Management Control Theories
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Questions and Answers

Market share is an irrelevant measure when conducting evaluations in management control.

False (B)

Re-planning is necessary if customers have not demanded the service.

True (A)

The control structure consists solely of financial management instruments.

False (B)

The creation of responsibility centers promotes centralization in decision-making.

<p>False (B)</p> Signup and view all the answers

A lack of responsibility within an organization can lead to a failure in the delivery service.

<p>True (A)</p> Signup and view all the answers

Customer satisfaction is not a control indicator for management evaluation.

<p>False (B)</p> Signup and view all the answers

Control indicators are solely focused on financial performance.

<p>False (B)</p> Signup and view all the answers

Budgets and budgetary control involve calculating deviations and analyzing their causes.

<p>True (A)</p> Signup and view all the answers

Management control does not require any form of action once analysis of deviations is complete.

<p>False (B)</p> Signup and view all the answers

Control indicators provide a diagnosis of the situation in both the short and long term.

<p>True (A)</p> Signup and view all the answers

The use of control indicators is inflexible and cannot be adapted to new environments.

<p>False (B)</p> Signup and view all the answers

Indicators serve as alarm signals for monitoring management activity.

<p>True (A)</p> Signup and view all the answers

All classifications of indicators are mutually exclusive.

<p>False (B)</p> Signup and view all the answers

Indicators can only measure tangible aspects of an organization.

<p>False (B)</p> Signup and view all the answers

A simple spreadsheet can suffice for incorporating control indicators into an IT system.

<p>True (A)</p> Signup and view all the answers

Control is primarily a punitive mechanism for inappropriate behavior.

<p>False (B)</p> Signup and view all the answers

Performance measures are another term used for control indicators.

<p>True (A)</p> Signup and view all the answers

A clear definition of objectives is crucial for exercising the control function.

<p>True (A)</p> Signup and view all the answers

Management control must only rely on economic incentives to motivate employees.

<p>False (B)</p> Signup and view all the answers

The controller should act as a leader who motivates towards the achievement of objectives.

<p>True (A)</p> Signup and view all the answers

Pérez Carballo defines control as ensuring the achievement of plans set during the evaluation phase.

<p>False (B)</p> Signup and view all the answers

Evaluating objectives may reveal that they are unachievable due to various limitations.

<p>True (A)</p> Signup and view all the answers

Control should be perceived primarily as a mechanism for oversight without providing any solutions.

<p>False (B)</p> Signup and view all the answers

Incentives are not necessary for motivating employees in a management control system.

<p>False (B)</p> Signup and view all the answers

Firms must consider respect for human rights as part of their social responsibilities.

<p>True (A)</p> Signup and view all the answers

The circular economy aims to increase waste generated by economic activities.

<p>False (B)</p> Signup and view all the answers

Firms are not required to disclose their compliance with social responsibility objectives.

<p>False (B)</p> Signup and view all the answers

Employee participation in decision-making is a key aspect of social responsibility.

<p>True (A)</p> Signup and view all the answers

The responsibility of safety in textile factories rests solely with the production companies.

<p>False (B)</p> Signup and view all the answers

The presence of women in management positions is an important variable in social responsibility measurements.

<p>True (A)</p> Signup and view all the answers

Social Responsibility management control systems include variables like the emissions rates of firms.

<p>True (A)</p> Signup and view all the answers

Work-life balance plans are irrelevant to the concept of social responsibility.

<p>False (B)</p> Signup and view all the answers

Residual income measures the amount of money left over after all required costs of capital have been covered.

<p>True (A)</p> Signup and view all the answers

Interrelated communication between responsibility centres is essential for effective management control.

<p>True (A)</p> Signup and view all the answers

The emergence of new technologies is not considered a non-financial aspect to control in investment centres.

<p>False (B)</p> Signup and view all the answers

Short-term results are the best measure for evaluating management performance in all situations.

<p>False (B)</p> Signup and view all the answers

The starting point for building a Balanced Scorecard (BSC) is the company's revenue forecast.

<p>False (B)</p> Signup and view all the answers

Strategic objectives and critical success factors are graphically summarized in the strategic map.

<p>True (A)</p> Signup and view all the answers

Corporate Social Responsibility (CSR) involves understanding the impacts of an organization's actions on its stakeholders.

<p>True (A)</p> Signup and view all the answers

The lack of motivation and recognition of management can enhance performance within responsibility centres.

<p>False (B)</p> Signup and view all the answers

The Balanced Scorecard aims to ignore the cause-effect relationships between different perspectives.

<p>False (B)</p> Signup and view all the answers

Delegation of responsibilities does not depend on the organizational structure.

<p>False (B)</p> Signup and view all the answers

Increasing strategic feedback is part of the objective of the Balanced Scorecard.

<p>True (A)</p> Signup and view all the answers

Defining the Balanced Scorecard has no educational effect on staff regarding strategic direction.

<p>False (B)</p> Signup and view all the answers

Identifying responsibility centres is solely based on financial performance metrics.

