organizations
(Application)

STAN

3rd edition

Topics (Materials)
PART I: THE CONTROL FUNCTION OF MANAGEMENT
1
Management and Control
PART II: Management Control Alternatives and Their Effects
2
Results Controls
3
Action, Personnel, and Cultural Controls
PART I
4
Control System Tightness
(MID-TERM)
5
Control System Costs
6
Designing and Evaluating Management Control Systems
PART III: FINANCIAL RESULTS CONTROL SYSTEMS
7
Financial Responsibility Centers
8
Planning and Budgeting
9
Incentive Systems
PART IV: PERFORMANCE MEASUREMENT ISSUES AND THEIR EFFECTS
10 Financial Performance Measures and Their Effects
11 Combinations of Measures and Other Remedies to the Myopia Problem
12 Using Financial Results Control in the Presence of Uncontrollable Factors
PART II
PART V: CORPORATE GOVERNANCE, IMPORTANT CONTROL-RELATED ROLES AND ETHICS
(FINAL-TERM)
13 Corporate Governance and Boards of Directors
14 Controllers and Auditors
15 Management Control-Related Ethical Issues and Analyses
PART VI: SIGNIFICANT SITUATIONAL INFLUENCES ON MANAGEMENT CONTROL SYSTEMS
16 The Effects of Environmental Uncertainty, Organizational Strategy, and
Multinationality on Management Control Systems
Area of study
17 Management Control in Non-Profit Organizations
(Application)

STAN AREA OF STUDY (APPLICATION)

Private sector (business)
Public sector (government)
Much lesson on the MCS comes from the private
sector.
How is the applicability of the concepts and best
practices for the public sector organizations?

STAN Approaches for Study of MCS in the PS

Understanding of concepts and best-practices of management control
(literature review, case studies, comparative studies)
Top-Down (Deductive)

Analysis, identification, and

explaination of the appropriate
Management Control Concepts
and Practices for government
operations and management;

Identification, analysis, and

explaination of existing
Management Control Practices
(applied management control
concepts) in the government
organizations;
Bottom-Up (Inductive)

Understanding of the nature and characteristics of government organization, process

and management (literature review, document analysis, interviews, observations)

10

STAN MCS in the Public SectorRelevant Issues

Top-Down

Bottom-Up

What is the nature of government

operations and management
(characteristics, structure, process,
inputs-outputs, management)?
Given the government organization
objectives, operations, and
management:

What is the nature of

government operations and
management (characteristics,
structure, process, inputsoutputs, management)?
Given the government
organization objectives,
operations,and management:

what control tools and/or

mechanism are needed?
what control systems are
appropriate (can be applied)?
what performance measurement
systems are needed (should be
applied)?

what control tools and/or

mechanism are in place?
What control systems are applied?
What performance measurement
systems are applied?
11

STAN Learning Objectives/Outcomes & Format

Objectives

Format (Method)

Mastering contents (substance)

and methodology

Blended lecture-seminar:

Understanding
Insights and perspective
Sensitivity and curiosity
Analytical skills (problem solving
and improvement)

Lecture (by instructor)

Self-search for knowledge (by
students):
Texbook-chapters-based:
Presentation and discussion
Problem solving and case analysis

Selected published-case analysis

Research paper

OUTCOME
At the conclusion of this course, the student is expected to be able to:
Undestand the main concepts and principles of MCSs;
Understand control alternatives and how they work in (private/public sector) organizations;
Apply the control concepts and alternatives to real organizational cases/situations.
12

STAN Part 1 (Midterm) Course Activity Plan

Class

Activity

Topics and Description

Lecture

1. Course Plan/Outline
2. Introduction to Management Control (Ch. 1)

Lecture

Understanding The Public Sector (Supplementary

Readings)

Student presentation
and discussion*)

Management Control Alternatives (Part I) and

Financial Results Control Systems (Part II), Ch. 2-8

Lecture

1. Part 1 Summary and Concluding Remark;

2. Overview of Part 2 Topics and Agenda

3-7
8

*) Note:
1. The content should cover both private and public sectors;
2. The chapters topics of the textbook are only a minimum coverage of presentation; it is recommended
that each individuak/group enriches its presentation with other relevant materials, cases, and/or
examples.
3. Presentation will be assigned randomly in each class.

13

STAN Evaluation
Components
Exams (UAS, UTS)
Assignments (anytime quizes,
activities/participations, case analysis);

Prerequisites
Attendance rate compliance;
Accademic integrity (No cheating at all subjects, no
plagiarism);
In time submission of assignments.

14

STAN Submission of written assignments

Except stated differently, all written
assignments should be submitted via e-mail:
spmdosen@stan.ac.id
Subject of the e-mail should be:
for individual assignments: the students NAME
and the TITLE of assignment;
for group assignments: the groups NAME and the
TITLE of assignment.

No mark will be given for late submissions.

