Management Control Systems

Course goals

Learning objectives
This course aims to provide students with a thorough understanding of the field of management control. Decision control refers to management activities focused on stimulating employees to act in such a way that organizational goals will be achieved effectively and efficiently.
This course deals with methods and techniques that can be used to encourage employees to act in the desired manner, e.g., by awarding financial responsibilities to organizational units (responsibility centers); by setting targets for employees (target setting); through the use of direct supervision, employee selection, shared norms and values, and performance measures as alternative control mechanisms; by linking monetary rewards to performance measure outcomes (i.e., the provision of incentives); and so on.

In this course, we discuss what it means to have an organization be in control, what alternatives managers have for ensuring good control, and how managers should choose from among various control system alternatives. Then we will focus on each of the elements of financial control systems, which provide the dominant form of control in the vast majority of decentralized organizations. These elements include financial target setting, performance measurement and evaluation and the assignment of various forms of organizational rewards, such as bonuses and promotions. We will examine and critique the performance measurement and incentive system used in a business.

The course is intended as an overview for individuals who will make business decisions, evaluate organizational performance, or evaluate others (and/or be evaluated) through the use of financial and nonfinancial information. In other words, the module is designed to be useful particularly for those who aspire to be managers, management consultants, or specialists in staff functions such as controllers, auditors, and human resource specialists.

At the end of the course, the student is able to:

• Understand causes of management control problems, the role of management controls within organisations, and the potential contribution of management control perspectives for the overall management control within a firm.
• Understand the management control alternatives and apply them to a real-life business settings, where a firm faces certain management control challenges.
• Use financial performance measures and associated results controls, which are in common use at managerial levels.
• Ultimately, make business decisions, evaluate organisational performance or evaluate others (and/or be evaluated) through the use of financial and non-financial information.

Content

Please note the prerequisites for this course at the bottom of the course description.

This course aims to provide students with a thorough understanding of the field of management control systems (MCS). We will begin by discussing what it means to have an organisation be “in control,” what alternatives managers have for ensuring good control, and how managers should choose from among control system alternatives. Amongst the control systems available are result controls, action controls, and people controls. Then we will focus on the elements of “control systems,” which include: (1) responsibility structures (e.g., cost centers, profit centers), (2) performance measures (e.g., market, financial, or nonfinancial measures and their combinations), and (3) performance evaluations and rewards (including target setting and performance-dependent compensation). For instance, firms generally design responsibility structures. If performance is defined in accounting terms, these structures are composed of configurations of cost centers, revenue centers, profit centers, and investment centers. They have to choose specific performance measures and make them operational. Finally, we will take a look at how current developments (e.g., innovation, data analytics, and Environmental/Social/Governance [ESG]) affect the design and use of control systems.

Format

There will be lectures and tutorials. The lectures mainly focus on knowledge transfer and understanding the subject. The tutorials focus on in-depth discussion of specific papers on the topic, as well as applications of the materials through cases from the book. Jointly, the lectures and the tutorials provide you with insights into typical exam questions. The link to the papers that are discussed in the lectures and tutorials will be provided on Canvas.

The case method of instruction requires good preparation by the students. While student groups that have been assigned the paper or case in the tutorial are expected to respond to questions, every other student should be ready to contribute to the case discussion when called upon to get the most out of the course and be prepared for the exam. Students should expect to be “cold-called” and not count on being able to hide behind classmates who volunteer to participate.

For case analysis, you must read Case Method of Instruction: Suggestions for Students’ Preparation of Case analysis and Participation in Case discussion] on Brightspace/ Course information.

Prerequisites
The course is eligible to all USE MA students. It is assumed that the student has prior knowledge about basic finance and accounting concepts (as taught in any bachelor course in finance and accounting).

In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not reusable meaning that codes from second hand books do not work, as well as access codes from books with a different ISBN. Separate or spare codes are usually not available.