What are the reasons that hinder automatic organizational

goal achievement by decentralized managers?

An important first reason for the need of management control in
decentralized organizations is that lower-level managers need to
become aware of how they can contribute to the achievement of
organizational goals and strategies. An important first function of
management contrl is its top-down function to provide lower-level
managers with a clear sense of direction that helps them take
actions, make decisions and achieve results that help the
organization to achieve its overall goals. Bottom-up, management
control should inform higher-level managers about the progress of
decentralized managers in their efforts to achieve organizational
objectives.
A second reason for the need of management control in
decentralized organizations is that lower-level managers are not
automatically motivated to achieve the organizations goals. This
can be the case even if such organizational goals are
operationalized and clearly communicated to these managers. Such
motivation may be lacking because managers have private goals
that are incompatible with the goals of the organization. An
important second function of management controls is their topdown function to motivate lower-level managers to take actions,
make decisions and achieven results that help the organization
achieve its overall goals. Bottom-uo, management control should
facilitate higher-level managers to benefit from the specialized skills
and knowledge of decentralized managers.
A third reason for the need of management control in decentralized
organizations is that lower-level managers are not atomatically able
to achieve the organizations goals. This can be the case even if
such organizational goals are operationalized and clrealy
communicated and if managers feel motivated to achieve them. An
important third function of management control is its top-down
function to ensure that decentralized managers have the skills and
the organizational resources they need to perform in line with
organizational objectives. Bottom-up, management control should
enable lower-level managers to acquire the support to develop their
skills as well as the organizational resources to execute their
responsibilities.
Management control goes beyond the individual managerial
functions in an organization. Can you give two reasons why
this is the case?
(Standard managerial functions: planning, organizing, staffing,
leading and controlling)
First, management control is the systematic process by which the
organizations higher-level managers influence the organizations

lower-level managers. This means that management control

integrates the various managerial functions in such a way that these
functions in conjunction help the organization to realize its
strategies.
Second, management control is about different layers in the
organizational hierarchy. It is not just about performing well in line
with organizational strategies at one level in the organization,
rather, management control connects different hierarchical levels to
help the organization to realize its strategies.
Third, management control is not jut about managerial decisions
and actions; it is about the tools and techniques that managers
apply in their execution of management control. It is the tools and
techniques that facilitate both managers top-down management
control activities and their bottom-up management control
actitivies.
In the eyes of Anthoney et al., 2014, what are the important
sources of managerial motivation? Explain.
One of the most effective ways in which managers can be motivated
is by providing them with goals to be achieved. Generally, effort
levels increase when humans are confronted with a goal that is
clear, not too distant, and the achievement of which is considered a
accomplishment. It should, however, ben done with care and its
effectiveness should always be judged based on the managerial
function and the circumstances that affect this function.
Managers are motivated by the rewards that they may get from
their efforts. Although, according to some, money is the root of all
evil, in reality money plays a crucial instrument role in our society
toget things done. This is most obvious in market transactions, in
which goods are transferred between transacting partners in
exchange for money, and in the delivery of services. A crucial
characteristic of market transactions is that the amount of money
paid for a good or service holds a more or less direct relationship
with the quantity or quality of the good or service provided.
Managers are motivated by the social context in which they work. It
is important for the designers of formal systems to take into account
the informal processes, such as work ethic, management style and
culture, in organizations because succesful implementation of
organization strategies requires appropriate informal processes that,
in totality, create the social context in which managers take actions
and make decisions. They consist of both external and internal
factors.
What are the functions of a budget?

