Chapter 1: MANAGEMENT AND CONTROL Management control failures can lead to large financial losses, reputation damage, and possibly even organizational failure. However, adding more controls does not always lead to better control. Some MCSs in common use often stifle initiative, creativity, and innovation. The term “control,” as it applies to a management function, does not have a universally accepted definition. An old, narrow view of an MCS is that of a simple cybernetic system involving a single feedback loop, analogous to a thermostat. Thermostats include a single feedback loop: they measure the temperature, compare those measurements with the desired standard, and, if necessary, take a corrective action …show more content…
When strategies are formulated more clearly, more control alternatives become feasible, and it becomes easier to implement each form of management control effectively.
2. Behavioral Emphasis-management controls are necessary to guard against the possibilities that people will do something the organization does not want them to do or fail to do something they should do.
II. CAUSES OF MANAGEMENT CONTROL PROBLEMS
1. Lack of direction-some employees perform poorly simply because they do not know what the organization wants from them. Thus, one function of management control involves informing employees as to how they can maximize their contributions to the fulfillment of organizational objectives (organizational goals are not cascading down to all levels in the organization).
2. Motivational problems-common because individual and organizational objectives do not naturally coincide; individuals are self-interested and tend to show effort aversion. Surveys of practice invariably show that financial reporting fraud has the highest cost per incident (with cost estimates varying from anywhere between $10 and $100 million in some studies to as high as $250 million per incident in other studies), even though it occurs relatively infrequently. Managers often engage in gamesmanship such as “earnings management” to make their performance reports look good even when they know the actions they are taking have no economic