Management control: an overview - created from Mind Map

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Management control in large corporations

Two levels of performance management

The role of controllers in the performance management system

Responsibility centres and results control

Coordination of local-level autonomous control and performance management at the company level

The control process

Basic management control approaches, describing: • Its dynamic organization over time (planning, monitoring results) • And its structuring around a performance measurement system (a set of indicators based on a performance model).

The belief that management control is reserved for large corporations is ill founded: the director of a small company is confronted with potential uncertainty in his sector of activity, with the need to chart a course and to organize his resources and action plans in a way that is consistent with this orientation

This type of approach can be implemented in companies

Large corporations require a clear structure for decision making. This structure can follow different configurations of varying complexity.

Divisional

Advantages of decentralization -If target setting and results monitoring were only performed by the directors of the corporation then local managers would have no “visibility” of the progress of their activity - the senior executive has the exact information to understand thing

Overall performance management by senior management

functional and matrix structures

Autonomous control by entities

The is to ensure good vertical coordination in the control process, both top down and bottom-up, which we call strategic alignment

The decentralization of decision-making authority incurs a more basic risk, known as agency risk. This risk manifests itself along two dimensions:

•What ensures that decision-making authority is oriented in the interests of the company? This problem relates to the “direction” in which local decisions are taken.

•What ensures that action is done in a sufficiently vigorous fashion? This is a problem of “energizing” action

• Management control is naturally associated with one function in the Company. • The performance management system is far from being the exclusive domain of the controllers.

• it is essential to understand that the control process is implemented jointly by operational managers and controllers

• Clarify the objectives to be pursued and plan for the future in an active manner. • The controller plays an essential role in designing systems and tolos

for achieving this triple function of strategic alignment, horizontal coordination and motivation of managers is the concept of responsibility centre

the director of a division has broader powers than the director of a business unit within that division, who in turn has greater responsibilities than a department

the amount of freedom given a manager depends on the degree to which the organisation is decentralised.

The kind and level of its contribution to the organisation’s overall performance objectives has been specified.

From global performance measurement to local performance measurement

How can we define what the manager is accountable for? In the traditional doctrine of management control, there are three prevailing principles:

A principle of demarcation:

A principle of anticipation

A principle of results control

a responsibility centre is defined as an entity within the structure to which the company directors have delegated a certain amount of decision-making authority.

measurement systems play an important role in clarifying the scope of these objectives

In a decentralised corporation, it is therefore necessary to construct performance measurement systems at several levels in the organisation

The concepts of responsibility center and results control outlined above help to fine-tune the integration of autonomous local control by entities and overall performance management by company directors

First, planning (setting targets, formulating action plans) is done at several levels of the organization, which raises the problem of maintaining coherence between the different levels of plans.

When entities report on the achievement of a given target to their superiors, the choice of the means employed to achieve these results falls under its responsibility.

This allows local managers to preserve their autonomy and also keeps senior management from being overburdened with the surveillance of delegated activities.

Second, results monitoring is also carried out at several levels: results and analyses must be performed for the managers in charge of entities, as well as for the purposes of overall control.

At this second level the results of the entities must be “sent up” the hierarchical line, a process that is known as “management reporting

Management control is an approach that is pursued over time: we situate ourselves both before the action, in the planning phase, and after the action in the monitoring and analysis of results phase.

The approach is therefore progressive, which is why we speak of the control process.

Control cannot be reduced to a simple exercise of “verification”, because then we would be operating “after the fact”, once the decisions and action had already been undertaken.

The planning phase is therefore crucial.

In such a case the scope of control would be confined to reactions rather than fully effective action.

. In seeking to control the attainment of desired outcomes and results, it is essential to prepare the action, to organise it, to perform simulations and to anticipate its consequences.