Planning, involves decididing what the organization is going to do, or

at least try to do, during the budgeted period. The planning role can
be seperated into a resource distribution and coordination purpose.
The next role the budget often has is the accountability role.
Managers at different levels prepare budgets for their respective
part of the organization. Once this budget is approved the same
managers are also expected to fulfil this budget; they are made
accountable for it. The accountability role includes, at least, two
different purposes; namely, monitoring and motivation. Furthermore
we have the process role, the purpose of the budget is not such
much tied to the actual budget as it is to the budgeting process. The
usefulness of the actual budget may very well be limited, because a
number of circumstances may change after it has been prepared.
But that does not rule out the possibility that a number of useful
activities were performed during the preparation of the budget.
These activities may include, for example, reflection and
communication. The fourth role the budget may have is that of a
ritual. When the budget has become a ritual, it means that it is no
longer used for the purpose of management control but for other
reasons. One such reason may be habit. Most organizations have
been budgeting as far as anyone can remember and in some cases
they may even have forgotten why they do it. But since they are so
used to doing it, they do not consider the possiblity of not doing it.
Budgeting has become an activity that is taken for granted.
What are pros and cons of strategic planning? How can the
strategic plan contribute to drawing up the annual budget?
An important benefit of preparing a strategic plan is that it
facilitates the formulation of an effective operating budget. A
company without a strategic planning process considers too many
strategic issues in the budgeting stage.
Formal strategic planning is an excellent management education
and training tool that provides managers with a process for thinking
about strategies and their implementation. It is not an
overstatement to say that in formale strategic planning, the process
itself is a lot more imortant than the output of the process, which is
the plam document.
Managers tend to worry more about the tacticalissues and
managing the present, day-to-day affairs of the business than about
creating the future. Formal strategic planning forces the managers
to make time for thinking through important long-term issues.
The debates, discussions and negotiations that take place during
the planning process clarify corporate strategies, unify and align
managers with such strategies and reveal the implications of
corporate strategies for individual managers.

There are several potential limitations to formal strategic planning.

First, there is always a danger that planning can end up becoming a
form-filling, bureaucratic exercse, devoid of strategic thinking. A
second danger is that an organization may create a large strategic
planning department and delegate the preparation of the strategic
plan to that staff department, thus forfeiting the input of line
management as well as the educational benefits of the process.
Finally, strategic planning is time-consuming and expensive. The
most significant expense is the time devoted to it by senior
management and managers at other levels in the organization.
To what extent does manipulation/gaming play a role when a
budget is drawn up? How can such manipulation/gaming be
curbed?
Gaming refers to behaviour that does not necessarily have the sole
purpose of improving control in a organization; it can be beneficial in
helping also individual goals or departments goals. Budget gaming
usually refers to preparing either a better or worse budget than the
budgetee actually believes is the most likely outcome for the
budgeted period.
To what extent the superior deploys a tight or loose budget control
tends to influence subordinates tactical behaviour. Tight budget
control deployed by the superiors usually leads to a higher amount
of gaming, especially heding (showing lower revenues and/or higher
costs), oon part of the subordinates and loose budget control usually
leads to a lower amount. Loose budget control, however, may also
lead to a higher amount of gaming under some circumtances.
The economic situation in the organization is something that may
well influence the tendency for gaming. If the profitability or
economic situation is particularly bad, the budgetees may want to
show a more positive picture of the future than they acutally believe
in. However, the effect can be the opposite in that gaming
decreasing dures a bad economic situation. This is because the
superiors may be more observant of attempts at gaming during bad
times and this may make the budgetees less willing to take the risk
that is involved in gaming.
Uncertainty in the organizations environment, for example,
regarding future demand, may very well influence the propensity of
gaming in one direction or the other. One possible effect is that the
budgetees want to create more buffers in the budget that they can
use if something negative happens. However, this also depends on
how risk-averse the budgetees are.
A performance-based reward system is very likely to create tactical
behaviour in general and this also applies to budget gaming. The
most obvious example would be that the budgetees create slack in

