The Concept of Management Control System and Its Relation to

Performance Measurement

MID EXAM MANAGEMENT CONTROL SYSTEM

Arranged by:

Kristina Kitty
008201700001
Accounting 3
2017

President University
Jababeka Education Park, Jl. Ki Hajar Dewantara, Kota Jababeka, Cikarang Baru,
Bekasi 17550 – Indonesia
Phone (021) 8910 9762-63, Fax (021) 8910 9768
Email: enrollment@president.ac.id, http://www.president.ac.id

2019
 Regarding the definition of MCS, there is the only agreement in the current literature is
that the term itself was first outlined in the seminal work of Robert Anthony (1965). He defined
management control as “the process by which managers assure that resources are obtained and
used effectively and efficiently in the accomplishment of the organization’s objectives”.

Malmi and Brown’s MCS as a package appears to have limited potential, which is
probably caused by the additive nature of its origin. That might be why the authors of
contemporary contextual frameworks of MCS like go back to Simons’ notion of Levers of
Control. They suggest considering belief systems as a form of social controls and not as a
standalone control system.

The remaining three levers of control formulated by Simons have been reorganized as
well, but stayed parts of the basic four control systems, in Fig. 5 represented by rectangles.
Diagnostic control systems are part of the operational performance control systems.

Interactive control systems correspond to a control system called strategic performance

management control. Boundary control systems have been separated into two control systems,
one at the operational level and one at the strategic level. Finally, the intention of managers
imposing MCS and the actual purpose perceived by employees are signified in the model as
well.

Contrary to the above mentioned authors, Ferreira, Otley (2009) claim the PM field to
be more important to MCS. However, in our view, this has become a more restrictive term than
was the original intention and we prefer to use the more general descriptor of performance
management systems (PMSs) to capture an holistic approach to the management and control
of organizational performance.

The first research question of this article asked about the prevailing notion of the term
MCS. The second chapter described the broadening of the MCS notion over time. Nowdays,
MCS is perceived as a set of controls which managers have at their disposal to steer the
organization towards the predetermined goals. In addition, more contemporary frameworks
emphasize the role of cultural and social controls, as well as the intentions of managers and
actual perception of employees regarding the introducted MCS.

The second research question of this article asked whether there is any difference
between the term MCS and the similiarly used term PM. Because performance is usually
perceived as achieving organizational goals, it is obvious that there has to be significant overlap
between PM and MCS. Both systems have the same ultimate objective in supporting
achivement of the company’s goals and may be, and sometimes are, regarded as synonyms.
The term MCS is preferred to PM when it comes to emphasizing the structure of the system.
On the contrary, the term PM (or even Performance Management) is preferred to MCS when,
primarily, the behaviour of the system in concerned.
 I. Introduction to MCS

Management control is the back end of the management process. This can be
seen from the various ways in which the broad topic of management is disaggregated.
The causes of the needs for control can be classified into three main categories there
are lack of direction, motivational problems, and personal limitations. Four prominent
avoidance strategies are activity elimination, automation, centralization, and risk
sharing. For the control problems that cannot be avoided, and those for which decisions
have been made not to avoid, managers must implement one or more control
mechanisms that are generally called management controls.

II. MCS Alternatives

Pay for performance is a prominent example of a type of control that can be

called result control because it involves rewarding employees for generating good
results. The implemantation of results controls involves four steps there are defining
the dimension on which results are desired, measuring performance, setting
performance targets and providing rewards.

III. Control Problems

This chapter provided an overview of the most direct type of controls, action
controls, which take any of several different forms there are behavioral constraints,
preaction reviews, action accountability, and redundancy. Action controls are the most
direct type of management control because they ensure the proper behaviors of the
people on whom the organization must rely by focusing directly on their actions.

IV. System Tightness

This chapter is explain about tight result control, tight action controls, and cultural
controls. How tightly to apply management controls is a major management decision
that has received relatively little attention in the literature. Effective implemantation of
tight control requires that management has a good understanding of how one or more
of the control objects- results, action culture – relate and contribute to the overall
organizational objectives.

V. System Control Cost

 This chapter is explain about direct cost and indirect cost. MCSs provide one
primary benefit there are a higher probability that employees will pursue organizational
objectives. The direct costs of an MCS include all of the out of pocket money, monetary
costs required to design and implement the MCS. Indirect costs of control caused by
any of a number of harmful side effects, including behavioral displacement,
gamesmanship, operating delays and negative attitudes.

From my opinion the journal still have many weakness like just put citation from other
journal. My suggestion for this journal is more do it research and make this journal more
comprehensive. My critics for this journal is make more specific of MCS and PM concepts.
So, my argument about this journal is yes, because for do it MCS must see the PM of employee.
 References

Kenneth A. Merchant, Wim A. Van der Stede. (2012). Management Control Systems 3rd.
Harlow: Pearson.

Siska, L. (2015). The Concept of Management Control System and Its Relation to Performance
Measurement. Procedia Economics and Finance 25, 141-147.