15

STAN Office hours for consultation

On appointment basis, for relevant
issues

Note:
Consultation/communication via e-mail is
also suggested;
E-mail: spmdosen@stan.ac.id

16

STAN

Chapter 01

Management and Control

17

STAN Management control ...

The process by which management:
ensures that people in the organization carry
out organizational objectives and strategies;
encourages, enables, or, sometimes forces
employees to act in the organizations best interest.
Management control includes all the devices / mechanisms managers use to
ensure that the behavior of employees is consistent with the organizations
objectives and strategies.

18

STAN

Function and benefit of Management Control

Purpose / function ...
get done what management wants to be done;
influence behavior in desirable ways.

Benefit
increased probability that the organizations objectives will be
achieved.

19

STAN Management and its components ...

Management
the process of organizing resources and directing activities for the purpose
of organizational objectives.

Process-breakdown
Objective setting; what goals do we want to achieve?
Strategy formulation; how are we going to realize these goals?
Control: are we on track in realizing these goals?

20

STAN Objective setting ...

Objectives are
a necessary prerequisite for any purposeful activities.

Without objectives, it is impossible

to assess whether the employees actions are purposive;
to make claims about an organizations success.

Objectives can be
financial versus non-financial;
quantified, explicit versus implicit;
economic, social, environmental, societal.

21

STAN Strategy formulation ...

An organization must select any of innumerable
ways of seeking to attain its objectives.
Strategies define how organizations should
use their resources to meet their objectives.

Hence,
strategies put constraints on employees to
focus activities on what the organization does
best or areas where it has an advantage over
competitors.
- 22 -

22

STAN Control ...

Strategic control
Is our strategy (still) valid?
Strategy revision -- intended vs. emergent strategies.

Management Control
Are our employees likely to behave appropriately? (design)
Do they understand what we expect of them?

Will they work consistently hard and try to do what

is expected of them?
Are they capable of doing what is expected of them?

Do our employees behave as expected? (execution)

23

STAN Planning and control ...

OBJECTIVE SETTING

PLANNING

Strategy Formulation
Strategic Control
CONTROL
Strategy Implementation
Management Control

predominantly external focus;

predominantly top-management
responsibility;
sometimes very unsystematic,
implicit and/or emergent.
predominantly internal focus;
relevant for every superiorsubordinate relationship;
more systematic and rhythmic.

24

STAN The planning / control cycle ...

Goals

Objective Setting

Strategy Formulation

Strategy Implementation

Strategic Control

Management Control
25

STAN The basic control problem ...

Management control is about encouraging
PEOPLE to take desirable actions,
i.e., it guards against the possibilities that employees will
do something the organization does not want them to do,
or, fail to do something they should do.

Hence, management control has a ...

BEHAVIORAL ORIENTATION !
If all personnel could always be relied on to do what is best for the
organization, there would be no need for a management control system.

26

STAN Recall that ...

Management Control is about taking steps to help ensure
that the employees do what is best for the organization.
Three issues:
Do they understand what we expect of them ...
Lack of direction

Will they work consistently hard and try to do what

is expected of them ...
Lack of motivation

Are they capable of doing what is expected of them ...

Personal limitations

27

STAN Lack of direction ...

Employees do not know what the organization
wants from them.
When this lack of direction occurs, the likelihood of the
desired behaviors occurring is obviously small.

Remedy: COMMUNICATION + REINFORCEMENT !

28

STAN Motivational problems ...

When employees choose not to perform as
their organization would have them perform.
Because
Lack of goal congruence
Individual goals do not coincide with organizational goals.

Self-interested behavior
Generally, individuals are prone to being lazy ...

Statement!!

e.g., take long lunches, overspend on things that make

life more pleasant, use of sick leaves when not sick, etc.

More extreme examples of motivational problems:

Remedies?

Employee crime (fraud and theft).

29

STAN Personal limitations

Sometimes, people are unable to do a good job because of certain personal
limitations they have.
Some examples / causes:
lack of requisite knowledge, training, experience;
employees are promoted above their level of competence;
some jobs are not designed properly;
etc.

Remedies:
Training
Job assignment / promotion
Job design

30

STAN Management control is more than ...

A simple cybernetic control system involving
a single feedback loop, like a thermostat
Detector
Assessor
Effector

measure performance;
compare with pre-set standard;
take corrective action.

Many controls dont focus on measured performance ...

e.g., direct supervision, employee hiring standards,
codes of conduct.

Many controls are proactive rather than reactive

i.e., they are designed to prevent control problems before the
organization suffers any adverse effects on performance.

31

STAN Control and good control ...

Again, management controls include all the devices managers use to
ensure that the behaviors and decisions
of people are consistent with the organizations objectives
and strategies.
GOOD CONTROL is said to take place when there is

a high probability that the firms objectives will be achieved;

a low probability that major unpleasant surprises will occur.