<p>False (B)</p> Signup and view all the answers

Control indicators in the Balanced Scorecard are unrelated to the strategic objectives.

<p>False (B)</p> Signup and view all the answers

The Balanced Scorecard seeks to develop a disjointed set of indicators that do not relate to one another.

<p>False (B)</p> Signup and view all the answers

Barriers to strategy implementation are addressed through objectives set in the Balanced Scorecard.

<p>True (A)</p> Signup and view all the answers

Flashcards

Management Control

The process of ensuring that a company's activities align with its strategic objectives.

Execution

The phase where the company delivers the service or product it has planned.

Evaluation

The process of evaluating the performance of the company against its objectives.

Market Share

A key factor used in evaluation to understand how the company is performing in the market.

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Control Analysis

The process of analyzing the causes of deviations from the planned performance.

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Act

Adjusting plans and actions based on the results of the evaluation.

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Control Structure

The tools and techniques used to facilitate the control function.

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Budgetary Control

A system of monitoring and managing financial resources, often used in management control.

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What is Management Control?

The process of ensuring that a company meets its predetermined goals and objectives. It involves monitoring performance, identifying deviations, and taking corrective actions.

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Why are clear objectives important for management control?

Management control involves establishing a clear strategy and setting specific objectives derived from it. Without well-defined goals, it is impossible to effectively control progress.

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How does Management Control contribute to company survival?

Control helps companies adapt to their environment by identifying problems and opportunities, and then implementing appropriate solutions. This ensures the company's survival in a dynamic marketplace.

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How does management control motivate employees?

Control is crucial for motivating employees and ensuring that they are on board with the company's objectives. Control should not be seen as a punishment system but a tool for identifying potential and enabling growth.

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What are the different levels of management control?

Management control can be implemented at different levels within an organization, starting with the most general and broad strategic level.

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What is the strategic level of management control?

Strategies aim at achieving long-term goals and setting the overall direction of the company. It focuses on major decisions like entering new markets or developing innovative products.

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What are control systems?

Control systems provide a framework to monitor performance, identify deviations, and take corrective actions. They can include processes like budgeting, performance measurement, and reporting.

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How do incentives play a role in management control?

Incentives can be used to motivate employees and encourage them to align with company goals. This can be done through financial rewards, recognition programs, or delegation of responsibilities.

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Residual Income (RI)

Measures the profitability of an investment center after deducting the cost of capital used.

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Social Responsibility (SR)

The responsibility of a company to consider the impact of its operations on society and the environment and to act in a way that benefits both its stakeholders and the planet.

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Responsibility Center

A unit within an organization responsible for a specific set of activities or resources.

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Respect for Human Rights

The social responsibility of an organization to ensure that its operations respect human rights.

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Environmental Responsibility

The social responsibility of an organization to create a positive impact on the environment by minimizing its carbon footprint, reducing pollution, and conserving resources.

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Lack of Communication of General Objectives

The lack of clear communication about the company's overall goals to responsibility centers.

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Lack of Congruence between Objectives

When the goals of a specific responsibility center conflict with the overall goals of the company.

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Employee Well-being

The social responsibility of an organization to ensure its employees have a positive work-life balance and have access to professional development opportunities.

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Lack of Precision in Responsibilities

The lack of clearly defined roles and responsibilities for each responsibility center.

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Ethical Business Practices

The social responsibility of an organization to ensure its operations are fair and ethical.

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Social Responsibility Management Control System

A management system that incorporates social and environmental considerations into business operations by setting objectives, measuring performance, and taking corrective action.

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Lack of Clarity in Interrelationships

The lack of clear understanding of the relationships and dependencies between different responsibility centers.

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Short-Term Focus in Evaluation

A situation where management decisions are driven by short-term financial results, potentially neglecting long-term goals.

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Corporate Governance

A system of principles and rules that govern the way a company conducts its business.

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Stakeholders

A set of internal and external stakeholders that are affected by a company's operations.

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Corporate Social Responsibility (CSR)

The practice of organizations acknowledging their impact on stakeholders and taking responsibility for their actions.

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Control Indicators

Quantitative measures used to evaluate the efficiency and effectiveness of a company's management practices. These measures serve as signals or alerts, highlighting areas that require attention or improvement.

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Scorecard

A system of control indicators that are grouped together to provide a comprehensive overview of a company's performance.

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Balanced Scorecard

A performance measurement system that goes beyond traditional financial metrics to encompass a wider range of performance aspects, like customers, internal processes, and learning and growth. It provides a balanced view of a company's health.

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Indicators of Economy

Indicators that provide information about how efficiently a company uses its financial, human, and material resources. These might include measures like cost per unit, return on investment, or resource utilization.

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Indicators of Customer

Control indicators that reflect the effectiveness of a company's operations in meeting the needs of its customers. They might include measures like customer satisfaction, market share, or customer retention.

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Indicators of Internal Processes

Control indicators that measure the efficiency and effectiveness of a company's internal processes. These may include measures such as cycle time, defect rates, or productivity.