the budget, slack which will make it more likely that they will meet
the budget and receive bonuses.
A more risk-willing manager is probably more likely to indulge in
exposure (showing higher revenues/lower costs) in the budget
preparation, whereas a more risk-averse manager is more likely to
indulge in hedging. Exposure means that the manager takes a
higher risk in not being able to meet the budget. But a optimistic
budget may also be seen as a sign of ambition on the part of the
budgetee, something that may create attention from the superiors.
Beyond Budgeting is an alternative for traditional
budgeting. What is Beyond Budgeting? Is it a usable
alternative for (or addition to) traditional budgeting? Why?
The beyond budgeting movement suggested alternatives for
traditional budgeting, most organizations switched to rolling
forecasts.
A rolling forecast does not limit itself to a calendar year. It may be
prepared any time during the year and it may cover any time
period. The word rolling indicates that the rolling forecasts usually
overlap each other.
A rolling forecast is prepared in a much less detailed manner than
the traditional budget. It is usually focused on a number of key
performance indicators (KPIs) and the aggregated budget and is
much less concerned about individual costs or sales items.
Variance analysis is a financial quantitative analysis of
differences between budgeted and actual results. Why can
this be useful?
A variance analysis is a performance measurement system, which is
simply a mechanism that improves the likelihood that the
organization will implement its strategy successfully. PMSs can also
aid strategy development, that is, serve as an important tool for
strategy refinement.
A variance analysis can identify the causes of the variances and the
organizational unit responsible.
Can you mention some limitations of variance analysis?
The most important limitation is that although it identifies where a
variance occurs, it does not tell us why the variance occurred or
what is being done about it. A second problem in variance analysis
is to decide whether a variance is significant. Conceptually, a
variance should be investigated only when the benefit expected
from correcting the problem exceeds the cost of the investigation,
but a model based on this premise has so many uncertainties that it
is only of academic interest. Managers, therefore, rely on judgement

in deciding what variances are significant. Moreover, if a variance is

significant but is uncontrollable, there may be not point in
investigating it. A third limitation is that as the performance reports
become more highly aggregated, offsetting variances might mislead
the reader. In addition, as variances become more highly
aggregated, managers become more dependent on the
accompanying explanations and forecasts. Finally, variance analysis
is performed on the income statement and its components. This has
two major weaknesses. First, there may be too little focus on the
capital invested to generate the profit. Second, variance analysis
may lead to too much focus on the financial performance of the
company; that is; what has happened. They do not show the future
effects of actions that the manager has taken.
Why would an organization want to add measurement of non
financial performances to its control system? What meaning
can broader forms of performance measurement have for
organizations and its managers?
Relying solely on financial measures is inadequate and can, in fact,
be dysfunctional for several reasons. First, it may encourage shortterm actions that are not in the companys long term interests. The
manager may deliver inferior quality products to customers to meet
sales targets, and this will adversely affect customer goodwill and
future sales. These are errors of commission.
Second, business unit managers may not undertake useful longterm actions to obtain short-term profits. A common example is
managers investing inadequate money in research and
development; R&D investments must often be expensed in the year
in which they are incurred but their benefits show up only in the
future. These are errors of omission.
Third, using short-term profit as the sole objective can distort
communication between a business unit manager and senior
management. If business unit managers are evaluated based on
their profit budget, they may try to set profit targets they can easily
meet, leading to erroneous planning data for the whole company
because the budgeted profit may be lower than the amount that
could be really achieved.
Fourth, tight financial control may motivate managers to manipulate
data. This can take several forms. At one level, managers may
choose accounting methods that borrow from future earnings to
meet current period targets. At another level, managers may falsify
data; that is, deliberately provide inaccurate information.
Should a management control system focus particularly on
what is happening inside an organization? Or should such a

