Management Control System Budgeting Essay

1890 Words May 12th, 2007 8 Pages
Management Control System Budgeting

A control system is necessary in any organization in which the activities of different divisions, departments, sections, and so on need to be coordinated and controlled. Most control systems are past-action-oriented and consequently are inefficient or fail. For example, there is little an employee can do today to correct the results of actions completed two weeks ago.

Steering controls, on the other hand, are future-oriented and allow adjustments to be made to get back on course before the control period ends. They therefore establish a more motivating climate for the employee.

What's more, although many standards or controls are simply estimates of what should occur if certain assumptions are
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Behavioral Responses to Control Systems
When employees have relatively low trust in a control system, they sometimes behave in various ways that are harmful to the organization. They may do what is required by the system.

For example, when bonuses for salespeople in a department store were based on sales volume, many employees soon lost interest in customers who did not immediately purchase an item, and they spent little time helping customers, making merchandise attractive, or performing stock work.

Quite often employees will report data in such a way that performance will look good for a particular time period. Some control systems will also cause employees to report invalid or misleading data about what can be done.

For example, it is not uncommon at budget time for managers to ask for larger amounts than needed if they believe their requests will be reduced. In many organizations budget setting sessions are largely negotiating games with little effort given to establishing realistic standards. The advent of computer-based management information systems has also caused invalid data to be provided. These systems sometimes require historical cost, production, and other data that are simply not available and cannot be provided. When pressed, however, the data are estimated, often inaccurately.

Finally, control systems that employees view as clearly threatening will cause

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