Control and Accountability in
SMEs
Dr. Hady Omar
Introduction
Introduction to management
control systems
Learning objectives
1.
2.
3.
4.
5.
Explain why organizations have a need for management control systems to
attain their mission, goals and strategies.
Discuss the reasons why lower-level managers and employees do not
automatically behave in line with the organizational mission, goals and
strategies.
Explain the differences between the top-down and bottom-up functions of
management control systems.
Discuss the various types of control practices – input, throughput and
output controls – available to top managers when they design the
organization's management control system.
Discuss the enabling and coercive role of a management control system.
Management control system
Management control system may be defined as comprising a
combination of control practices designed and implemented by top
managers to increase the probability that lower-level managers and
employees will behave in ways consistent with the organization's mission,
goals and strategies.
Lack of appropriate management control systems may cause
company failure
Management control
Management control systems enable innovative
activities using input and output controls
Management control has an important 'enabling'
role designing control practices that help maintain
or enhance the skill set, job motivation and
organizational commitment of lower-level managers
and employees.
Size of organisation
Small organizations
Little need for systematic, complex and costly management control
systems
Direct, informal communications
Large organizations
Power to make decisions shared as lower-level managers have the
authority to take decisions on their own
Formal control practices required such as budgets, mission
statements, transfer pricing arrangements, performance measures
and reward systems.
Top-down and bottom-up functions
Top-down
Top managers implement appropriate control practices so
that lower-level managers and employees have a clear sense
of what decisions to take, what results to achieve, where to
lead the people and how to use the resources under their
responsibility.
Bottom-up
Report on achievements.
Enable lower-level managers and employees to acquire the
support to develop their skills as well as the organizational
resources to execute their responsibilities.
Need for control
Lower-level managers and employees may not
automatically understand the mission, goals
and strategies of the organization, nor how they
can contribute to these.
1.
•
When an organization aims to achieve a
certain amount of yearly profit, this does not
mean that individual managers and employees
automatically understand how this profit
should be achieved.
Need for control - continued
Lower-level managers and employees may not
automatically agree with the organizational
mission, goals and strategies.
2.
•
•
Managers may have private goals out of selfinterest, such as an inclination to increase
holiday and leisure time.
A sales manager is often better informed about
local market conditions than higher-level
managers in the firm.
Need for control - continued
3.
Lower-level managers and employees may not
automatically have the resources needed to act
according to the organizational mission, goals and
strategies.
Managers personal skills
Monetary resources
Physical resources
Management control reacts to organizations
needs
TABLE 1.1 Top-down and bottom-up roles of management control systems
Origin of the need for
management control systems
Top-down role of management
control systems
Bottom-up role of management
control systems
1.1.Lower-level managers and
Explain mission, goals and
employees may not automatically
strategies in as operational a way
understand the mission, goals
as possible. Support coordination
and strategies of the
across business functions at
organization, nor how they can
decentralized level
contribute to them
Report on goal achievement;
provide input when goals are
unrealistic. Enable coordination
and cooperation with other
decentralized units
1.2.Lower-level managers and
employees may not automatically
agree with the organizational
mission, goals and strategies
1.3.Lower-level managers and
employees may not automatically
have the resources needed to act
according to the organizational
mission, goals and strategies
Motivate lower-level managers
Facilitate top managers to benefit
and employees to strive for the
from the specialized skills and
organizational mission, goals and
knowledge of lower-level
strategies
managers and employees
Resource allocation, develop
personal skills of lower-level
managers and employees
Enable lower-level managers to
acquire the support and resources
to execute their responsibilities
Control practices
FIGURE 1.1 Three types of control practices: input, throughput, output
Input controls
People
Employee selection processes
Value statements
Employee socialization processes
As top managers design these controls
management style will have an influence
Throughput and output controls
Throughput: formal delegation of decision-making
responsibility to lower-level managers
The organization's set of rules
The organizational architecture
Output: making managers accountable
Budgets
Financial and non-financial performance measures (often
combined with reward systems)
Risk management
Enabling management control systems
Enabling
Lower-level manager and employee
involvement during the control
implementation process
Lower-level manager and employee
understanding
Communication and visualization
Input controls - value statement
Coercive management control systems
Coercive
Is management control simply a way for top
managers to ensure obedience?
Many lower-level managers and employees view
certain control practices as structural devices for
top managers to ‘check’ what they are doing, to
coerce them into cooperation, or to force them to
do things they would never do of their own free
will.
Certain rules should never be broken.