Therefore, controls must be:

Future-oriented
Objectives-driven
Economically desirable
32

STAN Control can be achieved through ...

Control Problem Avoidance
Management Control Systems
Action Controls;
Results Controls;
People Controls.

33

STAN Control-problem avoidance ...

Three strategies
Activity elimination
e.g., subcontracts, licensing agreements, divestment.

Automation
Computers / robots eliminate the human problems
of inaccuracy, inconsistency, and lack of motivation;
Only applicable to relatively easy decision situations;
Automation can be very costly.

Centralization
Superiors reserve for themselves the most critical
decisions.

34

STAN Control alternatives

Controls can focus on:
the actions taken

ACTION CONTROLS

the results produced

RESULTS CONTROLS

the types of people

employed and their
shared values and
norms.

PEOPLE CONTROLS

Or any combination of those ...

35

STAN Depending on ...

Excellent

Action Control
and/or

Action Control

Results Control

(e.g., large projects)

Results Control
Poor

(e.g., movie director,

SBU-manager)

High

People Control
(e.g., research lab)

Low

Knowledge of which specific actions are desirable

Ability to measure results on important performance dimensions

36

STAN Overview ...

Can people be avoided?
(e.g., automation, centralization)

Yes

No

Can you rely on people involved?

No

Yes
Yes

Can you make people reliable?

Control-problem
avoidance

People controls

No

Have knowledge about what Yes Able to assess whether

specific actions are desirable?
specific action was taken?
Yes

No

Have knowledge about what

results are desirable?
No

Action controls
Yes

Able to measure results?

Yes

Results controls

?
37

STAN

A Persepective on MCSs
38

STAN WHY MANAGEMENT CONTROL?

Management is responsible to
attain the organizational
objectives, and is accountable
for its performance;
To attain the objectives,
resources and processes
should always be in the right
path toward the objectives;
This means management
needs controls to assure the
attainment of the objectives.

OBJECTIVES

OBJECTIVES

Outputs
Path
towards
Objectives

Recources , Processes
(Activities), Policies &
Rules

Processes
(Activities)

Inputs
(Recources,
Policies & Rules)
39

STAN

GOAL CONGURENCE
(IN vs OUT CONTROL)
OBJECTIVES

???

???
In control

Out of control

Out of control

Recources & processes/activities

40

STAN MANAGEMENT CONTROL

Behavioral process

Goal-oriented

Managers use management

control to influence other
members of the organization

Management control is aimed

at attaining the organizational
strategies and goals

The main concerns about designing and using management control systems is how
organization members can or should be influenced in such a way that they indeed act and
make decisions in the best interest of the organization and its stakeholders.

41

STAN MANAGEMENT CONTROL SYSTEMS

An organized systematic process and structure that management uses in
management control (Anthony, 1988);
A set of mechanismsboth processes and techniquesdesigned to
increase the probability that people will behave in ways that lead to the
attainment of organizational objectives (Flamholtz, 1996)
The sum of mechanism designed, installed, and utilized for guiding a
social organization toward the accomplishment of its purpose for
existing (Ziebel & De Coster, 1991).
The collection of control mechanisms or devices managers use to
ensure that the behaviors and decisions of their employees are
consistent with the organizations objectives and strategies. (Merchant
& Van der Stede, 2009).

42

STAN Management Control Systems Consist of ...

Formal systems:

Informal systems:

explicit rules, procedures,

performance measures, and
incentive plans that guide the
behavior of managers and other
employees.

shared values, loyalties, and

mutual commitments among
members of the organization,
organization culture, and
unwritten norms about
acceptable behavior.

In Practice:
Policies, systems, procedures, authority delegations, etc., to provide reasonable
assurance that the organizations objectives being achieved.
Management information systems required by management to steer operations; to
monitor the progress and quality of operations, and to evaluate the results and
performance of the organization.
43

STAN

To be effective, management control systems

should ...
be closely aligned to the firms strategies and goals;
be designed to fit the companys structure and decisionmaking responsibility of individual managers;
motivate managers and their employees.
Motivation is the desire to attain a selected goal (goal-congruence) combined
with the resulting pursuit of that goal (effort).
Goal congruence exists when individuals and groups work toward achieving the
organizations goalsmanagers working in their own best interest take actions that align
with the overall goals of top management.
Effort is exertions toward reaching a goal, including both physical and mental actions.

44

STAN

THE ROLE OF MANAGEMENT ACCOUNTING

Management Control

Focuses on attaining the organization's goals and strategies, through

planning, evaluating, and controlling activities
provides tools
Management Accounting
Focuses on preparing, measuring, and reporting the financial information that is
needed to practise these functions efficiently and effectively
Note:
In the early development of MCS, MA and MCS have been eviewed as synonymous concepts, since
accounting provides a language capable of including all areas of organization and it has always been
attributed with a considerable decision-making orientation.
45