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Indicators of Learning & Growth

Control indicators that evaluate a company's ability to adapt to change, learn new skills, and innovate. These indicators might include measures of employee satisfaction, competency development, or the number of new products or services launched.

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Benchmarks

A method for comparing a company's performance to a set of standards or targets. These benchmarks can be industry averages, competitors, past performance, or specific goals.

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What is a Balanced Scorecard?

The Balanced Scorecard (BSC) is a strategic management tool that helps organizations align their activities with their vision and strategy. It does this by translating the strategy into a set of objectives that are measured and monitored.

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What are the perspectives of the Balanced Scorecard?

The BSC uses a set of perspectives to evaluate performance. These perspectives typically include financial, customer, internal processes, and learning and growth.

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What's the starting point for building a BSC?

The first step in developing a BSC is to clearly define the organization's mission, vision, and strategic goals.

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What are strategic objectives?

Strategic objectives represent the major outcomes the organization aims to achieve to fulfil its vision and strategy.

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What are critical success factors?

Critical success factors (CSFs) are the key elements or areas that must be managed effectively to achieve the strategic objectives.

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What are control indicators in a BSC?

The BSC uses control indicators to measure the achievement of defined objectives and CSFs. These indicators provide insights into the organization's progress.

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What is a strategic map?

The strategic map visually represents the strategic objectives, CSFs, and their relationships, showing the cause-and-effect connections between different organizational areas.

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How does the BSC overcome barriers to strategy implementation?

The BSC helps overcome barriers to strategy implementation by providing clear direction, aligning efforts, and fostering a learning culture.

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Study Notes

Management Control

  • Management control aims to provide reliable and timely information to managers for effective decision-making.
  • It analyses company results and performance, forecasting trends, and designing indicator systems.
  • Control involves evaluating deviations from targets, understanding their causes, and monitoring objectives.
  • Control is crucial for maintaining or improving competitiveness, especially in dynamic environments.

Objectives of the Chapter

  • Defining management control's scope and objectives.
  • Identifying elements of a control system.
  • Analyzing the evolution of a controller's role & required attitudes and competencies.
  • Understanding control by responsibility centers.
  • Defining Social Responsibility and its connection to management control.

The Control Function in the Firm

  • Environmental instability and increasing market complexity necessitate a strong control function in business management.
  • Issues like globalisation, market vulnerability, customer demands, organizational complexity, and technological advancements contribute to this necessity.
  • Control mechanisms are required to balance decentralization and maintain a unified company vision.

Types of Control

  • Strategic Level: Focuses on long-term, qualitative objectives related to organizational strategy (e.g., improving employee motivation or customer satisfaction).
  • Tactical Level: Involves the company's lines of action in medium-term plans. Objectives are more concrete and quantitative (e.g., reducing delivery time).
  • Operational Level: Extremely short-term, highly specific, and quantitative objectives such as meeting daily production targets or fulfilling orders within a set timeframe.

Management Control System

  • The control process encompasses the steps needed to implement control systems.
  • The control structure refers to the elements that make up the control system, like tools or instruments for analysis.
  • In a formal structure, systems are developed according to pre-established patterns (such as budgeting). Conversely, an informal structure uses spontaneous mechanisms (such as suggestion boxes).

Functions of a Controller

  • Controllers are responsible for company objectives, coordination, and change management.
  • They gather information from various sources and disciplines, ensuring timely and reliable data.
  • Controllers have evolved to incorporate enhanced data analysis capabilities, such as business intelligence or Big Data.

Management Control by Responsibility Centres

  • Responsibility centres are organizational units headed by a manager, who is accountable for their functions and actions.
  • These centres are crucial for allocating responsibility in larger organizations.
  • Different types of responsibility centres may arise based on factors such as strategy or organizational structure. Examples include cost centres, profit centres, and investment centres.

Corporate Social Responsibility (CSR)

  • CSR refers to the responsibility of enterprises for the impacts they have on society.
  • CSR considerations are integrated into modern management control systems to evaluate and manage impacts on different stakeholders (owners, employees, customers, etc.).
  • Environmental and social concerns are often addressed in sustainability reporting and in some related international guidelines and standards.

The Balanced Scorecard (BSC)

  • A BSC is a strategic management system used for tracking indicators of performance against company goals.
  • BSCs include perspectives reflecting financial, customer, internal process, and learning/growth elements.
  • The concept and implementation of the balanced scorecard emphasizes aligning all aspects of the organisation towards achieving long-term sustainability and competitiveness.
  • A BSC is designed to monitor strategic objectives, communicate them, and use them to monitor performance.

Budgeting Techniques

  • Techniques like incremental budgeting rely on past performance.
  • Zero-based budgeting completely reassesses all activities each year.
  • Programme-based budgeting integrates plan formulation with budget allocation to align with strategic priorities.
  • Activity-based budgeting considers key activities for competitiveness, including the use of activity-based costing.

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Management Control Fundamentals PDF

Description

This quiz examines key concepts and misunderstandings in management control theory. It challenges common beliefs regarding indicators, responsibility centers, and the role of financial management. Test your knowledge of how control indicators function in both short and long-term evaluations.

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