system pay at least equal attention to its external

environment?
An organization cannot survive without input from the surrounding
world, whether it is in the form of information, money or people
willing to work for the organization. There must be at least equal
attention to the external environment.
To what extent do you recognize the basic elements of a
control system in a mechanical system like a thermostat?
Explain.
The components of the thermostat are: (1) a thermometer (the
detector), which measures the current temperature of a rooml (2) an
assessor, which compares the current temperature with the
accepted standard for what the temperature should be; (3) an
effector, which promts a furnace to emit heat (if the actual
temperature is lower than the standard) or actvates an air
conditioner (if the actual temperature is higher than the standard)
and which also shuts off these appliances when the temperature
reaches the standard level; and (4) a communications network,
which transmits information from the thermometer to the assessor
and from the assessor to the heating or cooling element.
A management control system can focus on the manager, his
decisions and his results (and the reults they are supposed
to contribute to realizing the organizational goals). Wouldnt
it be more convenient and better to focus the system mainly
on results? Because in the end it is all about results.
When looking only at results there is too much focus on the shortterm performance. Its not possible to see what a manager has done
for the companys future when only looking at quantitative results.
Which controls and what kind of control activities can be
used if the management control focuses on the manager
(and his inputs?)
A first element of the managerial process that may be subject to
control are the managerial inputs. With managerial inputs, we mean
the combination of capabilities, characteristics, knowledge and
intentions that managers brings to their function. Specifically,
control can be exercised by ensuring that these capablities,
characteristics, knowledge and intentions increase the chance that
the manager will engage in such behaviours as can be deemed
consistent with the organizations objectives. Staffing: this function
involves designing jobs and roles in the organization and ensuring
that the right people are recruited, promoted or selected to take on
these job and roles. Development: this function involves ensuring
basic conditions that enable managers to be informed about
organizational goals and to behave in line with those goals. Culture
building: this function involves leading, by example or by explicit
management, managers into showing the right kinds of behaviour.
This can be done both with and without forms of coercion.

The actions and choices are mady by managers in the context of

their managerial role, and because we assume that managers do
not automatically act and choose in line with organizational
objectives, we can implement controls that directly help managers
to take the right actions. Controlling decisions, therefore, means
that managerial discretion is limited to those decisions catergories
or decision choices that are considered in line with organizational
objectives. The formal delegation of decision-making authority to
lower-level managers: this is a formal way of control, as the
delegation is never a carte blanche, and should specify the kinds of
decision that decentralized managers can take. The formal
delegation of decision-making responsibility to lower-level
managers: complementary to delegation of decision-making
authority is the specification of the responsibilities/freedom that
managers carry.
A third way to control managerial behaviour is by making managers
accountable for certain results. Accountability for results can take
the form of target setting, such that managers are instructed to
achieve certain goals. The use of management (MBO) and balanced
scorecard philosophies relies heavily on this way of controlling
managerial behaviour. Another form of making managers
accountable for results is through linking managerial compensation
to the achievement of certain results.
According to Anthony et al., 2014, to what extent is
management control different from strategic control and
task control?
Strategy formulation is the process of deciding on new strategies;
management control is the process of implementing those
strategies. From the standpoint of system design, the most
important
distinction
between
strategy
formulation
and
management control is that strategy formulation is essentially
unsystematic. Threats, opportunities and new ideas do not occur at
regular intervalts; thus, strategic decisions may be made at any
time.
Furthermore, the analysis of a proposed strategy varies with the
nature of the strategy. Strategic analysis involves a great deal of
judgement, and the numbers used in the process are usually rough
estimates. By contrast, the management control process involves a
series of steps that occur in a predictable sequence according to a
more or less fixed timetable, and with reliable estimates.
Analysis of a proposed strategy usually involves relatively few
people the sponsor of the idea, headquarters staff and senior
management. By contrast, the management control process
involves managers and their staff at all levels in the organization.

The most important distinction between task control and

management control is that many task control systems are
scientific, whereas management control can never be reduced to a
science. By definition, management control involves the behaviour
of managers, and this cannot be expressed by equations.
In management control the focus is on organizational units; in task
control the focus is on specific tasks performed by these
organizational units.
Management control is concerned with the broadly defined activities
of managers deciding whatis to be done within the general
constraints of strategies. Task control relates to specified tasks,
most of which require little or no judgement to perform.